Bill Goggin
@wgoggin
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A thread about my new paper with Andrew Elrod, published jointly by @higheredlabor and @jainfamilyinstitute: “Rebuilding American Higher Education: From an Engine of Inequality to a Pillar of the Public Interest” [link follows] /1
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Modern macro models can’t be improved by higher math, more sophisticated statistical techniques, or even better data alone. Their structure, logic, and relationships must be modified to better reflect the world they purport to represent. Until then, they are worse than useless.
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It’s not the statistics, either. It’s the lack of validity, stupid! A core feature of such models is the assumption that borrowing (bond sales) finance government spending. But MMT shows that this has it backwards: That the national debt is, in fact, the nation’s money supply.
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@AusMMT @PatriciaNPino @graceblakeley Every chapter in The Deficit Myth was written to empower people to fight back against pernicious myths that are weaponized by powerful figures. Unlike much of the left, which remains addicted to 'taxpayer' myths, MMT offers a direct assault on Thatcherism.
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A short🧵 on MMT & power: First and foremost MMT is a description & does not contain a prescribed pathway for working class liberation. That was not what MMT as a theory set out to do. However, even a description has political implications & here I set out a couple. >
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It’s Not the Math, Stupid! MMT insights based on operations and elementary accounting demolish mainstream macro models as “misspecified.* Their structure, variables, relationships, and assumptions run counter to reality. And imposed “internal consistency” does not change that.
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Smearing the entire field of heterodox economics as confused, illogical, and inconsistent does great disservice to your students. Do better.
When asked by students about “heterodox economics” or “post-Keynesian economics” or MMT my take is always: “math has no symbols for confused ideas” (G. Boole). And it is not a matter of “mathiness”. Yet of language, logic, and consistency. @pontus_rendahl @JesusFerna7026
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Completely backwards. US finances its own CAD and avails the ROW $, capital inflows are akin to foreigners moving $ from checking to savings acct, a portfolio mngt, not funding operation. Uncle Sam has all the $ it needs to create jobs & help re-industrialization but chooses not.
2/10 While this is widely believed, it isn't true. Foreign capital inflows don't fund fiscal deficits. They fund current account deficits, and they must be matched domestically either by higher US investment, higher US unemployment, or higher US household and fiscal debt.
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“Fiscal, monetary, and regulatory interventions work through equilibrium responses … and must satisfy equilibrium conditions to be credible.” But “Equilibrium only assumes internal consistency … It does not assume realism about human cognition.” Houston, we have a problem.
A guide for students of economics: Ten statements that demonstrate that someone does not understand modern economics or what an equilibrium is, and that you can safely ignore everything else they say. 1. “Equilibrium means the economy is stable or at rest.” Many assume that an
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“There is more analytic insight in a single page of Roemer’s book than in the entire MMT corpus.” Juvenile and unprofessional.
Yesterday, I had some harsh words about the current state of much of “heterodox economics.” That criticism does not mean I believe mainstream economics is the only game in town. On the contrary, some of the traditions that sit outside the mainstream have taught me a great
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“Equilibrium only assumes internal consistency: agents optimize given preferences and constraints. It does not assume realism about human cognition.” We are aware. Lol.
JesĂşs has shown single handedly that econ Twitter is alive and well! And no, sorry to disappoint heterodox commenters and haters. Nothing of what he says is wrong or even controversial in economics.
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Know Your Macro? Question: Does government deficit spending decrease or increase private sector savings? Careful: Get that wrong, get it all wrong. What say ye?
A PhD economist admits he doesn’t understand monetary operations.
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👇
@lugaricano Re: haters — observing purely the way of communication, mainstream and critics look about equal in terms of verbal brutality. In terms of substance, it is a rather surprising notion generally, that if someone is wrong about one thing, he shall be ignored about everything.
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“The issuance of Treasury bills or gilts converts existing reserve balances into interest-bearing securities; it does not provide the funds that enable spending. Spending has already occurred.”
@andrew_lilico Real resources are transferred and consumed by spending that occurs today, which creates reserve balances and corresponding deposits in the banking system. The issuance of Treasury bills or gilts converts existing reserve balances into interest-bearing securities; it does not
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Have a very bright, long-time friend in academia who is into mainstream macro modeling. But can’t explain how Congress, Treasury, and the Fed are related. Nor how money is created. Nor why a nation would borrow its own currency. But is absolutely certain that MMT is bullshit.
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That the term “equilibrium” doesn’t mean anything remotely like what mainstream macro lead the world to believe, but rather merely means a “solution concept” imposed to make the model logically consistent and math tractable is, for me, not the flex they think it is. But YMMV.
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“But the notion that the path to better economics runs through Kalecki, Sraffa, Davidson, MMT, or the bulk of what styles itself “heterodox economics” is a profound misapprehension. There is nothing of analytic substance there.” Only an ignorant person would make such a comment.
David Andolfatto (@dandolfa) has reposted an old but excellent essay on DSGE models and equilibrium. I link it here because it is well worth a slow, careful reading. At some point, we must speak plainly: most attacks on mainstream economics constitute a familiar cocktail of
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Great points? Levels must vary depending on what is required to meet national goals of employment and price stability *at each point in time.* The notion that he can establish today the levels that will be required a year from today displays his profound foundational ignorance.
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“Smart” has absolutely nothing to do with it.
“How do you persuade a politician to stop using monetary finance” Mainstream econs: THIS is why there is still “MMT” One of the smartest guys in the room (Farmer) still misses the key point: ALL Gov spending is “monetary finance”— it is all “money creation”- bonds can’t Δ this
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