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The IMF fall into a loanable funds black hole … again

Household saving ratios (saving as a percentage of disposable income) have risen significantly in most countries since the onset of the recession. In many countries this has come after a period of increasing indebtedness as national governments pursued budget surpluses. As a result, the macroeconomic concept of the paradox of thrift has been resurrected in the popular press as a discussion point. There are fears that the end of the “consumer boom” will lead to stagnancy. A recently published IMF paper addresses this point but just cannot let themselves address the elephant in the room. They present a new way version of deficit hysteria.

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The Weekend Quiz – June 27-28, 2020 – answers and discussion

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.

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The Weekend Quiz – May 23-24, 2020 – answers and discussion

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.

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Britain confounding the macroeconomic textbooks – except one!

Remember back just a few months ago. We are in Britain. All the Remainers are jumping up and down about Brexit. We hardly see anything about it now as the UK moves towards a no deal with the EU. Times have overtaken all that non-event stuff. Now the developments are confounding the mainstream economists – again. There will be all sorts of reinventing history and ad hoc reasoning going on, but the latest data demonstrates quite clearly that what students are taught in mainstream macroeconomics provides no basis for an understanding of how the monetary system operates. All the predictions that a mainstream program would generate about the likely effects of current treasury and central bank behaviour would be wrong. Only MMT provides the body of knowledge that is requisite for understanding these trends.

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These worn out debt narratives – Stop It! It’s ridiculous!

Today is Wednesday and I have been tied up a lot with various meetings – all on-line these days. I don’t enjoy them as much as face-to-face, given that I spent a considerable part of each day in front of my computer or with my head in books and so the human contact is a welcome variation. But needs must, as they say. Anyway, just a few snippets today, being Wednesday. I can say that in between all this Zooming and writing, I have now nearly put together a complete on-line learning system which I am now trialling. This will be the support platform for – MMTed – which I hope to make operational sometime in the coming months. One of the issues that I touched on yesterday, which is now starting to crawl out of the slime, is the “what will happen to all the debt when the crisis is over” story. And, it is not just a narrative being promoted by the Right or the conservatives. The Federal Labour Party spokespersons and those hanging around the edges have started to push the narrative. As the Prime Minister told us the other day in relation to the people who are panic buying “Stop it! It’s Ridiculous!” I think he was actually talking about those (morons) who are starting the deficit hysteria before the deficits have even actually risen much. For their own health, I urge them to “stop it”. Imagine how apoplectic they are all going to be once the deficit goes to 10 per cent or more and the RBA is buying up all the debt. My god.

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Discredited academic dinosaurs continue to seek relevance

As many mainstream macroeconomics try to reinvent themselves after their reputations were trashed during and in the aftermath of the GFC, some are still trying to stay relevant by recycling the usual trash about deficits, public debt and bond yields that defines the New Keynesian orthodoxy in macroeconomics. That approach has been emphatically exposed as fake knowledge by the fact that none of the predictions that can be derived from that framework have proven to be accurate. On December 9, 2019, the UK Guardian took a rest from imputing anti-semitist motives to Jeremy Corbyn and published a sort of dinosauric-type article from Kenneth Rogoff – Public borrowing is cheap but ramping up debt is not without risk. Yes, the same character that claimed during the crisis that there was a public debt threshold of 90 per cent of GDP, beyond which, governments would face insolvency. When it was discovered the spreadsheet they had used to come up with that conclusion had been incompetently (or fraudulently) manipulated and that the actual data did not show anything of the sort, Rogoff should have slunked off and shut his mouth forever. But that is not the way these characters operate. Memory is short. Their position as an agent for their elites is well paid. And so they keep recycling the nonsense. Eventually, their influence will decline. But as Max Planck noted in 1948 “Die Wahrheit triumphiert nie, ihre Gegner sterben nur aus”, which has been reduced to ‘science advances one funeral at a time’, which is not a verbatim translation but an accurate depiction of how change is slow to come to the academy.

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Q&A Japan style – Part 5a

This is a discussion about Modern Monetary Theory (MMT) and the bond-issuing options for a currency-issuing government such as Japan and Australia. We will consider the three options that such a government has and discuss each from an MMT perspective. What an MMT understanding allows is a thorough appreciation of the consequences of each option. The conclusions we reach are quite different from those presented in mainstream macroeconomics, mostly due to the fact that we do not consider the bonds to be necessary to fund government spending beyond tax revenue and construct the operations of the central bank and the commercial banks to accord to the way they operate in reality rather than in the fictional world of the mainstream. This discussion also recognises the political dimensions of government rather than the technical way we often consider things in MMT. This is the first-part of a two-part answer which I will conclude on Thursday. Today, we consider the emergence of the so-called ‘reflationists’ in Japan who advocated large-scale, non-standard monetary policy in the late 1990s as a solution to the ‘Great Stagnation’ that had beset the Japanese economy.

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The Weekend Quiz – July 6-7, 2019 – answers and discussion

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.

