Since mother nature dealt a devastating blow to Japan Apple’s iTunes nudges me not so gently to contribute financially to alleviate the pain of the Japanese and help in reconstructing the country with a donation. iTunes latest move is a compilation called »Songs for Japan«. From the retail price €9.99 €7.04 will be donated to the Japanese Red Cross. Sounds good and noble. But the BIG question an asshole like me wants to ask is whether Japan needs any donations?
There’s a lot of commentary in the blogosphere (see for example here here here and here) on the two prominent GIGO posts by Paul Krugman concerning MMT (Modern Monetary Theory). I won’t add my 2 cents as I’m busy searching a Sympathy Card for Paul.
Update: Jamie Galbraith responds to Paul Krugman’s fear of US insolvency. Reads like an adult takes a child Nobel laureate by the hand to walk him through some basic facts.
I already wrote that the two GIGO posts of Paul Krugman on MMT (Modern Monetary Theory) produced a lot of response by the MMT ‘sect’. Among the stuff I read was a post »Dear Paul Krugman: You Do Not Understand Modern Monetary Theory« by Cullen Roche on seekingalpha.com. Going through the comments I found this GIGO comment pearl of wisdom by a Prof. Daniel P. Remy.
»Capitalism at its most basic level is the power of money and MMT goes right to the roots by claiming power should rest with society and not private wealth. MMT is as subversive to capitalism as socialism since it favors a radical transfer of power. It’s probably even more threatening than socialist ideas of public ownership since socialism is deeply blemished in the public mind from historical communism. MMT attacks capitalism in a less obviously confrontational way but the logical end point is a vast diminution of the power of money and something resembling socialism.«
Good stuff: Comments on Global Political Economy
Paul Krugman had 2 bizarro blog posts [SE: about MMT] this weekend wherein he had a thought experiment …
Krugman wrote the post to illustrate his differences with the MMT crowd. Which is again unfortunate, because I’ve found that MMT descriptions of how the macroeconomy works is the most technically correct, provides a seriously objective framework to understand what actions cause which vs. what, and is the only economic framework that incorporates how credit and investment actually functions and affects the overall economy.
To put it in analogy, MMT looks at a fire and notices that firemen are the most effective method to combat the fire. By comparison, the classical explanators are those who notice that whenever there is a fire, there always seems to be a lot of firemen. So hence, the best way to decrease the number of fires is to decrease the number of firemen.
Previously, if you were in any finance type of work, you could safely ignore macroeconomic prognoses on your industry based on the classical view, and your ignorance of the prognoses would not affect you in any way. Now you ignore macro analyses based on the MMT framework at your peril.
The Rogue Economist
»A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money; even though the term of its final discharge and redemption should depend altogether upon the will of the prince. If the bank which issued this paper was careful to keep the quantity of it always somewhat below what could easily be employed in this manner, the demand for it might be such as to make it even bear a premium, or sell for somewhat more in the market than the quantity of or silver currency for which it was issued.«
Adam Smith. An Inquiry in to the Nature and Causes of the Wealth of Nations. p 195
Mike Norman: The greatest fearless MMT (Modern Monetary Theory) evangelist going regularly on air I know off. Keep on going Mike! And please ignore this party spoilers at YouTube.com who vote you down.
The Real Housewives of Wall Street
Rolling Stone’s Matt Taibbi did it again. Unbelievable! This story makes you speechless. Treasury and FED dictators running amok.
Why is the Federal Reserve forking over $220 million in bailout money to the wives of two Morgan Stanley bigwigs?
But let’s look at the bright side of the story. Basically the story confirms the MMT (Modern Monetary Theory) proposition, that the consolidated federal government of the United States (Treasury and FED) can’t run out of money because it is the issuer and not the user of its FIAT currency — the US$. (And why Mr. Boehner is wrong in saying “We’re broke.”)
A few days ago, sporting enthusiasts announced the start of the annual fox hunting season. The fox hunt is important because this is how the nation procures the population’s meat supply.
On a related note, the nation also recently just concluded the annual tax season. Tax is important because this is how a sovereign, fiat-issuing nation pays for its spending.
