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The Fight for the NHS/MMT economics

Discussion in 'off topic' started by ks.234, Oct 26, 2021.

  1. Jim Audiomisc

    Jim Audiomisc pfm Member

    I don't think MMT or Keynes are inherently "less intuitive". The problem is that the vast bulk of what people have been fed for decades is essentially a 'faith' system which is simple to explain because it uses an obvious - but inappropriate - analogy, etc. This then becomes as 'obvious' as: "The Sun goes round the Earth." to people, and anyone who says otherwise is a crazy heretic.

    However once you can establish in people's minds that the Earth goes round the Sun, future generations think the idea that the Sun goes around the Earth is crazy.

    Reminds me of the story about the maths lecturer who was working though a long process on the blackboard and said "it is obvious that this means that..." and he wrote the next step. Paused and said "excuse me for a moment". Went out, then came back later to say, "I was right! It IS obvious!"
     
    ks.234 likes this.
  2. laughingboy

    laughingboy pfm Member

    Here's a short video that explains the theory of how the traditional trade-off between inflation and employment (as represented by the Phillips Curve) is affected by the introduction of a Job Guarantee. Whether it would work as well in practice is unproven.


    As I understand it, the JG idea is that when you have inflation the government raises taxes (or changes policy, or interest rates - gasp!) to reduce demand. This would normally create unemployment. Under a JG the government tries to employ these people at a fixed, low-ish wage. So, wages can't fall through the floor in the event of massive layoffs (thus stabilising inflation as output is diminished).

    And when the economy recovers, as a result of the fact that - in theory - more people have been able to keep up/update their skills, there is a broader base of skilled employees to recruit, so there is less upward pressure on wages for skilled employees as the private sector expands (thus stabilising inflation as output is increased).

    So, even by my rather simple analysis, you can see that - in theory - there is some scope for increased output at a given interest rate, as the JG works to keep the stock of labour a) productive in a downturn and b) immediately employable in an upturn.
     
    ks.234 likes this.
  3. ks.234

    ks.234 pfm Member

    Brilliant! Many thanks. I’ve been struggling with this (and graphs and equations generally) for some time.

    To start off with a simple bullet point, what the Phillips curve demonstrates is that an increase in interest rate = an increase in unemployment. As a simple starting point, have I got that right?
     
  4. matthewr

    matthewr spɹɐʍʞɔɐq spɹoɔǝɹ ɹnoʎ sʎɐld

    MMT claims that the interest rate has no effect on desired savings or desired investment (the IS curve is vertical) and so has no effect on aggregate demand. Therefore it might as well be zero as it's less regressive and reduces costs (which I guess maximises output).
     
  5. matthewr

    matthewr spɹɐʍʞɔɐq spɹoɔǝɹ ɹnoʎ sʎɐld

    MMT has all the intuitive difficulties of Keynes plus an extra big step. I suppose you can argue that unintuitive and slightly more unintuitive doesn't really matter although I would suggest that opening up an even more powerful line of attack for conservative arguments is not a step worth taking unless you have a high level of certainty that it's going to work.
     
  6. ks.234

    ks.234 pfm Member

    Where does this come from? As far as I understand it, which might not be very far, MMT says that raising interests will improve savings and consequently depress spending. As such it depends on if the objective is to increase or decrease aggregate demand. If the objective is to balance aggregate demand with supply, the Job Guarantee is a better tool to use.

    Again, I might be wrong as I’m still reading up on this aspect of MMT
     
  7. Jim Audiomisc

    Jim Audiomisc pfm Member

    There is a snag. Economists have a habit of drawing pretty "X vs Y" graphs with a squiggly line as if the reality was entirely set by that line. It isn't. And in general there is "no sech animal!" Its why 'proofs' like the one that sets out to show that the lowest tax rate yields the most tax are actually unreal twaddle.

    In reality, the behavious of various facets of a real economy in a real society generally depend on *many* - if not all - of the others *and* their past history *and* what people 'have faith in' (e.g. money). And those relationships themselves *also* change as other factors affect them.

    So the magic X-Y plot is often a version of Baloney Baffled Brains, or "He must be very clever - I didn't understand a word he said!" :)

    That one factor has an impact on another isn't a surprise. That you can make sense of it using a wiggly line on an X-Y plot is something else. The conclusions from a use may be true, or may be twaddle. You need to look further to decide.
     
    ks.234 likes this.
  8. ks.234

    ks.234 pfm Member

    Interesting article on inflation here. Interesting for me because it places inflation in an historic context and uses reason rather than equations, graphs or what @Jim Audiomisc might call “squiggly lines”

    Here is one excerpt

    One of the most frequent and ill-informed criticisms aimed at MMT is that it does not pay sufficient attention to the problem of inflation. MMT’s basic principle, that monetary sovereign government spending is not limited by borrowing, debts or deficits (‘balancing the books’) but rather by the real resources available to purchase in the economy, is characterised in these criticisms as a recipe for ‘unlimited money printing’. This ‘money-printing’, say the critics, will leave the economy facing high or hyperinflation, referencing some past or current situation, particularly Zimbabwe or the Weimar Republic in Germany.

