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It’s the Economy, Stupid

Having just watched Insiders, I’m even more convinced that we have to change the conversation about the economy. Bill Shorten did a good job of making the case that it doesn’t matter who leads the Liberal Party – they all support the same austerity policies. But he had a bit more difficulty dealing with Barry Cassidy’s (stupid) question about how would Labor deal with the deficit. Bill got round it well enough – by not mentioning the D word. But this is precisely why we have to change the conversation. The deficit versus surplus debate doesn’t reflect some underlying economic truth. It is a political construct, which arises from a particular view of how the economy works. It is wrong, and we need to change it.

The debt and deficit narrative suits right wing, small government proponents. They want to limit government activity, and leave everything up to the market. So of course they want to limit government spending, and give tax breaks to the rich. So they tell us that wealth trickles down, that is, giving more wealth to the already wealthy will enable them to create more jobs.

This is of course nonsense, as an increasing number of mainstream economists acknowledge. (What the rich actually create is tax havens.) Austerity doesn’t work. The problem with western economies is now deflation – not enough demand to generate production and jobs. We need the opposite policies. Less inequality of wealth would mean more people able to buy goods and services, and more jobs for people supplying them. Jobs on government projects are just as real as jobs on private projects in terms of the demand they create. And as Wayne Swan wrote recently about inequality, ‘Essential to combating its rise is the recognition that nurses, builders, teachers, labourers, hairdressers, shop assistants and waiters are as much generators of growth as bankers, investors, businesses and multinational companies.’

So why do we buy the debt and deficit narrative? The problem is the way we, the general public – and apparently political commentators like Barry Cassidy – have been taught to think about the federal budget. To make the mysteries of macro and micro economics, fiscal and monetary policy clear to us, politicians from both sides customarily use the analogy of the household budget to frame discussion of the federal budget. You can’t spend more than you earn. You can’t just put it on the credit card. We’re putting a burden of debt on our children if we exceed our income now. I heard Abbott say just the other day ‘we’re living beyond our means.’ And so Shorten is asked not ‘what policies does Australia need to become a fairer and more productive society’ but ‘how will you deal with the deficit?’ The household budget is a clever and pervasive analogy. It doesn’t APPEAR to have an ideological bias. But it does. It plays perfectly into the debt and deficit/large versus small government narrative of neo-liberalism (or market capitalism, or whatever you want to call it) – and it must be challenged.

Fortunately it is being challenged.

During the GFC, the Labor government took the budget into deficit to stimulate the private sector. And it worked. Australia was largely spared the full impact of the Crisis, and did not have its economy decimated by the sort of austerity slashing and burning of the public sector that is still crippling European economies. This was described as neo-Keynesian economic policy, based on the idea that it was OK to even out booms and slumps through government stimulus.

This is fine as far as it goes, but it still only offers a minor corrective to the idea that the surplus/deficit debate is at the heart of good economic management.

Now a few economists are going further. I’m certainly no economist, but their critique makes sense to me. It has the horrible name of Modern Monetary Theory. What it basically says is that governments with the power to issue their own currency are always solvent, because they can always – shock horror – ‘print money’, though this is done electronically these days through the issue of government bonds (aka quantitative easing). It therefore makes no sense to say that taxation revenue ‘funds’ government spending, and that therefore we can or cannot afford proper welfare provision or whatever. Abbott’s ‘living beyond our means’ only makes sense in light of the misleading analogy with the household budget, where our books have to balance. A government which has monetary sovereignty (ie can print its own money – unlike Greece) does not have to balance its books. In this theory, the balance is between government surplus and private debt: a government surplus can only be built on increased private debt – as happened during the years Peter Costello was treasurer – and vice versa. The level of government spending is in practice constrained by the level of inflation – too much money chasing too few goods. So what needs to happen is that government spending must be in areas that increase the productivity of the economy. To quote the Wikipedia page on MMT, ‘the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.’ And at the moment, the mantra of achieving a surplus by cutting government expenditure is built – though they don’t say so – on maintaining a relatively high level of unemployment. This is a conscious choice made by the Abbott government.

