Reviving Economics

To the Moon, Alice.

noreply@blogger.com (Garth A Brazelton) — Thu, 26 Jan 2012 16:17:00 +0000

Our bridges and roads are crumbling, but Gingrich wants the moon.
The unemployment rate is bumbling, but Gingrich wants the moon.
Our education systems is stumbling, but Gingrich wants the moon.
China's factories are humbling, but Gingrich wants the moon.
Our politics keep fumbling, but Gingrich wants the moon.

The US CANNOT Go Bankrupt

noreply@blogger.com (Garth A Brazelton) — Wed, 25 Jan 2012 16:34:00 +0000

I have my disagreements with modern monetary theorists, but one thing I've always agreed and believed is that the US can never really go bankrupt and will not default - it is not Greece.

Listening to Mitch Daniels' Republican response to the State of the Union and talking to friends though, you'd think our "grave" situation is just a day away from our government taking our country into ruin and bankruptcy.

It's just not so folks. For those of you that want a bit more of a lesson, go here.

But generally,
Companies can go bankrupt, and many do every day.

States, while technically not able to go bankrupt, can 'ruin' their economies very quickly by over-borrowing as they are forced to borrow from private markets much of the time at increasing costs to cover risk.

But countries like the US that 100% controls it's money supply, can NOT go bankrupt and runs no risk of default. Even politically, if politicians were to force a default, the Fed would undoubtedly work with the Treasury to make sure it didn't happen. Markets believe that to be the case, and so do I.

Corrections to over-spending means either the country increases taxes (politics), borrows more (with minimal risk to higher interest rates given the way the rest of the world views US currency as a safe haven), or inflates its currency by issuing new money (via Treasury and Fed) that pays for the increase in the spending.

In the first case, if taxes rise (or other spending falls), the debt "problem" can be solved but at significant cost to the economy. I don't view the second case, and neither do markets, as an issue. If the country inflates its currency, it may do so but only if the private market allows it to do so. And, ceteris paribus, there is no reason to suspect that pumping new money into bank reserves would increase loans, as we in fact know that loans happen in reverse. IE., banks don't make loans based on reserves. Though the stock of reserves can fluctuate based on loans made. Loans are made based on present business conditions, credit worthiness etc. If that doesn't change, loans don't change, and if loans don't change, inflation doesn't change (much).

Look at the world today. The Fed has pumped million upon millions of dollars into bank reserves....and we have low inflation still today. Why, because that money just sits there.

Greece meanwhile, having forsaken its own central bank in favor of a united Euro, has lost its connection between its treasury and Fed. Hence the reason why Greece is different than the US.

Hence the reason why the US is not like Greece.

All this being said, there are still legitimate reasons to want to reduce government spending, not the least of which concern issues I have brought up before regarding moral hazard and inefficiencies and unfairness created via special interests. Nevertheless, the fact remains the argument on 'bankruptcy' is unfounded.

Hence the reason why the Republican response represents fear-mongering and nothing more.

Cut the government - Let's start with the legislative branch

noreply@blogger.com (Garth A Brazelton) — Fri, 13 Jan 2012 17:26:00 +0000

Very admirable, and long over-due. But one hopes that this isn't political maneuvering and cutting for cutting's sake, but rather a start to a serious move toward re-organizing the federal government.

Such reorganization can never occur without completely dismantling and re-birthing the legislative branch. Until that time, corporatism, our limited 2-party system mechanisms of legislation, ridiculous House and Senate 'rules' ... will continue to usher in the further decline of our country.

Of course, as I've mentioned before, since Obama has to get the legislative branch's 'approval' first, such steps are unlikely to ever happen, and certainly not in my lifetime.

States are not like the Federal Government

noreply@blogger.com (Garth A Brazelton) — Wed, 11 Jan 2012 13:59:00 +0000

I think something that is often missed in the political debate of liberal versus conservative is that States are not the same as the federal government. State-level liberals don't see this so they may sometimes see red if a more conservative Governor wants to reduce certain spending or maintain a balanced budget (many states are required to balance at least part of their budget but not all). Federal-level conservatives, meanwhile, get upset when their more liberal colleagues don't see the deficit as the most pressing issue.

States (and local government) are not the same as the federal government. Both have some ability to borrow, though arguably the smaller the government institution the less able you are to borrow for riskier or longer projects (cities for example don't have the same ability as states which don't have the same power as the US government - at least not without having to pay a good amount of interest on debt). Another constraint on State borrowing is of course politics. Both can of course tax and spend. But, the one thing (and it's a big thing) that State and local government can't (or at least don't) do that the feds can is print and control their own money supply (not that states/cities don't try). When you control the purse strings, deficits are less of an issue. It's an alternative to outright borrowing from some other sector. It's also a practice that is largely still shadowy to the average citizen so it can be done without the same political obstacles.

Contrarily, for states that have limited ability to borrow (politically or otherwise), having a sound financial situation is often prudent since it is not like they can start adding instant dollars to their accounts like the feds can. This is particularly true during times of economic downturn or economic risk combined with a federal government that is politically more motivated to reduce it's deficit (ie. not aid the states). A risk averse state in this situation will have little choice but to tighten its purse strings, or else risk turning into an Illinois or California.

Policy Thought in Support of the 99%

noreply@blogger.com (Garth A Brazelton) — Wed, 21 Dec 2011 13:47:00 +0000

The focus of the self-termed 99% (or at least the 1% on the streets that say they represent the rest of us) has been income inequality, and there is little doubt that income inequalities have grown over the last few decades. However, the remedies put forth by some, when they do offer up remedies, are usually focused on traditional taxation: tax the rich and give to the poor - it seems our prescriptions to problems haven't much changed from the days of Robin Hood.

