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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The Weekend Quiz – May 18-19, 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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Inflation hysteria as central bankers discuss yield curve control

I am in London today (Monday) and have two events. First, I am doing a ‘Train the Trainers’ workshop for – The Gower Initiative for Modern Monetary Studies – where we will work through some techniques and concepts to help activists educate others about Modern Monetary Theory (MMT). Second, I am meeting with some Labour Party Members of Parliament who are keen to learn more about MMT and incorporate its insights into their political work. Get the drift? People wanting to learn and setting up pathways where that learning can occur. Which means they take advantage of access to one of the founders of MMT to find out what it is about, rather than adopt a superficial version of our work, which they might have heard about when Joe told Aalia, who had picked it up from Eddie, who had been having a conversation with Robyn about something that Abdul had told Amelia, who had read it in some Tweet that was reporting an article written by Kenneth ‘Mr False Spreadsheet’ Rogoff criticising MMT. That is the way to learn.

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The Weekend Quiz – May 4-5, 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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Ridiculous MMT critiques distorting Scottish independence debate

In a few weeks I am off to Britain again to participate in a series of events. Two of these events will be in Scotland where we (Warren and I) will discuss, as outsiders, issues pertaining to the monetary arrangements that might accompany a move to Scottish independence. It is a controversial issue in itself, but, unfortunately, is also intertwined with the vexed issue of EU membership. And the complication then becomes that progressives, who might otherwise be attracted to the Modern Monetary Theory (MMT) way of understanding the monetary system, also exhibit the standard misconstrued Europhile view that the EU, neoliberal though it is, can be reformed and that an independent Scotland should be part of that mess. And, in doing so, they then take problematic positions on the currency question. So a sort of ‘nest of vipers’ sort of situation, from the Aesop’s fable – The Farmer and the Viper. As in the Fable, the Europhiles embrace of the EU will always pay them back in grief. Anyway, while I am always cautious discussing the pro and con of situations where I have no direct material stake and a less than full understanding of specific cultural and historical influences that are at work, the Scottish question is interesting and demonstrates many of points that nations should be cogniscant of when discussing monetary sovereignty. And besides I have to get up in Edinburgh and Glasgow in a few weeks so as a researcher I am trained to be prepared and seek the best understanding that I can of the complexity of the situation. I will be writing a few posts on the Scottish issue as I prepare for that speaking tour.

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Madame Lagarde basically says MMT is correct – not that she knew she was saying it!

Its Wednesday, so just a short blog post. I had a day of meetings and other commitments today. But we have some fun at the IMF to discuss (briefly). On April 11, 2019, IMF boss Madame Lagarde gave a press conference to open the 2019 Spring Meetings. The Transcript – includes the Madame waxing lyrical about Modern Monetary Theory (MMT). And you might have confused the press conference for a stand-up comedy routine except you would have to be ‘in the know’ to laugh. But the significant aspect of the conference came when a question from Japan focused on MMT. In attempting to put down our work, Madame Lagarde actually admitted that a situation where the government runs big fiscal deficits, has a large-scale and on-going public debt-issuance program, where the central bank buys substantial proportions of that issuance, apparently ‘works’ under conditions that the currency-issuing government can always control. MMT 101. QED. Have a laugh.

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IMF changes tune on industry policy – shamelessly – Part 2