(Here you might say ‘but they aren’t able to achieve a surplus’, and you’d be right. Other factors like falling commodity prices and low business confidence have seen to that. They could still achieve a surplus if they cut spending – and raised unemployment –but this would be even more deflationary, to say nothing of politically suicidal.)

This means that a government could – if it so chooses – promote near full employment through government spending. This increases the tax base, and reduces welfare costs. It also makes the society more equal and inclusive. The constraints are political, not economic.

And the reason these political constraints bite so hard is that we all think that the federal budget is like our household budget. I know it’s fun to make political capital out of Hockey’s ‘promise’ to return the budget to surplus when he can’t, but much better to avoid all the hand-wringing over surplus and deficit altogether. Labor is caught in the same narrative. They need to unlearn this budget lesson – and quickly.

In this YouTube, Stephen Hail – who unlike me is an economist – explains it far better than I can. It’s quite long, but really worth watching. He also references Bill Mitchell, Australia’s leading MM Theorist, and professor of economics at the University of Newcastle. Here is a link to his interesting and challenging blog. And this is A Kindergarten Guide to Modern Monetary Theory. Please spread the word.


49 comments

  1. captain51

    Great article. At present the Aust. 10 year bond rate stands at 2.48%. It makes good economic sense to actually borrow at fixed rates payable at 10 years to carry out spending on infrastructure projects which add to the nations productive capacity, which results in employment which results in increased tax revenues which result in increased productive capacity which results in increased employment which results in further tax revenues etc etc and so the wheel, turns….

  2. June M Bullivant Oam

    If you have an issue with the NSW Liberal National Party, do not vote for them this time.

  3. Quintin

    The trouble is that the Reserve Bank (RBA) is a private bank controlled entity that needs to show a profit. We need to nationalise the RBA so the Government gets the profit and can control the defect.

  4. John Kelly

    Excellent post, Kay. Deficit spending on value-adding projects is good for the economy. Eighty two of the last 100 years of Federation involved deficit spending, a body of fact that has contributed to where we are today. Are we burdened by those deficits? Are we cursing our parents and grandparents for making us the beneficiaries of this debt? I don’t think so.

    This is where Labor needs to concentrate its efforts because when the public understand this, everything else becomes possible. When a nation’s workforce is fully or near to fully engaged, healthy GDP growth is assured. This enables proper funding for health and education. But to achieve near full employment job creation programs are required. That will require deficit spending

    But every time Labor makes the case for deficit spending, the Coalition will cry ‘debt and deficit disaster’. ‘How are you going to pay for it?’ It will be an utterly hypocritical cry but it will be loud and it will resonate. Labor has to make its case with vigour and conviction, but most of all, with facts.

    They need to explain the nature of government debt, the issuance of bonds and treasury notes, the time frame over which these issuances are dealt with, and how the interest is paid and where it comes from. They need to consign the ‘debt and deficit disaster’ to the garbage bin once and for all. They need to demonstrate in simple terms how deficit spending creates demand.

  5. edward eastwood

    Thanks for posting the links Kay, and welcome aboard the MMT train, we’re picking up passengers coast to coast and continent to continent… 🙂 🙂

  6. Kerri

    At the very least AIMN posters and commenters, we can use this forum, and as many others as possible to educate every one we know on why a suprlus represents your taxes NOT at work!!

  7. davo

    Paul Keating had it right,does not matter about the deficit,as long as one can pay the installments,its ok. Only a Banana republic when you cannot.

