File this under the heading economics is not even a dismal science, because mainstream economics isn’t even science. Economics could actually be a rigorous discipline, if orthodoxy can be kicked out.
“ In contrast to its attitude to private debt, which it ignores, mainstream economics obsesses about government debt. But this volte-face doesn't besmirch its record of being 100% wrong.”
"The analysis in this chapter is entirely derived from accounting identities, and it is also completely consistent with the analysis of "Modern Monetary Theory" as laid out by Stephanie Kelton in The Deficit Myth (Kelton 2020). What this chapter adds to MMT is firstly a proof that MMT's analysis of government money creation is derived from a correct application of the rules of accounting, and is therefore better called "Modern Monetary Fact" as a result. "
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"Secondly it enables an integrated analysis of both fiat and credit money creation, which the MMT movement itself has not as yet provided, while mainstream Neoclassical economics ignores credit completely."
Except now it can. Multiplayer video games with convertible currency, and discrete event simulations with all NPCs, can produce real world economic behavior.
And then you can start trying out all the alt-money theories and see which ones work and which are bunk.
We'd also have to get the Wall Street influences out of economics.
It goes beyond that and doesn’t need game simulation (although it’s a great teaching tool).
#SteveKeen has modeled macro from accounting identities which follow closely empirical economic behavior and has debunked mainstreamers for 50 years (as others have).
The mainstream’s refusal has as much to do with an the established thinkers refusing to budge as it does the immense ideological interests of wealth that uses them to legitimize their dominance.
In other words, it take more than proof, which has been on offer for decades, but social mobilization to cast out the mainstream. This is why Keen seeks to rally academics from a broad range of fields to subject economists to academic review, especially on climate.
@GhostOnTheHalfShell@economics-that-works Well if you could build a large scale economic simulation that predicts economic outcomes better than the mainstream, you could fund the operation by trading.
With Curie and radium, or germ theory, what overcame the skeptics of the day? When you could SEE it. The microscope, or purified glowing stuff you could show people.
Simulations would let us SEE the problems with current economic theory.
"A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it ..."
Non Orthodox economists have contended with this for a half century and longer.
Economics is uniquely positioned in that someone with a better theory (in terms of predictive power) could get filthy stinking rich, without fighting the patent office or large corporations first.
Michael Milken and the founders of Long Term Capital Management show the hazards of doing that. Both had valid insights, both met with disaster in the real world.
@mike805
The problem is it's not enough to have a correct theory to make money, you also have to know facts about what people are doing. For example, if I jump out of an airplane without a parachute you would probably imagine I would die, but then they did a randomized controlled trial and NOONE who jumped without a parachute died... it's a published research paper @GhostOnTheHalfShell@economics-that-works
@mike805
Anyway, the whole "if you're so smart why aren't you rich" falls apart when you realize that you can be 100% correct and still not have the information needed to put into your model to make good predictions... And people who have insider trading info can be dumb as a brick and make money. @GhostOnTheHalfShell@economics-that-works
Applied MMT or at least Doug doesn't operate that way. It'd tell you how to position in the market wrt to the economic cycle and it only forecasts a few months out.
@GhostOnTheHalfShell@economics-that-works Now climate is a whole different problem. You've got game theory working against you there. The winner is whoever makes everyone else adapt first, while continuing to produce and use energy. China and Russia are trying to be that winner.
Humans will not only fight in a burning house, they will try to push their enemies into the fire.
@GhostOnTheHalfShell@economics-that-works I suppose my main summary of my understanding of canes is that he said the government should collect surpluses when the economy is good, then spend them like crazy in deficit when the economy is bad, so that in the end the budget is roughly balanced but no one is truly obsessing about deficits.
Keynes was wrong in the sense that government deficits are private deposits. Keynes was operating in a different monetary world in the sense that the gold standard applied.
So there should be no surplus (because government is deleting the credit potential of the economy; taxes deletes fiat currency)
That said, spending when the economy is bad is creating credit.
