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Economics Groupthink on display in its most dismissive, arrogant and mindless manner

Regular readers will know that I have spent quite a lot of time reading the literature in social psychology trying to understand how groups of scholars become crippled with the patterned behaviour that Irving Janis identified as Groupthink in his ground breaking study published in 1972. I feel that my own profession is dominated by this catastrophic syndrome, which has biased the policy scene towards destructive outcomes. However, even after some major calamities, which the mainstream economists were blind too (such as the GFC), the Groupthink is so entrenched and powerful that academic economists actively engage in purges of what they consider to be ‘fringe ideas’, which they dismiss as the equivalent of homeopathy (that is, witchcraft in their eyes). I read an example of this behaviour this week which indicates to me that we are a long way from seeing fundamental change in the academy which might restore the credibility of my profession in the public milieu. My advice to parents – keep your children away from studying economics!

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RBA loses the plot – Treasurer should use powers under the Act to suspend the RBA Board’s decision making discretion

It’s Wednesday, and we have a few observations on recent events including a music feature. But the main issue in the last 24 hours is the decision by the Reserve Bank of Australia (RBA) to add an 11th interest rate increase at a time when inflation is falling significantly. As I noted last week, the narrative is now shifting among these characters – it is all about inflation not falling ‘fast enough’ and they still claim a wages explosion is likely unless they get inflation down more quickly. It now appears to me that the RBA has lost the plot completely. I have written regularly about this in the last 12 months, but today I have been exploring new data which shows that rising interest rates create a vicious circle of higher inflation which then precipitate further higher interest rates. My recommendation is that the Federal treasurer should use his powers under the RBA Act 1959 and overrule the RBA governor and his board and freeze interest rates. We have to stop this RBA madness somehow!

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A nation does not shift to an MMT regime

Earlier this week (April 25, 2023), I saw a Twitter exchange that demonstrated to me two things: (a) some mainstream media commentators are now understanding some of the principles of Modern Monetary Theory (MMT) and relating that knowledge to practical matters that concern them (lens being applied to values); and (b) high profile financial market players still command a platform in the media but have little understanding of what MMT is and consistently issue false statements. A lot of misinformation continues to be circulated about our work. Cursory inferences, usually based on an extrapolation of what the flawed mainstream theories say about policy interventions, are then conflated with assertions about MMT. In other words, MMT is interpreted through the terminology and conceptual structure of a rival paradigm. We reject such inferences and comparisons.

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Latest Productivity Commission report – relies on and exploits our ignorance – to undermine our well-being

I had a sense of déjà vu this week when I read the latest release from Australia’s Productivity Commission – Advancing Prosperity – which was released on March 17, 2023 and is a five-yearly exercise conducted by the Commission on behalf of the Australian government. Frankly, if the government was looking to cut spending while advancing material well-being in the community, they could simply tell the Commission to cease doing this work and instruct the staff involved to get real jobs and do something that matters. We just get a regurgitation of GIGO, that well-practiced art of pretending to have something authoritative to say while one is grabbing money out of the till at a rate of knots to advance self-interest! The problem is that the ordinary citizen is ill-equipped to understand any of the technical hoopla that attempts to shroud these types of Report in ‘credibility’, and so is at a disadvantage when trying to determine whether they should support it through the ballot box. Neoliberalism relies on and exploits our ignorance.

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German Bundestag body’s MMT overview exposes the hidden agenda – the population simply can’t be allowed to understand MMT

The Scientific Advisory Department of the Deutscher Bundestag recently (January 27, 2023) released a discussion paper – Modern Monetary Theory – An overview – which really exposes what all the opposition to our work is about. Initially, I was interested to learn from the discussion paper that I was a US economist after thinking all these years that I was Australian by birth and citizenship. Perhaps that error tells you something about the quality and depth of the research effort that the authors undertook. The paper recognises that Modern Monetary Theory (MMT) is “an economic school of thought that has existed for around 25 years” but is hazy on the provenance, ignoring that at the beginning there was Warren Mosler, Randy Wray and myself. Rather interestingly, the discussion paper claims that there is no disagreement among the mainstream as to the theoretical and conceptual elements of MMT. So the mainstream all agree with us now! That is quite an admission. But, as one gets further into the discussion, it becomes obvious that the authors miss the point when they start talking about MMT policies. What their critique of MMT illustrates is that the real antagonism to our ideas is that they might open up wider policy options to the public than the political process cares to admit. Or, in other words, the real problem is that an understanding of MMT exposes the TINA mantra – that allows governments to maintain policies that advance the interests of the few at the expense of the many – as wanton neglect of the responsibilities of government. That exposure, if sustained, would alter the whole policy terrain and challenge the hegemony of the elites. That is what the opposition to MMT is about.

