Monday, September 23, 2019

Economic analysis

[T]o the economics profession mathematical analysis of stylized models is taken seriously exactly so long as the conclusions fit the prejudices of economists. Thus when an economist says "Mathematical analysis which you wouldn't understand of my model shows that X is a bad policy" you should hear "I don't like X." — Robert Waldmann

Saturday, September 21, 2019

A trillion cows

It's one thing when stupid people repeat stupid talking points because they are paid to be stupid. That's how the world works. They're not being paid to persuade anyone; they're paid to reassure their masters and scare the rest of the slaves.

But I find people especially irritating who try to pretend to be economists, who seem to think they're actually explaining something, and just botch the job. So we'll have a look at Larry Burden's monstrosity, Thoughts on money theory.

Burden wants to explain inflation.
[M]aybe an example will help illustrate how inflation steals our wealth. If a family woke up one day and found out they had the only cow on earth, the value of that cow either to sell or exchange for other needed goods would be immense. The family, being prudent, decides to save their valuable cow until next year when it will be worth even more. Meanwhile, the USDA gets word of this priceless cow and decides to clone it.

Unknowingly, the next year the family discovers that because of the government’s interference in the market, there are now 1 trillion more cows for sale. Sure, they can still sell or exchange their cow for things the family needs; but for much, much less than they could have the year before.

Oh, sigh. I cannot think of a stupider way to explain inflation. Cows are a real productive resource. If we could clone cows, we would increase our real wealth, making everyone better off. Indeed, our fictional family has lost none of their real wealth (they still have their cow).

Money, in contrast, is not real wealth. You cannot eat a dollar bill, nor can you use it to produce more food.

Burden goes on:
Similarly, the dollar in your bank account has had its purchasing power diluted. Between 2008 and 2012, the Treasury [sic] printed somewhere between \$3 trillion and \$7 trillion out of thin air.

(Just so you know, the Federal Reserve, not the Treasury, creates money, which they can use to lend to banks, purchase Treasury bonds, or sometimes buy assets. The Treasury does print Federal Reserve notes, i.e. paper currency, but I have no idea how many they printed, nor how many were destroyed because they had worn out. Maybe if Burden would bother to cite his sources, we might be able to check his numbers.)

A growing economy needs a growing quantity of money. We try to create just enough new money to cover economic growth, but it is better to create a little bit too much than not quite enough. We want to keep the money moving: we measure our national economy by the flow of dollars, not by the stock. If there are not quite enough dollars, people tend to hoard them, the flow goes down, and we produce less than we could. It is difficult to produce more than we can, impossible in the long run. It is easy to produce less than we can, and if we produce less than we can in one year, it is easier to produce even less the next year. No more staunch a conservative than Milton Friedman argues that spiraling deflation probably turned what would have been an ordinary recession into the Great Depression.

We print money to cover our national budget deficit every year. This year’s deficit is projected to be \$1.4 trillion. Our national debt will likely top \$22 trillion. This is the largest debt ever incurred by a nation in human history.

Oooooh! Scary big numbers! Googol! Googolplex! Ackermann functions! Are you shaking in your boots?

So what? We also have the largest productive national economy in human history. Indeed, the "national debt", denominated in real goods and services at today's prices (not a terribly useful measure), comes in at well under two years of our national income. In other words, the United States' debt to income ratio is less than that of most families who buy a house.

And we are going to pass this bankruptcy [sic] down to our children and grandchildren.

We will pass the debt (not bankruptcy) — or should I say "debt", because governments are not like households, and government debt is not like household debt — to our children, as well as the productive economy it has built.

All debt is present pleasure for a future obligation.

This statement is nonsense even regarding ordinary household or business debt. When a household borrows \$500,000 to buy a house, they are not consuming \$500,000 the day they buy it, to be repaid well into the next generation.

Every nation from the Greeks to Venezuela have inevitably collapsed because they debased their currency.

Tsk! Grammar, Mr. Burden. Does your paper have copy editors? (Sigh. Of course, there will be at least one grammatical error in this post even worse than Burden's. In my defense, I don't have a copy editor.)

And not every nation has collapsed, and those that have collapsed did not all collapse because of currency "debasement"; indeed hyperinflation appears to be a symptom of other causes, not a primary cause.

Our descendants should look back on us with derision and disappointment.