There are other options which are seldom if ever discussed. One thought that comes to mind is specific to charitable donations. Every year, particularly around this time of year, billions of dollars of private charitable donations are provided: often to the those in the lower and mid-lower rungs of the 99%. Individuals alone contribute to over $200B every year in charitable giving, often matched by corporate contributions.

Our federal government provides a healthy deduction on many kinds of charitable giving, but some research shows that we as a society would get a bigger bang for our buck if the subsidy were a match (similar to the above stated corporate match). And in fact, even a modest match might encourage private citizens, often those wealthy enough to do so, to give more.

So, instead of a deduction, and perhaps as a political solution to get around arguments of class warfare etc., the federal government could instead encourage the private market to ramp up what they already do every year. The government could honor, with all the full force and faith that our government can provide, a match on every dollar of contribution made to certain charities that benefit the poor or down-trodden. This helps the poor like a tax cut would, albeit through a charity organization; it helps the rich by increasing satisfaction to a cause they already celebrate; it helps government by partially deflecting arguments of class warfare - after all the government is simply mirroring the actions of the private market and the 'revenue' isn't coming from increasing taxes on the rich.

The revenue could at least partially come from eliminating the need for a charitable deduction (money that ordinarily would go back in the rich guy's pocket) and replacing 100% that program with a matching program (where the money would go to the poor guy's pocket - but a poor guy of the rich guy's choosing!). Personally, I'd be in favor of putting new dollars into this kind of a project for at least a time, since there is no sign at this point that government spending is causing any serious inflation - though I understand that might be political suicide.

There could be issues politically with setting up a federal matching program, not the least of which would be deciding what charities could be supported in this manner. There would, for example, need to be a minimum threshold by which the private citizenry would have to contribute to a particular cause for the match to kick-in. IE., if one crazy nut donates to the 'poor satanist's society' or some such thing, the government would not match that obviously. But, I suspect since the government already has a list of 501c3 non-profits that many corporation feel comfortable in allowing their employees to associate with, this picking and choosing may not be too difficult.

All this is not to suggest that I disagree that certain persons should be paying their fair share of taxes (and they aren't). But it is a suggestion given our political reality and given the pressing immediate need for a solution.

UPDATE: further research shows that this kind of idea is already on the table. Must admit, I haven't heard much about it though. Also, the match discussed in the article seems rather week. I'd suggest a much more substantial match. It appears that I'm not alone in that. Anyone else?

Jobs Guarantee

noreply@blogger.com (Garth A Brazelton) — Thu, 15 Dec 2011 18:50:00 +0000

Heteconomist has a nice discussion about the so-called jobs guarantee idea being put forth by MMT adherents.

I would like to suggest that Kalecki's list of possible reasons why some might have reservations about a jobs guarantee program is sorely incomplete.

His three reasons, as Heteconomist lists them:

The reasons for the opposition of the ‘industrial leaders’ to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment. (emphasis in original)

All three of the above, one could argue, point purely to a conservative political-ideological point of view. According to Kalecki, it seems the uneasiness some might feel stems from three uneasy free-market invasions:

1. government sector vs. private sector
2. spending type a vs. spending type b
3. labor vs. capitalist

But I'm uneasy with the idea of jobs guarantee; and while I might have some discomfort along the lines of the above (to varying degrees), my true discomfort stems from some additional reasons given our existing government structure (including but not limited to):

1. Final decisions (running the business/employment programs, deciding what programs are best to do and what aren't etc) would be made by politicians. One must merely observe today's political environment to see that, absent a Utopian government, the logistics of such an operation, even if attempted with public-private resources, would likely fail in the long-term. How would these decisions be made? Who gets hired where, and based on what?

2. Unemployment, while unsavory, does serve a purpose. It weeds out the bad-acting laborers in good times. It's the bad times that is of concern - it's during deep recessions that even the average-actors are weeded out of the labor market. JG assumes that the recessionary environment is the norm or majority, when one can argue it is not. Why should the government guarantee jobs to bad actors (drug abusers, truant former employees, abusive former employees, lazy former employees)? Why should the good actors have to work to find a good job comparably? If I'm the good actor, who potentially values stability over wage, why wouldn't I reduce efforts to improve myself or advance my skills, and just take the government freebie? Related, if unemployment is pushed more toward 0% (2% or whatever) as an employer or last resort, the adult now has lesser incentive to re-skill or re-educate themselves - something a dynamic economy must do to survive.

I haven't closed my mind to the JG idea, but until someone attempts to formulate an extremely detailed plan, as opposed to just talking esoterically and abstractly as I've seen on blogs and in some MMT papers, then I have serious doubt that this jobs guarantee idea will ever be taken too seriously by anyone outside of academia or halls of philosophy.

Is there a way out?

noreply@blogger.com (Garth A Brazelton) — Fri, 02 Dec 2011 01:44:00 +0000

Did Minsky see a solution to our economic problems? Focus on the last paragraph of the following link: It seems he had a similar opinion 30 years ago that I do today - that there is no real solution right now so long as our political environment stays the way it is. And if you read closely, he suggests that that is unlikely to change unless our teachers of today (our academic economists and teachers of future leaders) wise up to reality. This suggests to me a slow process that must start with challenging the 'official' or mainstream economics of the day. Read the whole thing as it's one of my favorite Minsky publications.

