We are approaching a period of fiscal dominance

The dissonance in mainstream economics and the political debate about policy settings is getting deeper and more public. We now have examples of central bankers ‘throwing their hands up in the air’ and nearly begging governments to abandon their obsession with fiscal surpluses, and, instead, use fiscal policy to stimulate waning economic growth. What I think is happening is that we are entering a period of fiscal dominance, which will represent a categorical rejection of the mainstream macroeconomics consensus that has dominated policy making since the 1980s – the neoliberal era. In turn, this shift will ratify the main precepts of Modern Monetary Theory (MMT). We are observing paradigm shift occurring as the dominant neoliberal paradigm fails at every turn. There is a long way to go though before the practitioners acknowledge that such a shift has occurred. But there is progress.

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The Weekend Quiz – August 3-4, 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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When the Left disgraces itself

In Monte Python’s Life of Brian we were introduced to the “People’s Front of Judea”, which was “one of many fractious and bickering independence movements, who spend more time fighting each other than the Romans”. The segments featuring the Front were very amusing. It was humour but redolent of the sort of historical struggles that have divided the Left over the centuries. In Australia, the history of the Communist Party, for example, is one of many factions, splintering into new parties and leaderships after disputes about Bolshevism, then the Communist International and Stalinism, then the so-called “imperialist” war by the Allies against Nazism, then Krushchev’s revelations about the crimes of Stalin, then the Soviet invasion of Hungary, then the split between the Soviet Union and China and the rise of Mao, then the Soviet invasion of Czechoslovakia, and so on. This sort of division is mirrored around the world on the Left side of politics and struggle. I have been reminded of this history in recent weeks as the ‘war’ against Modern Monetary Theory (MMT) has been ramped up from so-called progressives. However, this ‘war’ seems different to the sort of internicine struggles that have historically bedevilled the Left. We now have all manner of strategies emerging, ranging from classic Association fallacies to ridiculous claims that MMTers perpetuate ‘anti semitic tropes’, and on to plain invention, a.k.a. straight out fabrications or lying. There is no real attempt to embrace the body of work we have created over the last 25 years. Quite the opposite – the ‘critics’ haven’t an original thing to say about the substance of MMT. They have instead decided to smear us with increasingly hysterical assertions. Which raises the interesting question for me – what is driving this aberrant behaviour? Fear, a sense of irrelevance, jealousy, Brexit, spite, … what? I have conjectures but no real answers.

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The Weekend Quiz – July 27-28, 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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Voodoo economic revisionism abounds – and it is not MMT doing the voodoo

The epithets being used as put-downs for Modern Monetary Theory (MMT) are growing. But some of the good old terms – that one might actually apply to mainstream macroeconomics – are also in currency. An article in Project Syndicate (May 27, 2019) – Japan Then, China Now – declared MMT to be “the latest strain of voodoo economics” that is “alluring for the Trump administration”. The article by a Yale University lecturing staff member (and former investment banker) really just reminds us why students should avoid studying economics at that university. The voodoo, I am afraid is actually on the other foot! There are some fundamental errors in the logic in the article that highlight why MMT is a superior paradigm for understanding how the monetary system actually operates in comparison to the mainstream logic that the author uses against it.

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The Weekend Quiz – July 20-21, 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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Paying interest on excess reserves is not constrained by scarcity

This morning, a former deputy governor of Australia’s central bank (RBA) published a short Op Ed in the Australian Financial Review (July 16, 2019) – Why there are no free lunches from the RBA – which served as a veiled critique of Modern Monetary Theory (MMT). The problem is that the substantive analysis supported the core of the MMT literature that we have developed over 25 years, refuted the standard macroeconomics textbook treatment of the link between the government and non-government sectors, and, incorrectly depicted what MMT is about – all in one short article. Not a bad effort I thought. But disappointing that a person with such experience and knowledge resorts to perpetuating such crude representations of ‘cost’ and myths about government finances.