    In each case of hyperinflation, the initial cause has been a sudden and massive collapse in the productive capacity of the economy, and in what is available to buy, and also strong evidence of massive corruption in the banking systems and state owned enterprises by insiders that resulted in large and continuous sales of the currency in exchange for foreign currency for personal holdings. When there are fewer goods and services available to buy, the increasing government spending required to pay rising prices just makes those prices accelerate upwards. However, modern Britain has nothing in common with a post-WW1 Germany, or a post-2000 Zimbabwe.
     
  9. Joe Hutch

    Joe Hutch Mate of the bloke

    It may not be ‘massive’, but there’s certainly corruption by insiders in modern Britain.
     
  10. ks.234

    ks.234 pfm Member

    It may not be massive, but it might be. It’s certainly institutional and led from the top
     
  11. ks.234

    ks.234 pfm Member

    MMT suggests that the Job Guarantee is a more appropriate tool to balance the economy

     
  12. matthewr

    matthewr spɹɐʍʞɔɐq spɹoɔǝɹ ɹnoʎ sʎɐld

    From the Nick Rowe ISLM treatment of MMT which you can either get to from my links or if you prefer via the Jo Michell post on Kelton vs Krugman that laughingboy linked.

    https://criticalfinance.org/2019/03/06/kelton-and-krugman-on-is-lm-and-mmt/
     
  13. ks.234

    ks.234 pfm Member

    I notice that in his twitter feed Nick Lowe says that MMT says IS curve is vertical in a recession, but this doesn’t take me any closer to what MMT itself says, nor to understanding what it means.

    I also see that one commentator asks, “Is MMT merely an attempt to "dot the i's and cross the t's" accounting-wise on the ideas in The General Theory?”, to which Lowe replies “I lean towards agreement with your comment”
     
  14. laughingboy

    laughingboy pfm Member

    And yet, as Simon Wren-Lewis says here if I understand his argument, it's not quite what MMT says
    So, Wren-Lewis sees MMT as arguing that monetary policy is too blunt a tool, whereas he thinks that it works effectively to control demand and inflation. And if that is the case, his argument runs, it is necessary to constrain government fiscal policy, so as to remove the temptation of government to overspend. Because to SW-L, once aggregate demand is restored to a functional level, fiscal policy becomes risky. MMT therefore sounds like a licence for the government to get itself into difficulty. Wren-Lewis concludes by saying that MMT needs to talk in the language of standard macro if it is to be trusted/taken seriously.

    Personally, I find all of this a bit depressing. The long and short of it is that there is a mainstream view that because MMT is difficult to reconcile with standard Keynesian models, there must be something wrong with MMT. And MMT's position is to say, look at the way that unemployment is used as the effective control of inflation and demand; can't we do better than that? Now, there may be something wrong with MMT and there may be something wrong with the models; probably both. But when S W-L ends his blog by saying that, in 2010, mainstream macro did not prevent the switch to austerity, it is an admission of mainstream macro's communication failure. His argument that MMT needs to conform to the models and language of that failure, therefore, sounds devoid of self-awareness to me. Why insist that MMT conforms to a pattern of communication that, just when it was needed, failed?

    Similarly, you keep telling me and ks.234 that MMT is more unintuitive than mainstream macro. And yet he and I are living examples of MMT's ability to communicate outside of academia in a way that mainstream macro fails to do (show me a New Keynesian equivalent of 'The Deficit Myth', for example). So when you and Wren-Lewis say that MMT, not NK, has a communication problem to solve, from my point of view it makes little to no sense.
     
    ks.234 likes this.
  15. laughingboy

    laughingboy pfm Member

    I love the idea of Nick Lowe writing about MMT: 'What's so funny about Pence, Pounds and Aggregate Demanding?'
     
    ks.234 likes this.
  16. ks.234

    ks.234 pfm Member

    Yes. The problem seems to be that Keynesianism doesn’t even try to communicate outside academia
     
  17. Enfield boy

    Enfield boy pfm Member

    Because it hasn't got hard-right shills on side. I wonder why!;)
     
    Covkxw likes this.
  18. ks.234

    ks.234 pfm Member

    Yes, this for me is the big point. As someone who did not get a university education until my early 40’s, I do not have the learning or knowledge of many here, though I have always been interested in history and politics and informed myself with reading. As such I read some Keynes and my take away was that Keynesianism allowed government spending during a recession. However, it was not until recently and learning more about MMT that I understood the theory that invalidates the basis for monetarism and the intellectual case that undermines the Thatcherite household model that still holds sway today.

    All of which might be down to my lowly position on the KS Learning Curve, but the fact that MMT can falsify the model of the economy that has dominated since the 70’s in a language that even I can understand is proof that MMTs ability to communicate is relatively good
     
    Sue Pertwee-Tyr likes this.
  19. Enfield boy

    Enfield boy pfm Member

    I was taught Keynesian economics at A level, found it fascinating. My teacher was a socialist (Grammar school, mid 70s, so it took me a further 5 or 6 years to fully realise why I hated Thatcher so much!). He can't have taught outside the syllabus so it must've been "acceptable". I guess that since the war we've mostly had right of centre or far right governments propped up by a crooked press meaning they don't want us to believe that poverty isn't inevitable.
     
  20. ks.234

    ks.234 pfm Member

    Did your understanding of Keynesianism teach you that Government spending is not related to income from tax, and the implication that Thatcher’s “there is no government money, there is only taxpayer money’ mantra was a lie?
     

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