tag:blogger.com,1999:blog-2546602206734889307.post5964659412141467650..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Interest rate vs fiscal policy stabilisationMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-2546602206734889307.post-36791676951140166652018-08-24T12:56:46.295+00:002018-08-24T12:56:46.295+00:00This comment has been removed by the author.James Peachhttps://www.blogger.com/profile/08757077858988493833noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43239215379518690652018-08-23T07:38:50.660+00:002018-08-23T07:38:50.660+00:00I'd echo the comments above about MMT preferen...I'd echo the comments above about MMT preference for "automatic stabiliser" type fiscal policy with that being more rapidly responsive to the economic cycle than any active policy intervention including interest rate changes. The Labour Party GE2017 manifesto included "national education service" proposals. Potentially such a "national education service" could act macroeconomically much like the MMT Job Guarantee idea is hoped to. If anyone could take up a training course at any time with a decent bursary and vocational training courses were available to suit those without academic aspirations etc, then, in the advent of an economic downturn, all those who lost their jobs could receive bursaries, and people would be hired as tutors to increase training places etc etc so providing a fiscal stimulus. We'd then also benefit from a widened skill base with a load more people being qualified in whatever was taught (perhaps care work, construction work skills, book-keeping or coding or whatever there seemed to be skill gaps in).stonehttps://www.blogger.com/profile/07670385074640188296noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16051650822478968842018-08-21T11:26:39.180+00:002018-08-21T11:26:39.180+00:00Back in the early 1960s, the then Conservative gov...Back in the early 1960s, the then Conservative government did seek to change taxation between budgets. One outcome of this was the purchase tax regulator. Hugh Pemberton wrote an article on taxation in this period back in 2001:<br /><br />https://seis.bristol.ac.uk/~hihrp/publications/2001%20A%20taxing%20task.pdfLaurence Coxhttps://www.blogger.com/profile/12022978799028708943noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-7365931461027048292018-08-20T12:42:01.189+00:002018-08-20T12:42:01.189+00:00It would be wonderful if the differences over poli...It would be wonderful if the differences over policy recommendations between the advocates of MMT and the practitioners of the broad current macroeconomic consensus could be resolved by a systematic assessment of the questions you raise. But that is unlikely.<br /><br />The MMTers see no reason why government spending cannot be increased until unemployment is eliminated, for example by funding a Jobs' Guarantee, and taxation can be increased to choke off any inflation that might arise. Indeed they see no reason why current fiscal budgets should be balanced over a cycle, or over a rolling period or ever. Nor do they see any reason for issuing bonds and paying a coupon to finance a fiscal deficit.<br /><br />In this context it's difficult to see how any common ground can be reached.<br /><br />However, the mainstream consensus needs to address a bit more convincingly the apparent secular declines in global interest rates and the NAIRU in advanced economies and the growing shortfall in infrastructure replacement and new investment.<br /><br />And both sides need to address the pervasive and endemic rent capture due to increased industry concentration (particularly technology firms), weakening competition, deliberately ineffective economic regulation, atomisation of workers, powerful professional and occupational interest groups and subborned politicians and officials Paul Hunthttps://www.blogger.com/profile/03664260838338739661noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91967172946770541292018-08-20T02:56:19.072+00:002018-08-20T02:56:19.072+00:00It seems in your analysis that you are excluding f...It seems in your analysis that you are excluding fiscal policy stabilization mechanisms such as unemployment insurance and even a taxation policy that taxes a percentage of business profits or income rather than lump sums. I don't know how fast you think monetary policy works, but unemployment insurance is clearly faster, and does the bulk of the heavy lifting on the stabilization front. How many people would be willing to eliminate measures such as these and leave depression prevention solely to managing interest rates? <br /><br />Even taxation policies that set the tax burden as a percentage of income made rather than as a percentage of government expenditures are natural stabilization mechanisms that do far more heavy lifting than interest rate policy changes. Imagine if your tax bill didn't go down when you lost your job, simply because you kept using the same amount of government services.<br /><br />I don't think the proposition that we shouldn't rely on fiscal policy can be taken seriously by governments that clearly rely on fiscal mechanisms and naturally and immediately go into deficit with every downturn. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-77690134270803401722018-08-19T13:19:00.703+00:002018-08-19T13:19:00.703+00:00Great article Simon. I have a question which rela...Great article Simon. I have a question which relates to the role of Labour's proposed 'fiscal rule' in normal times.