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How social democratic parties erect the plank and then walk it – Part 1

There is now a procession of wannabee Modern Monetary Theory (MMT) critiques coming out of the woodwork all around the place seeking cover from the criticisms coming from the likes of Larry Summers, Paul Krugman, and Kenneth Rogoff, who are regularly referred to as “the world’s leading economic thinkers” or “Nobel Prize-winning economists” as if any of that established authority. These ‘Nobel Prize’ winners are not Nobel Prize winners at all – the economics prize is not part of the original Nobel gift and was instead invented by a bank because economists were feeling left out (inferior). But in recent days, across two jurisdictions, where the so-called party of the workers – the Labour Party in the UK and the Labor Party in Australia – are struggling to gain electoral traction, and in the Australian case, just lost an election against one of the worst governments we have ever had, we have seen two erroneous attacks on MMT that really sums up the existential crisis facing social democratic parties – the loss of identity and revolutionary zeal. This is Part 1 of a two-part series examining how ‘walk the plank that you erect yourself’ strategies play out within our so-called progressive social democratic parties and deliver abysmal results.

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The Weekend Quiz – December 8-9, 2018 – answers and discussion

Here are the answers with discussion for yesterday’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.

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The divide between mainstream macro and MMT is irreconcilable – Part 1

My office was subject to a random power failure for most of today because some greedy developer broke power lines in our area. So I am way behind and what was to be a two-part blog series will now have to extend into Wednesday (as a three-part series). That allows me more time today to catch up on other writing commitments. The three-part series will consider a recent intervention that was posted on the iNET site (September 6, 2018) – Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?. At the outset, the iNET project has been very disappointing. Very little ‘new’ economic thinking comes from it – its offerings are virtually indistinguishable from the New Keynesian consensus that dominates my profession. The GFC revealed how impoverished that consensus is. It has also given space for Modern Monetary Theory (MMT) to establish itself as a credible alternative body of theory (and practice). The problem is that the iNET initiative has been captured by the mainstream. And so the Groupthink continues. The article I refer to above is very disappointing. It claims to offer a synthesis between Modern Monetary Theory (MMT) and mainstream macroeconomics by way of highlighting “what really divides” the two schools of thought. You might be surprised to know that according to these authors there is not much difference – only that mainstream economists think that monetary policy should be privileged to look after full employment and price stability and MMT economists (apparently) think fiscal policy should have that role. The authors claim that for the on-looker these minor differences are opaque in terms of outcomes (if the policies are applied properly) and suggest that there is really no reason for any debate at all. Accordingly, the New Keynesian consensus is just fine and the mainstream economists knew all the MMT stuff all along. It is an extraordinary exercise in sleight of hand engineered by constructing the comparison in terms of two ‘approaches’ that cull the main aspects of each. The real issue is why would they waste their time. Degenerative paradigms (or research programs in Imre Lakatos’ terminology) typically try to absorb challenging paradigms that, increasingly have more credibility and appeal, back into the mainstream through various dodges – ‘special case’, ‘we knew it all before’, ‘really nothing new’, etc. This is Part 1 of my response. It won’t be an easy three-part series but stick with it and I hope it gives you a lot of insights into the abysmal state of the mainstream macroeconomics profession.

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The Weekend Quiz – April 28-29, 2018 – answers and discussion

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.

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The Weekend Quiz – October 21-22, 2017 – answers and discussion

Here are the answers with discussion for yesterday’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.

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The Weekend Quiz – June 10-11, 2017 – answers and discussion

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.

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Mainstream macroeconomics – exudes denial while purporting to be progressive

The Federal Reserve Bank of Minneapolis recently published an Economic Policy Paper (February 7, 2017) – The Great Recession: A Macroeconomic Earthquake – by Lawrence J. Christiano (who is both at Northwestern University in Chicago and the Federal Reserve), which shows us that the mainstream profession has learned very little from their failures that were exposed by the GFC. This is a paper that exudes denial while purporting to advocated awareness and progression. There is a long way to go before economics turns the corner I am afraid.

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Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

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The Weekend Quiz – December 17-18, 2016 – answers and discussion

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.

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The Weekend Quiz – May 21-22, 2016 – answers and discussion

Here are the answers with discussion for yesterday’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.

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The Weekend Quiz – May 14-15, 2016 – answers and discussion

Here are the answers with discussion for the 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.

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The Bacon-Eltis intervention – Britain 1976

This blog continues the discussion of the British currency crisis in 1976. It traces the growing anti-government influence on key players within the British Labour government as the pressures on the exchange rate were mounting in the early part of 1976. While the Chancellor was clearly influenced by the growing dominance of Monetarist thought, he also fell under the influence of the so-called Bacon-Eltis thesis, which argued that the growth of the public sector in the 1960s and early 1970s in Britain had starved the private sector of resources, which had led, directly, to the declining growth, high inflation and elevated unemployment. The conservative mainstream used this thesis to call for harsh cut backs in public spending and the British Labour government were increasingly cowed into submission by the vehemence of this mounting opposition. The problem is that the ‘thesis’ didn’t stand up to critical scrutiny, although that fact didn’t seem to bother those who used it to advance their anti-government ideological agenda. This blog is longer than usual because I felt it important to put this part of the story into one continuous narrative rather than break it up into two or three separate, shorter blogs.

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