Thread by @infotranecon

Inspired by Jo Michell's review, encouraged by the availability of a free sample section, and enabled by a Saturday with nothing to do while the family is out of town, I am going to live tweet my reaction reading the first couple of chapters of Macroeconomics .

https://twitter.com/JoMicheII/status/1183092822863437824

Don’t think it’s their fault, but the Mercator projection should be outlawed except for navigation.

This is not a good sign as Bezemer fabricated and misrepresented quotes about post Keynesians “predicting the crisis” as I wrote about and Bezemer responded to here:
…rmationtransfereconomics.blogspot.com/2018/05/letter…

Actually like the first couple of paragraphs holistically linking Econ with the rest of social science.

That is not what neoconservative means. The word they’re looking for is “conservative” used in the previous sentence.

Neoconservative is the US term for adherence to hawkish foreign policy a la Paul Wolfowitz starting during Vietnam and continuing through the Iraq war.

I do want to add that this really gets the sociology wrong — especially coupling the US and UK. The conservative backlash in the US was to racial equality and integration. Neoclassical economics was superficial & more of a cover story for dismantling the welfare state.

Since they mention trade-offs I thought I might put in my own two cents on that:
…rmationtransfereconomics.blogspot.com/2016/02/fitnes…

Ok they’re being a bit unfair and obtuse about Pareto improvements here which even ‘neoclassical’ Econ says exist.

I guess ordoliberalism doesn’t exist. Truly Anglo-centric Econ.

Marx is invited because he lived in London.

Rampantly eschewing the Oxford comma ...

This comparison between neoclassical and ‘heterodox’ approaches seem more lefty “motherhood and apple pie” than macro.

I mean it sounds like things that represent my “in-group”, using a lot of signal words.

But it leaves me with the question: why are there these two camps?

I mean at some point there’s either evidence some way is more accurate or there isn’t.

This makes it seem like we’re about to start a book where we’re not going to see any evidence the theory being presented is correct.

FYI this is how a lot of string theory books start.

The constant claims that we really don’t know how people think or even what incomplete information they have is a really good motivation for the information equilibrium approach, BTW (assuming you have no information about what humans are thinking).

Ok I literally LOL’d at this.

Apparently I’m a descriptive physicist, not a theoretical physicist, because theory is all about making simplifying assumptions and not trying to replicate complex reality.

I guess we’re not going to see any theory trying to reproduce data!

It’s remarkably convenient for Wray and Mitchell (and Watts) that MMT doesn’t replicate complex reality.

Wouldn’t want to do anything remotely difficult now would we? Data might actually contradict your beautiful “theory”.

Sounds familiar...

Sargent: “I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models.”

Hahahahaha

MMT is irrefutable. Just like any theory.

Who knows what truth is, anyway?

Now tell me about the fiddly details of banking.

I wrote a bit about a better metric for a nascent science like Econ than falsifiability — usefulness. If there’s no framework that embodies prior empirical success, you can’t really construct rejectable theories. But you should still throw some out.
…rmationtransfereconomics.blogspot.com/2016/07/ceteri…

Which result is this referring to?

I am aware that it is computationally infeasible given existing resources to come up with an allocation for the entire economy that checks the optimality of the free market allocation, but I don’t think that’s what they mean.

This could really benefit from some citations. I’m aware of the work that does support these claims. However they cite “Lerner (1943)” later in the chapter while no cites whatsoever for this.

Do MMT people really think that “government is not like a household” is a conclusion important enough and unique enough to MMT that puts it in a privileged position as a theory?

It’s basic Keynesianism ...

The household analogy is basically a disingenuous argument from one particular subset of the right to not do economic stimulus in a recession because they oppose stimulus and would (and do) make *any* argument available ... even expansionary austerity!

It’s a bit like saying you have a theory that’s main claim to relevance is that it specifically refutes particular global warming deniers’ arguments rather than, say, getting climate data right.

To put it in other terms, MMT is “in reaction” to conservative political economy rather than being in itself about something.

I wrote something about this a few years ago regarding “market monetarism”:
…rmationtransfereconomics.blogspot.com/2015/11/does-m…

In the US, there was some (probably not enough) fiscal stimulus. This set up monetary theorists to try to rationalize monetary efficacy despite evidence to the contrary & market monetarism was born.