MMT Update

noreply@blogger.com (Garth A Brazelton) — Tue, 29 Nov 2011 17:53:00 +0000

Been following some interesting back and forth regarding MMT at Winterspeak.com (see below - the comments are public so I feel ok in re-posting them. It's not my intent to remove from context but I truly feel they epitomize the main back-and-forth re: MMT). I am thankful that the MMTers are finally having a discussion on the points that are causing the confusion - the "should/could" instead of "does". As I observe this from afar it becomes apparent that most MMTers prefer to start with the abstract theory and make 'should/could' assumptions about how the Treasury interacts with the Fed (namely consolidating their operations) - assumptions that at least in some cases are factually inaccurate. When one points out the inaccuracies, the response is, "that's a political problem, not an economic one." And then, you are back to my basic beef with MMT in that you cannot, ever, separate political institutions from economic institutions. The only reason the US is a monopoly of its fiat currency is due to the political institutions. So, ignoring real barriers upfront to a 'should/could' philosophy makes ones theory rather moot, in my opinion. This will become even more of a reality as the Fed is continued to be scrutinized for its actions and calls for audits are mandated.

But I am still learning this new and seemingly more realistic way of thinking about the government's role in money. Is my beef for style than substance? Commenters....please discuss.

One specific thought, reading the comments shows that perhaps the focus is existing solely on the interaction on the spending side of the coin - whether its a style disagreement or a substance disagreement. But I'm much more concerned about any real barriers on the tax side of the coin. What if the government made an error and released too much money. According to MMT, taxes could be raised to effectively remove it from the system. But taxation is political and SOLELY in the hands of the executive and legislative branches....

UPDATE - ongoing discussion

JKH said...
(The following is not directed at Dan K.’s articulate comment; it is rather a broad observation.)

I could almost get more value from reading “market monetarist” posts these days than from witnessing the blogosphere train wreck of tortured conceptualizations that has become "MMT”.

MMT has valuable insights into the nature of the monetary system. But it is ineffective as a platform for conceptual exposition of the monetary system. It seems incapable of distinguishing consistently between factual and counterfactual monetary operations. It seems intent on conflating these two parallel modes of analysis, with such stuff as “the government neither has nor doesn’t have money”.

It is not logically possible to present any interpretation of a monetary system that does not reference explicit institutional design assumptions. Monetary systems don’t exist without specific institutional design. In this regard, there are facts of actual prevailing design, and there are counterfactuals, and there are differences between those two things.

It is certainly possible to design an institutional monetary configuration in which “the government neither has nor doesn’t have money”. But the existing system as it is designed does not have this property.

I’d love to see MMT turned upside down in its expositional approach. But the MMT’ers are a small group, with a thoughtful investment in their chosen presentation, so I don’t expect this sort of change to happen. And understandably, like most of us, they probably don’t appreciate criticism at a fundamental level.

6:29 AM

Neil Wilson said...
"But the existing system as it is designed does not have this property."

It does when you consolidate the balance sheet of the government sector and 'zoom out'.

It very much depends what level of abstraction you are working on at the time.

I do this all the time when designing systems. Sometimes I'm zoomed out ignoring the specifics, and sometimes I'm zoomed in dealing with the nitty gritty - often below the level you talk about (how do transaction records get from A to B in a timely and secure fashion?).

Sticking at one level of abstraction, or constraining yourself by the 'current design' is a huge mistake.

What we can learn from the 'current design' we largely have. Now to explore what the new design should be to deliver the required goals.

7:42 AM

JKH said...
Neil,

I'm aware of the abstraction. It's not a question of constraining one's view. It's about being clear on the starting facts.

If you consolidate all of the balance sheets in the world, what you end up with is a single balance sheet. On the left is all of the real assets of the world. On the right is a global net worth valuation of them.

All financial claims net out in such a consolidated view. But the conclusion from that is not that I "neither have nor don't have money".

Such a conclusion would be the height of silliness (unless you assume a design change to barter).

Yet it's the same point.

winterspeak said...
JKH: I think that's an excellent way to put things. The Federal Reserve is the currency issuer, not the Federal Government.

To what degree those two entities are truly distinct is a worthy topic, but fundamentally political, not economic.

10:41 PM

A Ridiculous Response From About.com

noreply@blogger.com (Garth A Brazelton) — Tue, 29 Nov 2011 17:16:00 +0000

Ridiculousness here.

I'm removing about.com as a link on my blog - I liked it better when it was run by Mike Moffatt.

Whether or not students were 'right' to walk out of class is beside the point - the point it seems that Ms. Beggs can't see. Value judgement are inescapable in the economics of real life. Half of the so-called 'positive statements' in economics are really just normative statements disguised by bad and unrealistic assumptions.

I agree the students don't quite perhaps articulate their own beef very well, but the point about Adam Smith vs. Keynes, as I read it, was more to point out the broad fact that Mankiw teaches a specific ideology, at the expense of alternatives - not just Keynes'. And the Keynesianism he does teach is arguably not the Keyensianism that Keynes would have taught himself. (See distinction between Post-Keynesian economics and so-called New-Keynesian economics).

And now for my shameless plug: anti-mankiw

Something OWS and Tea Party Can Agree On

noreply@blogger.com (Garth A Brazelton) — Mon, 28 Nov 2011 18:58:00 +0000

... That this is disgusting.

Agreeing and Disagreeing with Steve Keen

noreply@blogger.com (Garth A Brazelton) — Mon, 28 Nov 2011 01:38:00 +0000

Steve Keen interview here

I agree that the crisis is due to a Minskian debt bubble....
I disagree that the solution is necessarily to write off the debt per capita with new money.

He is asked directly about the moral hazard problem and he simply restates what he always says - the is was a systematic problem not an individual problem and therefore moral hazard, implication being, shouldn't matter. There are two things, as I see it, wrong with that.

1. Moral hazard doesn't care if a problem is systematic or individual or not - it only matters what people think. And, as the interviewer notes, many people would think that 'bad actors' would be given the same handouts that the 'good actors' are given. To some, that's not fair - and that creates moral hazard moreover in so far as 'bad' debtors have some blame. And what about those that have no debts at all - Do they get nothing? ... which brings me to my next point.

