Countries than run continuous deficits do not seem to endure accelerating inflation or currency crises

There was a conference in Berlin recently (25th FMM Conference: Macroeconomics of Socio-Ecological Transition run by the Hans-Böckler-Stiftung), which sponsored a session on “The Relevance of Hajo Riese’s Monetary Keynesianism to Current Issues”. One of the papers at that session provided what the authors believed is a damning critique of Modern Monetary Theory (MMT). Unfortunately, the critique falls short like most of them. I normally don’t respond to these increasing attacks on our work, but given this was a more academic critique and I was in an earlier period of my career interested in the work of Hajo Riese, I think the critique highlights some general issues that many readers still struggle to work through.

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When ‘new’ is really old and doesn’t get us very far – latest BIS paper

It takes a while for the mainstream organisations in economics, banking and finance to start to realise that the framework they use cannot explain the actual events in the real world, without serious revision. The problem though, is that the overall framework is flawed and the typical ‘response to anomaly’ approach, which changes a few assumptions to get ‘novel results’ is inadequate because it leaves one blind to all the possible policy solutions. The latest example is the Bank of International Settlements paper – Indebted Demand (released October 19, 2021) – which was written by three economists from Princeton, Harvard and Chicago Booth, respectively. They now recognise that rising inequality and massive household debt is a major problem for economic growth and macroeconomic stability. But, in maintaining ‘conventional’ assumptions about the government sector, they miss the vital linkages in the story, that Modern Monetary Theory (MMT) economists have been providing for the last 25 or so years. Whether these responses to anomaly represent progress or different variations in a flawed ‘chess’ strategy is a matter of opinion. My thought is they are a largely a waste of time, although marginally, they demonstrate that elements of mainstream macro theory that were considered core elements a decade ago are no longer sustainable.

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Video of presentation for Wattle Partners – October 15, 2021

Last week, I did a seminar with a Melbourne financial market group (Wattle Partners), who I regularly help in their education programs. It took the form of an informal (somewhat structured) conversation about Modern Monetary Theory (MMT) and more practical applications of the MMT understanding. There were several questions from the audience that we didn’t get time to answer in the allotted time so today I am honouring my agreement to provide answers, which might be of interest to the broader readership, if only to reinforce knowledge. The video of the interaction is also available now and you can watch it here.

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The British Chancellor cannot run short of sterling unless he chooses to do so

It’s Wednesday and my blog-lite day or so it seems. Today I briefly discuss the proposition that the British government can run short of sterling. It cannot unless it chooses to do so. And the basis for choosing to do so would be deeply irrational and irresponsible, when judged from the perspective of advancing the well-being of the citizens. I also reflect on the vested interests in the financial markets and the way they get platforms in the media and policy making circles to advance their sectional interests (profit). And mostly, we just have a 33 minute musical feast to reflect upon.

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The one-trick New Keynesian ponies are back in town

I learned long ago that when you consult a surgeon the recommendation will be surgery. After about 10 or more knee operations (both legs) as a result of sporting injuries, and, then some, to undo the damage done by previous surgery, I ran into a physiotherapist who had a different take on things. He showed me ways the body can respond to different treatments and retain the capacity for high-level training and performance even with existing damage. I still run a lot and his advice was worth a lot. The point is to watch out for one-trick ponies. The analogy is not quite correct because sometimes surgeons get it right. I don’t think the same can be said for a mainstream economist, who are also one-trick ponies. If you ask a mainstream economist what to do about macroeconomic policy they recommend hiking interest rates and cutting fiscal stimulus if the CPI starts to head north, irrespective of circumstances. But the message is getting blurred by realities, especially since the GFC. More pragmatic policy makers realise that just responding in the textbook manner hasn’t provided a sustainable basis for nations to follow. In the last week, we have seen the contradiction between the one-trick ponies, who are desperate to get back into their textbook comfort zone, and those who see the data more clearly. In Britain, one part of the Bank of England, the Financial Policy Committee has indicated the way forward is going to require careful policy support for businesses because many SMEs have loaded up on debt during the pandemic and face a precarious future. In the same week, a private sector bank economist, who is also an external member of the Bank of England’s Monetary Policy Committee, called for interest rate hikes and a deeper withdrawal of fiscal support (and central bank coordination of that support) to deal with, an as yet, unclear inflation threat.

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Australian government issues debt, buys most of it itself, and then pays itself interest into the bargain

These are rather extraordinary times indeed. I have been trawling through the Australian public debt data which is spread across the federal sphere and the various states and territories. The official data published by the ABS is always dated (lagging a year or so) and the state-level debt data is actually quite hard to put together – their various ‘debt management’ offices do not make it easy to put a time series together. My interest is in working out the impact of the rather radical shift in usual conservative Reserve Bank of Australia behaviour when the pandemic hit. They started buying government bonds (at all levels) and now own large swathes of public debt. They have also effectively been funding the rather large deficits that the governments in Australia have been running. And interest rates and bond yields remain low after nearly 18 months of this shift.

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We will soon see just how ‘pragmatic’ Sunak really is

At present, Britain is still in the throes of a global pandemic that has devastated the nation. Last week, at Brighton, the key economic spokespersons for the TLP or the Tory-lite Party (short form, British Labour Party) told the voters of Britain why they should remain in opposition. They were sterling performances by the leader and shadow chancellor. Clarifying for all, the fact that the Party hasn’t learned much at all about their recent history. A history that has seen them lose 4 national elections in a row and in the face of one of the worst British governments in history (and that is really saying something), the TLP’s electoral fortunes continue to wallow in loss-making percentiles. Then we had the Tory version outlined by the actual chancellor on Monday. Taking advantage of the political space the TLP has given them to reinstate all the religious nonsense about the immorality of public debt and the rest of the stuff that cultists (mainstream economists) dish up.

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Live Stream on Currencies footage – Helsinki, October 2, 2021

It is a public holiday today celebrating – Labour Day – which recognises the struggles to successfully gain an 8-hour working day for workers. The first of the many marches in this struggle occurred in my hometown of Melbourne on April 21, 1856, and history shows that this march was successful in achieving the first 8-hour day decision in the world, without loss of pay. So today we think of that. If workers unite they have the capacity to achieve great things. What follows is a brief report and footage from a debate I participated in on October 2, 2021, which was organised by some groups in Helsinki, Finland.

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(Modern) Marx and MMT – Part 2

This is Part 2 of my analysis of the way that fundamental ideas in Modern Monetary Theory (MMT) are totally consistent with a reasonable interpretation of Marx’s work. The motivation to clarify these issues came after I spoke at an event last weekend in the UK and shared a panel with a critic who claimed that Marx’s work established that MMT is wrong to assume that unemployment is a monetary phenomenon (insufficient spending) and that government spending can do anything about it. The claim was based on a view that Marx thought that capitalist firms have some unique logic that if they decide not to produce no amount of sales orders will induce them to expand production even if they have massive excess capacity (‘machines lying idle’) and a huge pool of idle labour to draw upon. No reasonable reading of Marx’s work would lead to that conclusion. In this part, we will consider what Marx thought about crisis and some later developments of his reproduction schemes, which make it clear that effective demand drives capitalist output, which conditions their employment decisions.

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