  8. Harquebus

    The “D” word is depletion. Resource depletion. This is why the global economy is stagnating.
    Wealth trickles up, not down. The trickle down effect is the wealthy pissing our backs and telling us that it is raining.
    More people buying goods is not the solution. We can not shop our way to sustainability.
    Energy makes money, money does not make energy. It is energy that being is constrained. Peak oil mates, peak oil.
    Only cheap and abundant sources of energy will produce the growth needed to reduce debts and deficits. Seen any cheap and abundant sources of energy lately?
    The era of cheap energy and growth are over folks.
    http://hiddensecretsofmoney.com/videos/episode-1
    Cheers.

  9. ranterulze

    Nice article Kay, understandable by us lay persons. Bill Mitchell’s work is great and usually quite accessible. The whole discussion needs wider propagation, maybe targeted to the likes of Barrie Cassidy and others in the MSM who are not totally enmeshed in the neoliberal web. Thanks for posting.

  10. paul walter

    I can’t think of an issue closer to my heart than this abuse of terminology (“reform, “growth””, etc) by neoliberals to justify misappropriations of commons to those funding political parties and their friends, on and offshore. As employed by many neolibs the dogmas/theology (for this is what neoliberal thinking actually is: a theology sinking to an alibii) has underlying assumptions that are based on faulty or unproven metaphysics, for want of a better word.

    Take for example a notion of the “undeserving” (poor, asylum seekers,”fallen” women etc) requiring of harsh treatment in a selfless attempt to help them away from their weaknesses and alleged vices, badges of their inferiority vis a vis “winners”. The winners didn’t necessarily win because they were born with better brains and opportunities, could only have been through effort and perhaps in some ways it is true that a certain type of personality does better in business than a less aggressive type.

    In some cases a battler will work harder than a rich person coming from privilege will ever work, by this rationale a poor person retrenched say from Ford should receive some thing better for effort than a kick in the chops from social security while, say, an heir to a fortune then gets subsequent further tax cuts. As Kay Rollinson said, either way the money finds its way back into the economy, so there is no reason to unthinkingly award money to someone adequately catered for already, against someone having a bad trot.

    The assumptions behind a neoliberalist interpretation of economics relies on contentions on human nature, purpose etc that are unproveable.

    If you beleive that society is an Enlightenment Project that best serves the notion of human progress and improvement, individually and collectively, you CANT prioritise purchases of Joint Strike Lemons (or frack permits in locations that threaten communities) done behind closed doors, under more recent laws passed during the neoliberal acendancy, when accountability and transparency have been removed and by implication public involvement.
    This against say, adequate funding of university and research organisations like CSIRO.

    Why would public scrutiny of FTAs, PPPs etc need to be denied if all was above board- it’s taxpayers money being used for these things?

    What if such a rupture of political conditions, “captured governments”, has occurred that the new arrangement precludes rational economic theory itself, when this becomes inimicable to rule by fiat for subjective reasons; even to fears of propertied people that democracy is a threat to their privilege and only (inefficient) feudalism can offer them the protection the deluded “they” crave?
    You could create such a situation by dumbing down media and education, encouraging a hedonistic lifestyle amongst the uninformed and in the meantime change laws for consent manufacture than previously required standars of logic and accountability.

    This could be to the extent that even rational dissent could land a person in somewhere on an arbitrary warrant…what hope then?

  11. Matters Not

    Eighty two of the last 100 years of Federation involved deficit spending,

    While I’m not questioning that assertion, can I have a ‘link’ of some kind. Also a claim that between 1950 and 1971 there was never a surplus.

    Please.

    Had all types of ‘discussions’ re same but I would like ‘links’ to demonstrate same.

    Just askin …

  12. Kaye Lee

    Matters Not,

    I can’t link to this but google

    “Australian Federal Government deficits, debt and the stock market”

    and click on top result which is a link from http://www.centricwealth.com.au/

    Surplus years have been few and far between. Aside from the early years of balanced budgets (before Canberra existed!),
    the only surplus budget outcomes have been the following:
    • 1933, 1934 & 1936 – resulting from the depression austerity plan under Joe Lyons (UAP)
    • 1949 (just) under Chifley (Labour)
    • 1988-9-90-91 under Hawke/Keating prior to the deficit spending in the 1990-1 recession
    • 1998-99-2000-1 under Howard/Costello – prior to the “tech wreck” slowdown
    • 2003-4-5-6-7-8 under Howard/Costello (although Kevin Rudd took power during the 2008 fiscal year)

  13. Bacchus

    *&$#ing mobile device won’t let me copy link Matters Not. Google “centric wealth deficits australia”
    That should bring up a pdf with pretty charts of deficits near the top of search results.