2. Keen makes the assumption that creditors should take full blame for the systematic failure. This is not obvious to me. Credit / loans are a multiple-party transaction and while one can argue that relatively speaking the creditors should have known better and have more power in the relationship and therefore more responsibility, the fact nevertheless remains that many debtors should have known better and demanded funds well beyond their means. I find it somewhat ironic that Keen doesn't agree on this point since circuit theory explains that credit money expands, and bubbles are formed, due in part for the the demand for it.

I believe Prof. Keen is correct that the financial failure was a structural failure - but the structure arises from behavior of individuals and institutions, not some amorphous blob immune to moral hazard.

"Everyone gets a boost because we are not trying to boost individuals...."

It's that kind of statement that makes it clear to me that Keen has no ready answer for the question of fairness and moral hazard. I respect Prof. Keen and agree with him on many points, but I can't agree with his prescription on it's face.

"Teaching Amidst a Crisis" - A Personal Experience

noreply@blogger.com (Garth A Brazelton) — Wed, 16 Nov 2011 14:19:00 +0000

We at anti-mankiw have recently blogged about how one might incorporate pluralist teaching tools in economics. The introductory paragraph links to a blog post by Prof. Mankiw posted in 2009 basically outlining how he believes introductory econ texts should remain status quo - which by definition, means that he believes nothing new has been learned from the crisis that students should know about.

I thought I'd relate my personal teaching experience to expand upon the anti-mankiw post at a more personal level.

First, I don't use Mankiw's textbooks to teach my intro macroeconomics class. I did - once upon a time - just before the financial meltdown. Then that event happened, and I, having been already fairly heavily exposed and interested in heterodox concepts outside of the classroom decided that I would be doing my students a disservice by continuing to teach from a textbook written by an author who is so blindly and ideologically biased.

Deciding on a main textbook to use is actually a fairly daunting and complicated process though. There exists imop no textbook that incorporates pluralist/heterodox concepts in a student-friendly way where I could use just one textbook. There are good heterodox publications, but they are devoid of pictures, and/or obviously published on a severe budget-constraint: the sorts of books that only the most dedicated students could sink their teeth into. I teach a night class so most of my students have full-time jobs - so I need a text that is going to be formatted and written in an inviting way. So, years ago I decided the best way to teach my students was to find a mainstream textbook that did not have the same philosophy as Mankiw - published by someone who learned something from the finanaical crisis - who thinks current events are useful learning and teaching moments. And, I would use free-of-charge supplemental materials from various other sources, to create 'heterodox modules' to teach along-side the mainstream text.

The mainstream text I use today is Robert Hall and Marc Lieberman's Principles text. Why do I like it so much better than Mankiw's text (note: I have no loyalties to this text, so if anyone has any other options, I'm constantly re-evaluating)? Because every other chapter has been expanded with new topics since the crisis: interest rate spreads, ARRA stimulus, 'too big to fail', unorthodox monetary policy, housing market as it relates to macro, etc. These authors, while still thoroughly mainstream and therefore missing huge chunks of true economic thought, at least learned that their previous edition was missing something crucial, and in some cases included unfortunate assumptions that they incorrectly assumed to be simplifying ones.

Here's my favorite example. In their 4th edition, Hall and Lieberman say the following in the 'money' chapter:

Fortunately the details and complexities of measuring money are not important for a basic understanding of the monetary system and monetary policy.

I always hated that quote. Sounds very Mankiwian doesn't it. But then, in the fifth edition published in 2010, that quote vanishes. Makes me smile.

As mentioned, I use numerous supplemental materials in my class - which is helpful to engage different kinds of students. I also use supplemental portions of a heterodox text and the aforementioned main text. It of course has its drawbacks as, ideally, I'd like to use just one text. In some cases, students have to read duplicated concepts - parts where the mainstream text and the heterodox supplements overlap. But to me it's worth it. For one, I feel better about myself because I feel I'm being academically honest. And two, many students really get it. And when I say get it, I mean they graduate my class less like neo-classical robots and more like well-rounded, well-educated individuals.

Neo-Chartalism Reconsidered

noreply@blogger.com (Garth A Brazelton) — Sat, 05 Nov 2011 21:35:00 +0000

I was forwarded a link to recent paper by post-Keynesian Marc Lavoie. I was forwarded it in part because my blog is cited in the paper as an outside observer (totally true) - which is pretty cool.

I must admit, it has me taking a second glance at MMT theory, frankly, because his paper is the first to calmly explain (at least one piece of) MMT in a way that doesn't alienate, and in a way that bridges some of the language gaps and misleading or just factually wrong (given common usage of terms) statements by MMTers. Ahh the power of words....

Some 'aha!' passages:

Another problematic statement is that the government has to run deficits, at least over the long run, for the public to get access to larger cash balances (high powered money). As Wray (1998, p. 123) puts it, “persistent deficits are the expected norm”, that is, “normally, taxes in the aggregate will have to be less than total government spending due to preferences of the public to hold some reserves of fiat money” (Wray 1998, p. 81). If the government was running persistent surpluses, the public would “run out of net money hoards” (Wray 1998, p. 79). While I would certainly agree that government deficits in a growing environment are appropriate, as it provides the private sector with safe assets, which can grow in line with private, presumably less safe, assets, it is an entirely different matter that government deficits are needed because there is a need for cash.