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Why the financial markets are seeking an MMT understanding – Part 2

This is Part 2 (and final) in my discussion about what the financial markets might learn from gaining a Modern Monetary Theory (MMT) understanding. I noted in Part 1 – that the motivation in writing this series was the increased interest being shown by some of the large financial sector entities (investment banks, sovereign funds, etc) in MMT, which is manifesting in the growing speaking invitations I am receiving. This development tells me that our work is gaining traction despite the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon) who are trying to save their reputations as their message becomes increasingly vapid. While accepting these invitations raises issues about motivation – they want to make money, I want to educate – these groups are influential in a number of ways. They help to set the pattern of investment (both in real and financial terms), they hire graduates and can thus influence the type of standards deemed acceptable, and they influence government policy. Through education one hopes that these influences help turn the tide away from narrow ‘Gordon Gekko’ type behaviour towards advancing a dialogue and policy structure that improves general well-being. I also hope that it will further create dissonance in the academic sphere to highlight the poverty (fake knowledge) of the mainstream macroeconomic orthodoxy.

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Why the financial markets are seeking an MMT understanding – Part 1

One of the shifts I have observed in the last year or so in the way that Modern Monetary Theory (MMT) is being discussed in the public domain and the type of speaking invitations I am receiving is a growing interest from large financial market entities, who have not bought into the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon). I spoke at a few workshops some years ago where economists from the large investment banks were the main audience and it was clear that they, in the main, appreciated what MMT was about. It is clear the characters that have to deal with putting funds at stake are keen to understand how the monetary system actually operates rather than how the mainstream macroeconomists pretend it operates – a pretense that advances particular ideological interests. What is also coming out more clearly is that the response from the mainstream is revealing a dissonance that they cannot seem to manage in any coherent way. We have seen statements from mainstream macroeconomists dismissing MMT as just ‘printing money’ and proposing Zimbabwe-like disasters. Others claim that they knew MMT all along and so there is nothing new. Others claim that all the insights that MMT holds out come down to whether one thinks monetary policy is less or more effective as a counter stabilisation told than fiscal policy. All statements attempt to simplify our work down to the level of irrelevance or downright crazy. Other interventions, such as the recent statements from the Bank of Japan Governor border on the surreal – ‘we are not doing MMT’ – well one doesn’t ‘do MMT’ anyway. But an MMT understanding provides a remarkably accurate depiction of what has been going down in Japan for nearly 3 decades – a depiction that the mainstream macroeconomists is incapable of providing. It seems that now, the financial markets are starting to get this point and seeking more engagement with MMT (if my invitations are anything to go by). This engagement is not without issues though. This is Part 1 in a two-part series discussing this topic. Part 2 will come tomorrow.

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The Weekend Quiz – June 29-30, 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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An economist trying to stay relevant long after he lost it

This is my Wednesday blog post where I write less or perhaps research the blog post less – both of which save me time to do other things. Today a few snippets. One snippet looks at an article in Marketwatch – What Modern Monetary Theory gets ‘plain wrong,’ according to former IMF chief economist (June 11, 2019). This article should put to rest any claims that the mainstream New Keynesian macroeconomic consensus understands Modern Monetary Theory (MMT) or that MMT is somehow explainable within the mainstream framework. The ‘we knew it all along’ camp who are trying their hardest to stay relevant at a time when it is increasingly obvious that the mainstream economics they preach has nothing valid to say about the realities of the world just had the carpet pulled out from under them by one of their own.

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The Weekend Quiz – June 22-23, 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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Seize the Means of Production of Currency – Part 3

The week before last, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. In effect, there were two quite separate topics that needed to be discussed: (a) the misrepresentation of MMT; and (b) the issues pertaining to British Labour Party policy proposals. The article we were responding to – Against MMT – written by a former Labour Party advisor, was not really about MMT at all, as you will see. Instead, it appeared to be an attempt to defend a policy approach, that I have previously criticised as giving to much back to the neoliberals. Whenever, progressives use neoliberal frames, language or concepts, it turns out badly for them. Anyway, the published article only allowed 3,000 words, which made it difficult to cover the two topics in any depth. In this three-part series, you can read a longer version of our reply to the ‘Against MMT’ article, and, criticisms from the elements on the Left, generally, who think it is a smart tactic to talk like neoliberals and express fear of global capital markets. In this final Part, we focus explicitly on Labour Party’s Fiscal Credibility Rule – which uses these neoliberal frames – and we show that it would fail in a deep recession, causing grief to a Labour government should it be in office at that time.