  14. Bacchus

    Snap!

  15. olive

    Good observations. Barry Cassidy need to move on . He is out of date and stuck in an old mindset . We need fresh new intelligent and incisive political commentators that move the conversation along and explore new angles
    .

  16. Kaye Lee

    🙂

  17. Matters Not

    Thanks for that.

    Will read tomorrow.

    Big day today. Too many toasts and all that. LOL.

    Can’t believe we are finally ‘rid’ of Newman.

  18. Rosemary (@RosemaryJ36)

    We should be teaching economics in schools an\s well as law and comparative religion/secular ethics.

  19. peter

    Harquebus, Oil (WTI) closed under $50 a barrel last 4 weeks… that is cheap.

  20. June

    Fabulous article Kay – again. Thank you for the insight. I’m spreading the word to anyone who will listen

  21. Bob Lawson Paulson

    Stands to reason that the more jobs created ,the more improvement in the Economy .Hockey is way off. LNP say they are creating work ,but keep dismantling Industry.

  22. Kelvin

    The real issue everyone forgets is not Government debt, but the trade of goods and services. In other words we have to make things, or provide service. A continued trading debt is a problem, what should be aimed for is a balance of trade. That is, Australia exports goods and services roughly in balance with what it imports. This becomes national income. What is bad is either an excessive trade imbalance either way. Remember you can’t eat money, we want to trade goods and services for goods and services. Government debt is a non issue, as was correctly stated, government creates prints money in balance with inflation, print to much, inflation takes hole, print to little, deflation takes hold.

  23. Anomander

    Great article Kay, however, big business will never permit a return to the regime of full employment because it diminishes their power.

    They demand a shortfall in the number of jobs which drives the workforce to be hungry and willing to accept jobs with reduced wages and benefits, which keeps wages growth reined-in and increases their profits.

    Regardless of whether it is good for the people, the nature of our politics is completely dictated by big business and their funding of the major parties, there is no way on earth they will ever surrender their power – well… not without a revolution.

    One only need look at the successful efforts of the miners against the mining tax, the fossil fuel lobby against the carbon price and clubs against the pokie tax; to see what would happen to any government even attempting to change the current model.

    Add to this the neoliberalist ideology that all government is inefficient and only the open market is capable of delivering efficient productions and solutions. Combined with a biased media delivering this message repeatedly to an unthinking and unquestioning public.

    Our government is no longer about governing ‘for the people’ – it’s about the economy and making sure it supports big business first and foremost. Even if it screws with and destroys our society.

  24. Florence nee Fedup

    We hear from many “what about the debt?” My answer is always what debt? Thinking about changing that response.

    Something along the lines of ” Yes debt, maybe it is time to increase it. Invest more in our future, while interest rates are so low.”

    Why in a society, where we all carry debt, from our credit card, car loans to mortgage, are we so anti so called government debt.

    Debt in it’s self is not bad. In fact our society and economy would collapse without it.

    The same government sees nothing wrong with transferring what is now government responsibility to the individual. Yes, such basic services and health and education. In Howard’s day, was called user pay. They then want to lower the income of the majority of workers.

    Does not help with the structural imbalances in the budget. To address that, one needs to pull back on the tax cuts and upper income welfare. They do the opposite, going for more tax cuts.

    Result, less revenue, bigger deficit.

    All they have done, is transfer government debt to the individual. This debt then becomes unmanageable. Structural budget imbalances remain.

