Monday, August 05, 2019

Young men and guns

How about we treat every young man who wants to buy a gun like every woman who wants to get an abortion — mandatory 48-hour waiting period, parental permission, a note from his doctor proving he understands what he's about to do, a video he has to watch about the effects of gun violence, an ultrasound wand up the ass (just because). Let's close down all but one gun shop in every state and make him travel hundreds of miles, take time off work, and stay overnight in a strange town to get a gun. Make him walk through a gauntlet of people holding photos of loved ones who were shot to death, people who call him a murderer and beg him not to buy a gun.

It makes more sense to do this with young men and guns than with women and health care, right? I mean, no woman getting an abortion has killed a room full of people in seconds, right?

— Anonymous

This passage has been incorrectly attributed to Gloria Steinem.

This version
Slightly edited version

Math limericks


Sunday, August 04, 2019

Baker's dozen

A Baker’s Dozen of Reasons Not to Worry about Government Debt

Real-economy arguments for more public borrowing:
  1. The economy generally operates below potential
  2. There are long run forces pushing down demand
  3. Potential output is mismeasured; we are still well below it
  4. Recessions and jobless recoveries have occurred repeatedly in past, will occur again in the future
  5. Monetary policy is not effective at maintaining full employment
  6. It’s hard to ramp up public spending quickly in recession
  7. The costs of getting demand wrong are not symmetrical
  8. Weak demand may have permanent effects on potential output

Financial arguments for more public borrowing:
  1. With low interest rates, debt does not snowball
  2. There is good reason to think interest rates will remain low
  3. With hysteresis, higher public borrowing can pay for itself
  4. Federal debt is an important asset for financial markets
  5. Federal debt is an important asset for the rest of the world

The Fed and inflation

I want to single out a statement in Dean Baker's recent article, The Dangerously Irresponsible Arguments of the “Responsible” Budget Gang: " I have some differences [with MMT]. In particular, I am not willing to give up having the Fed as a check on inflation."

This statement is false in part and true in part. MMT does not ask us to "give up" the Fed's role in checking inflation; instead, MMT scholars present considerable evidence that under ordinary circumstances, the Fed (or any central bank) cannot control inflation. According to MMT (and other theories), bank money is endogenous. The quantity of money in an economy is determined not exogenously by the Fed but endogenously by profit-seeking banks and firms creating loans.

Moreover, firms' investment spending is inelastic with regard to interest rates: if a firm believes they can make a profit by expanding, they will borrow at the prevailing interest rate. As long as banks believe firms can invest productively, they will provide the loans that firms want, and why not? Banks are profit maximizing entities. The Fed has very little choice but to provide the reserves that banks need: the alternative is to allow some banks to simply fail. Having the Fed's thumb on banks' self-destruct buttons is a kind of control, but it is not the same as sitting behind the wheel.

Similarly, as we have seen in Japan since the 1990s and the rest of the developed world since the global financial crisis, central banks can do very little to increase inflation. The Fed can shovel reserves to the banks, but regardless of the amount of banks' reserves, they can't lend if firms don't want to borrow, i.e. if firms believe investment will not be profitable, and banks won't lend if they don't believe investment will be profitable.

The Fed can check inflation. However, the only tool they have is to abruptly raise the Fed Funds rate high enough to choke off investment spending and cause a recession; the resulting unemployment will eventually bring inflation down. But we should find ways other than massive unemployment and suffering to fix systemic economic problems such as inflation. It is not MMT per se but ordinary morality that asks us to give up this tool.

Thursday, August 01, 2019

The "danger" of MMT

The Dangerously Irresponsible Arguments of the “Responsible” Budget Gang According to Dean Baker, deficit hawks
are pushing propaganda, not serious analysis.

I got a taste of this propaganda effort first hand earlier this year when I was asked by an editor at the Washington Post to write a piece on Modern Monetary Theory (MMT). . . . [After several edits,] [t]he editor wanted me to include a needlessly snide remark from a MMT critic and had me referring to the theory as “dangerous.”

That comment left little doubt that they wanted a different column than the one I had written. MMT is dangerous? . . .

Just like the millions who mindlessly pledge allegiance to Donald Trump, [the Post's editors] will push the austerity line they have always pushed regardless of the evidence.

