An MMT response to Jared Bernstein – Part 1

There was an article posted by American political analyst Jared Berstein yesterday (January 7, 2018) – Questions for the MMTers – which I thought was a very civilised exercise in engagement from someone who is clearly representative of the more standard Democratic Party view, that the US government has to move towards balancing its fiscal position and reducing government debt in order to meet the social security challenges posed by an ageing population and the accompanying increase in dependency ratios. He is sympathetic to Modern Monetary Theory (MMT), given that he wrote “there’s no distance between my views and a core principal of MMT: the need for deficit spending when the economy is below full employment”. In other words, he notes that “MMT or whomever else argues on behalf of expansionary fiscal policy is correct”. But that is a fairly standard ‘progressive’ position when the economic cycle is below full capacity. This position typically alters quite dramatically when so-called longer terms considerations are brought into the picture. Jared Bernstein worries about the inflationary consequences of fiscal policy (so do MMT economists by the way) and thinks central banks should be the primary macroeconomic policy makers (MMT economists reject this). He also thinks that if the government doesn’t sell bonds to match its deficits then there will be “currency debasing”. MMT economists have pointed out the fallacies of that proposition but he is still in the dark about it. And he also things that fiscal position should be balanced at full employment. MMT economists do not agree with that proposition pointing out that it all depends on the state of saving and spending decisions in the non-government sector. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. So while his queries are conciliatory and written in an inquiring fashion, the gulf between this typical ‘progressive’ view of macroeconomics and MMT is rather wide. This is Part 1 of a two-part series that responds to the questions that Jared Bernstein raises and hopefully puts the record a bit straighter.

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The Weekend Quiz – January 6-7, 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 IMF still has the same spots

Just before Xmas (December 22, 2017), the IMF proved once again that leopards don’t change their spots. Thy released a Working Paper (No. 17/286) – Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor – that demonstrated they hadn’t learned a thing from the last decade of crisis and fiscal interventions (stimulative and opposite). The paper demonstrates no understanding of context, history, or the role that fiscal policy should play in advancing general well-being. It is a technical exercise laden with the ideology of mainstream macroeconomics that fails badly. The problem is that the mainstream political parties (on both sides of the fence – Labor and Conservative – although pretending there is a fence is somewhat far-fetched these days) will use it against each other, and, in their shameful ignorance, against the best interests of the nation and the people that live within its borders. And … on reflection using the leopard example is an insult to the leopards. The IMF is an ugly, destructive institution that should be defunded and their buildings given over to the homeless.

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Wednesday becomes an almost blog free day!

AS I noted yesterday, I am no longer going to publish a detailed blog each Wednesday. I will cover the major Wednesday data releases (for example, Australian National Accounts) when they come out or if I have a surfeit of research material that I want to put out (like a multi-part blog series that needs daily exposure for continuity). I am going to spend the time that I would have used to write the Wednesday blog on developing the MMT University from concept into reality as well as other writing projects I want to advance. This is what I am listening to as I work today ….

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Ireland – not as rosy as the official story might suggest

During the crisis, I traced the evolution of the Irish economy. It was clear that the nation took a very big hit in the downturn – between 2007 and 2010 the economy shrunk by 15 per cent. Evidence also makes it clear that before the crisis, the narrative about the so-called Celtic Tiger miracle ignored the fact that a substantial portion of the growth was captured by foreign interests such are the taxation arrangements that attract foreign companies. Ireland also benefitted substantially from the growth in China and the US, and then the UK, all products of extended fiscal deficits. More recently, the impacts of the global tax structures and accounting nuances have significantly distorted the growth estimates for Ireland. In that context, to avoid becoming a laughing stock, the Irish Central Statistics Office (CSO) initiated a review of its national accounts framework and have now started to produce modified estimates of Gross National Income and some of the affected expenditure aggregates (Gross Fixed Capital Formation), which provide a very different picture indeed. While the official data suggests that the Irish economy grew by 39.7 per cent between 2007 and 2016, once the modifications were made to eliminate the distortions arising from these extraordinary global capital shifts, the Modified Gross National Income measure showed growth of only 12.2 per cent. In fact, the Irish economy in total is only 68 per cent the size that the GDP data would suggest – around a third smaller. Further, the modified Gross National Income series has barely grown since the crisis indicating that the Irish population has not received much in return for the hardships the austerity has inflicted upon them.

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Blog is absent (mostly) again today …

I am travelling for a fair part of today and am reading a John le Carré novel – tracing the George Smiley series. I am also working on my next book. But it is a new year so all the best for 2018, although the dark clouds that are cast over the world do not make for very optimistic forecasting. I will be back tomorrow as usual. Some music that I have been listening to while flying is overleaf including an interesting story about the motivation of the composer.

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