    Yes, it is the economy, stupid.

  25. corvus boreus

    My understanding of knowledge of economics is mainly at the level of counting corn kernels, but these ideas, I think, make sense.

    * A Glass-Steagall style legislation that compartmentalizes commercial and investment (securities) banking. This provides a regulatory barrier from people losing real material assets as a result of distant abstract speculative financial shell-games. Backing legislation could help ensure distribution of assets upon insolvency went to material share-holders rather than executive ‘golden parachutes’.

    * A financial transactions tax on international exchange of currency. Graduated, with a tax-free minimum thresh-hold. This would be a disincentive for the shifting of financial assets overseas to manipulate markets and avoid domestic duties.

    These two policies alone could, I think, address a few issues of parasitism that drain from efficiency of economy.

  26. eli nes

    when the opposition gave gillard the ‘debt crisis’ gillard missed the chance to compare debt to income in abbutt’s england, hockey’s greece analogy and corman’s belgium. labor is still missing the chance ships to spain and korea subs to japan. kiss would embarrass abbutt/

  27. Florence nee Fedup

    Money invested in our young, ensuring they are healthy and educated to the limits of their ability is essential for future industry to boom.

    Big business, no matter how clever, cannot make profits without workers. Wealth is created by workers joining with capital. One cannot do without the other. The higher skill the worker is, the more business gains.

    Sensible businesses and governments know this.

    It is the role of government, along with capital, to provide the necessary infrastructure, including human and physical, to ensure increasing productivity into the future.

    This is not welfare. It allows our modern economy and society to function.

    High unemployment, low wages and poor skilled workforce leads to waste and debt for those who come after us.

  28. Steve Hampton

    Thank you Kay! Opening my eyes.

  29. stephentardrew

    Can only agree with you Kay, John and many of the posters.
    We just have to keep bashing on relentlessly.

  30. townsvilleblog

    The biggest concern with Shorten is that he comes across as insincere when he says all the right things. He is a weak kneed former official of Australia’s Weakest Union who have a poor record of helping or defending AWU members, instead preferring to accept their bosses version of events, you can dress a pig in a suit, it is still a pig.

  31. Matters Not

    Thanks John, Bacchus and Kaye. It’s very strange they all show the same ‘evidence’. LOL.

    Then again if one wants ‘truth’ one goes to ‘mathematics or ‘logic’.

  32. Pappinbarra

    Right … and after the GFC response – an economic response the ALP gov then made a political response by saying that they would get the budget back into surplus within (what was it a year?). They really blundered into the LNP trap and talked up the idea of surplus good deficit bad when they should have been saying that the idea of surplus / deficit is irrelevant to good economic policy. Pity.

  33. John Armour

    In this YouTube, Stephen Hail – who unlike me is an economist – explains it far better than I can

    It’s obvious one doesn’t need to be an economist to understand and explain this stuff, you’ve done a great job Kay.

    The puzzle is why don’t more “get it”.

    I’ve just learned that Steve Keen has been ‘reconciled’ with MMT (and has been for over 2 years, what’s more).

    But here’s a recent endorsement, that backs your remarks about the false household analogy:

    Beware Of Politicians Bearing Household Analogies

    The downside is that if Steve Keen has joined forces with MMT, Krugman never will.

  34. Jexpat

    Krugman and most other progressive “saltwater” macroeconomists never will for the reasons set out succinctly and reasonably accessibly here:

    Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory

    This despite sharing many of the same preferences in terms of economic and public policy outcomes (as well as ridicule of the ginned up debt hysteria in the corporate and phoney analogies tossed out by politicians).

    Summary:

    This paper excavates the set of ideas known as modern monetary theory (MMT). The principal conclusion is that the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics. There is nothing new in MMT’s construction of monetary macroeconomics that warrants the distinct nomenclature of MMT.

    Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability.