Not nearly as much derision and disappointment as people who know what they're talking about look on those like Burden, whose condescension is matched only by his ignorance.

Tuesday, September 17, 2019

MMT and hyperinflation

Greg Curtis gives us the third installment of his hysterical and almost completely uninformed condemnation of MMT: A Few Disastrous Examples of Government Overspending.

Curtis employs an all-too-common trope: Look at these bad events! They were really bad! And they were bad — the author asserts without evidencebecause of this thing I don't like. Don't do that thing! (For rhetoric nerds, this is (at best) a cum hoc ergo propter hoc fallacy.)

For example, Hitler and Stalin killed a lot of people! That's bad! They were atheists! Therefore,tThey killed those people because they were atheists! Don't be atheists! Leaving aside whether they really did "wrongly" (whatever that means) kill a lot of people (Hitler probably, I'm not that sure about Stalin) and whether they actually were atheists (Stalin probably, Hitler not so much), how do we know that it was the atheism specifically that caused the killings? They both had mustaches; how do we know that wasn't the cause? Almost all (male) politicians in Murrica (fuck yeah!) are clean-shaven. Coincidence? Wake up, sheeple!

Curtis invokes Venezuela, Argentina, Brazil, Zimbabwe, and Weimar Germany! Look at those bad events! They all had something nebulous in common with MMT!

But should we trust his judgment? Let's look at a couple of specific claims. First,
Consider Venezuela, where staggering overspending by the Chávez regime has led to hyperinflation currently running at 10 million per cent per annum and a failed state.
Really? Chávez died in 2013. All right; we'll consider his successor, Nicolás Maduro Moros part of the "Chávez regime". More importantly, hyperinflation in Venezuela starts in 2012, fourteen years after Chávez took office in 1998 (and just a year or so before his death).

Curtis puts the blame for the Holocaust on MMT: in the Weimar republic,
Colossal money-​printing led, naturally, to hyperinflation: the mark, which had traded at 4.2 to the dollar in 1919, traded at 1 million to the dollar in 1923.

The resultant social instability hollowed out the political middle in the country, and power shifted to the radical extremes: the National Socialists on the right and the Communists on the left. By 1933 the Nazis had won and a few years later Germany launched World War II.

Sixty million people died in that war, including six million Jews, homosexuals and gypsies who were murdered by the Third Reich. When MMT goes bad, as it inevitably does, it goes very bad.

Again, was they hyperinflation the cause of Weimar republic's economic problems or a symptom of something else? It's not like Germany had to pay crushing war reparations or anything. Again more importantly, the Weimar hyperinflation was stabilized in the middle of the 1920s, some years before the Second Imperialist War. Perpaps Curtis is right: clearly there are no other systemic economic crises between the mid-1920s and 1933 </sarcasm>.

It is true that if a government only prints a metric assload of money, and literally does nothing else to manage the currency, then that country will experience hyperinflation. Doctor! It hurts when I do this! Well, don't do that.

Do MMT scholars advise that governments should just print a metric assload of money? No. Do they also advocate governments should do nothing else to manage the currency? Of course not. Curtis knows this, since he does admit that spending can be managed by (ugh!) raising taxes. But Curtis ain't buying: "[T]he notion that a Progressive government would raise taxes on the middle class merely to make up for its own foolishness is outright silly." Because, of course, no progressive government ever has raised taxes on the middle class </sarcasm>.

Look, the world has had a completely fiat global monetary system since 1971. Governments have been creating money since, well, the beginning of recorded history. It can certainly be done poorly: anything can be done poorly with catastrophic consequences. Furnaces catch fire or release carbon monoxide into the house, killing everyone. Airplanes crash. Automobiles crash. But we still heat our houses, fly around the globe, and drive to work. We need more than Curtis's hysterical, incompetent oversimplifications to keep us safe.

Saturday, September 14, 2019

Modern Greek Monetary Theory

the stupid! it burns!Modern monetary theory – deficit thinking by Brenda P. Wenning: This article is by the stupidest condemnation of MMT I've seen. Well, as of today: just when you think conservatives can't sink any lower, they invent a bigger shovel. It starts off bad,
If you think Greece should serve as an economic model for the United States, you’ll love modern monetary theory (MMT).
(Wenning misses the inside joke: the United States is not like Greece because the US has a sovereign currency, but Greece does not) and just goes downhill from there.