In Part 1, I introduced the discussion about the use of industry policies in the Keynesian period after World War 2. Most nations adopted a mixed planning-market based system for allocating productive resources and the state was always central in setting out planning parameters, direct ownership and employment, and regulation. It was a system that researchers described as being “highly successful”. Two approaches to industrialisation were taken: (a) export-oriented (for example, South Korea); and (b) import-substitution (for example, India), although in most cases, nations used both strategies. As neoliberalism emerged and the fixed exchange rate system broke down in the early 1970s, the IMF, whose purpose was intrinsically tied to providing foreign reserves to nations under the fixed exchange rate system, no longer had a purpose. They reinvented themselves as the neoliberal attack dog for corporations and global capital. They also provided cover for governments who were embracing the Monetarist ideas of Milton Friedman and intent on imposing fiscal austerity. These governments had become captured by corporate interests and by appealing to external demands from bodies such as the IMF, these governments could depoliticise harsh policy shifts away from Keynesian full employment. I used Britain as an example. Tony Benn, a Left Labour member in the British Parliament and Secretary for Industry, proposed an alternative industrial plan to revitalise British industry in 1975. It was rejected at the time by Harold Wilson and Denis Healey, who were intent on imposing fiscal austerity and deregulating. They used the scare that the IMF would have to bailout Britain as a ruse to force their Monetarist ideology onto the British Labour Party. It was no surprise that in an era where governments started abandoning fiscal support to maintain full employment, deregulated labour and financial markets, and abandoned domestic protections for their industries, many industries would go to the wall. The IMF claimed that this shows industry policy focused on import-substitution can never work. But the culprit was not flawed industry policy. Rather, it was the withdrawal of all the accompanying support structures that made it work, but which ran counter to the neoliberal ideology of ‘free markets’. Now the IMF is having a rethink based on the devastation that neoliberalism has caused. On March 26, 2019, the IMF published a new working paper (19/74) – The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy. Now, we are reading that the IMF has conceded that industry policy interventions that were the basis of economic planning in the Keynesian era were highly successful and only stopped being so, in some cases, when fiscal austerity was imposed and trade controls were abandoned in the 1970s. This is Part 2 of the two-part series on this topic.

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The Weekend Quiz – April 6-7, 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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ECB denial is just embarrassing

I was asked by an Austrian friend the other day if I could provide some questions to a journalist friend of theirs (András Szigètvari from Der Standard) in who was about to interview Sabine Lautenschläger who is Member of the Executive Board of the ECB and former Vice-President of the Bundesbank. I dutifully complied and the – Interview with Der Standard – was published on April 1, 2019. April 1 is known as April Fools’ Day, a tradition that spans continents and culture. In Germany, apparently, April 1 is a day where ridiculous stories are told at the expense of the listener, to elicit uproarious laughter (so-called “Aprilscherz”) (Source). I won’t be as unkind to assert that Ms Lautenschläger was acting out the tradition even though what she was saying could easily be mistaken for a planned ruse. Perhaps the joke was on her!

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The effectiveness and primacy of fiscal policy – Part 2

This is the second part of a three-part series discussing the political issues that give me confidence in the primacy of fiscal policy over monetary policy. The series is designed to help readers see that the recent criticisms of Modern Monetary Theory (MMT) as being politically naive and unworkable in a real politic sense have all been addressed in the past. In Part 1, I gave examples of how ‘agile’ or ‘nimble’ fiscal policy can be when an elected government has it in their mind to use their spending and taxation capacities to change the direction of the non-government economic cycle. It is simply untrue that fiscal policy is inflexible and cannot make effective, well-designed policy interventions. In this second part, I will address aspects of how such interventions might be organised. Specifically, some people have advocated that MMT might replace the so-called ‘independent’ central bank, with an ‘independent’ fiscal authority, which they seem to think would take the ‘politics’ out of fiscal policy decision-making and focus it on advancing the well-being of the people. The intentions might be sound but the idea is the anathema of what progressives, interested in maintaining democratic accountability would propose. I consider such an independent fiscal authority would constitute the continuation of the neoliberal practice of depoliticisation and further increase the democratic deficit that is common in our nations these days. Politicians are elected to take responsibility and make decisions on our behalf. They should be always be held accountable for those decisions and not be allowed to defer responsibility to an external source (like an ‘independent’ central bank or an external fiscal authority).

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The effectiveness and primacy of fiscal policy – Part 1

I did an interview overnight with a WSJ journalist from London on the ‘political’ aspects of Modern Monetary Theory (MMT). This blog post covers some of that conversation, although I started writing this a few weeks ago. Regular readers will recall I was promising a post about the ‘nimbleness’ of fiscal policy. That promise instigated the request from the WSJ. When I write about Modern Monetary Theory (MMT), I try to be careful to distinguish between what we might consider the core MMT principles (theory, description, accounting) and the imposition of my own values (political and otherwise) that is informed by those core principles. That separation is important and should (but doesn’t) stop others misrepresenting the core principles by appealing to proposals that might flow from the value imposition. An example of this separation (and confusion), a topic which I receive many E-mails from people which seek clarification, is the concept of setting up an independent fiscal authority. The proposal to establish such an authority is not a core MMT principle. It might reflect an opinion that has been expressed by someone writing about MMT but that is as far as it goes. For the record, I am deeply opposed to establishing such an authority. It would constitute the continuation of the neoliberal practice of depoliticisation and further increase the democratic deficit that is common in our nations these days. Politicians are elected to take responsibility and make decisions on our behalf. Can we trust them? We have elections to deal with those issues. Should technocrats rule? Technocrats do not stand for election. They give advice but have no democratic responsibility. Is fiscal policy agile enough to be an effective source of counter-stabilisation against the non-government spending cycle? That is what this blog post is about. This is Part 1 of a three-part series. Part 2 will be published on Monday.