<br /><br />Why in normal times does the rule make the crude distinction between current and capital spending like capital spending alone can raise potential output. As past readers have argued this creates perverse outcomes - new roads but no one to fix them and low education spending because according to the rule it doesn't boost long run growth. Doesn't this call for a more nuanced fiscal rule? The politics are clear, the economics less so. Chris W.noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-3420532523421607182018-08-17T10:30:20.188+00:002018-08-17T10:30:20.188+00:00While your blog is of academic interest, it misses...While your blog is of academic interest, it misses the obvious point that the both interest rates and fiscal policy have been driven by 'financial' rather than 'economic' considerations in the nation's interest. Low interest rates have had the effect of artificially boosting house prices and the stock market. And, while large companies may enjoy access to cheap funds, in practice small businesses continue to struggle to get loans. Moreover, quantitative easing has resulted in large scale resources being available to the financial sector but zilch to industry, business and commerce. This is why we have a housing and infrastructure problem in the UK. So perhaps you should direct your next blog to opportunity costs. John Whttps://www.blogger.com/profile/12313732589164497251noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-43058719925003841562018-08-17T07:54:44.213+00:002018-08-17T07:54:44.213+00:00A few comments:
1) MMT advocates a strong(er) usa...A few comments:<br /><br />1) MMT advocates a strong(er) usage of automatic stabilizers rather than discretionary fiscal policy changes. Its main tool is the Job Guarantee which will expand in recessions and shrink in expansions. The same can be said for a large part of the fiscal balance which swings rapidly and strongly within the business cycle. In such a context, discretionary decisions (and lags in their implementation) will be minimal.<br /><br />2) A strong post-Keynesian critique against monetary policy is that short-term interest rates mostly affect household mortgages while corporate investment decisions depend on long-term rates. The latter are quite sticky because holders of long-term securities face capital losses when yields go up and capital gains when yields fall (so movements in short-term rates must quite strong and permanent in order to induce movements in yields of long-term instruments).<br /><br />As a result, in order for monetary policy to effectively affect corporate investment in the short-term it must have a strong impact on long-term rates with maturities of at least 10 years with large and semi-permanent decreases in short-term interest rates. Yet, the business cycle frequency is relatively short so that implies a steady long-run downward trajectory for interest rates (of all maturities).Kostas Kalevrashttps://www.blogger.com/profile/12215782761139619874noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-22663062512710530152018-08-16T13:53:42.908+00:002018-08-16T13:53:42.908+00:00The economist as useful political idiot
Comment on...The economist as useful political idiot<br />Comment on Simon Wren-Lewis on ‘Interest rate vs fiscal policy stabilisation’<br /><br />The key point for understanding economics is that there are TWO economixes: political and theoretical economics. The main differences are: (i) The objective of political economics is to successfully push an agenda, the objective of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.<br /><br />Theoretical economics (= science) had been hijacked from the very beginning by the agenda pushers of political economics. Note that neither Simon Wren-Lewis nor Bill Mitchell knows how the economy works but both have very strong opinions what the the Labour Party’s economic policy should look like.<br /><br />There is no need to bother much with the scientific underpinnings of Simon Wren-Lewis’ or Bill Mitchell’s policy guidance because there are none. Both DSGE and MMT are scientifically worthless. Economics is not a branch of science and economists are not scientists.#1<br /><br />For political purposes, though, this does not matter much because in the political sphere the number of useful idiots is decisive for success and not any genuine scientific merits.<br /><br />So, how are the useful idiots positioned these days in the UK?<br /><br />(i) The hardcore neoliberal position is that the state has to be kept out of the economy, so fiscal policy is a priori ruled out. What is admissible is interest policy of a (nominally) independent central bank. This policy is already in place and is continually adapted/improved.<br /><br />(ii) The soft neoliberal approach of Simon Wren-Lewis gives fiscal policy a greater role in the case of economic emergency/stress but delegates policy to a (nominally) independent body of experts that is tasked with budget balancing (ex investment spending) over a rolling five-years horizon.<br /><br />(iii) The hardcore MMT position is that monetary policy has always been ineffective and that only permanent deficit-spending/money-creation keeps the economy going at full employment. Bill Mitchell’s main point of critique of (ii) is that Labour clings to the obsolete idea of budget balancing and is not progressive enough.#2<br /><br />After blowing the whole pseudo-scientific argumentative fog away what remains with regard to the positioning vis-a-vis the current Labour leadership is:<br /><br />(i) means attacking Labour/Corbyn from the right,<br /><br />(iii) means attacking Labour/Corbyn by the fake left a.k.a Progressives,#3<br /><br />(ii) means neutralizing Labour/Corbyn through a committee of nominally independent economic experts.#4<br /><br />Among economists, the current Labour leadership has NO real supporters. A paranoiac view of the political world would come to the conclusion that the oligarchy has Jeremy Corbyn successfully encircled with useful academic idiots.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 See cross-references Failed/Fake Scientists<br />http://axecorg.blogspot.com/2015/11/failedfake-scientists-cross-references.html<br /><br />#2 How Bill Mitchell stalks Jeremy Corbyn<br />https://axecorg.blogspot.com/2018/08/how-bill-mitchell-stalks-jeremy-corbyn.html<br /><br />#3 The Kelton-Fraud<br />https://axecorg.blogspot.com/2018/07/the-kelton-fraud.html<br /><br />#4 The demise of phony experts: macroeconomics is provably false<br />https://axecorg.blogspot.com/2018/05/the-demise-of-phony-experts.