Even if the government keeps running balanced budgets, central bank money can be provided whenever the central bank makes advances to the private sector. Wray (1998, p. 79-80) himself recognizes this, as he later adds that “a surplus on the Treasury’s account is possible as long as the central bank injects reserves through purchases of assets or through loans of reserves”. Presumably, what he has in mind, as we will see soon, is that total government expenditures include “spending” by the central bank, when the central bank purchases private assets or claims on the private sector and adds them to the asset side of its balance sheet. But this is an odd way to define government spending.While this terminology problem is easy to solve, things may not be so simple with the oft-made statement that “government spends first”, a statement that, of course, has some relationship with the causal sequence mentioned when discussing the links of neo-chartalism with circuit theory. This expression comes back like a leitmotiv on many of the blogs devoted to modern monetary theory, but it can also be found in academic writings: “Government spends simply by crediting a private sector bank account at the central bank. Operationally, this process is independent of any prior revenue, including taxing or borrowing” (Mitchell and Muysken 2008, p. 209); “The government spends simply by writing Treasury cheques or by crediting private bank accounts” (Tcherneva 2006, p. 78). These statements are at best misleading. They skip one fundamental step that makes incomprehensible the leitmotiv sentence that “government spends first”. Any agent must have funds in a banking account. Before being able to spend, the Treasury must somehow replenish its deposit account at the central bank (or at private banks).

This step is often skipped because neo-chartalists prefer to consolidate the central bank and the federal government into one entity, the State. Now, in itself, such a consolidation is not illogical. Other authors, such as Godley (1999B), have on occasion consolidated the central bank with the government. But such an integration may not be appropriate for the purpose….

The purpose of this whole exercise is to show that there is no point in making the counter-intuitive claim that securities and taxes do not finance the expenditures of central governments with a sovereign currency. Even in the case of the US federal government, securities need to be issued when the government deficit-spends, and these securities initially need to be purchased by the private financial sector….

...neo-chartalism carries some excess baggage, which must be gotten rid of. In trying to convince economists and the public that there are no financial constraints to expansionary fiscal policies, besides artificial constraints erected by politicians or bureaucrats that believe in mainstream theories and in the principles of sound finance, neochartalists end up using arguments that become counter-productive. There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; tha tgovernment expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures. All these counter-intuitive claims are mostly based on a logic that relies on the consolidation of the financial activities of the government with the operations of the central bank, thus modifying standard terminology. I believe that such a consolidation leads to the avoidance of crucial steps in the analysis of the nexus between the government activities and the clearing and settlement system to which the central bank partakes, and hence leads to confusion and misunderstandings. And so do references to a leveraged vertical component of the money supply.

It's important to note that Lavoie's paper focuses only on the fiscal/monetary settlements relationship with MMT. Some of the other ideas of MMTers (like a government-mandated and set fully employed workforce - employment targeting) are still quite a bit harder to swallow, but I'll continue to keep an open mind.

Finally, Lavoie's paper is an exercise in positive economics, not normative economics. For me, it is still an altogether different (and potentially more important) question whether we should be using strong fiscal policy tools to guide an economy, regardless of whether or not there are any direct financial constraints, as there most certainly are other constraints that need be considered, not the least of which are logistical (politics) and the reality that fiscal policy has been shown to be very messy in practice, and one need to be very careful about discussing fiscal policy in the vacuum of a research paper. That is, at the end of the day we will likely still have the debate about the merits of functional finance.

anti-Mankiw

noreply@blogger.com (Garth A Brazelton) — Sat, 05 Nov 2011 00:06:00 +0000

I am coordinating with a group of economics grad students and other friends of the social science in a new blog.

A goal will be to expose, as a determined group, the inadequate present academic discourse in economics, as propagated by economics faculties worldwide that have been brainwashed by people like Prof. N. Gregory Mankiw. And along the way, we hope to propose a newer, better, more inclusive and less bad-assumption laden discourse.

Fed Statement

noreply@blogger.com (Garth A Brazelton) — Wed, 02 Nov 2011 17:05:00 +0000

US Fed to US citizens: "yeahhhh, we got nothing."

Meanwhile,

How Do Financial Investors Make Choices?

noreply@blogger.com (Garth A Brazelton) — Wed, 02 Nov 2011 13:00:00 +0000

Let's assume a somewhat unsophisticated, though intelligent, investor. Do these investors make decisions to invest significant dollars in up-starts based on job commitment announcements by politicians? A Butler University economist thinks so. I'm skeptical - I would like to think that even the most unsophisticated, risk-taking investor would not make a decision in large part or solely based on the words of politicians. And, I certainly know of no study that shows otherwise. For his part, the Governor suggests if some investors do make decisions based on politicians' hopes, that's their own problem. Discuss.

Occupy Indy

noreply@blogger.com (Garth A Brazelton) — Thu, 27 Oct 2011 18:30:00 +0000

This should be my last post providing an update about Occupy Indy. I say this because Occupy Indy has apparently disbanded. As predicted, their leaderless cabal of people of no more than 5 at a time which have been camped out by the Statehouse for the last couple weeks is gone as of this weekend. Also, their 'official' (as official as a website not agreed to by 100% consensus can be) website hasn't been updated with any new posts in 2 weeks.

http://occupyindy.blogspot.com/

So, no known physical presence, no known up-to-date online presence = failure of message and of leadership.

Or, maybe I'm wrong and the group has dwindled down to such a small number that they've gone 'underground'. Doesn't strike me as particularly effective either way. Though evidence suggests this may be the case as there is another website (message board) that does have some recent activity on it.

According to one post on the board (by "Sanni"), they are planning on meeting at the Statehouse at 3 today to talk about a recent arrest - they didn't elaborate at the time I read the post as to who was arrested or why....

