Preliminary note: In this section we are addressing the proper understanding and management of the economic process in normal, non-pandemic times. We affirm that the recent pandemic called for extraordinary measures.
Unwittingly, first out of ignorance, more recently as necessitated by a pandemic, and most recently out of continuing ignorance, some nations, including the U.S., have wandered into the ultimatemenace to the financial system, the spending without constraint blessed and recommended by unscientific. so-called Modern Monetary Theory. (Click here and here) The systematic result of MMT’s unconstrained printing of money, unjustified by corresponding, concomitant production of goods and services, is rampant inflation in prices for a) goods and services and/or b) financial assets. (Continue reading)
We have recited some aspects of the dynamic economic process:
(Dummy) money “must be constant in exchange value.”
Prices alone do not explain the economic process. Pricesmust be interpreted in the light of those significant variables which actually explain the economic process.
The economic process of production and exchange always is the current, purely-dynamic process
The economic process is an organic whole
The process has an exigence for a normative pure cycle of expansion.
Equilibrium requires the keeping of pace and balance among interdependent flows of products and money
Scarcity is the normal cause of inflation
Maladjustment of incomes is the maladaptive cause of inflation
Just as the surplus phase of the expansion is anti-egalitarianin tendency, postulating an increasing rate of saving, … so the basic phase of the expansion is egalitarian in tendency; it postulates a continuously decreasingrate of saving [CWL 15, 139]
The central adjustment to the respective phases of the process may be formulated as adjustment of I”/(I’ + I”), the ratio of surplus income to total income
Interpreters of prices must distinguish between real and relative price increasesmonetary and absolute changes in prices We have recited some aspects of the dynamic economic process: (Continue reading)
On Friday, October 8, N. Gregory Mankiw’s Blog featured Nick Romeo’s interesting article entitled “Is It Time For a New Economics Curriculum?” Greg provided a quote from Romeo’s paragraph re Jonathan Gruber’s take on CORE.
Jonathan Gruber, who teaches introductory economics at M.I.T., felt that CORE might introduce too much complexity for a foundational course. He worried that so much emphasis on the ethical and political dimensions of economics might make the subject feel like a different discipline altogether. “The question is, do you want the students to feel like they’re coming out of, you know, to be blunt, a sociology class or an economics class?” Gruber said.
4/7/2021: Yahoo Finance today featured an article by Julia La Roche entitled ‘The fault line is inequality’: J.P. Morgan’s Dimon calls for fixing America’s ‘self-inflicted’ problems.La Roche was reviewing the Public Policy section of Dimon’s 67-page Chairman and CEO Letter to Shareholders. Mr. Dimon seeks to end the nation’s self-infliction of problems threatening the culture, the economy and the polity. He particularly regrets “false arguments of fanatics, the certitude of ideologues and cycles of intolerance.” Continue reading →
We ask all serious graduate students and professors of macroeconomics, government economists, conscientious politicians, poorly educated journalists, and financial-talk-show “pundits” to please read Bernard Lonergan’s Macroeconomic Dynamics, (CWL 15), Section 26, “The Cycle of Basic Income”. That section addresses several important economic issues:
the adjustment of the rate of saving to the phases of the pure cycle of expansion in the economic process
the complementarymechanism of changing prices
the significance of a relative and an absolute rise or fall of monetary prices
the difficulty with the theory of manipulating interest rates in that a) it lumps together a number of quite different things, and b) overlooks the order of magnitude of the fundamental problem
the ineptitude of the procedure of manipulating interest rates.
Then, after the first reading, please read that section a second time.
[CWL 15] Lonergan, Bernard (1999),Macroeconomic Dynamics: An Essay in Circulation Analysis, ed. Frederick G. Lawrence, Patrick H. Byrne, and Charles Hefling, Jr., vol 15 of Collected Works of Bernard Lonergan, (Toronto: University of Toronto Press)
On Saturday, 12/19/ 2020,John Cochrane‘s blog “Bisin on MMT Rhetoric” cited Alberto Bisin’s review of Stephanie Kelton’s Book “The Deficit Myth. “ Alberto Bisin contends, as do we, that So-Called Modern Monetary Theory, as espoused by Kelton and others, does not qualify as a theory. Cochrane quotes Bisin:
The book should be seen as a rhetorical exercise. Indeed, it is the core of MMT that appears as merely a rhetorical exercise. As such it is interesting, but not a theory in any meaningful sense I can make of the word. The T in MMT is more like a collection of interrelated statements floating in fluid arguments. Never is its logical structure expressed in a direct, clear way, from head to toe.
Our contention is that a large discretionary injection of “free money” into the channels of Demand – whether by the Fed or the Treasury – rather than as “money justified” through the channels into productive supply, [(S’-s’O’) and (S”-s”O”)], is intrinsically inflationary. New money channeled into either the market for secondary financial assets or into the market for basic products, without that money being “justified” by productive output, is dangerously inflationary. (Continue reading)
We are commenting with respect to Andrew Lilley and Kenneth Rogoff’s “conference draft” discussing the advisability of a FRB policy of negative interest rates:
Lilley, Andrew and Kenneth Rogoff, April 24, 2019: “The Case for Implementing Effective Negative Interest Rate Policy” (Conference draft for presentation at Strategies For Monetary Policy: A Policy Conference, the Hoover Institution, Stanford University, May 4, 2019, 9:15 am PST) [Lilley and Rogoff, 2019] (Continue reading)