MMT and Power – Part 2

This is Part 2 of a series that is developing here on the topic of Modern Monetary Theory (MMT) and power. I often read that Modern Monetary Theory (MMT) is defective because it has no theory of power relations. Some critics link this in their narrative to their claim that MMT also has no theory of inflation. They then proceed to attack concepts such as employment buffers, on the grounds, that MMT cannot propose a solution to inflation if it has no understanding of how power relations cause inflation. These criticisms don’t come from the conservative side of the policy debate but rather from the so-called Left, although I wonder just how ‘left’ some of the commentators who cast these aspersions actually are. The problem with these criticisms is that they have clearly adopted a partial approach to their understanding of what MMT is, presumably through not reading the literature widely enough, but also because of the way, some MMT proponents choose to represent our work. In Part 1, I examined how the economics discipline evolved from political economy to a narrow focus on the ‘economy’ as if it existed in a void of power. I also disabused readers of the notion that MMT ignores the link between money and the real econoy, which is a regular claim offered by critics from the Left. I also questioned critics who seem to want MMT to be a theory of everything. As I regularly point out MMT cannot predict who wins the football this week, but that isn’t a criticism. In Part 2, I am going to complicate things a little by expanding on the MMT is the MMT is a lens narrative as if we can neatly separate values from facts. I will also explain how power enters into the dominant theory of inflation in MMT.

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Price rises should be short-lived – so let’s not resurrect inflation as a bogeyman

It’s Wednesday and I am somewhat besieged. So just a few reflections today before we delve into our latest music offering. I had an Op Ed published in the UK Guardian today (my time) which analysed the latest inflation scares that have been dominating the popular media. More and more mainstream macroeconomists are coming out and asserting that economies will overheat. The usual gold bugs have been delighted by this shift in the narrative back to the obsessions and manias that keep them occupied on a daily basis. What was interesting to me was the responses of the commentators to the Guardian Op Ed. If the sentiments expressed represent the state of macroeconomic knowledge (presumably mostly in the UK) then we have a long way to go before Modern Monetary Theory (MMT) and the sensible policies that it might inform gain any serious traction. Given the GFC, the stagnation in the aftermath, 30 years of Japanese history, the pandemic, which have all combined to demonstrate why the mainstream approach is dysfunctional and provides no guidance to what might happen in the real world, the commentators continued to rehearse these failed ideas about inflation, interest rates, bond markets etc. Quite dispiriting.

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Criticism of failed economists is not cancel culture

Everybody is concerned with ‘herd immunity’ at present as the pandemic continues on ravaging our social and economic lives. But I have been studying the concept of ‘herd mentality’ for some years, aka – Groupthink. Mainstream macroeconomics is sustained, not by any internal logical consistency (on which it fails), by close congruency with the empirical data (on which it fails), which are the usual qualities of a dominant system of ideas, but, rather, by (using modern terminology) its long-standing and on-going cancel culture. So it is rather amusing to read one of the leading voices in that paradigm, Kenneth ‘Spreadsheet’ Rogoff, whinging on the Internet that ‘cancel culture’ is being used to undermine the reputations of one of his mates (Larry Summers). Both continue to get platforms in the world media without trouble to push their vapid ideas into the narrative. The antithesis of cancel culture it would seem. What is going on is that more people are realising that the prognostications of mainstream macroeconomics are deeply flawed, and, while many may not know the technicalities and the theoretical complexities, they can see the empirical dissonance, and that means they know a – lemon – when they see one. And social media has given more people a voice and they are using that to call these characters out for what they are. And the sense of invulnerability that pervades all disciplines riddled with Groupthink is being questioned.