Here's a smattering of other recent board posts under "Events/Action", which obviously aims to tackle the major issues of our times:

I am thinking about setting up a freestyle instrument playing session on friday at 8pm.I know a really talented electric guitar player who can come out and just freestyle play it will be amazing I will work on a flyer and try to get more people to come play different instruments. Any Thoughts on this?? - guest

Its the Saturday before Halloween so let's celebrate! Bring the kids, we'll have safe trick or treating and maybe some surprises! Join us every Saturday at 12 noon for Solidarity Saturdays to show support for the Occupation of Wall Street to Main Street USA.- RDK1974

we dont have to vote to plan events. We can plan whatever we want. We can vote on whether the whole group will support the event but we as individuals can plan whatever we want. So please keep planning once the plans come together then we can present the plans and make sure the group as a whole endorse them but we do not need there vote to plan something thats the point of working groups.................. to plan and organize things............... then put them up for a vote after they are planned and there is something to vote on....... - guest

A poetry slam is a competitive event where poets go up against each other in rounds or do head to head competitions. It's very organized and fun and awesome.
That said, unless someone is planning all of that, this is not a poetry slam. It is an open mic reading. Please fix this. It is misleading to people who may show up expecting a slam. - DJ Shiva

Some economic development thoughts

noreply@blogger.com (Garth A Brazelton) — Mon, 24 Oct 2011 16:16:00 +0000

Indiana is going to have a new Gov. in about a year. Since I have worked in economic development for over 6 years now, I have noticed a couple related improvement points that I think would truly expand Indiana's economy. These are just personal thoughts and unrelated to any policies or representations made or being made by the IEDC leadership (ie. I'm not speaking for IEDC).

1. Merge the Indiana Economic Development Corporation with the State Dept. of Workforce Development.

Consider DWD's goals:

Aggressively empower Indiana workers to become a highly-skilled, competitive workforce.
(On a daily basis, we will continue to) Raise everyone (workforce) up a level.

Consider IEDC's goals

The IEDC focuses its efforts on growing and retaining businesses in Indiana and attracting new business to the State....leverages Indiana's central location, pro-business environment, low tax rate, and skilled workforce to attract and support new business investment, create new jobs, and keep Indiana competitive in the 21st Century economy.

In other words, each entity represents half of the labor market. DWD attempts to improve the labor supply, and the IEDC attempts to improve the labor demand? Why should we expect that two separate agencies with two separate leaderships and two separate strategies, etc., should be able to work at top efficiency toward the same goal of expanding and improving the overall labor market of the State? Both agencies have made increased efforts to communicate with each other over the past few years, but there in my opinion is going to exist a wall that one cannot pass without a merge. I would, however, put unemployment benefits and insurance onto a separate agency - to me, unemployment insurance does not develop the workforce. It ensures a part of the labor force the ability to survive difficult times but it is certainly not a State development tool.

2. IEDC/DWD/State should adopt, via legislation, a grant that was at one time pursued by Mitch Daniels before the recession hit full gear: Hoosier Hope Scholarships. Another similar option would be to follow Maine's example and provide the benefit as a tax credit: read

Questioning Ron Paul

noreply@blogger.com (Garth A Brazelton) — Sun, 23 Oct 2011 15:11:00 +0000

Today on Meet the Press, Paul directly related the marked reduction in government spending from 1945 and the years after to a growing post-war economy.

While it is true private investment started increasing to higher levels in the latter part of the 40's, it is not at all clear that that is due to the spending cuts of the government from post-WWII. The US economy really didn't hit it's stride until the 1950s. And certainly, for the first 3 years immediately after the War, GDP growth was negative or stagnant. And even the 1950s there were three significant recessions suggesting that the growth that occurred in the 50s was is spurts. Indeed, the dramatic growth in living standards really didn't occur until the 60s.

So, take Dr. Paul's comments with a grain of salt as there are lots of economic changes that occurred between the end of the War and the early 50s that can explain the relative good times of the 1950s-1960s including a dramatically growing and changing manufacturing sector (and an increased move out of agriculture) and a booming suburban housing market. And particularly with regard to the housing boom, perhaps the biggest explanation is a post-Keynesian one: the rapid increase in the late 50s and onward of non-revolving credit used to buy durable goods (the stuff put in those new cookie cutter homes and the cars in the driveways). The crux of Paul's argument is that the reduced spending of the government from 1945 onward freed up resources for the private sector. But with the onset of heavy uses of credit, citizens didn't need present-day resources, they could borrow from future-day resources instead. And thus began our credit-heavy economy.

This point is key so I will restate: in our modern economy, we use uncertain future resources to finance growth, not present resources. To quote Minsky, this is why "stability is unstable."

US Double Exports in 5 years? (by end of 2015?)

noreply@blogger.com (Garth A Brazelton) — Fri, 21 Oct 2011 17:58:00 +0000

Obama proposed we would.

He recently signed some free-trade agreements toward this end.

But I remember thinking at the time he mentioned this how incredibly unlikely doing that would be. The linked article above says the administration says we are well on our way? Well, 1.5 years later, and I would say we are not at all on our way. According to foreign trade figures from the US Census Bureau, we are on track to roughly hit a little over $2 trillion by the end of this year. The US exported about $1.6 trillion in 2009. So, after a year and a half, we can say exports have increased by about 12% during that time - and that is even giving Obama the benefit of the doubt since a good deal of that increase is just due to the slow overall economic recovery since 2009. We are, after all, essentially back to pre-recession levels. Given the continuing uncertainty of recovery, if Obama does get re-elected, he has really put himself in quite a spot and a goal that is unlikely to be realized.

But, if I'm proved wrong, I'll own up to it ;)

OWS update

noreply@blogger.com (Garth A Brazelton) — Fri, 14 Oct 2011 17:18:00 +0000

In Indy:
What started as a rally of nearly 1,000 people last Saturday, is now represented by a trickle of people, with usually no more than 4 or 5 persons 'occupying' the front of the Statehouse at any one time. After one week, the only official statement from the ragtag group is:

"We at Occupy Indianapolis are gathering in FULL SUPPORT of the Occupy Wall Street movement in NYC."