This really undermines the integrity of the mainstream liberal, mainstream Democratic-party economic narrative. When is criticism of MMT honest economic opinion, and when is it at best selection bias and at worst individual dishonesty?

Tuesday, July 23, 2019

MMT Link Roundup


Education about economy critical for coming election

This Economic Theory Could Be Used To Pay For The Green New Deal
"Too often, people get a whiff of MMT, they don't read the literature, and they somehow arrive at the takeaway that MMT is about printing prosperity," Kelton said. "And of course when people hear printing money, they go straight to Zimbabwe or Weimar Germany."

Those are notorious cases of hyperinflation. But Kelton argues that runaway prices are only a danger when demand outstrips the real resources in an economy — the people, machines and raw materials. If there's idle capacity, MMT maintains that additional government spending does not trigger inflation. . . .

[The belief that Japan's high public debt would raise interest rates] "cost both me and my clients or anyone who was stupid enough to follow me money," [bond trader James] Montier recalled. "It was one of the worst trade positions I have ever suggested in my entire life."

He says MMT offers better financial forecasts and helped him understand why interest rates in the U.S. have stayed low, despite growing government deficits.

Taxes for Revenue Are Obsolete (from 1946!)
The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.

The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. . . .

The public purpose which is served should never be obscured in a tax program under the mask of raising revenue. . . .

[Instead, a government should use taxes:]
  1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
  2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
  3. To express public policy in subsidizing or in penalizing various industries and economic groups;
  4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.


Rethinking fiscal policy: Progressive US politics meets radical economics
The most intuitively attractive part of the MMT message is that if the economy is running below capacity, policy should aim at stimulus, and this should come through fiscal expansion. Put like this, it is not so far from the Keynesian ideas so relevant in the 1930s. Mainstream economists, however, are cautious or even sceptical, informed by the post-World War II periods when politicians proved reluctant to rein in excessive budgets. Nevertheless, MMT’s ‘free-lunch’ message of limitless budget funding will go on attracting advocates of big-ticket expenditure.
Good over, but le sigh: budgets are not limitless: the real economy is always a limit on spending. However, there are no financial limits to deficits.

The Stupid! It Burns!

AOC Chief of Staff: Green New Deal 'Wasn't Originally a Climate Thing at All'
Many activists have dismissed the cost as irrelevant, because climate change poses an existential risk to humanity. This relies on climate predictions that have proven false time and time again, and a myth of scientific consensus on the issue. Liberals [!] attempting to use modern monetary theory to dismiss the cost are also misguided. [embedded links omitted; emphasis added]

Monday, July 15, 2019

MMT Link Roundup

Fiscal policy to the rescue in the Eurozone

Over the past few years, the economic literature and prominent scholars have paved the way for expansionist fiscal policy. In the US, Modern Monetary Theory proposes to finance a Green New Deal and full employment by increasing the deficit and using the central bank to pay off debt by printing more money. MMT is attracting more and more attention in Europe, including among populist parties, but also beyond, and will certainly be part of the conversation in upcoming elections.

When stock markets fall on good jobs data and easy money is the norm, we are in the midst of a Mad Hatter’s tea party

There’s always Keynesian-style fiscal stimulus to fall back upon, of course, if economic recession strikes. Nowadays, it has a new name, modern monetary theory, which argues that governments can spend their way out of trouble and never default on debt as long as it’s denominated in their own currency.

This puts Asia’s biggest economies including China and Japan in a relatively good position, as by far the bulk of their government debt is denominated respectively in renminbi and yen. But unless one assumes a massive public-sector bailout of private-sector obligations, this is scant comfort.

Will AOC Be the Next Fed Chair if the Dems Win in 2020? (Not really: it's a joke.)

How to Pay for Major Progressive Programs: Add New Money to the System

In Japan, it is a hot topic; and in China, it is evidently taken for granted: the government can generate the money it needs simply by creating it on the books of its own banks. Leaders in China and Japan recognize that stimulating the economy is not a zero-sum game in which funds are just shuffled from one pot to another. To grow the economy and increase GDP, demand (money) must go up along with supply. New money needs to be added to the system; and that is what China and Japan have been doing, very successfully.


