Category Archives: Guest Blogger

The Penny Game

Posted on May 4, 2013 by | 16 comments

By Jonathan Denn

This demonstration will work well in the classroom or barroom. There are five levels, the first is designed for someone who knows nothing about sector balances, each level adds a new variable and complexity. Continue reading →

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Twenty Numbers From Europe that Should Have You Very Worried

Posted on May 1, 2013 by | 25 comments

By Russell Huntley (via e-mail)

#1 The unemployment rate in France has surged to 10.6 percent, and the number of jobless claims in that country recently set a new all-time record.

#2 Unemployment in the eurozone as a whole is sitting at an all-time record of 12 percent. Continue reading →

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Debt-to-GDP Ratios and Growth: Country Heterogeneity and Reverse Causation, the Case of Japan (Ultra Wonky)

Posted on April 29, 2013 by | 28 comments

By Matthew Berg and Brian Hartley, Ph.D. students
University of Missouri-Kansas City

Summary

We find that the correlation between government debt-to-GDP ratios and future growth in Reinhart and Rogoff’s (2010a and and 2010b) dataset results from outliers which come from the country most suggestive of the hypothesis that slow growth causes high levels of government debt – Japan. This evidence strengthens and reinforces criticisms recently made by Herndon, Ash, and Pollin (2013) of research suggesting a negative relationship between government debt-to-GDP ratios and real GDP growth rates. As Reinhart and Rogoff (2013) recently and quite correctly noted, “the frontier question for research is the issue of causality.” We join Reinhart and Rogoff’s call for more research illuminating this important question. To that end, we use Reinhart’s and Rogoff’s dataset, as corrected by Herndon, Ash, and Pollin (2013). Following and reinforcing Dube (2013) and Basu (2013), we use LOWESS regressions and distributed lag models and find evidence suggesting that correlation of government debt-to-GDP ratios and future growth are much more likely explained by “reverse” causation running from slow GDP growth to high government debt-to-GDP ratios than by “forward” causation running from high government debt-to-GDP ratios to slow growth. Furthermore, what little evidence there is for forward causation appears to stem almost entirely from Japanese outliers. Because – as economists generally recognize – Japan is the clearest of all cases of reverse causation, this considerably weakens the argument for forward causation. In addition, we find tremendous heterogeneity on the level of individual countries in the relationship between current government debt-to-GDP ratios and future growth. This suggests that even if substantial evidence for forward causation is eventually discovered in cross-country studies, the effect will likely be small in size and unreliable, and therefore not relevant to economic policy decisions in any particular individual country. Our findings are suggestive, but not conclusive, and more research is needed. We suggest that simultaneous equations models may offer a way forward on the “frontier question” of causality. Continue reading →

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Can Modern Economics be an Ethical Science?

Posted on April 27, 2013 by | 16 comments

By Payam Sharifi

The subject and discussion of Ethics for economists is a recent but welcome phenomenon.  The creation of the documentary “Inside Job” highlighted the ethical issues facing economists.   Various outlets, consisting of many from outside the economics profession as well as some inside, have been demanding that economists and economics itself adopt a code of ethics.  Many articles, blogs, and academic papers since that time have been beating the drum for a code to be adopted, as a simple Google search will show.  The recent Reinhart and Rogoff flub has also reinvigorated this debate.  The objective of this exposition is to show why economics (as it exists currently) cannot, and will not, ever be able to adopt that code of ethics.  Well, why not…as I’m sure some of you are asking.  Many other professions have a code of ethics that they adhere to…why is it that economics cannot do the same?  There are in fact many reasons why this is so.  I also advance another approach to economics that has existed for decades, if not longer, in the search to answer the question that forms this essay.  Another, but seemingly unrelated topic that is sometimes debated among mainstream economists is the need for economic theory itself to change.  As we seek to answer the question of whether Modern economics can be an Ethical science, we will find that the question of economic theory is in fact related.  Continue reading →

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Modern Monetary Theory – An Introduction: Part 3

Posted on April 24, 2013 by | 20 comments

By Dale Pierce

III. Taxing and Spending

MMT 101

The state’s money is a good store of value and a reliable medium of exchange because absolutely everybody needs at least a little of it. Even off-the-grid survivalists and doomsday preppers need it. Because when they pay for their hollow-point ammunition at Dick’s, or for their freeze-dried mashed potatoes at Costco, they not only pay for the goods – they also pay the sales tax. Now, Dick’s and Costco only take dollars or dollar-denominated credit anyway, but what makes the state’s money valuable is that every company has to collect the tax piece in dollars and cents – and pay dollars to the government at the close of each week or month or other accounting period. Between sales taxes, property taxes, income taxes and all other taxes, everyone knows that there will be a stable, long-term demand for the currency which the state alone can issue. If this currency is reasonably well-managed by the country’s monetary authorities, it will remain everyone’s preferred legal tender – unless a person really is a survivalist or some other kind of crank. Continue reading →

