The problem with mainstream economists is that they have a model that they believe in. They believe in it absolutely. It has become part of their core identity. And because the model is pure and perfect in their eyes it is therefore obvious that everything in the world must be adjusted to fit the model.So we end up with governments that have their hands tied, we end up with persistent unemployment and we end up with silly inflexible system designs like the Euro.
And when the real world throws up endless evidence that the model is utterly wrong, the mainstream economists scream that, no, the world must be forced back into the model.
And so we have Greece effectively stretched on the rack, we have unemployed living in pipes and the Spanish youth left to wander the streets scratching a living and their heads.
Under a New-Keynesian economic system there must be suffering so that the purity of the model is maintained. And since this religion fits with the views of those with the money and power it is funded and propagated.
This is a Procrustean attitude. There is one average size of bed and all must be made to fit it.
A different viewpoint though yields the obvious solution. What we need is a bed that is big enough for all. This is what the MMT approach shows us.
We can have jobs for all and sufficient income for all. There is no need for poverty. And very likely without having to 'tax the rich' either. So we all win.
Let's harness the output we're leaving on the table. Let's stop chopping people's feet off to fit the New Procrustean bed.
Let's make the bed big enough for all of us.
12 comments:
The problem with the mythical mainstream economist, that everyone likes to have a go at, is that you barely ever meet one. It's ironical that your (and others') reasoning in constructing the mythical economist uses the same thought processes you ascribe to said mythical mainstream economist!
There's the odd one that gets close, but outside of one school in Chicago, I don't think it's nowhere near a clear majority. Economics is just a confused mess, and the middle of it is just a slightly narrower and barely less confused mess.
Back to MMT, aren't you here contradicting what you wrote in your previous (and brilliant) post that MMT is not a magic wand?
I think the main claim to fame of MMT is to say that fiscal policy is a superior "knob" to conduct monetary policy than interest rates or the other knobs that are currently preferred, and that as such the deficit (or surplus) is not a metric of solvency and should just be set where the inflation and other policy objectives imply.
Would a world dominated by MMT central bankers produce full employment? I doubt that, it might help get 2 percentage point better than current, which is good to take but no miracle.
MMT is misselling itself in basically implying that if you parachute Mosler as head of the Somalian central bank everybody there is going to drive Porsches a year later. This obviously is not going to go well with any reality-minded person.
As for poverty, yes, we don't need it, but there's no way it can work without transfers. The bottom 2-5% will never manage on their own to produce something for themselves (or for exchange) which is decent enough not to be called poverty by the rest.
"The problem with the mythical mainstream economist, that everyone likes to have a go at, is that you barely ever meet one."
There are lots of them. Paul Krugman being the case in point.
They subscribe to a government constraint that isn't actually a constraint.
That is the average sized bed, defined by a deficient equilibrium model, that they want to squash you into.
Its restrictive and unnecessary. The available pie is bigger than that.
"As for poverty, yes, we don't need it, but there's no way it can work without transfers"
There is plenty of production in the system that is not being made because of a simple lack of spending. There is no demand signal.
It's effective demand that is the issue which is caused solely by a lack of monetary circulation.
There are too many people who get hung up on the actual output of the low end.
The main output is that they spend the money. Everything else is a bonus.
Money is just an instrument, and here a distraction. Let's forget about it for a moment.
Ultimately what matters is things that get made and done. Poverty is that some people are short of services and stuff that the majority in a society can take for granted.
There are 2 ways they can get out of this predicament: make enough stuff or services for themselves (net of trading) to reach that standard, or get some handed over, or a mix thereof.
Unfortunately no policy of any sort, monetary or otherwise, will on its own achieve the former fully. Good policies may help, but you will always need some of the latter.
Telling people that transfer-free solutions to poverty exist is effectively incentivising them to wash their hands off necessary transfers, and abandon the poor to their lot because "Neil's magic wand will take care of this".
In effect, it seems to me that you are operationally pro-poverty while being ideologically anti-poverty, which is a great misfortune!
I think perhaps you need to go away and understand what Keynes meant by a shortage of effective demand.
Your thinking is simply incorrect.