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The Weekend Quiz – May 29-30, 2021 – 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 realises it has to keep funding Member State deficits for the foreseeable future

Well, the Melbourne virus outbreak has scuttled lots of plans and events. We wouldn’t be in this situation if the Federal government had have invested in dedicated quarantine facilities last year when they were told to and taken advice to ensure their vaccination purchases were sufficient. Anyway, that is for another day. Today, I have been examining European data and matching them against a recent interview (May 26, 2021) – Interview with Fabio Panetta, Member of the Executive Board of the ECB, conducted by Jun Ishikawa – that Nikkei published yesterday. Things have changed a bit in Europe since the GFC although the fundamental problem of the Eurozone remains – there is a disjuncture between fiscal responsibility and fiscal capacity and the only way that that mismatch is being addressed is the via the on-going ECB funding of fiscal deficits, despite the denial that that is what is happening. It is plainly obvious to all.

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The Weekend Quiz – May 22-23, 2021 – 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 inflation mania is growing – but manias are manias

The other day I gave a talk to the ‘investment’ community in Melbourne and they wanted to talk a lot about inflation, which seems to be their foremost concern at the moment. Tomorrow, I am giving a similar presentation in Sydney and I expect a similar line of questioning. Think about it. Wages growth is projected to be so low over the next several years that real wages will decline for at least 3 to 4 years. The Output gaps are still significant and were significant even before the pandemic. Households were already cutting back consumption spending growth, given record levels of indebtedness and no prospect of wages growth. Where pray tell are the inflationary pressures going to come from? I also keep reading of similar fears from economists and central bankers. The latest I saw came from Britain, where the outgoing chief economist from the Bank of England started beating on the inflation drum. There are some areas of our economies that will experience price pressures in the coming period given the disruptions in supply and various administrative pricing decisions by governments (reversing pandemic assistance in areas like rents, energy, child care etc). But these pressures in some segments of the economy are unlikely to instigate a major shift to high generalised inflation rates because the capacity of workers to defend their real wages is diminished now. Fiscal policy has a long way to go yet in reducing unemployment and underemployment from their elevated levels before that capacity becomes functional again.

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The Weekend Quiz – May 15-16, 2021 – 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 – May 8-9, 2021 – 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 macroeconomic narrative continues to (MMT) evolve but the games not over yet

I think the general population are starting to get the message that my profession and the political class that uses it as an authority has been leading them down the garden path for decades now to cover up policies that have deliberately undermined our socio-economic prospects and allows a massive transfer of national income to the top-end-of-town. I am also watching, on a daily basis, the almost ludicrous way the mainstream economists and the politicians weave and duck as they change their story about fiscal deficits, public debt and unemployment. The paradigm shift that has been in play for a while now has accelerated in recent weeks, from a ‘6 in front of it’, to a ‘5 in front of it’, then last week a ‘4’ with some players urging a 3. That fancy talk the policy class use to talk about when the fiscal stimulus that has had capitalism on life support will start to be withdrawn and the numbers refer to the official unemployment rate that will tell the politicians the economy has recovered. Yes, I jest. And I shouldn’t because human tragedy is involved. But after years of being told I was crazy, it makes me laugh to watch the machinations unfold as the uncomfortable truth sets in that this lot had no authoritative model – it was hocus pocus all along designed to make us think they were on top of it and that TINA (prevails).

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The Weekend Quiz – May 1-2, 2021 – answers and discussion

Here are the answers with discussion for this special May Day Weekend 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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No inflationary trends evident in Australia – latest data

I have been seeing a lot of crazy predictions that inflation is about to accelerate because of the elevated levels of government spending, record low interest rates and substantial government bond purchases by the Reserve Bank of Australia. It is almost as if the conservative, deficit-haters want that to happen so they can say “We told you so” as they cling on to their flawed macroeconomic theories. Well sorry to disappoint. Today (April 27, 2021), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the March-quarter 2021, which hoses down the inflation fears. The Consumer Price Index rose by just 0.6 per cent in the quarter (mostly petrol prices) and over the 12-months to March 2021 it rose 1.1 per cent. The less volatile series, Trimmed Mean rose just 0.3 per cent and the Weighted Median rose 0.4 per cent. So nothing to see here. The RBA keeps buying government debt and effectively funding substantial proportions of the fiscal interventions since the pandemic, interest rates remain low and yet inflation is still well below the lower bound of the RBA’s inflation targetting range. The most reliable measure of inflationary expectations are flat and below the RBA’s target policy range.