The Indy group hasn't really received much (if any?) national notice. Part of the issue it seems to me is that this Indy group is much more tepid and cautious compared to groups in NY, Seattle, etc. I'm not saying that's good or bad, but I'm providing a reason as to their seemingly low media-draw. The other (big) problem is that this group seems to equate democracy with 'full consensus' (or near full, 9/10 or other variation), which is, on its face, a ridiculous idea. One dissenter can raise their arms in an "X" of objection and they are back to square one. This is not the way ideas happen. That's not even how a workable democracy happens, let alone a republic.

In NY:
Meanwhile, arrests, bottle throwing, and arguabe police brutality are happening elsewhere. Still no specific agreement on major topics are leading the movement, and the only major agreement seems to be one emotion: anger.

IMOP, the majority of that anger is being directed at banks, and indirectly or directly, at our government for enabling them with bailouts. This makes sense. As the financial crisis escalated our government spent or loaned millions of dollars to save the banks - their argument being that if they didn't, it would severely hurt Joe-average. The problem as I see it is that they did that and then Joe-average got hurt anyway, with persistently high unemployment and stagnant wages coupled with rising costs. Meanwhile, banks and other corporations see record profits.

Seems to me that OWS is having trouble converting that fact into a policy statement. I've already suggested a few specific areas / or statements they should focus on, but since they have no leadership and aren't really moving the ball forward, I suppose I'll keep throwing them more bones until one of them picks it up (and as I've said before, I have no interest in being a 'leader' of this local group at this point because I have too many concerns about their existing formation, and because I've got enough stuff on my plate, and because as I've stated before - hippies scare me).

So here's another:
How about we demand our economic and finance educators to teach, and our governments to focus on, things that enhance social well-being and standards of living other than GDP. One of the things I discuss in my macro class is the limitation of GDP which most textbooks usually just gloss over or ignore. GDP is suppose to measure all the stuff that's produced or equivalently spent or equivalently earned as income in the economy over a given time-frame.

The major issues with GDP from the output perspective is just because it's produced doesn't mean it's doing anybody any good (if it's sitting in a warehouse somewhere), and if it is produced it could be doing more harm than good (off-shore deep sea drilling that is left un-regulated).

From a spending perspective, as hopefully everyone has learned, not all spending of a given $1 is created equal, but GDP assumes it is because it assumes everything is priced perfectly. Unregulated housing markets, stock markets, oil markets etc. are prone to bubbles and bursts. And when coupled with 'too big to fail', mean eventual systematic failures when credit tightens up.

From an income perspective, GDP doesn't care if you are poor or rich. It doesn't care if income growth comes from profits or from workers wages. But most Americans care. Most Americans have some problems where failed CEO's or bailed out bankers earn multi-million dollar severance or bonuses, while workers are expected to work more and earn less.

So all this means that GDP, while a useful measure, should be taken with a grain of salt. Schools and governments need to incorporate other measures of human development (and they do exist) into their models - portray a more accurate picture to students, the media, and the world.

So OWS, there's another idea of substance. I urge you to spend less time playing koombaya and expressing Utopian generalities and more time discussing real things that we can change.

Good luck.

Why Can't We Be Friends: Post-Keynesians and Austrians

noreply@blogger.com (Garth A Brazelton) — Tue, 11 Oct 2011 19:35:00 +0000

I've been thinking about something lately, and it has to do with what I believe to be a significant overlap in the theories of Post-keynesian economics and Austrian economics. They both have radically different prescriptions, but their rhetoric is very similar.

Austrians blame the monopoly power of the Federal Reserve fractional system for artificially keeping interest rates low, in the presence of economic uncertainty, causing mal-investment and credit bubbles that eventually crash.

Post-Keynesians blame the failure of the private markets for engaging in increasingly speculative and illegal behaviors, in the presence of economic uncertainty, at various times, causing unsustainable investment and credit bubbles that eventually crash.

Similar talk yet all I hear from post-Keynesians is how 'off base' the Austrians are about the endogeneity of credit money. In fact though, while money creation to fund a bubble may indeed be demand driven, the fact nevertheless remains that it is the Fed that accommodates that demand to maintain an interest rate target. Post-Keynesians tend to focus their efforts at regulating the private banking practices but don't spend much time thinking about how the Fed itself may need to be regulated.

Similar talk yet all I hear from the Austrians is almost a disturbing fervor to get the government out of everything - including money. Go on the gold standard, have a 100% reserve requirement, reduce systematic risks in our financial system thereby reducing the likelihood of mal-ivestement. In fact though, the private market is at least equal to be blamed for their own 'irrationality'. The Austrians, opposite the post-Keynesians, think that all can be solved by changing the nature of the Fed (or elimination of it's power altogether).

Point is, even though the two schools blame different things or focus on what may be considered divergent prescriptions, the meat of their analysis are markedly similar. The focus on uncertainty and on credit booms and busts seem to be really two sides of a similar coin. And by the way, there is no logic that suggests both couldn't be a little bit 'correct.' After all, the private market would likely be less likely to fail if the Fed didn't accommodate its failures, but focusing just on the Fed ignores the larger systematic problem of private market failures and excessive risk taking (or perhaps perversely, the Austrian prescription ensures too little risk be taken).

Ok, so maybe friendship is too much to ask for, but Post-Keynesians and Austrians, in the interest of being true pluralists, could at least learn from each other

Direction of Occupy Wall Street

noreply@blogger.com (Garth A Brazelton) — Sat, 08 Oct 2011 16:00:00 +0000

What I hope the direction goes:

1. Toward holding mainstream media accountable for what they report. In my opinion, and this may be heavy-handed for some, but I believe media outlets should be required by law to cite specific allegations made in Op-Eds etc., and or to severely limit Op-Eds in general (not to be confused with opinions sent in by the public).