Defend Fed independence. You might need it someday.

Both supply-siders and MMT adherents justify [rejection of central bank independence] by arguing that monetary policy is a tool of public policy that should not be controlled by a technocratic committee of economists any more than foreign policy should be controlled by generals. . . .

The Fed was set up this way so that it could take a long-term view without being influenced by the next election or the whims of the party in power. . . .

[Central bank independence] also removes a powerful tool that governments have for making policy. . . . I am willing to swallow this bitter pill because the same institutional structure that prevents supply-side economics from being fully implemented also constrains MMT.

MMT is risky because it overlooks the long-term costs of increased government spending. . . .

If a Democratic president embraces MMT, it will be crucial for an independent Fed to make sure that the potential costs of those policies are transparent, not papered over and left for future generations.

However, Smith says, "MMT waves away concerns about inflation." No, no, no, a thousand times, no! Get this right! MMT waves away concerns about sovereign default. MMT scholars consider inflation to the primary downside risk to fiscal policy.

The Stupid! It Burns!

America is insolvent, broke, deep into the red

More Talk About MMT

The second way [besides taxes] is much more appealing, to some: Simply print as much money as the program calls for, and then spend it.

That's the basic idea behind MMT. Remember, everything's made up, and the money doesn't matter.You see, advocates of MMT insist that because fiat currency is ultimately a creation of the state, governments can and should print as much of it as needed to fund massive public works, guarantee government jobs for the unemployed and much more. And since a government can never run out of money, the theory says, it can never default on its debts. Deficits are meaningless.

Anyone who's studied macroeconomics knows that unfettered money printing on this scale is a recipe for runaway hyperinflation. Look at Weimar Germany in the 1920s, or Zimbabwe a decade ago. Today, Venezuela is facing a head-spinning inflation rate of 10 million per cent, according to the International Monetary Fund (IMF).

Trump Mocks ‘Young Bartender’ AOC, Green New Deal

The Green New Deal
— which would cost taxpayers untold trillions of dollars — has a few rather extreme ways to combat climate change, like rebuilding or upgrading every single building in the U.S. to be more energy efficient, building trains across the oceans to eliminate air travel and banning nuclear energy within 10 years, just to name a few crazy key points.

Tuesday, July 09, 2019

Leftist fascism

the stupid! it burns! And the New York Times makes it, in good company with the Guardian and the Atlantic: Robespierre's America*

*Originally published in the New York Times

The data* confirm what one hears and experiences anecdotally all the time: In the proverbial land of the free, people live in mortal fear of a moral faux pas. Opinions that were considered reasonable and normal a few years ago** are increasingly delivered in whispers. Professors fear their students.*** Publishers drop books at the slightest whiff of social-media controversy.**** Twitter and other similar platforms have delivered the tools of reputational annihilation***** (without means of petition or redress) into the hands of millions, so that no comment except the most private is entirely safe from the possibility of instantaneous mass denunciation.

*What data?
**i.e. egregious racism and sexism
***No, we don't.
****Like The Bell Curve? Oh, still in print. Or Jordan Peterson's work? Nah, still in print. The Turner Diaries? Available on Amazon.
*****No, they haven't.

h/t to Eschaton

Sunday, June 16, 2019

Heterodox economics is heterodox

Is the British Labour Party's Fiscal Credibility Rule [pdf] (FCR) neoliberal? I dunno: what's a "neoliberal"?

The FCR might or might not be politically advantageous, but I'm not a politician or political advisor — nor am I a member of the British Labour party — so I have nothing to say about the politics. I do, however, have something to say as an economist: the FCR isn't all bad — it's better than a poke in the eye with a sharp stick austerity — but it doesn't seem very good.

Simon Wren-Lewis put up an unconvincing defense of the FCR against MMT critics of the rule.

Wren-Lewis first undermines his credibility by not linking to the criticism he's rebutting. Presumably, he's referring to Bill Mitchell's extensive criticism of the FCR. Briefly, Mitchell asserts that the FCR "reinforces the narrative that deficits and public debt are in some way ‘bad’", and this narrative "will not turn out well."

The first part is undoubtedly true. The FCR states, "Labour will close the deficit on day-to-day spending over five years. Labour make sure government debt is falling at the end of five years. Labour will borrow only to invest. [emphasis added]" The substantive question, then is how this narrative will turn out.