If the real economy is growing, in general you will need the size of the money supply to grow too, or prices will decline and this often causes people to misallocated production. So you should run deficits. If the economy is not growing but the interest rate isn't particularly high then you should probably reduce your deficits. If the economy is not growing but interest rates are high you should increase them... 1/
because in that case money is probably a limiting factor... If prices of goods are going up but real production isn't increasing, you should tax money out of the system and run a "government surplus" because people are demanding things with money that just aren't produceable. 2/
If the economy is declining (say per capita real production) then you should probably spend on infrastructure and investment in new production ability...
it's not like this stuff is hard... why is it not basically in the first few paragraphs of every macroecon textbook?
@GhostOnTheHalfShell
It's complicated but yes I generally agree, having a model for what's going on is key.
I personally think helicoptering money during COVID into an economy that was set up not to produce more but to capture money (consolidation, oligopoly, collusion, and yes plausible cover for price hikes) together with people having a surplus of cash relative to what they were used to, led to the high inflation we've seen. @msbellows@economics-that-works
If I understand correctly, MMT and Keen by his math, would say that reducing the deficit removes money (credit) from the system, not a good thing if commerce is fading.*
Here, raising interest could be an option, but I'd say helicopter money into people's pockets.
note here I do not think growth should be necessary, because Bractaete system doesn't need, but we don't have it and monetary system needs interest and inflation to "work".
@GhostOnTheHalfShell
Well, the limiting factor for monetary growth is inflation, if the economy is lackluster but interest rates are low (therefore money is relatively easy to get) you won't get improved output from helicoptering money, you'll just get inflation. But if interest is high, yeah helicoptering money could help. @msbellows@economics-that-works
The charts and the discussion of them remind me of the Bank of England publishing a report on something similar.
McLeay, Michael, Amar Radia, and Ryland Thomas. “Money Creation in the Modern Economy.” Bank of England Quarterly Bulletin 54, no. 1 (2014): 14–27. https://ideas.repec.org/a/boe/qbullt/0128.html.
“Figure 42: A Government Deficit increases the net financial worth of the private sector”
On another note, Laffer doesn’t want the Fed chairman position. For good reason, he’d ruin the economy. I think we should run the experiment and have a different school of economic thought heading it. Laffer sounds absolutely mental.
Coolidge in his final State of the Union address. Sounds awfully familiar to Laffer, although the Reagan admin famously exploded the deficit to fund Star Wars.
“ We have substituted for the vicious circle of increasing expenditures, increasing tax rates, and diminishing profits the charmed circle of diminishing expenditures, diminishing tax rates, and increasing profits.”
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I have to wonder about standard political talking points.
Dems crow of their budget cutting prowess to explain why the economy does better under them while hissing at Republican’s raising the deficit as an explanation of why the economy does less well. But MMT explains the opposite and I have to ponder that the reason is there’s a lag of a couple years.
The point of my comment is Bill Clinton crowed he balanced the budget. He famously cut spending. Reagan simply expanded the deficit to fund SDI, even now and under Trump gov spending is lavished on defense.
But the deficit is private wealth. Cutting taxes simply cuts down on money destruction of taxes.
In finishing out Keen’s latest post, I observe he references Coolidge and the dynamics that lead to the Great Depression and also the Panic of 1837 (there was also a long Depression of 1873). For the 20s the interplay of private and public debt lead the roaring 20s but set the stage the GP.
@GhostOnTheHalfShell@economics-that-works
read keen more closely, and remember the Liability and Equity columns of his Godley tables have the opposite sign of the Asset column. Kinda part of double entry that always trips me. You "add/enter" an entry in two places... The "opposite sign" nature is what makes sure it is a net-zero transaction.
I like to SEE the opposite signs spelled out; 11th century monks, accountants and economists like to enter the same entry in both places.
@video_manager@economics-that-works TBH I don't see what your remark is addressing. Dems claim fiscal responsibility by slashing the deficit and ancheiving balanced budget. My observation is that 1) that claim as virtue is mainstream thinking 2) the GOP is blamed for larger deficits which are aided by expanding military spending 3) taxes delete debt money and credit. The budget and debt grows in size. The talking points ate cute but ass
The graph makes clear point. The clear difference between Republican and Democrat "presidents".