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Seize the Means of Production of Currency – Part 1

Last week, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. The article we were responding to – Against MMT – written by a former British Labour Party advisor, was not really about MMT at all, as you will see. Instead, it appeared to be an attempt to defend the Labour Party’s Fiscal Credibility Rule, that has been criticised for being a neoliberal concoction. Whenever, progressives use neoliberal frames, language or concepts, it turns out badly for them. In effect, there were two quite separate topics that needed to be discussed: (a) the misrepresentation of MMT; and (b) the issues pertaining to British Labour Party policy proposals. And, the Tribune only allowed 3,000 words, which made it difficult to cover the two topics in any depth. In this three-part series, you can read a longer version of our reply to the ‘Against MMT’ article, and, criticisms from the elements on the Left, generally, who think it is a smart tactic to talk like neoliberals and express fear of global capital markets. I split the parts up into more or less (but not quite) three equal chunks and will publish the remaining parts over the rest of this week.

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How social democratic parties erect the plank and then walk it – Part 2

In Part I, I considered an Australian-based attack on MMT from a Labour Party stooge. In this Part, I shift to Britain to address the recent article by a Northern Labour MP – Jonathan Reynolds – who is apparently, if his arrogance is to be believed, making himself the Labour Party spokesperson on matters economic. For the title of his recent article (June 4, 2019) was, afterall – Why Labour doesn’t support Modern Monetary Theory – which begs the question as to who actually doesn’t support MMT – all of Labour? Party? Politicians? Members? Who? I know of hundreds if not thousands of Labour Party members that are fully supportive of Modern Monetary Theory (MMT). So who is he talking about? The overriding issue that I introduced in Part 1 was that it is crazy for progressive politicians to use neoliberal frames, language and concepts when discussing their economic policy ambitions. Not only has the track record of the mainstream approach has been so poor but wallowing in these frames etc leads the so-called progressive side of politics to become trapped in the neoliberal tradition. The Reynolds article is no exception and if his view is widespread within British Labour then it will have a problematic future.

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The Weekend Quiz – June 8-9, 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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Talking of elephants – plain old, garden variety fiscal policy

If there were two lessons that can be taken from the GFC among others then we should know, once and for all, that, first, monetary policy (in all its glorious forms these days) is not a very effective tool for influencing the level of economic activity nor the price level, and, second, that fiscal policy is very effective in manipulating total spending and activity. Of course, those lessons provided the evidence that turned macroeconomics on its head because for several decades, as the Monetarist surge morphed into all manner of variants, tried to eulogise the primacy of monetary policy and rejected the use of fiscal policy. There were all sorts of justifications – time invariance, lags, politicians cannot be trusted, etc – but at the heart of the shift towards supposedly independent central banks was the political desire to neuter the capacity of governments to use their currency capacity to advance the well-being of the many, while at the same time, using that same capacity to advance the interests and real income shares of the few. Depoliticisation worked a treat for the top-end-of-town. The problem is that the lessons have not been learned and all manner of commentators still think that monetary policy is the king. Eventually, we will move beyond that but the pain of holding on to the myth is damaging for people, especially those who are without work, are underemployed or have been forced into early retirement by the poor economic performance in this austerity-biased era.

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The Weekend Quiz – May 25-26, 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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Australia and Scotland and the need to escape neoliberalism

Today’s blog post considers the Australian election and some issues that arose from my recent trip to Scotland – all of which bear on the progress of our work in the public debate. In Australia, we have just held a federal election and it was expected (and certainly the polls and bookies expected) that the Labor Party would win easily after 6 shocking years of conservative rule. Those 6 years have been marked by scandal, three leaders (Prime Ministers), massive internal divisions within the government, on-going climate change denial and a slowing economy. But Labor was thrashed in the election and I offer a few reasons why I think that happened. For Scotland, as they debate independence in the lead up to another referendum (as yet unscheduled) they have been struggling with the choice of currency issue and whether the new independent nation should join the EU. After initially thinking they would stick with the British currency for some time, the debate has swung heavily in favour of introducing their own currency as soon as is possible after the independence is achieved. Clearly, I have favoured that option for several years. But the overwhelming thinking is that the new nation should join the EU. That is a choice that I think would bring grief. And given the fact that the rUK will retain “continuing nation” status, a newly independent Scotland would be under significant pressure to use the euro. In other words, the currency choice and EU membership trends at present are incompatible. During my visit there I urged the activists to ditch their pretensions for EU membership and become truly independent.

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