Instead, Wren-Lewis's chief complaint is that MMT scholars have a gasp! horror! political agenda: "MMT is also a political movement of the left." The political agendas of many economists are irrelevant: they ask questions about politically-independent reality. But macroeconomics, at least the kind of macroeconomics that seeks to inform public policy, must have a political agenda. Value judgements are bound up in the very fabric of macro. We talk about employment and unemployment, for example, precisely because we value employment. According to Wren-Lewis, MMT scholars "are therefore naturally indignant that a Corbyn led government has adopted a rule that is derived from mainstream economics rather than adopting MMT." Yes, and? MMT scholars believe that the rule itself — a rule that derives from mainstream economics — is bad, and that a policy derived from MMT would be better. That's the whole point of disagreeing with mainstream economics.

Wren-Lewis offers only the most tepid defense of the FCR:
Why the need for a fiscal rule at all? . . . The answer is provided by something called deficit bias. . . . In the 30 years before this crisis, the ratio of OECD government debt to GDP almost doubled for no justifiable reason.

Deficit bias happens because politicians like cutting taxes or raising spending through borrowing, because it puts off any obvious economic pain. . . . But if deficit bias does substantially raise the debt to GDP ratio, as it did before the GFC, then more debt requires paying more interest which in turn requires higher taxes or lower spending. Deficit bias does not avoid the downside of cutting taxes or increasing spending, it just puts it off until a later date.

But Wren-Lewis simply begs the question here. MMT scholars do not argue that a fiscal rule is not the correct way to limit deficit spending. They argue that deficit spending is the generally correct way to implement government policy. (They do not argue that deficit spending is good by definition: any tool can be used poorly. But the problem is not in the tool itself but the application.)

I do not see "neoliberal" as an insult: Brad DeLong classifies himself as a (left-)neoliberal, I would classify Keynes as a left-neoliberal, and I would classify Wren-Lewis as a left-neoliberal. Neoliberalism is just an philosophy in political economy that holds that private market solutions are almost always preferable to government policy, i.e. provisioning public goods as well as using non-market activity to achieve efficient social allocation of resources. And government policy is inferior precisely because the government is not budget constrained: if the government is not actually budget constrained, it must pretend it has a budget constraint.

In contrast to right-neoliberals, left-neoliberals usually agree that government must rescue markets when they face the danger of collapse. (Most left-neoliberals also advocate greater prudential economic regulation, in agreement with MMT, but that's not the issue here.)

In this sense, the FCR is clearly neoliberal. The message is clear: When not at the zero lower bound, government should sharply restrict its economic impact, especially use of deficits. The FCR treats deficits like dynamiting houses during an out-of-control fire, a desperate measure justified only when used to avert total catastrophe.

MMT scholars and I myself hold almost the opposite opinion: Deficits by themselves are just no big deal. In just the same sense, a tyrant can make any number of horribly oppressive laws, but the idea of law itself is not the problem. The government must act economically, and it must act beyond just the necessity to fix the inevitable periodic catastrophic failures of the market system. And when it is expedient to print money to do so, then print the damn money without worrying about the effect on the capitalist class.

Additionally, the FCR calls for closing the deficit and lowering public debt over five years. MMT is clear on the implications of this policy: lowering net private wealth.* Again, if net private wealth decreases, I would be shocked! shocked, I say! to find that the decline came not from rentiers' but workers' wealth.

*Alternatively, increasing net private wealth with reduced public debt would require a huge current account surplus (increased net exports), which is probably worse.

So is the FCR neoliberal? I dunno. I don't really care. Is it bad macro? By orthodox macro, it's fine; MMT macro, it's dumb. It would be nice if Wren-Lewis and other economists, all of whom are way smarter than me, would actually address the issues instead of slinging around insults and butthurt, but I'm not holding my breath.

Tuesday, May 07, 2019

the condescending tone

Ed Burmila observes
the condescending tone natural to the mediocre white guy who doesn’t know what he’s talking about but is certain of its accuracy
in the vacuous invocation that the US is a republic, not a democracy, but I've seen it in so many other contexts. Not always white, not always a guy, but usually.