Posts which provide drafts of the upcoming Modern Monetary Theory textbook by William Mitchell, Randy Wray and Martin Watts
It’s Wednesday and I just finished a ‘Conversation’ with the Economics Society of Australia, where I talked about Modern Monetary Theory (MMT) and its application to current policy issues. Some of the questions were excellent and challenging to answer, which is the best way. You can view an edited version of the discussion below and then enjoy The Meters.
It’s Wednesday, and our edX MOOC – Modern Monetary Theory: Economics for the 21st Century – ended its four-week run today. We are exploring making it available again in the coming months as well as floating an advanced course (see below). Today, I publish a short video where I answer the questions posed by students in the MOOC as part of our last week ‘Bill Board’. We asked students to pose questions and vote on which ones they thought should be prioritised. I chose the top (almost) 3 to answer. And then we have some music, being Wednesday.
We have been doing a lot of work developing the MOOC at the University of Newcastle which will also mark the first – MMTed material. We will follow up the MOOC with more detailed learning options in subsequent months. Tomorrow, we will be filming some more material for the MOOC and I think you will enjoy what we have planned when the MOOC begins on March 3, 2021. As part of the planning I have been thinking of simplified frameworks for teaching rather complicated concepts and relationships. Here is an example of that sort of thinking.
As governments grapple with the dissonance that the pandemic is causing them – realising that their old mainstream economics narratives are not going to cut it any more but still reluctant to admit that and pass onto a new phase of creative policy making – we are observing these contradictions in both statements about fiscal policy and monetary policy. The Australian government, for example, is convinced tax cuts are required but have observed that recent tax cuts, before the pandemic hardly stimulated any spending. Further research from the US is demonstrating that payments to households under the – Coronavirus Aid and Economic Security (CARES) Act – may not have resulting in the spending boost that was modelled as part of the policy design. And then on the monetary policy front, central bankers like Madame Lagarde are strutting around making grand statements about becoming flexible with their definition of price stability (that is, saying they will allow for higher inflation before they increase rates) despite not being able to remotely meet their current stability levels with deflation looming. I covered a statement along similar lines from the US Federal Reserve Bank boss recently – US Federal Reserve statement signals a new phase in the paradigm shift in macroeconomics (August 31, 2020). It all adds up to what happens when a paradigm is shifting and the old school are caught out – no longer able to really offer anything of use but hanging on to their status nonetheless. Pragmatism usually passes them by as it will in this case.
In May 2020, the IMF published a new Working Paper (No 20/73) – Hysteresis and Business Cycles – which provides some insights into what happens during an economic cycle. The IMF are somewhat late to the party as they usually are. We have known about the concept and relevance of hysteresis since the 1980s. In terms of the academic work, I was one of the earliest contributors to the hysteresis literature in the world. I published several articles on the topic in the 1980s that came out of my PhD research as I was searching for solutions to the dominant view in the profession that the Phillips curve constraint prevented full employment from being sustained (the inflation impacts!). The lesson from this literature in part – especially in current times – is that governments should do everything possible to avoid recessions. The hysteresis notion tells us clearly that the future is path dependent. The longer and deeper the recession, the more damaging the consequences and the longer it takes to recover while enduring these elevated levels of misery. Organisations like the IMF have never embraced that sort of reasoning, until now it seems. They certainly didn’t act in this way during the Greek disaster. But, better late than never.
Before Xmas, I published a two-part reply to Gregory Mankiw’s paper on Modern Monetary Theory (MMT) – A Skeptic’s Guide to Modern Monetary Theory (December 12, 2019). I was trying to get the response finished before the break and Part 2 had already become too long. So I decided to leave one issue that I didn’t get to address for a shorter third response once service resumed. I think this part of the response is necessary to set right on the public record. It exemplifies how critics need to work harder to actually understand what MMT is about. And while they try to claim that MMT is opaque and difficult to get to terms with, thereby sheeting the blame for their misguided renditions of our work back onto us, the issue I discuss today is very easy to come to terms with. It is front and centre and there have been many scholarly and other articles written about it. I refer, of course, to the Job Guarantee as MMTs response to the mainstream Phillips curve. The failure to appreciate where this sits in the MMT framework is not confined to mainstream economists. But this group know all about the Phillips curve literature and the place it holds in their macroeconomics. So there is no excuse not to understand it within a buffer stock framework and how MMT responds.