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Investigation into BBC bias misses the point really

This week, the British Broadcasting Corporation (BBC) released the results of an independent review into its coverage of economic matters – Review of the impartiality of BBC coverage of taxation, public spending, government borrowing and debt – which was completed in November 2022. The problem is that the Investigation conducted by this Review, while interesting and providing some good analysis, misses the overall source of the bias that our public broadcasters have fallen into. The problem is not that they might be favouring political positions of one party or another. Rather, the implicit framing and language they use to discuss economic matters is largely flawed itself. And the journalists who uncritically use these concepts and terms just perpetuate the fiction and mislead their audiences.

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Japan and the World Economy through the lens of MMT – video presentation

Today, I make available a video session that I recorded in Japan while I was working there in the latter part of this year. It sets out a range of interesting topics that form, in part, the research program that my colleagues and I at Kyoto University have mapped out to work on in the coming year. I hope that by the end of 2023 we will have advanced this program and perhaps will be able to stage some sort of event (Covid permitting) in Japan later next year to spread the knowledge.

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Bank of Japan has not shifted direction on monetary policy

The hysteria surrounding the decision by the Bank of Japan (released December 19, 2022) to make a minor adjustment to its yield curve control ceiling on Japanese government 10-year bonds has been predictable but uninformed and full of vested interest agendas. You know the type of agenda that investment bankers engage in where they consistently pump out their media statements, which are soaked up by the financial media as if they are knowledge that needs repeating, that claim interest rates have to rise to deal with some inflation emergency or something. The media doesn’t tell the public who absorb this stuff that the actual agenda is that bankers want higher interest rates because they make more profit and that the reason the media statements give is largely fiction. So we are seeing more of that in the last few days. My understanding of the decision is that it does not signal a fundamental change in monetary policy in Japan. It is a minor shift to tweak the interface between the government bond market and the corporate bond market in order to maintain financial stability – the most important role of a central bank. All those characters that are claiming the hedge funds have won and the Bank of Japan is now conceding power to them with interest rate hikes to come are not reading the room. They are just pushing their self-interest in vain. No interest rates went up and my reading of the statement and what I know informally via contacts is that the Bank is committed to its current policy position because it considers, as I do, the inflationary pressures to be transitory and doesn’t want to respond to an ephemeral problem by creating a more entrenched problem of real economy recession and rising unemployment.

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US inflation has peaked and monetary policy had nothing much to do with it

It’s Wednesday, and I have two things to write about briefly before exposing readers to some more music. First, the evidential base for my ‘this inflationary period is transitory’ narrative gains more weight. The latest CPI data from the US Bureau of Labor Statistics shows that inflation has peaked in the US and falling rapidly in the goods sector, which started this episode off. The second topic relates to measuring progress in the development and spread of new ideas. It is often difficult to know how far a new framework has penetrated the broader debate. But sometimes things happen that remind me of how far we have to go in changing the framing and language surrounding fiscal capacity and the related topics, that Modern Monetary Theory (MMT) has brought to the fore. We finish with some calming guitar playing.

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The monetary institutions are the same – but culture dictates the choices we make

In discussions about the significant differences that we have observed over the last 30 odd years between the conduct of economic policy in Japan and elsewhere, the usual response from mainstream economists, when challenged to explain the outcomes in the former nation, is that it is ‘cultural’ and cannot be applied elsewhere. I always found that rather compromising because mainstream economics attempts to be a one-size-fits-all approach based on universal principles of maximising human behaviour. So, by admitting ‘cultural’ aspects to the discussion, this is tantamount to admitting that the ‘market-based’ micro founded approach to macroeconomics is incapable of explaining situations. That is the first black mark against the veracity of mainstream theory. But when one prods further, it becomes clear that the term ‘culture’ is fairly vacuous and blurred in this defense of the mainstream framework. I respond by pointing out that essentially the monetary system dynamics in Japan are identical to the way the system works elsewhere. The institutions might have subtle variations but essentially the operations are so similar that the ‘culture’ bailout doesn’t help resurrect the appalling lack of predictive accuracy when it comes to examining the macroeconomics of Japan. Cultural aspects, however, are crucial to understanding the differences. The trick is understanding how these monetary and fiscal institutions are managed. This is where the cultural aspects impact. And, while I have learned a lot about Japanese cultural nuances, some of the more important ‘cultural’ drivers are transportable to any nation – if only we cared enough and valued people in the same way.

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