2. Toward a newer better kind of financial reform than what the Obama administration passed 2 years ago. What we need is to break-up big banks NOW, like we did Ma Bell. We need more strict financial leverage and capital requirements to prevent the systematic risks many financial institutions increased during the crisis. We need to get the Fed out of the business of fine-tuning (playing) with base interest rates. They think they do the economy good when in fact they just act to help the private sector hide bubble formations by accommodating risky loans. I am not in favor of full 'rule' requirements, but nor am I in favor of full 'discretion' which is what we have now. To this end I hope the movement focuses on the causes of the disease (academic economists and finance persons who ignored reality for decades in favor of training future generations the same faulty science).

3. We need to demand a different kind of Congress - one where rules of the House don't dominate the needs and demands of the people. This is the trickiest thing to change and something I at least think we need to have a real dialog about.

Where I hope the direction doesn't:

1. I hope it doesn't disintegrate into an Obama-coddling liberal (spending) love-fest. I hope it isn't just about class warfare or short-sighted robbing Trump to pay Bob the Builder. Playing games with tax policy is not helpful. I would love for the bad bankers etc. (tax the rich) to pay up for destroying the economy, but at some point we have to stop focusing on the past and move on toward preventing it in the future.

2. I hope it doesn't serve to bash capitalism beyond what is called for. The problem is not capitalism per se in relation to other economies. The problem is how we teach capitalism to our young. We teach everything in terms of 'profit-maximization' and short-sighted 'utility-maximization' and we hope that our students come out well-rounded persons for society? That just doesn't make sense. We could instead teach a kind of moral capitalism. Where the good of the individual is at least in part based on the good of society as a whole. Are humans inherently greedy, sure to a degree, but our teachings certainly don't do anything to temper that - it actually exacerbates it.

Right To Work

noreply@blogger.com (Garth A Brazelton) — Thu, 06 Oct 2011 21:39:00 +0000

Members debated today at the Statehouse about this year's biggest topic: whether or not to make Indiana a 'right to work' state. My employer, being an economic development corporation and all, has taken a strong stance in favor of right to work. I've been somewhat agnostic on the issue until recently. Having done a little research on both the pro and con side, I have yet to find an argument that makes much sense on the con side.

I've personally spoken with site consultants who echo the sentiments of those in favor of right to work that Indiana is automatically taken off the 'potential' list for many business expansions simply because we are not right to work. Beyond that, there is what I believe to be hard evidence that Unions, having once been important and vital to our economy, have become too big and greedy. IE, the pendulum has swung too far.... Whether it's the GM stamping plant in Indy, or the collapse of Kokomo during the Great Recession where Union gardeners were paid $30 an hour to mow the lawn, the evidence shows that Unions have pushed too hard.

But even if you disagree, there is something un-American about forcing non-union employees to pay Union agency fees (if a contract exists). If I'm a worker, I shouldn't be forced to join a union (and that is true by law), but I also shouldn't be forced to pay union dues should I decide not to join the union. Part of the problem is that the collective bargaining agreements are typically broadly executed for the entire operations, not specific to just its union members. This whole right to work issue wouldn't be an issue if the benefits would just be provided to the Union members. The alternative of setting different wage and benefit programs for union vs. non-union employees is often costly which is why businesses shy away from it, but it would solve this RTW issue.

Beyond that though, it seems to me that RTW laws help keep unions more honest and more competitive as opposed to being secretive and conducting business in smokey rooms with union leaders. ...All because they have to try that much harder to get people to sign on to their Union to get the fee.

Having said all this, I for one do not trust the statistics that RTW States are that much more economically well off because of it than their non-RTW counterparts. Correlation does not equal causation and any study I've seen just hasn't adequately accounted for that complexity.

Anyway, I'm open to debate on this issue. But, really, I don't see how Unions have much of a leg to stand on this.

Why I Will Attend "Occupy Indianapolis"

noreply@blogger.com (Garth A Brazelton) — Tue, 04 Oct 2011 01:23:00 +0000

1. Because I'm pretty sure the laid back cops of Indy will be unlikely to pepper-spray me.
2. Because I feel like I should at least add to a voice, despite that voice lacking a harmony of message, to indicate my disgust with the following:

a. How our political system has turned into a beauty contest of talking heads, who do a lot of talking from their asses. We need to get monetary influence out of congress sure, but that's unlikely to happen completely and that frankly is not the only problem. More than that, we need to completely remake congress - these 'rules' of the game are obviously broken. End the filibustering sound bites. I no longer want to vote, not because I ever thought my marginal vote added much, but because I used to think that it was a social obligation toward a social good. I now feel otherwise.

b. How our major media outlets have grown weak and complacent. You know there is something wrong with Jon Stewart provides more information than Fox News. I for one think that the main reason that many persons my age are turning to independent bloggers and certain foreign media is because ours have simply turned into an extension of our politics. See above.

c. How our mainstream economics has been allowed to be taught and function with assumptions that have no basis in reality. The collective 'we' have brainwashed generations that our markets operate smoothly, and when they don't it's just a brief thing that we can overcome with a little spending here or there. Ignore how crazy 'money' and 'finance' has gotten, ignore how certain banks and investment managers can cause a crisis and then profit from it (see a above as well). I for one don't think everything that happens on Wall St. is bad. Particularly since our policies reward those that have bad behavior. We need to blame the teachers of the faulty doctrine, not the followers.

I may be only person with an economics background in attendance. I like to think that this will add a level of diversity. I can't relate at all to hippies, in fact, they scare the shit out of me. But I can relate to the generally discontented per my points above. And it will be those with whom I will stand.

I only wish I could stay indefinitely... but then, I must earn a living... and like most Americans, I only care so much.... I think that says something about my weakness... and I think it says something about our country's

Occupy - if but for a time.