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-20198450348231474162018-08-16T03:54:26.399+00:002018-08-16T03:54:26.399+00:00To my mind this article ignores the main issue of ...To my mind this article ignores the main issue of using an interest rate policy to influence the economy namely that short term interest rate changes cumulate to a form a long term policy.<br /><br />It is clearly in everyone’s interest that people save for their old age but a whole generation of savers have now been shafted and the generations that follow them have taken note. UK households are now spending more than income for first time in 30 years. It is hardly surprising given the circumstances.<br /> <br />The long term outcome for interest rates can have a significant effect on the economy and on people’s behaviour. There has been a vast shift from house buying to rental. If people believe that they have been unfairly disadvantaged by the current interest rate policy then they can rightly feel entitled to vote for their own economic interests irrespective of the public good. If the Government has drastically slashed their income from their savings why wouldn’t they vote for the party which promises the best safeguards for state pensions? People who have found their income severely reduced from low interest rates are indifferent to the comparatively minor economic effects of Brexit and can vote purely on the basis of political principles. <br /><br />None of this is to say that a short term change in interest rates is not appropriate in some circumstances such as occurred with the Credit Crunch. However, the Government should decide its short term policy in the context of a long term policy that will enable people to plan their finances with some degree of predictability.<br />TeeJayhttps://www.blogger.com/profile/02894564884420913780noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15728435152490713452018-08-15T23:59:49.871+00:002018-08-15T23:59:49.871+00:00Why limit "monetary policy" to a single ...Why limit "monetary policy" to a single instrument." Why not consider ST interest rates, LT interest rates, the foreign exchange rate, indeed what ever is needed to keep employment high and the price level growing at a a targeted rate? Unknownhttps://www.blogger.com/profile/04661459590343267145noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-13393882287425132242018-08-15T22:00:44.536+00:002018-08-15T22:00:44.536+00:00well done.
I have given you some modest publicity ...well done.<br />I have given you some modest publicity down undernot trampishttps://nottrampis.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-55259665826649541532018-08-15T19:16:17.975+00:002018-08-15T19:16:17.975+00:00Thank you for this explanation of the main issues ...Thank you for this explanation of the main issues driving the "traditional" vs. MMT dispute as well as the pros and cons of fiscal vs monetary in respect to each of the issues.<br /><br />There seem to be some broader political considerations for monetary vs. fiscal policy as a demand simulator tool. Monetary policy works through stimulating demand for money by lowering its price with the hope that borrowed money will be "injected" in to the economy, right? A problem with that policy in a distributional sense is that it relies on capital owners "accepting the government's invitation", so to speak, to borrow money in order to acquire even more capital. Everyone else benefits as these new capital acquisition projects spread the borrowed money down the line to labor via things like hiring people directly to perform a task or suppliers of necessary inputs hiring labor to meet the increased demand for the input they supply.<br /><br />Is it a strike against the use of monetary policy that capital owners, the people who have received the greatest benefit from our economy over the last few decades, are essentially being bribed to stimulate demand (since they must at least think they will personally profit from the new project)? Even if "regular" people benefit from lowering interest rates by reducing the cost of borrowing for anything from a house to a new business, the money is still funneled through banks and other financial entities which are owned by the rich. There is something unseemly about making enriching the wealthiest people in our terribly unequal society a necessary part of stabilization policy.<br /><br />Also, how bright are the lines between a policy proposal being considered monetary or fiscal policy? Is the treasury printing money then driving through the streets chucking the money out the back of a truck monetary policy? If there is some way to do monetary policy without lowering interest rates being the only mechanism, it might help minimize the political/distributional concerns. Some policy which benefits labor directly without needing capitalists as a “middle-man”.<br /><br />Understandably, economists are mostly focused on a policy’s efficiency as stabilization tool. But these political considerations are necessary in a democracy, even when there has been delegation to an undemocratic (in the literal sense of the word) entity. It is arguable that at least in the US, where the party in power in the wake of the recession was not ideologically committed to shrinking the state regardless of the impact it would have in regards to economic stabilization, the perception of monetary policy being the primary method of achieving economic stability helped to create a political backlash against Obama. The attacks on UE by the republican party using arguments from the right and the left really stoked popular anger by portraying the policy as mostly a way to increase the value of assets owned by the already wealthy while only creating (in reality non-existent) inflation for the “little guy”. A larger, bolder, more direct use of fiscal policy or monetary policy nor reliant on just cutting interest rates may have helped the Democratic party avoid the enormous losses they suffered in the 2010 mid-term elections.<br />bbkhttps://www.blogger.com/profile/01099727870255840001noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-83902738646284779062018-08-15T15:04:42.545+00:002018-08-15T15:04:42.545+00:00What is OMT?What is OMT?Anonymousnoreply@blogger.com