    At this time of high unemployment, when too many policymakers are being drawn toward mistaken fiscal austerity, MMT’s polemic on behalf of expansionary fiscal policy is useful. However, that does not justify turning a blind eye to MMT’s oversimplifications of macroeconomic theory and policy.

    http://www.thomaspalley.com/?p=322

  35. Matters Not

    Jexpat, thanks for the link to Money, fiscal policy, and interest rates: A critique of Modern Monetary Theory.

    For me it was very heavy reading. For example. I didn’t know what meaning to give to many of the graphs. Also I am not familiar with many of the technical terms used throughout.

    What I would like to read next is a ‘critique’ of that ‘critique’.

    But thanks for posting.

  36. Jexpat

    Matters not:

    The second link to the summary has a brief “critique of the critique.”

    Here’s another:

    https://fixingtheeconomists.wordpress.com/2014/02/18/palleys-critique-of-mmt-post-keynesian-or-neo-keynesian/

    People will still need a rudimentary understanding of IS-LM and the longer term Phillips Curve to get the most out of it.

    It also contains a link Bill Mitchell’s response to the paper.

    http://bilbo.economicoutlook.net/blog/?p=22701

    It’s vintage Mitchell: long winded and cranky!

  37. Jexpat

    For people interested in an Australian centric view of failed right wing economic doctrines and paradigms, but who are less keen on delving into maths and graphs, I’d recommend John Quiggin’s Zombie Economics: How Dead Ideas Still Walk among Us.

    Quiggin discusses some of those ideas (and faces a few challenges on them) here:

    http://www.econtalk.org/archives/2010/11/quiggin_on_zomb.html

    Latest edition of Zombie Economics along with reviews on it here:

    http://www.amazon.com/Zombie-Economics-Ideas-Still-among/dp/0691154546

  38. Glenn

    As my first comment to this site, allow me to first write that I deeply appreciate the information shared here…..

    So, I often come across the “debt and deficit” mantra from people I consider to be quite intelligent, but mostly I guess unthinking about politics.(I sit in the high income category and sadly most of my professional colleagues are pro-LNP I suspect because they do pay a lot in PAYE tax.) Anyways……I suggest simple response for these non-thinking people: Abbott uses the metaphor of the government credit card when trying to link the debt discussion to the family budget. Wrong at so many levels! So, in response an easier way to persuade these non-thinking people is to point out that the CORRECT metaphor to use to link government debt to the family budget is the home mortgage. Let me explain:
    You don’t save up all your money and then buy your house. That’s impossible for 99.9% of the population. What you do is borrow the money to buy your house and then your mortgage payments effectively become the interest payments (plus a bit of debt repayment). It is often acknowledged that mortgage debt is good debt. Why? well, it’s borrowing money to buy an asset in which you realize the benefit of before it’s actually paid for. Think Sydney Harbor Bridge. If the government of the day waited until they had the money to pay for it, it never would have been built, and all the flow-on benefits to the north side of the harbor would not have happened, etc etc.
    Credit card debt is typically seen in the family budget as funding consumption – stuff which should be “pay as you go”. BUT government debt should be compared to the family mortgage, not the family credit card.
    Yes, this is a very simplistic explanation, but Abbott’s metaphor is also very simplistic whilst being highly deceptive. I have used this “metaphor correction” to great effect. It has gotten intelligent people to pause and ponder, then to engage openly in a more interesting discussion about economics. It’s an easier starting point to wake people up to the lies and destruction of our current government. Trying to educate even intelligent people about the functioning of government in relation to fiat currency and the economy takes more than one lively dinner party discussion.
    Change the metaphor from credit card debt to mortgage debt and BINGO! the lights go on and intelligent people start to THINK. This might even work for the “three word slogan simpleton voters”, though I’m not really sure because the one time we had people like that over for a dinner party, we never spoke with them again – “did you know that these boat people actually wear Rolex watches?!” (how did that person EVER get invited into our home in the first place?). 🙂

  39. Jexpat

    Glenn:

    That is an excellent point- and one which by extension leads to another angle: when does a wise household or firm (i.e. business) borrow to invest in a home or capital improvements?