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Modern Monetary Theory – An Introduction: Part 2

Posted on April 23, 2013 by | 5 comments

By Dale Pierce

II. The Science of Government 

Backlash

The wave of capitalist triumphalism that spread around the world from the 1980s on was, and remains, a very complex social, political and economic phenomenon. Future historians, if there are any, will marvel at the suddenness of its rise and the completeness of its victory. Margaret Thatcher and Ronald Reagan seemed to come out of nowhere. Working class Tories and Reagan Democrats rose up in their millions – to vote against the very parties and ideas that had made them prosperous. And which had also made it possible for many of them to send their kids to college for the very first time. The kids themselves graduated into an economy plagued by inflation and full of uncertainties and unknowable quantities that everyone, everywhere seemed determined to blame on some English guy named John Maynard Keynes. Him and his Welfare State. And all that reckless deficit spending. And all those high taxes. Who wanted to be for things like Welfare and taxes? So, a lot of those kids went ahead and took the logical next step and became Young Republicans. Continue reading →

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Modern Monetary Theory – An Introduction: Part 1

Posted on April 22, 2013 by | 12 comments

By Dale Pierce

Chapter One

Introduction

This is Chapter One of a three-part overview of a body of economic thought known popularly as “Modern Monetary Theory” or “MMT”. The aim of this chapter is to explain the basic dynamics of our present-day “fiat-money” economy through the dual lenses of government spending and taxation. We will also explore some contested history, and examine some of the ways we need to think about money differently, now that the United States, along with the rest of the world, has gone off any version of a gold standard. The intent is to be as non-technical as possible, but some parts of the subject are, unavoidably, a little complex. In these areas, keeping the logic as step-by-step as possible will be the goal. In Chapter Two we will look at the ways money systems sometimes go haywire, through either inflationary malfunctions or through the (thankfully) less-familiar phenomenon called deflation, including “debt deflation”. Chapter Three will be about Jobs, Jobs, Jobs. Continue reading →

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Federal cuts put women and children last

Posted on April 21, 2013 by | 4 comments

IN forcing the sequester, House Republicans have ensured cuts to programs that fund breast and cervical cancer screenings, child-care assistance and more.

By Susan Feiner, Posted in Maine Sunday Telegram

The congressional GOP, like the captain of the Titanic, put women and children first.

The Titanic’s captain was trying to save people’s lives. In contrast, House Republicans, having contrived the sequester — $85 billion in federal budget cuts — are steering straight for that iceberg. And when the economy hits it, when the sequester cuts are fully implemented, women and children will go down first.

Read the rest of the article in the Maine Sunday Telegram.

 

 

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Was “Cigarette-Money” in World War II POW Camps a Case of Commodity Money Origination?

Posted on April 16, 2013 by | 3 comments

By Matthew Berg

1. A Parable About the Origin of Money

Perhaps the most convincing single example cited by proponents of the view that money is a commodity is the well-known use of cigarettes as “money” by Allied prisoners of war in Germany during World War II. Just six months after being liberated by the U.S. Army, former POW R.A. Radford published his famous article in the journal Economica, “The Economic Organization of a P.O.W. Camp,” describing how he and his compatriots had used cigarettes as a medium of exchange during their unpleasant stay at their not-so-idyllic Bavarian Stalag. Continue reading →

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Why MMT is Right and the Dreamers are Wrong: Kaldor Versus the Kaldorians

Posted on March 20, 2013 by | 298 comments

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil

Dreaming, I was only dreaming
I wake and I find you asleep

– Billie Holiday “Gloomy Sunday”

The criticisms of Modern Monetary Theory (MMT) on the internet and in academia can be placed into three categories: the cranks; the nit-pickers; and the Kaldorians. The cranks make up by far the largest group. These are the people that simply have not bothered to understand the theory. These, which include some prominent academics, say things like: “The MMTers say that deficits don’t matter; they forgot about hyperinflation!” These people can usually be safely ignored as they are not arguing in good faith. Continue reading →

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