In the UK, the expansionary austerity bug took hold and MMT arises to counter.

A couple years after the crisis, and we in the US get total congressional opposition to Obama ... and resulting budget cuts. That’s when the MMT bug takes off here.

But the problem is that it wasn’t that conservative arguments about excessive spending were winning.

As we can tell from 2017’s massive tax cuts, US conservatives have no interest whatsoever in balanced budgets or macro stimulus. It was:
a) racism against a black president
b) opposition to giving disadvantaged people stimulus
c) total dedication to plutocracy

In that sense, MMT does not understand the politics it exists in reaction to and opposes in the US.

The situation might be different in the UK, but there isn’t a political problem in the US that MMT solves. I mean it’s most viable constituency is DSA who’d spend money anyway!

Stay tuned: going to take a break for a bit.

TBH was kind of zoning out watching The Black Hole (1979) while reading.

And we're back.

Recap: Theory is all about making simplifying assumptions rather than describing the real world. However, MMT is also about the real world, is triggered by comparing gov'ts to households, and takes politics at face value on deficits.

(Research shows that the way people feel about deficits is largely based on their political affiliation and the political affiliation of who's currently in office — despite the actual data.)

I must say economists' thinking must really be disorganized if they're always striving for models to organize it.

"A macroeconomic model draws on concepts and algebraic techniques ..."

As if algebra isn't a concept.

I think this is what people are talking about when they say the book tries not to be elitist, but really you could just say "algebra" instead of "algebraic techniques".

I know that sounds like a nit, but there's a difference between claiming you're trying to not be elitist and not being elitist.

There are different approaches to a mountain peak. There are actually multiple approaches to introductory physics — e.g. there’s the traditional “force” approach and an “energy first” approach. But they all lead to the same place in terms of the real world.

MMT is not a different "approach" to macro but rather a different theory of macro. It claims some things are important and others are not that represent a different set of information from, say, a NK DSGE model.

Again with the "currency issuer faces no financial constraints". But inflation, the prototypical macro constraint, is not a *financial* constraint.

Under the impression that MMT people take the metaphors for macro constraints too literally.

I am reminded of an old nicotine patch commercial in the US that had the voice over telling us that quitting with a patch was more effective than "with cold turkey" — did the studies actually use turkey cold cuts a control? That's ... that's not what that means.

Ah, yes, Bretton Woods. The ending of which in 1971 had literally no impact on inflation or other macro observables in the US.

Many people are unaware of this ... because it had no impact on their lives whatsoever.

But it's *essential* to understand the notion of a currency regime in a book on macro!

Ah, jeez. Sectoral balance. You mean looking at the unemployment rate?

https://twitter.com/infotranecon/status/1108379054237847552

A + B = C is not as powerful a constraint on how a system behaves as you might think.

The the algebraic techniques are limiting you — try a bit of calculus!

The book is arguing the lower right corner and discounting the upper right and lower left.

Oh no. Stock flow analysis!

Okun's law relates a stock (employment) and a flow (RGDP).

MMT triggered by the use of the word "budget".

Did you know that "fiscal" and "budget" derive from the same general concept of basket/purse and (leather) bag, respectively? (fiscus and bulga, in Latin)

I don't get why this claim:

"A sovereign government must spend before it can subsequently tax or borrow."

is a) relevant or b) true.

Is it a definition of a sovereign government?

Spending leads to taxation. Taxation leads to borrowing. Borrowing leads to suffering.

Yoda, I think.

Not if people aren’t willing to be employed or willing to sell it to you in your currency! (FYI actually has happened in history.)

MMT's keen insight appears to be leaving off the last clause in the claim that you can always buy stuff with your fiat currency if people are willing to sell it to you for your fiat currency.

Can't imagine why MMT seems to only have traction among white upper class men what with referring to human beings as a "buffer stock of employment".

Say what you will about neoclassical econ, but its contention that people are unemployed because they're choosing leisure over low pay (and not referring to them as a "buffer stock") at least allows individual human dignity.

The buffer stock (of people) is an anchor (dead weight) for the price level.

After that chilling "soylent green is people" end, we're on to chapter two ...