Archive for the ‘Political Economy’ Category

Modern Money Theory (MMT) vs. Structural Keynesianism

Friday, April 6th, 2018

A journalist sent me some questions about MMT. My answers are below.

1. What are the major flaws you see within Modern Monetary Theory?

(A) I like to say that MMT is a mix of “old” and “new” ideas. The old ideas are well known among Keynesian economists and are correct, but the new ideas are either misleading or wrong.

The essential old idea, which everybody knows, is government has the power to issue money. We used to talk of “printing” money. In today’s electronic world we talk about “keystroke” money created by electronic credit entries.

Everyone knows that because government has the capacity to create money, it can always pay its bills and debts by printing money. But having the capacity is not the same thing as saying it should, which is the beginning of where MMT goes astray.

In economic debate and economic journalism there is a “demand for difference”. On one side you have extreme budget hawks who see every deficit as a dire existential threat. MMT is the counterpart to the hawks. And here’s the rub. MMT is needed as an anti-dote to austerity hawks, but neither make for good economic theory.

That creates a dilemma for progressive economists. On one hand, there is need for a powerful progressive polemic to counter neoliberal austerity polemic. The basic MMT message that government has a lot more fiscal space than mainstream economists say, is correct. On the other hand, MMT’s theoretical arguments are not novel, and are sometimes incorrect.

My past criticism has focused on MMT as economic theory. [READ HERE] and [HERE].

(B) I have found it is difficult arguing with MMT economists because they tend to change their positions. But here are some objections I have made in the past.

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Is the US hypocritical to Criticize Russian Election Meddling?

Monday, March 26th, 2018

Thomas Carothers has recently written an article in Foreign Affairs, the prestigious elite journal published by the US based Council on Foreign Relations. The article asks is the US hypocritical for criticizing Russian election medlling?

Given the place of publication, the unsurprising conclusion is it is not. The problem is the US is a champion meddler. Consequently, the argument crumbles every time Mr. Carothers reaches for substance. READ MORE

Re-theorizing the Welfare State and the Political Economy of Neoliberalism’s War Against It

Monday, February 26th, 2018

This paper seeks to frame neoliberalism’s relation to the welfare state. At issue are competing views regarding the size and organization of the welfare state. The paper presents a new theoretical framework that distinguishes between modes of production and financing of the welfare estate. The framework helps understand both comparative country welfare states and the goals of the neoliberal attempt to refashion the welfare state. The paper then explores the political economy strategy behind the neoliberal campaign. It argues neoliberalism seeks to politically discredit the traditional welfare state and change the economic structure so that the latter becomes unviable. READ MORE

The General Theory at 80: Reflections on the History and Enduring Relevance of Keynes’ Economics

Thursday, October 26th, 2017

This paper reflects on the history and enduring relevance of Keynes’ economics. Keynes unleashed a devastating critique of classical macroeconomics and introduced a new replacement schema that defines macroeconomics. The success of the Keynesian revolution triggered a counter-revolution that restored the classical tradition and now enforces a renewed classical monopoly. That monopoly has provided the intellectual foundations for neoliberalism which has produced economic and political conditions echoing the 1930s. Openness to Keynesian ideas seems to fluctuate with conditions, and current conditions are conducive to revival of the Keynesian revolution. However, a revival will have to overcome the renewed classical monopoly. READ MORE

Trump and the Neocons: Doing the Unilateralist Waltz

Monday, May 29th, 2017

The neocon factor dramatically changes the interpretation of the Trump administration’s unilateralist international economic policy chatter.

Donald Trump’s first one hundred days have revealed his inclination for unilateralism in international relations. That inclination reflects his opportunistic and bullying disposition, and it also fits well with his anti-globalization pose.

Trump’s unilateralism has also spawned a dangerous waltz with Washington’s neocon establishment. The opportunistic Trump looks to gain establishment support, while the neocon establishment looks to the opportunist-in-chief to implement its own unilateralist view of the world.

The waltz is clearly visible in recent military actions, but it also extends to international economic policy which is an area of budding neocon concern. A further twist is that neocon unilateralism can be exercised against both rivals and allies. Power is at the core of the neocon project, and power can be used to block rivals or bend allies. READ MORE.

The Real Reasons for Trump’s Anti-Globalization Circus

Wednesday, May 24th, 2017

Trumponomics: How Trump skillfully used anti-globalization as bait to cover up his extremely neoliberal switch.

A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as being anti-globalization.

However, his true economic interests are the exact opposite. That creates conflict between Trump’s political and economic interests.

For political leaders around the world, understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy. [READ MORE]

Monetary Policy and the Punch Bowl: The Case for Quantitative Policy and Wage Growth Targeting

Friday, May 5th, 2017

Federal Reserve Chairman William McChesney Martin famously declared that the Federal Reserve “is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” This paper uses the punch bowl metaphor to analyze how the Federal Reserve can improve monetary policy so as to deliver shared prosperity with greater financial stability. The problem is the party starts earlier on Wall Street than Main Street, so the Fed may remove the punchbowl before the party reaches Main Street. Ensuring Main Street attends the party requires a new recipe for the punch, new serving rules, and a new punch master. Additionally, there is a deeper problem that the current neoliberal growth model has the economy addicted to monetary punch. Resolving that requires a cure that goes beyond the punch bowl.
READ MORE: Simple version here.
READ MORE: Technical version here.

Trumponomics:NeoconNeoliberalism Camouflaged with Anti-Globalization Circus

Thursday, April 20th, 2017

A key element of Trump’s political success has been his masquerade of being pro-worker, which includes posturing as anti-globalization. However, his true economic interest is the exact opposite. That creates conflict between Trump’s political and economic interests. Understanding the calculus of that conflict is critical for understanding and predicting Trump’s economic policy, especially his international economic policy.

As part of maintaining his pro-worker masquerade, Trump will engage in an anti-globalization circus, but the bark will be worse than the bite because neoliberal globalization has increased corporate profits, in line with his economic interests.

Trump also expresses neocon unilateralist tendencies that play well with much of the US electorate. His neocon unilateralism is not a one-off temporary political aberration. Instead, it reflects intrinsic and enduring features of the current US polity. That has profound implications for the international relations order, and is something many Western European governments may not yet have digested.

READ MORE

Fixing the Euro’s Original Sins: The Monetary - Fiscal Architecture and Monetary Policy Conduct

Wednesday, April 5th, 2017

The euro zone (EZ) was created in January 1999. Its weak economic performance is significantly due to the euro’s neoliberal monetary architecture and the design of monetary policy. Those features undermine national political sovereignty and consign the EZ to severe economic under-performance, which in turn fosters political demands for exit from the euro. Escaping this dynamic requires restoring fiscal space to EZ countries, and also changing the design of EZ monetary policy. The paper shows how this can be done. It decomposes the challenge of reform into generic problems related to the neoliberal construction of monetary policy, and specific problems concerning the euro as a currency union. The currency union problems are further decomposed into “money – fiscal policy” architecture problems and specific monetary policy conduct problems. [READ MORE]

Are Negative Interest Rates Dangerous?

Wednesday, January 18th, 2017

A debate on negative interest rates.

YES, Thomas Palley: “One can have too much of a good thing”.

NO, Adam Posen: “Negative interest rates have proved useful”.

READ IT HERE