Money is more than just an instrument. Money is a signalling mechanism to the production system.
Transfers are only required if quantity growth induced by repairing the signalling system is insufficient.
There is no point deciding how to slice the pie until the pie is as big as it can be.
Transfers are needed for those unable to work, but a job offer can be provided to all willing and able to work.
Neil has completely mis-diagnosed the Euro problem.
We’ve all tumbled to the fact that the Euro common currency is defective. It’s blindingly obvious that there is something wrong with a system that involves the unemployed living in pipes.
But this has nothing to do with New Keynsianism. The root cause of the problem is the Euro AS SUCH. That is, the problem is that diverging competitiveness in the EZ cannot be dealt with via the route available to monetarily sovereign countries: changing the relative values of their currencies. So they have to deal with the problem via severe deflation in Spain, Greece, etc.
I’m constantly amazed at the number of economists who don’t seem to get the above very simple point. Unfortunately that includes some MMTers – Warren Mosler and Bill Mitchell included.
As the Greek born economist Vicky Pryce said in her book “Greekonomics” (p.214): “In reality, the root of the eurozone’s problem is one of competitiveness . . . The peripheral economies have significantly lower productivity than Germany …. And the removal of exchange rate risk meant that no one worried about the balance of payments, which used to be a major constraint in the past.”
No I haven't Ralph. I just see things a lot clearer than you do.
It's all down to the One True Interest Rate idea which is precisely what New Keynesian models preach.
The Euro solution to differing productivity rates is precisely the same as the UK one.
In the UK you have to move from Antrim to live in a slum in London if you want work.
In the Eurozone you have to move from Greece at al, to live in a slum in Germany et al if you want work.
The levers of the system are then tweaked to try and force that outcome.
The result of that is, or will be, 1840s Manchester all over again.
The system is run from the point of view of large business and finance. It needs changing so that it is run from the point of view of people and their communities.
Create enough work, generating enough income and distribute it to where people actually live, not the other way around.
If that means business doesn't get cheap labour, and has to work harder for its profit so much the better. Replacing people with machines and more efficient processes is what we want.
"The root cause of the problem is the Euro AS SUCH. That is, the problem is that diverging competitiveness in the EZ cannot be dealt with via the route available to monetarily sovereign countries"
Isn't the problem that the trade surplus countries don't spend their surpluses?
As the Greek born economist Vicky Pryce said in her book “Greekonomics” (p.214): “In reality, the root of the eurozone’s problem is one of competitiveness . . . The peripheral economies have significantly lower productivity than Germany …. And the removal of exchange rate risk meant that no one worried about the balance of payments, which used to be a major constraint in the past.”
MMT economists are not saying this? According to them, the fx rate is involved in the balancing. German products were expensive under the drachma and they were not under the euro. If Greece went back to the drachma, the difference in exchange rates would act like a tariff (tax), i.e., disincentivize imports and incentivize exports, rebalancing the Greek economy. Of course, that would not be enough. A looser fiscal stance would be needed also, but there would be policy space for it.
Isn't the problem that the trade surplus countries don't spend their surpluses?
IN the EZ, yes, because the net importing countries don't have the policy space to address it fiscally. They are winning in real terms of trade but losing financially and wrt to domestic employment.
The problem of the EZ is Germany. Could possibly work if Germany would butt out. Germany is not a team player and is seeking to European domination, its protestations to the contrary not withstanding. Actions speak louder than words. And it is being aided and abetting in this by the neoliberal elites of the various countries. It's a "vast right wing conspiracy."
Neil,
I’m not disputing that the factors that force someone to move from Antrim to London are the same as the factors that force someone to move from Greece to Germany. As you rightly point out, it’s the fact that there is an interest rate that is common on Antrim & London on the one hand and Greece & Germany on the other.
My point was that this has nothing to do with Keynsianism or New Keynsianism. But if “New Keynsians” ARE particularly keen on have a common interest rate for different areas where different interest rates would be appropriate, can I have some quotes or links?
I think Ralph, given that New Keynesian synthesis RARE economic models are the current hegemony, it is for you to prove that they are not.
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