The Rogue Economist has a post »Austrians and MMTers should be on the same side«. Me thinks this is impossible for two reasons:
- For MMTers aggregates matter and are a major focus point in economic analysis. Insufficient nominal AD produces unemployment and out-of-control nominal AD inflation versus a given real aggregate output capacity of the economy. Not so for the Austrians. Here’s an example of Peter Boettke — according to the WSJ the leading light of contemporary Austrian economics — “The aggregate economics that became embedded in the mind-set of economists, intellectuals and policy-makers since WWII still derails our professional discourse let alone the very idea of scientific progress in the field.” Instead of acknowledging that macroeconomics differs from microeconomics (fallacy of composition?) Austrians obsess about some alleged microfoundations of macroeconomics.
- The other problem is the quasi-religious believe system of Austrian economists in the self-correcting mechanisms of the market economy and their almost paranoid hatred of government. MMTers view the market and the government as two institutions of society to further society’s purpose. Markets can fail and governments can be stupid but both are necessary and complementary. The remedy for market failure is government and for government stupidity the ballot box. I would even go one step further that there are no functioning markets with some sort of government. But show an Austrian economist a complete dysfunctional market (health care?) and like Pavlov’s dog he will start to dream up reasons why government intervention has screwed up Mister Market.
Update: Edward Harrison has an excellent post on the subject whether MMT and Austrian Economics is compatible. Must read! Although I’m not sure whether I agree with him ;~) At the end of the day I’m an ideological warrior!
… doesn’t mean you know a lot of every subject you’re talking/writing about. So David Leonhardt of The New York Times started his quiz »O.K., You Fix the Budget«. And nearly 9,000 readers worked the puzzle. Mike Keller is totally excited:
Nearly 9,000 readers worked the puzzle. Individually, they were all over the map. But as a group, they accomplished the goal by splitting the difference: almost exactly half the savings came from tax increases, half from spending cuts. Collectively, readers seemed to realize that the hole we’re in is too deep to be filled by tax increases alone or spending cuts alone.
The problem here: there’s no hole. The federal government of the United States of America is the issuer of its currency — the US$. It can produce any amount of US$ it wants by simply crediting bank accounts. Theoretically it can mark up private sector bank accounts with US$ = infinity - 1 US Cent. (Granted: there are some stupid self-imposed rules like the debt ceiling and issuing debt 1:1 for any US$ spent by the government.)
Now here’s my issue with this New York Times propaganda. This whole debt/deficit debate is only a waste of time and a distraction. David Leonhardt should ask his readers how do you think can we annihilate the unemployment rate of 9%. How can we put 25% of US teenagers who want to work in jobs? What can we do about education to avoid that all these students of private sector institutions accumulate mountains of debt for non-education only to be indentured laborers for the rest of their life?
»So if it were up to me, I’d step a bit more on the fiscal accelerator. But that’s not why I left [the White House]. I left because I was frustrated. Not with what was going on inside the White House, but with what is going on outside.
The national debate over economic policy is way off track and the stakes are as high as can be. In every important area of economic and social policy—health care, fiscal policy (deficits, debt, taxes), public investment, retirement security, climate change, education, job growth, income distribution—there’s so much misinformation, so many false assertions, that it is impossible for anyone paying attention to evaluate the choices with which they’re faced.
Most important, as the 2012 election season gears up, we are poised to have a fundamental debate about the size and role of the federal government. But absent straight talk and plain, understandable facts from both sides of the argument—about the costs and benefits engendered by this choice—it will be impossible for voters to make an informed choice.
Let me be clear about where I stand. I view the conservative agenda right now as trying to implement a large shift in who bears the risk of those events in our personal and economic lives that are inadequately handled by private markets. In my view, to get this wrong means significant disinvestment in public goods from education to infrastructure, diminished health and retirement security, more booms and busts—a move from “we’re in this together” to “you’re on your own.”«
Jared Bernstein in his first Welcome Blog Post. Me thinks his blog is a must to follow although there will be the usual crude Keynesian ritual — the budget must be balanced over the business cycle — which is something we MMTer should be meanwhile accustomed to and which we can answer with our polite objections by inserting our favorite text template to rescue Keynes from his acolytes.