A different type of economics

Is a different type of economics the answer? The rest of his work at Independent Australia looks promising.

The case for a guaranteed job

A detailed, favorable overview of Modern Monetary Theory and the Job Guarantee. The case for a guaranteed job by Robert Skidelsky.

Old-fashioned economic religion

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times, once it is debunked, takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency, and one of the functions of old-fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, in every short period of time. — Paul Samuelson

John Maynard Keynes: Life, Ideas, Legacy, dir. Mark Blaug, 1988, Film.

Video clip here

Friday, September 13, 2019

MMT and racial equality

No More Economic Malpractice: African-American Faith Leaders Take on the Establishment
As African-American faith leaders committed to the social justice tradition of the Black Church, we would like to raise our voices to point out that it is not lost on us that Larry Summers and the establishment economists have done immense damage to the communities we serve, as well as to the broader American public, via their influence on economic policymaking. We recognize in the new school of economic thought, called Modern Monetary Theory (MMT), a credible, highly impressive, and genuinely public-spirited alternative to the disastrous economic stewardship offered by the old guard. MMT also offers a powerful theoretical defense of the Federal Job Guarantee, a proposal that was pioneered by America’s first black economist, Sadie Alexander, and a centerpiece of the activism of civil rights icon, Coretta Scott King.

Thursday, September 12, 2019

Modern Monetary Stupidity

the stupid! it burns!Greg Curtis gives us burning stupidity in not just one but two parts! Modern Monetary Madness and A Closer Look at the “Panacea”. From the first article:
When I think about MMT — Modern Monetary Theory — I visualize an odious miscreation squatting in its squalid swamp for decades, waiting only for an opportunity to erupt from the scum and devour the world’s economies.

Okay, maybe I should be taking my meds…
Or perhaps your employer should be taking a look at your (lack of) basic journalistic integrity.

From the second:
And MMT’s main tenets most certainly qualify as magical thinking. We can reach that conclusion by coming at it in two ways.

First, let’s set aside the True Believers in MMT, most of whom are advising the Progressive Democratic candidates. After all, they obviously believe their own hype. Instead, let’s look to serious economists who reside on the political left and who would be inclined to favor the Democratic policies if there were any way to pay for them.

If MMT made any sense at all, these economists would certainly be embracing it. But, to a man and woman, they aren’t. In fact, they mostly ridicule MMT.

Does Curtis understand the difference between reaching a conclusion and justifying a preconceived opinion? Apparently not. Neither does Curtis understand a basic tenet of intellectual honesty and journalistic integrity, that one must read and analyze the proponents of a claim, and not "set aside" the proponents and examining only the opponents.

A dead giveaway that Curtis has abandoned any pretense of journalistic integrity is his inclusion of completely bogus "evidence". From the first article:
Alas, into this sensible economic theorizing strode an obscure fellow named Abba Lerner, who said to himself, “Wait a minute! If high government spending during recessions is a good idea, then even higher government spending all the time must be a great idea!”
Never mind that MMT does not rely on Lerner, and we all understand that Curtis is not literally quoting Lerner, but if one actually reads Functional Finance and the Federal Debt — or even just the Wikipedia entry on functional finance (unlike Curtis, I actually, you know, cite my sources) — they would quickly discover that Lerner does not say, imply, or endorse any such thing. Curtis's assertion is not just an uncharitable interpretation; it's a flat-out lie.

Curtis also invokes the preposterous Chicago Booth survey. (There I go again, citing my sources. It's really not that hard.)
Fortunately for us, the University of Chicago surveyed hundreds of mainstream economists, asking whether they agreed with MMT’s main ideas (i.e., “spending doesn’t matter.”) Not a single economist agreed, not one. There is probably not another statement you could present to that group and not find at least one person to agree with it.
The problem, naturally, is that literally no MMT scholar ever has endorsed the idea that "spending doesn't matter"; more precisely, no MMT scholar would agree with the questions from the actual survey: "Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt," and, "Countries that borrow in their own currency can finance as much real government spending as they want by creating money." Both questions are appallingly stupid; attributing the underlying attitudes to MMT scholars is again not just an uncharitable interpretation but completely dishonest.

