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)
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 current pandemic calls for extraordinary measures.
Unwittingly, first out of ignorance and recently as necessitated by a pandemic, some nations, including the U.S., are wandering into the ultimatemenace to the financial system, the spending without constraint blessed and recommended by unscientific Modern Monetary Theory. (Click here and here) The systematic result of MMT’s unconstrained printing of money, unjustified by corresponding production of goods and services, is rampant inflation in prices for a) goods and services and/or b) financial assets. (Continue reading)
A systematic explanation, then, requires a normative theoretical framework. The basic terms and relations of such a framework would specify the distinctions and correlations that articulate the causes, which are not necessarily visible, of events that are apparent to all. (CWL 15, Editors’ Introduction, lv) (Continue reading)
We print three displays of the same Diagram of Rates of Flow, AKA the Diagram of Interdependent Velocities. The second and third displays simply suggest that the serious reader must keep in mind certain precepts as he/she seeks to achieve a new paradigm and a new framework for macroeconomic dynamics. Continue reading →
Concomitance is, I would claim, the key word in Lonergan’s economic thinking. [Philip McShane, [Fusion 1, page 4 ftnt 10]
Recall that the subtitle of CWL 15 is “An Essay in Circulation Analysis”. It is by virtue of concomitance that continuity and equilibrium are achieved so as to constitute an orderly process of circulations. (Continue reading)
Thus, if we want to have a comprehensive grasp of everything in a unified whole, we shall have to construct a diagram in which are symbolically represented all the various elements along with all the connections between them. [McShane 2014, 11 (quoting CWL 7, 151)]
We wish here to suggest the insights the reader should have to fully appreciate all that is contained in the Diagram of Rates of Flow. (Continue reading).
Functional Macroeconomic Dynamics has a definite, normative, dynamic structure. Evidently, there is a high degree of indeterminacy to events within such a dynamic structure. All one can say is the game can go all awry. But despite this almost baffling indeterminacy, it remains that there is a definite dynamic structure. [CWL 21, 211-12]
The velocities of correlated, interdependent payments must keep pace and be in balance. Payments of dummy money move atvelocities in circuits; e.g.O = I = E = R (CWL 15, 54) and O’ + O” = I’ + I” = E’ + E” = R’ + R” (CWL 15, 54) The arrows in the Diagram of Rates of Flow represent channels containing analytically-distinguished, interdependent, functional velocities. These dynamic functionings are defined by the functional relations in which they stand with one another.
The intelligibility of the concrete process consists of two components: an abstractprimary relativity expressing the normative systematic structure, and a secondary component of concrete determinations from the non-systematic manifold. There is a normativity to the dynamic structure. An analogy from baseball may help to make the point regarding interdependence and keeping pace.
A large and positive crossover difference uncompensated by action from the pitcher’s box will result sooner or later in depriving the groups at second and third bases of all their balls, or if the crossover difference is large and negative, it will result in depriving the groups at home and first of all their balls. 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)