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Dr Die Schwarze Null still not thinking beyond more austerity

Project-Syndicate recently published the latest Op Ed (April 16, 2021) from former German finance minister and current President of the German Bundestag, Wolfgang Schäuble – Are We Risking a Debt Pandemic?. He is the person who personified the so-called ‘die schwarze null’ (Black Zero) while finance Minister. His conduct as finance minister was an instrumental element in extending the GFC across the Eurozone. He is still influential in European politics and his latest Op Ed makes it clear that the austerity mindset is still alive and well despite the current relaxation of the Stability and Growth Pact rules during the pandemic. The problem is that if Europe reverts back to that mindset, the essential changes to the monetary union that are necessary to make it viable will never be discussed. It will be just more of the same. And that same is pretty ordinary for the common folk across the EMU.

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The Weekend Quiz – April 17-18, 2021 – 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 cat is progressively getting out of the bag – Part 2

This is the second and final part of my discussion of the – Economic Affairs Commitee (House of Lords) – hearings into – Quantitative Easing: Committee to examine whether inflationary fears justified, the future of QE, and the merits of ‘helicopter money’ approaches. In Part 1 we learned that statements made by notable central bank governors (or equivalent) to the public about what they are doing are highly questionable given the evidence given by two prominent witnesses to the House of Lords enquiry. The evidence doesn’t just refer to matters pertaining to the UK. We learned that it is obvious that large-scale government bond buying programs by central banks are funding fiscal deficits despite the denial from the central bank officials. In this Part, we find more revealing statements by the witnesses further suggest that the central bank officials, including those from the Reserve Bank of Australia governor, are, at best misleading. At worst – use your own words.

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The Weekend Quiz – April 10-11, 2021 – 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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Governments must restore the capacity to allow them to run large infrastructure projects effectively

One of the major complaints that Milton Friedman and his ilk made about the use of discretionary fiscal policy was that time lags made it ineffective and even dangerously inflationary. By the time the policy makers have worked out there is a problem and ground out the policy intervention, the problem has passed and the intervention then becomes unpredictable in consequence (and unnecessary anyway). The Financial Times article (March 29, 2021) – To compare the EU and US pandemic packages misses the point – written by Ireland’s finance minister reminded me of the Friedman debate in the 1960s. Apart from the fact that the article is highly misleading (aka spreading falsehoods), it actually exposes a major problem with the way the European Commission operates. If Friedman’s claim ever had any credibility, then, they would fairly accurately describe how the European Union deals with economic crises. Always too little, too late … and never particularly targetted at the problem. The debate remains relevant though as governments move away a strict reliance on monetary policy and realise that fiscal policy interventions are the only way forward. Most governments around the world are talking big on public infrastructure projects. However, the design of such interventions must be carefully considered because they can easily be dysfunctional. Further, thinking these projects are a replacement for short-term cash injections is also not advised. I consider these issues in this blog post.

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US Congress to consider a vote on condemning MMT – signals progress

On March 25, 2021, a member of the US House of Represenatives “introduced a resolution in the House of Representatives this week condemning Modern Monetary Theory, recognizing that its implementation would lead to higher deficits and inflation”, while a “companion bill” was introduced into the US Senate (Source). The full text of the proposed legislation is available – HERE. The Bill is full of factual errors. But I thought the most significant aspect is the ‘authorities’ they call upon for justification. A parade of mainstream economists and progressive economists are quoted to give support for the Bill. And I haven’t seen one disclaimer from those mentioned disassociating themselves from some of the wild inferences that the Bill makes. They have allowed themselves to be co-opted by their silence in this rather tawdry and dishonest exercise. That is not surprising at all.

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The Weekend Quiz – March 27-28, 2021 – 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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