It is important to note, that taxes and spending are done by "Congress", not the president.
It will be more informative to see that graph, it might not be so compelling though. Especially since Congress is often controlled by the opposition party to the president (at least after the first "wave" midterm).
Very true. So it is a question of do you want to just break the stereotype, or do you want to bother with nuance. I guess, the MAGA masses aren't bright enough to really understand it anyway. Or worse, so religiously devoted to these lies, that facts don't matter, nuanced or not.
I agree. There is so much nonsense about the economy in general. Pollsters in the media are making it worse by publishing poll results from questions about how people "feel" about the economy.
That is guaranteed to invoke the negative over the positive. People generally feel negative when asked with nebulous questions like that.
I feel they need to add nuance and specificity to the poll questions about the economy in order to get a true understanding of how much it has improved from 4 years ago.
and that's important. for people capable of nuance. for the dingbats you just bash them over the head with reality. the hardcore brainwashed won't care but someone will. and since the economy is such a big concern with voters, always, it's important to hit them with the big guns on the dumb lies they believe
all I'm saying is an appeal to nuance is noble but let's get Biden back in office then do nuance
I support the concept but, for the "morons" you're hoping to influence, they'll just drape themselves in the "Armor of Faith" when you "...bash them over the head."
I've been told a more "reliable" but much slower approach is to find ways to break their trust in the authorities they rely on... original example was getting a Preacher seen as a liar, but not by SAYING he was a liar.
Yet people who deprogram cult victims, the strategies not at all what y’all are mentioning. It is always a trick, but “bashing” isn’t it. Like Roger Hallam says, facts are about 15% of social mobilization, moral sentiments are a far larger lion share.
The right wing talking heads understand this point and often anyone left of it clings to the notion that facts are arguments. They are not.
@GhostOnTheHalfShell@benroyce@chiclet@video_manager@economics-that-works so deprogramming neoclassical cultists should rely more on connecting immoral, needless economic suffering to the entrenched practices that favour wealth accumulation? Seems like there should be good historical examples of that.
Unfortunately lost in this exchange: crowing about cutting the deficit is wrong headed. Slashing the deficit and balancing the budget, which Coolidge was so proud of in the 20s, set the stage for the Great Depression. Dems bragging about nosing deficits down is no virtue. MMT is far more nuanced about public and private credit and debt.
Both parties cling to mainstream thinking which is deadly.
but also, when the MAGA morons go "trump and republicans good for economy/ deficit, biden and democrats bad" hit them with something simple clean and hard: {image}
most won't care, they're brainwashed dum dums. but you might hit a few
Walk into room of GOP and take a page, rage about Reagan blowing up the deficit (even though it’s stimulative) and RAGE about him gushing money on SDI. Most won’t know what it was these days. Howl that it destroyed the economy. Rage that he destroyed high paying American jobs (FAA) and he caused college tuitions to explode, so fat ass bureaucrats could collect fat salaries (mostly true). Then demand that they explain why they support it.
Yes, but... Rather than rail, ask in honest curiosity about discrepancies, and have them "help" you understand. Follows on the maxim "you never really understand something until you explain it to someone else"
Just keep asking why; tolerate their goalpost Morris Dance; at some point they may question their own beliefs. Only then can you intervene.
if you have the bandwidth for that: my respect. my belief is that the effort involved for the potential payoff is prohibitively bleak. the peripherary is all i can play, i believe
Now, the effects of those two things are VASTLY different as evidenced by the change in deficit as they are implemented.
Goes down during Dems and up during GOP. Data is quite clear on that. The investment of direct spending vs tax cuts hoping Corps do good things shows we should do more direct spending. Vs Corps doing multi billion dollar stock buybacks while also reaping record profits and gouging prices.
So I finally get where the disconnect is here. The main point Keen makes is balancing the budget and cutting deficit can push macro dynamics into crisis state. It’s where the ratio of credit v GDP plummets.