In – A response to Greg Mankiw – Part 1 (December 23, 2019) – I provided the E-mail correspondence that preceded the publication of – A Skeptic’s Guide to Modern Monetary Theory (December 12, 2019) – by Greg Mankiw. In this blog post, I provide a response to the specific points made in that paper and conclude that if it aims to be a fair ‘guide’ to MMT (even from a critical perspective) then it fails badly. So let me explain why I hold that view. Today’s post is long and will take some reading. It could have been a lot longer. But I intend to take a break from writing the blog until next week (the Quiz will appear as usual though), so you have plenty of time to read this longer than usual post. Normally, I would have spread it out over 3 or 4 parts.
On October 2, 2019, I received an E-mail from Gregory Mankiw. It was sent to me, Randy Wray and Martin Watts and asked us some questions about our textbook – Macroeconomics – which had been published by leading textbook publisher Macmillan in March 2019. The book has been selling strongly with a third printing already in the pipeline and a second edition coming, hopefully, later next year. Macmillan also publish Greg Mankiw’s macroeconomics textbook, which has been the dominant teaching book in undergraduate programs. I will take you through the E-mail correspondence that followed because it puts in context what Greg Mankiw decided to do next. Instead of continuing the correspondence on academic terms, which was a reasonable expectation at the time, given the initial approach and our replies, he decided to submit a paper – A Skeptic’s Guide to Modern Monetary Theory (December 12, 2019) – to the American Economic Association meeting in early January, which purports to be a ‘guide’ (meaning in English – a framework to convey an appreciation of something) to Modern Monetary Theory (MMT). After his initial entreaty and our responses in good faith, Greg Mankiw clearly decided that engaging with us on the terms he initially set out was not going to be in his interests and thus took another tack, without any further consultation or reference to his initial contact with us. I wasn’t impressed with that strategy. I was less impressed with the ‘guide’ that emerged. It says very little about MMT. It demonstrates how hard it is for someone deeply locked into a dominant but failing paradigm to think outside the ‘box’ for a while and try to understand that the ideas of a new and emerging paradigm cannot be meaningfully reduced back into the conceptual framework of the failing paradigm that the contender is seeking to usurp. I guess his strategy is understandable – after all – our book is now a direct competitor for his textbook and offers a new approach that has much stronger empirical correspondence. In that context, it is in Greg Mankiw’s self interest to attack our book in any way he can. The problem is that attacks have to have some foundation to resonate. Greg Mankiw’s attack is so lateral that he would have been better to have remained silent. Sure, he is playing to the mainstream groupthink echo chamber. But the echoes will die eventually as more and more people realise the mainstream is in its last death throes. This is Part 1 of a two-part response to Greg Mankiw’s paper. In Part 1, we review the E-mail trail that started all this. In Part 2, I will discuss his response.
Its Wednesday and some snippets only today. I was reviewing some data on public investment in the European Union the other day and up popped an article in Barrons that covered the same issue. The data reveals the stark failure of the Eurozone and the European Union, in general. The consequences of the European Union’s ideological obsession for rules over reality is now clearly undermining the future prosperity of the Member States. While the fiscal austerity has created elevated and persistent levels of mass unemployment, increased poverty rates, widening disparities between wealth and income, divergences in living standards across the Member States, what hasn’t been focused on much is the intergenerational consequences of the austerity. The data makes it clear that public investment in infrastructure has ground to a halt and in many cases, nations are not even replacing existing capital as it wears out. The quality and quantity of public infrastructure in place is crucial for general material prosperity and the future productivity of nations. While starving such expenditure may not have political consequences in the short-run – and this is why the austerity is partially focusing on cuts to investment spending – over times as the extant infrastructure deteriorates the the nation and the future generations lose out badly. Just another day in Europe! And across the Atlantic, the Democrats are proposing a ‘Balanced Budget Amendment’ to the US constitution. Madness on both sides of the sea!
It is Wednesday and despite being on the other side of the Planet than usual (in Helsinki at present) I am still not intending to write a detailed blog post today. I am quite busy here – teaching MMT to graduate students and other things. But I wanted to follow up on a few details I didn’t have time to write about yesterday concerning the role that NAIRU estimates play in maintaining the ideological dominance of neoliberalism. And some more details about the Textbook launch in London on Friday, and then some beautiful music, as is my practice (these days) on Wednesdays. As you will see, my ‘short’ blog post didn’t quite turn out that way. Such is the tendency of an inveterate writer.