[johnnybowman]

For anyone looking for a cohesive macroeconomic theory drawing from the economists mentioned here (e.g. Minsky, Godley, and others at the Levy Institute), I highly recommended taking a gander at Modern Monetary Theory

a brief overview: https://www.thenation.com/article/the-rock-star-appeal-of-mo...

A not so brief overview: http://neweconomicperspectives.org/2011/06/modern-money-theo...

[nabla9]

Non-economists have tendency to look down economists when they go astray

.. and then immediately jump into the most fringe and unsound theories that provide "comprehensive" or radical world view, like Modern Monetary Theory or Austrian economics.

[RobertoG]

We look down mainstream economists (macro) because their level of knowledge is more similar to alchemy than to physics, and because they never change their theories never mind what happens in the real world.

For instance (and there are more examples), here(1) is an explanation of how commercial bank loan funds. This explanation comes from the Bank of England, who, I suppose, know a few things about the subject. This explanation, of how reality works, have nothing to do with what a mainstream macroeconomics book explain. How is that possible?

Can you find some physics book that explain something that the engineers say it's not true?

My personal opinion is that, at the end of the day, the problem is that economics is a political subject. Maybe the only political subject that matters, because it's about who does the work and who keep the results. So, it's not incompetence what we are dealing here, but too many different interests trying to control the narrative.

(1). https://www.bankofengland.co.uk/working-paper/2015/banks-are...

[dmichulke]

> Non-economists

So who defines who's an economist?

> the most fringe and unsound theories

According to ...?

> "comprehensive" or radical world view, like Modern Monetary Theory or Austrian economics

This sounds as if being comprehensive or radical is something bad. Keep in mind the earth not being flat and orbiting the sun was both radical (at that time) and comprehensive in terms of laws governing that movement.

[ThomPete]

I don't look down on economists at all but I am highly critical of them because they have the ears of our politicians when it comes to predicting the future.

The biggest problem I have with economist is when it comes to discussing technology and economy. While they have no problem having opinions about the effect of technology most treat it as an externality and not something central to their models.

Yet any economist worth their salt should do exactly that as technology has a bigger impact on the economy than what you can find in behavioral economics.

So the problem isn't the economist themselves but the power they have on public policy and that should be critiqued for the nonfactual base it is.

[crdoconnor]

Austrians keeps predicting hyperinflation, which doesn't exactly make it sound, but what exactly is unsound about MMT?

[nonidentified]

TL;DR: MMT starts by saying that governments that manage their own currencies have unlimited spending ability – they can simply create money when they need it. And that's obviously true, to the extent that people are willing to accept that money in exchange for their goods and services (an extent which is not infinite). Then, building on that premise, MMT basically claims that nobody needs to get hurt when governments create money out of thin air. The explanations for this are pretty wonky and hard to follow, but they amount to saying that the theory generally predicts no harmful inflation of the currency.

Analysis: Hasn't mankind already concluded that governments can't just create and spend money boundlessly without harming the economy and the people who constitute it? I'm looking at Argentina, Venezuela and Zimbabwe right now, where the governments have each created money to finance their spending, and people are truly suffering as a result. And those are just some contemporary examples – human history offers many more, and they're quite consistent. If MMT doesn't predict inflation as a result of arbitrary creation of currency, then it seems we can conclude MMT is incorrect.

Radical alternative theory: Governments should be fiscally responsible, practicing balanced budgets and promoting currency stability. Outlandish, true. But it turns out that historically this has been a very winning formula. More efficient economies, less corrupt governments, fewer innocent people getting hurt.

[RobertoG]

>>" If MMT doesn't predict inflation as a result of arbitrary creation of currency, then it seems we can conclude MMT is incorrect."

That is not at all what MMT says and I don't understand how an honest reader of the MMT literature would arrive to that conclusion.

What they say is that public debt and public deficits are irrelevant (there goes your "outlandish true" of balanced budgets) but they also say that inflation is the most important constraint in public spending.

>> And that's obviously true, to the extent that people are willing to accept that money in exchange for their goods and services (an extent which is not infinite)

In the MMT framework, there is always demand for the currency in what taxes have to be payed. That's obviously true. That doesn't mean that inflation is not a factor.

By the way, most cases of hyperinflation in history, including the infamous Zimbabwe, are due to a supply shock (http://bilbo.economicoutlook.net/blog/?p=3773).

[stephen_g]

Governments have not historically kept balanced budgets more often than not, and when they have it's not a winning formula. Some of the worst economic crises have occurred after some of the most successful runs of 'responsible' Government balanced or surplus budgets, because it saps net financial assets from the private sector, with the only way for growth to happen being private debt (which eventually leads to deleveraging when the private sector can't take on more debt, which pretty much always results in recession). The only way run a Government surplus and avoid this is to run a big trade surplus (like Germany) - but that's a zero sum game so not everyone can.

Argentina, Venezuela and Zimbabwe aren't in any way representative of the results of "printing money". They are much more complicated than that, and MMT actually has much more explanatory power to explain what went wrong (variously - huge supply shocks leading to massive unemployment, attempting to maintain a peg to a foreign currency, and having debt denominated in a foreign currency, etc.).

One of the leading MMT researchers, Prof. Bill Mitchell is especially interested in inflation, and they have actually generated a pretty strong theoretical framework for how it happens that again has better explanatory power than competing theories (i.e. Austrian economics that predicted hyperinflation due to QE, monetarism that can't explain why inflation is so sluggish with such low interest rates, etc.). He publishes a lot of info on this his blog nearly every weekday, it's definitely worth a read.

[tim333]

Both ideas mentioned are bad:

- spend money boundlessly

or - balanced budgets

What governments should do is spend appropriately to maximize the welfare of their people which includes not having runaway inflation and also borrowing and spending during economic slumps.

[digi_owl]

This leaves out the taxation side of things.

In MMT, taxation acts as the ultimate sink. It is the combination of taxation and government spending that acts to "balance" the national economy.

This flip the normal budget worries on the head, as taxation comes after spending rather than before.

Note though that unlike your example, MMT requires a nation that is internally self-sufficient when it comes to basic supplies. The problem for both Venezuela and Zimbabwe (i am not up to speed on Argentina) is the amount of imports needed to sustain the population.

When imports overtake exports, the exchange rate suffers, and exchange rates can't be fixed by printing more money.

Venezuela got into the predicament it is in because the government thought they could use oil exports, that were at the time an all time high, to counterbalance the imports used to help the poor. But then the oil price tanked. And Venezuelan oil is a particularly expensive oil to process, so it was the first to go when refineries cut back on production.

[crdoconnor]

>If MMT doesn't predict inflation as a result of arbitrary creation of currency, then it seems we can conclude MMT is incorrect.

Provided the money created is spent, it does predict inflation.

[wallace_f]

What I dislike about my training in econ is that there is no way to experiment.

I think you are right that it is a terrible idea, but who knows?