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The mainstream old guard tell it as it is – and how different that is to MMT

While many mainstream economists have been coming out to defend their reputations against the growing awareness that Modern Monetary Theory (MMT) presents a direct challenge to their hegemony, some of the mainstream haven’t responded at all and continue to confirm what the standard mainstream macroeconomics is about and how far removed from MMT it really is. The MMT critics claim that there is nothing new in MMT (‘we knew it all along’) in one breathe, and then ‘MMT is crazy dangerous’ in another, without seemingly realising how conflicted that juxtaposition is. But when leading mainstreamers, who are not engaging with the public MMT discussion going on, publish their Op Ed pieces, we gain an insight into what the mainstream is really about despite all the attempts by other mainstreamers to co-opt as much of MMT as they can while still claiming it is crazy. A recent Op Ed article in the Wall Street Journal (March 20, 2019) – The Debt Crisis Is Coming Soon – by Harvard economics professor Martin Feldstein – is a great demonstration of the DNA of mainstream macroeconomics. MMT presents a diametrically opposed view to this standard mainstream analysis. There is no correspondence possible between the two positions.

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Fake surveys and Groupthink in the economics profession

In recent weeks, it has become apparent that Modern Monetary Theory (MMT) has evolved into a new ‘status’. Our work is everywhere now and has penetrated the political process (particularly in the US). At the same time, the mainstream macroeconomists continue to make fools of themselves by backtracking on some of their predictions that were made early in the GFC (about inflation, solvency, interest rates, bond yields, etc) and attacking MMT economists who actually provided correct analysis of what would happen in terms of these aggregates. The new ‘status’ means that MMT is now a visible challenger and the old guard hate that. All manner of critiques are emerging and the heartland of the mainstream approach at the University of Chicago recently trumped up a survey as evidence that MMT is crazy stupid. Some of the more odious mainstreamers then chose to disseminate the survey results as a sort of glorious statement of victory over MMT. The only problem was that the survey had nothing to do with the body of work we refer to as MMT and so was a dishonest exercise. The other problem was that the survey respondents were too insular (I didn’t say stupid) to realise they were being duped by Chicago Booth. None commented that the two questions that were under the heading ‘Modern Monetary Theory’ bore no resemblance to any core MMT statements or learnings. All this told me was that Groupthink is crippling the economics profession.

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The Weekend Quiz – March 16-17, 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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The Weekend Quiz – March 9-10, 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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The Weekend Quiz – February 23-24, 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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The erroneous ‘lets have a little, some or no MMT’ narrative

It is Wednesday – so just a few observations and then we get down a bit dirty (funky that is). Today, I consider the GND a bit, critics of MMT, Japan, and more. Never a dull moment really. I didn’t really intend writing much but when you piece together a few thoughts, the words flow and so it is. The main issue is the recurring one – the lets have a little, some or no MMT narrative. This misconception regularly crops up in social media (blog posts, Twitter etc) and tells me that people are still not exactly clear about what MMT is, even those who hold themselves as speaking for MMT in one way or another. As I have written often, MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. An application of this misconception is prominent at the moment in the Green New Deal discussions. The argument appears to be that we should not tie progressive policies (for example, the Green New Deal) to Modern Monetary Theory (MMT) given the hostility that many might have for the latter but who are sympathetic with the former. Apparently, it is better to couch the Green New Deal in mainstream macroeconomic concepts to make the idea acceptable to the population. That sounds like accepting Donald Trump’s current ravings about the scourge of socialism. It amounts to deliberately lying to the public about one aspect of the economics of the GND just to get support for the interventions. I doubt anyone who thinks democracy is a good thing would support such a public scam. And so it goes.

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