Category Archives: Modern Monetary Theory

Let the Palmer House (not Fiscal House) be our Guide

By Mitch Green

Readers of this blog familiar with my previous posts know that I love trains. Sure, they’re slow. And after about twelve hours the coach cars start to get a little, well, worn. But, as a mode of conveyance they offer one time to reflect, and if you are lucky a little time to explore a new city.

Source: Wikimedia Commons

Travelling from Kansas City to NYC via Chicago, I had the pleasure of visiting the Palmer House – a fine example of the workmanship of a bygone era. Upon entering the great hall I was immediately struck by the grandeur of its ceiling. I have had the privilege to experience similar wonder and amazement in travels elsewhere, and as far as ornate ceilings this was not my first time at the rodeo – I’ve been to the Sistine Chapel, after all. What struck me the most about that moment in the Palmer House was not driven by my taste for architecture or the fine arts (which is probably ‘vulgar’ by any convention), but that it serves as a lasting example of what society is capable of achieving. Continue reading

Paying for Lunch – MMT Style

By Dan Kervick

A common criticism of Modern Monetary Theory is that it is a naïve doctrine of free lunches.  The critics grant that a country like the United States, which issues its own freely floating fiat currency, can always make the policy choice to issue whatever quantity of that currency it deems appropriate.  The US government can spend as many dollars into the private sector economy as it chooses, without obtaining those dollars from some other source first, and it can always pay any debts that have been incurred by borrowing dollars.  But the critics will go on to charge that MMT mistakenly concludes from these few institutional and operational facts that there are no economic limits to the wealth-generating capacities of the government.  They caricature MMT as a doctrine of manna from heaven, in which the power of issuing a generally accepted medium of exchange confers the power of conjuring real wealth into existence by prestidigitation.   In short, they see MMT as a disordered syndrome characterizing people who are experiencing massive money illusion.

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What’s The Plan?

By Dan Kervick

The politicians always seem to be the last people to get it.   But anyone who actually works in the corporate world knows that the central economic concern these days, the thing that is holding us all back economically, is not uncertainty about tax rates.  They also know the core problem is not frustration with regulation and red tape.  Nor is the problem an epidemic of nocturnal terrors about government deficits.   The problem is this: not enough customers.  And the problem of not enough customers right now is exacerbated by the fact that there is also low confidence that there will be more customers in the foreseeable future.   With low confidence that broad prosperity will return to customers, the willingness to invest and hire aggressively is limited.  And since so many businesses perceive the world the same way, the combined effect of their general unwillingness to hire is persistent high unemployment, and a self-reinforcing perpetuation of the low demand that is the cause of the unwillingness to hire in the first place.

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A Communication from Your Central Bank

By Dan Kervick

Nick Rowe recently argued that there can be certain types of products for which the market might allow multiple equilibria.  This can happen because the willingness of an individual to buy some product might depend on how many other people buy that product.  The upshot, Rowe suggests, is an unusual, non-functional shape to the demand curve characterizing the market for the product in question, resulting in two distinct equilibrium demand quantities corresponding to the same price.

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Resolved: Economic Democracy and Visionary Public Purpose

By Dan Kervick

According to their website, the Alternative Banking Working Group is “a group of concerned citizens, activists, and financial professionals with two goals: the first is to explore and, if possible, establish alternative banking systems that might replace the current system. The second goal is to broadly understand and educate people about the current financial system, as well as come up with short and long term plans to improve it.”

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Toward Monetary Enlightenment: An Integral Approach to Macroeconomic Policy

By Dan Kervick

One staple of economic policy debate is the running conflict between those who lean toward a reliance on fiscal policy and those who lean toward a reliance on monetary policy. Continue reading

Wray on the History of Money

By Dan Kervick

This is just a brief note to the readers of New Economic Perspectives to point them to an outstanding new working paper posted by L. Randall Wray at the website of the Levy Economics Institute of Bard College.  The paper is called “Introduction to an Alternative History of Money”.   In the abstract of the paper, Randy beautifully captures a feature of heterodox approaches to economics that distinguishes those approaches from much orthodox economic theorizing:

Heterodox economists reject the formalist methodology adopted by orthodox economists in favor of a substantivist methodology. In the formalist methodology, the economist begins with the “rational” economic agent facing scarce resources and unlimited wants. Since the formalist methodology abstracts from historical and institutional detail, it must be applicable to all human societies. Heterodoxy argues that economics has to do with a study of the institutionalized interactions among humans and between humans and nature. The economy is a component of culture; or, more specifically, of the material life process of society.  As such, substantivist economics cannot abstract from the institutions that help to shape economic processes; and the substantivist problem is not the formal one of choice, but a problem concerning production and distribution.

There is no doubt that abstraction has its purposes in science.  But so much of orthodox economic debate these days seems to get lost inside the formal models of the debaters, adding pointless epicycles to models that are fundamentally flawed from the outset, and whose inherent social and psychological unreality no number of added complications can fix.

The curves of economic theory have an attractive and almost addictive visual simplicity.  Some are very useful.  The risk, however, is that they quickly become intellectual crutches.  People addicted to the representational power of these curves can start thinking too much in terms of animated PowerPoint displays, where various actions produce automatic effects in terms of motions either of the curves or along the curves in a pure mathematical space.  And as a result they may begin to neglect observation of the real-world processes occurring among actual, organic and historically given people and institutions – the processes that the models were supposed to describe in the first place.   The human reality of MMT and other heterodox approaches is part of what attracted me to this new way of thinking in the first place – and helped break me of some of the bad mental habits burned into my brain from that old Intermediate Macro course I took in 1978.

Anyway, enjoy Randy’s paper!

MMT for Austrians Part 4: Is Description Without Theory, Ideology or Policy Desirable? Is it Even Possible?

By L. Randall Wray

This will be the final part of this series. Next week we turn to the Job Guarantee/Employer of Last Resort.

The answer to both questions posed in the title is, I think, a big fat no.

I’m not going to go deeply into methodological debates. First, I’m no methodologist. Second I don’t think many readers here are that interested in such debates. And, third, it really isn’t necessary.

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Is Greece’s Rescue at Hand?

Marshall Auerback’s latest assessment of the ongoing Greek crisis.  Watch here.

MMT FOR AUSTRIANS 3: How Do YOU Propose We Deal with the Elderly, Disabled and their Depts?

John Carney agrees with me that supporting our elderly is not an “affordability” problem,but he claims that I fail to see the “real” burden—the dependency ratios and all that. Actually I’ve been writing about that since the early 1990s. The“real” burden is the only thing that matters.
Here’s justa short list of easily accessible things I’ve written at www.levy.org:
Public Policy Brief No. 55 | August 1999 Does Social Security Need Saving?
This is just a small sample; the last one listed (PPB 55) and WP 468 are probably the best things to read first, then do PN 2006/5.