MMTers want solutions to economic problems. Academic economists just play with models.

I’m exaggerating to make a point. But here goes….

It’s striking the number of leading advocates of Modern Monetary Theory (MMT) who are, or have been self-employed or run businesses: e.g. Warren Mosler, Mike Norman, Roger Mitchell, Neil Wilson and last and least: me.

People who run businesses are in the habit of GETTING THINGS DONE. If there’s a problem (like unemployment) they tend to want the problem “effing” solved by this time yesterday.

In contrast, for academic economists, an economic problem like unemployment is an excuse to write a paper or book designed to further their careers. There’s no urgency to solve the problem. Quite the reverse: the longer the problem remains, the more work there is for academics.

And academics welcome any additional and unimportant complexities: those complexities can be used to pad out their papers and books. The complexities can be used to make the problem they address more complex than they really are. That makes the author look technically competent. 

For people who want problems effing solved by this time yesterday, unimportant complexities get chucked out of the window.

Of course the above are caricatures. For example there are plenty of academics who are MMTers.  Plus simply running a business gives one some sort of insight into real world microeconomics, but it does not give one an insight into macroeconomics. But there’s more than a grain of truth in the above caricatures. So a basic grasp of economic theory, plus an ability or desire to run a business isn't a bad combination of skills or character attributes.

Ricardian equivalence.

One of the worst examples of academics’ love of irrelevant complexities is Ricardian equivalence. Academics love working Ricardianism into their discussions or equations.

But the EVIDENCE seems to be that the Ricardian effect is feeble or non-existent. E.g. see here or here.

But in fairness to academics, some have been screaming from the rooftops that Ricardianism is nonsense. Joseph Stiglitz said, “Ricardian equivalence is taught in every graduate school in the country. It is also sheer nonsense.” And Bill Mitchell described Ricardianism as an idea from “La-la” land.

Scott Sumner thinks that where money earns interest, it’s no longer money.

Sumner made the bizarre claim recently that Laurence Kotlikoff is wrong to claim that QE involves printing money. Sumner’s reason is that because the Fed currently pays interest on reserves, those reserves are somehow no longer money. As Sumner puts it in relation to QE:

“The Fed is merely exchanging interest-bearing reserves, which are liability of the federal government, for Treasury securities, which are different liability of the federal government. The Fed is not monetizing the debt.”

Well now, suppose the Fed paid 0.1% on reserves (much less than it currently pays). Would those reserves suddenly become money? Or if they paid 0.001% with those reserves become money? This is a farce, isn't it?

The farce stems from Sumner’s claim that because interest is paid on money, it’s no longer money.

Do I or don’t I get money when I sell Treasuries?

Let’s say I have $X of government debt - Treasuries. I sell them to the Fed (say as part of the QE operation). I then get a check from the Fed for $X. What’s that if it’s not money?  Ideas anyone?

The fact that my commercial bank gets a small amount of interest from the Fed when whey my bank’s account at the Fed is credited by $X (as it would be) is immaterial.

Technical point on QE and PSNNFA.

There is of course the point that QE does not involve money printing in the sense of bringing about an increase in “private sector nominal net financial assets” (PSNNFA). That is, QE consists of an asset swap rather than the government / central bank machine (to put it figuratively) simply printing £ or $ bills and spending them.

Plus government debt (certainly short term debt) could be argued to be money. So in that sense, QE does not involve money printing. But that’s not what Sumner is saying.

The real reason for the US government shut down.

Dick-head Kenneth Rogoff doesn’t realise that a monetarily sovereign country can print money.

In this Financial Times article, Rogoff claims that if no one bought the UK’s debt, the UK would be unable to run a deficit, and would thus face catastrophic austerity.

As SimonWren-Lewis points out, that’s nonsense, because a monetarily sovereign country can perfectly well print money as an alternative to borrowing it (as indeed Keynes pointed out in the 1930s.)

I’ve been pointing out for some time that Rogoff is an idiot – (Google “Ralphonomics” and “Rogoff”).

_________

P.S. (same day): The passage in which Rogoff assumes a monetarily sovereign country cannot print money is the 3^rd last paragraph: “One the one hand….”

 

Infrastructure spending is NOT A GOOD WAY of curing recessions.

Every time there’s a recession, hoards of economic illiterates come out the woodwork claiming that increased spending on infrastructure would help solve the problem. Aziz trotted out this myth or something very close to it in the last 24 hours or so.  For the billionth time, the flaw in that idea is as follows.

Infrastructure spending JUST CAN’T by increased and decreased at the drop of a hat: relevant skilled labour may not be available and relevant capital equipment may not be available. Or in more general terms, CONCENTRATING stimulus spending on a few sectors of the economy is totally daft. It’s far better to spread stimulus spending relatively widely: throughout the public AND PRIVATE sectors.

And before some twit accuses me of saying we don’t need more infrastructure spending, I’m not saying that. I.e. it may well be that we need more infrastructure. But if we do, the best policy is to increase infrastructure spending relatively GRADUALLY over the next 5 years or so.

The New Economics Foundation makes much the same mistake: they advocate spending stimulus money on SPECIFIC AREAS or sectors of the economy. Completely daft.