    When interest rates are low (in our case at historic lows) and it’s comparatively easy to gain a positive rate of return, along with numerous other ancillary benefits.

    The Sydney Harbour Bridge was good example of this- as would have been a world class NBN and clean energy projects and R&D.

  40. John Armour

    Jexpat,

    Krugman and most other progressive “saltwater” macroeconomists never will for the reasons set out succinctly and reasonably accessibly here:

    I got as far as the IS-LM bit about a third the way through your link when I decided not to waste any more time.

    Not only did the ‘inventor’ of the IS-LM hypothesis John Hicks dismiss it as a class room artifact with no explanatory usefulness, it’s a repudiation of everything Kenyes wrote or stood for. If Krugman ever gets his head around modern banking he’ll have to do the same.

    The only dilemmas posed by the Phillips Curve, or any of its modifications, is finding some reliable application for it. It seems to have had no empirical support since 1970. MMT’s Job Guarantee just side-steps the whole debate and renders it irrelevant.

    I’m amused that the links your gave ‘Matters Not’ to help ‘explain’, both ridiculed the article you claimed supported Krugman’s dismissal of MMT. Makes me wonder how much of Palley’s paper you read yourself.

    I’m also amused that you thought Bill Mitchell’s article dealing with Palley’s arguments was ‘cranky’. I would’ve used the word ‘exasperated’. Palley’s paper was all straw, much like Krugman’s ‘arguments’. Both seem to have formed their opinions of MMT picking up scents, neither has engaged honestly with the literature.

  41. Florence nee Fedup

    Interest rates have been lowered. I suspect, at this stage indicates a economy that could be in some trouble.

  42. Jexpat

    John Armour:

    What many folks might find illuminating in Bill Mitchell’s rebuttal (such as it was) is his bemoaning the fact that his work wasn’t cited.

    Ignored (with emphasis) was how he put it.

    That in turn leads to the question of why similar hard line MMT pronouncements aren’t taken as seriously as their proponents would like.

    Perhaps it’s because, just as MMT folks can be inclined to think “conspiracy theory” about their lack of acceptance in the larger progressive community of economists, so do there’s a tendency on the other side to think of MMT über alles sorts as cultists.

    This polarising phenomenon isn’t limited to academics in economics of course. They occur in many disciples involving significant uncertainty, even where there’s substantial agreement on end goals and even processes. For example, feuds nearly the point of fisticuffs are legendary in Paleoanthropology.

    It may also be that certain elements of MMT (even considering differences in economic systems between say, Australia and the US) are illusory rubbish- worthy as the end goals may be.

    Also, to clarify: Palley has his own views; just as Krugman has his. I cited the paper as an example of general criticisms of aspects of MMT by progressive economists- not as a substitution for Krugman’s own specific views on any particular point.

    Also, as to IS-LM and the Phillips curve & derivatives therefrom, you have to have some understanding of the models, what they describe, predict or prescribe to have a fruitful and critical discussion about them.

    btw: I’m not sure how you missed it: but the papers you mention were explicitly criticisms of Palley’s paper provided to Matters Not per a request for same.

  43. John Armour

    I’m not sure how you missed it: but the papers you mention were explicitly criticisms of Palley’s paper provided to Matters Not per a request for same.

    I interpret the words “criticism” and “critique” differently, depending on context. Whether ‘Matters Not’ does is for him/her to clarify. If I got that wrong I’m happy to apologise.

    Also, as to IS-LM and the Phillips curve & derivatives therefrom, you have to have some understanding of the models, what they describe, predict or prescribe to have a fruitful and critical discussion about them.

    I wouldn’t have made the comment if I didn’t think I knew what I was talking about. Just because I’m enthusiastic about MMT doesn’t mean I’m ignorant of the history of economic thought.

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