If I had the resources of the University of Chicago, and if I had completely abandoned any academic or ethical standards (but I repeat myself), I could just as well poll a hundred academic economists, asking if they agree that "Governments should never interfere in a market economy, because markets are always correctly self-regulating." Almost all (even the conservative economists, well, at least the three left who cling to a shred of intellectual honesty) would disagree. Wow! I proved that economists think capitalism is ridiculous!

Curtis is doubly lying here. Krugman, Summers, etc. agree with MMT proponents on the very point Curtis wants to rebut, that the government can and should spend more than it receives in taxes when the private economy is not at full employment. I know: I actually teach Principles of Macro from Krugman's textbook. "Left wing" (ha!) economists disagree with MMT theorists primarily on the effectiveness of monetary policy (central bank management of the banking system) on the real economy: MMT proponents consider monetary policy rather ineffective in aligning output and capacity (except at intentionally causing recessions); mainstream economists consider it more effective. We should, of course, settle this dispute by appealing to the data, not to the opinions of "experts".

Don't get me wrong: I'm not mad at Greg Curtis's shenanigans. I find it encouraging that the only critiques of MMT I can find anywhere — in both the popular and academic literature — have to rely on the most transparent of lies and bullshit.

Wednesday, September 11, 2019

A Marxist "critique" of MMT

I'm both a Marxist and a professional economist, and I very much like MMT. I think there are good Marxist arguments to be made against it, but in Marxism vs Modern Monetary Theory (MMT), Adam Booth does not offer one. Instead, Booth just repeats every American Enterprise Institute canard against MMT. It's no surprise that neoliberals and reactionaries just offer lies and bullshit to "critique" Modern Monetary Theory, but I expect a lot more — more perspicacious analysis and especially more basic intellectual honesty — from people who call themselves Marxists. Sadly, this expectation is honored yet again in the breach than the observance.

Headline MMT scholars (Kelton, Tcherneva, Wray, Mosler, Mitchell, etc.) are capitalists, not Marxists; of course they're not going to take a completely Marxist line. But Marxism, at least to me, is not about the "correct" ideological line; it's about a ruthless critique of everything existing. And MMT scholars are at least ruthlessly critiquing a central element of 21st century capitalist ideology, the private ownership of the financial system; they argue that we should socialize not just the losses but the gains from this central element. Does the MMT critique go far enough? Of course not. Does it go in the direction a good Marxist would think it should go? I say it does.

Booth uncritically reproduces the neoliberal critique of MMT, which relies almost entirely on outright lies about what MMT scholars actually say. The theme of this critique is that if we do not subject the production of money to market discipline, which requires private ownership of the production of money, then the economy will crash and burn. To reproduce and approve of the neoliberal critique first relies on outright falsehood. All truth is in favor of communism, or so I've been told; even if a lie seems convenient to the Marxist agenda, we should not use it. But the neoliberal critique is not even convenient to the Marxist agenda: if socializing the production of money is a Bad Idea, then why whould more socialization be a Better Idea?

Marx wrote on economics in the middle of the 19th century, when the gold standard was close to absolute canon in capitalist economics. It took repeated financial crises and the near-complete collapse of the Western international economy, but capitalists were finally forced by circumstances to abandon the gold standard partially with Bretton Woods and completely when Nixon ended convertibility in 1971. The core features of capitalism — exploitation, alienation, the falling rate of profit — are still there, but important technical details of how these features work today is almost, but not completely, unlike how they worked in the 1860s, when Marx was writing Capital. Marx understands the gold standard, but it is too much to expect even a person of his genius to anticipate how money would work a century after his death.

One of the persistent tropes of modern Marxist scholars is that because the gold standard was central to capitalism in Marx's era, it therefore must be an ineluctable essence of capitalism. Because we still do have a capitalist international economy, therefore there must be a gold standard lurking under there somewhere. I completely disagree with this trope. Money has a radically different character in 2019 than it did in 1867.

MMT theorists, I think, understand how money actually works today. And if we want to understand capitalism, we have to understand how money actually works, which means, I think, that honest, sincere, and curious Marxists should study MMT, and incorporate it, somehow, into the theoretical basis of action today. Make an honest critique of its truth and applicability. Argue that no matter how we slice and dice it, using money, be it commodity money, or fiat money, whether or not we pretend is a creature entirely of the market, to motivate economic behavior is not and never will be enough to deliver justice and prosperity.

But please, don't use lies intended to undermine the principle of socialism.

Tuesday, September 03, 2019