Category Archives: Uncategorized

Stephanie Kelton Interviews L. Randall Wray on Monetary Policy and the Economics of Retirement Security

By Dan Kervick

Stephanie Kelton interviews L. Randall Wray in the excellent new podcast series from New Economic Perspectives.  The initial part of their discussion deals with the Fed, the “taper” and the inadequacies of monetary policy in dealing with the problems of unemployment and aggregate demand shortfalls. They then turn to a lengthy discussion of the three legs of the stool for retirement security: pensions, private savings and Social Security. Wray makes the point that defined-benefit pension programs have become decreasingly viable as developed economies have changed demographically, and that private savings were devastated by the 2008 financial meltdown and remain at risk as the potential for further financial crises looms. That leaves Social Security, which is under political attack in Washington by the likes of Pete Peterson and his acolytes in both parties.

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Three Pillars of Democratic Empowerment

By Dan Kervick

Brad Delong recently presented what he impishly called ‘The Seven Cardinal Virtues of Equitable Growth’.  For me, DeLong’s list is a mixed bag.  But there are a few items on the list I would unreservedly endorse.  One is his second virtue:

2. Invest. Invest in ideas, in equipment capital, in structures capital, in education: we need more of all forms of investment. Boost public and private investment: we need both kinds.

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The Case against Summers: Much More Obvious than Critics Are Making It

By Dan Kervick

Various types of backlash appear to be growing against Lawrence Summers in the political fight over who should be the next chair of the Federal Reserve Board of Governors.  Josh Barro reports on a research note from BNP Paribas saying that “if President Obama picks Larry Summers as the next Federal Reserve Chairman, he will do serious harm to the U.S. economy.” Binyamin Applebaum develops similar themes in the New York Times.  And Paul Krugman worries that a Summers appointment won’t produce enough media shock and awe to signal a “regime shift” and awaken the confidence fairies from their slumbers.

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Sumner’s Cold Potatoes

By Dan Kervick

Scott Sumner attempts to explain the so-called “hot potato effect” which has played such an important role in the theories and policy recommendations of the Market Monetarists.  But the explanation contains two weaknesses.  The first weakness is a muddle of inapt metaphors which seem to run together the concepts of diminishing marginal value and negative marginal value.  The second weakness is more serious: Sumner and company refuse to take cognizance of the important institutional differences between the banking sector – an unusual and limited sector of the economy where only money and money-denominated financial assets are traded – and all of the other sectors of the economy where money is exchanged for everything else that can be bought and sold.  As a result they seem to be incapable of distinguishing between realistic changes in the central bank’s patterns of doing business with the financial sector and imaginary changes in the central bank’s pattern of doing business with the rest of the world.  And they mistakenly conclude that central bank statements about the former should have a major impact on beliefs about the latter.

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Bank Lending and Bank Reserves

By Dan Kervick

Provoked partly by some recent posts by Paul Krugman, which seem to imply that understanding the institutional structure of the banking system is irrelevant to gauging the effectiveness of the monetary policies implemented by the central bank, questions have arisen again about the relationship between bank lending and bank reserves.  One of the issues raised can be framed by asking, “Do banks lend their reserves?”  And as with so many questions in economics, the answer to this question depends on disambiguating the question, clearly distinguishing parts from wholes, and avoiding fallacies of composition and division.

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Public Enterprise, National Development and Unemployment

By Dan Kervick

Bill Mitchell has a really great piece up today at his wonderful blog, billyblog.  After briefly discussing the Modern Monetary Theory (MMT) emphasis on the operational realities of the monetary system, and asking whether or not it is important to situate those discussions of operations and macroeconomics in broader debates about ethics and morality, Bill lays out his own view:

The “operational reality” is factual and sufficient is one view. Just the massive loss of national income is a sufficient political motivation to do everything possible to avoid mass unemployment.

According to this narrow view, no further discussion about the other personal and societal costs (damage to physical and mental health; family breakdown; increased incidence of alcohol and substance abuse; increase crime rates; skill loss, and the rest of it) is needed and only leads to the accusation that MMT is mired in a contest of values rather than being about the cold, hard operational reality.

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My Unpublished Letter to the Editor of the NYT

By Stephanie Kelton

I submitted the following Letter to the Editor in response to Annie Lowrey’s July 4 article on Warren Mosler and MMT.  The Times chose not to run it.  So I will.

Thank you for alerting your readers to the growing impact of the anti-austerity branch of economics known as MMT. More than a decade ago, Warren Mosler challenged the economics profession, insisting that the U.S. would be a far more prosperous nation if we stopped basing our fiscal and monetary policies on macroeconomic theories that were designed for a country whose currency was still tied to gold. I was among the first wave of academic economists to reach agreement on this point. Now hundreds of articles, book chapters and conference presentations later, the ideas have spread well beyond the ivory towers. Tens of thousands of professionals in finance, business, government, etc., many of them formerly self-proclaimed deficit hawks, now champion Warren’s insight that our fears about debt and deficits are based on a failure to understand how modern money works–and that it’s holding all of us back.

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The More Things Change, The More They Stay the Same: 75 Years of American Finance, 1861-1935

By Stephanie Kelton

Check out this graphical presentation of the history of American finance (h/t Matt Busigin). Laid side-to-side, this incredible visual results in roughly 80 feet of political and economic history from 1861 to 1935. American ingenuity, war, speculation, market manipulation, panics, trade wars, natural disasters, etc.

And be sure to study the legend carefully.  To learn more about Ayers’ Index of Business Activity, see here.  Enjoy!

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Discussing “Money from Thin Air” on the Attitude

By Dan Kervick

I appeared today on The Attitude with Arnie Arnesen to talk about my recent post “Do Banks Create Money from Thin Air?” But we ultimately veered into discussion of financial stability, where I tried to make the point at the end of the segment that – in my view – the problem of financial instability is not due so much to bank “money creation”, but is a much broader problem of the leveraging of debt with debt that is built into the nature of capitalist finance, and is a persistent danger that can only be met with a permanently vigilant, clean and independent regulatory apparatus – unlike the one we have!  Lot’s of good MMT and Bill Black themes in this discussion.

Dan Kervick on The Attitude

The Attitude is broadcast by WNHN 94.7 in Concord, New Hampshire.

Taxes, Affordability (and a Little Gambling) on The Attitude

By Dan Kervick

I appeared today on The Attitude with Arnie Arnesen to talk about taxes.  The discussion began with the Apple tax avoidance issue, but expanded into some of the broader context for thinking about taxes – some of which I discussed in my recent post, “Money, Taxes and What We Can Afford”.  We also spent a few minutes discussing gambling as a means of raising state revenue, since the New Hampshire House of Representatives defeated a major casino gambling bill yesterday.  Enjoy!

Dan Kervick on The Attitude

The Attitude is broadcast by WNHN 94.7 in Concord, New Hampshire.