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It seems to me that if the "the majority of modern macroeconomists neither disagree with the Bank of England's explanation" and it's only a pedagogical tool or

• notahacker 8y ago
  The Bank of England article you linked to was mainstream trained economists who devise mainstream economic models in their day job explaining how the money creation process works and why it makes certain classes of model more suitable than others for measuring economic shocks. And the role of credit creation has been part of the loanable funds literature the paper is critical of since "fiat money" was a purely theoretical idea. Ultimately if you overlook the evidence of a link you actually posted yourself in favour of preferring to believe the bad faith characterisation of "what mainstream economists really believe" on blogs written by self-styled dissidents, it says more about you than the economists... > Maybe central banks disagree but we can't really know, because they are forbidden to buy public debt directly. What is that prohibition but an institutional arrangement? And why are those institutional arrangement in place in the first case? It's true that MMT is deeply concerned about that and it seems pretty relevant to me. Central banks being unable to lend to governments or purchase government debt directly is a total non-factor in them consistently declining to match government debt emission dollar for dollar with government bond purchases on the secondary market (no MMT economist would disagree either). They are free to complement fiscal expansions with monetary expansions (at least over periods longer than changeable monthly base interest rate targets) as MMT would prefer, or take the opposite approach, which they sometimes do. If central banks thought MMT was fundamentally right, we wouldn't have seen them ever pull money out of the system to push up interest rates...
  • RobertoG 8y ago
    >"[..] it says more about you than the economists..." I think I will be cavalier about that comment. >"[..] what mainstream economists really believe [..]" This is something that always puzzle me in this kind of discussion, maybe you can help me with that. What mainstream economists really believe? I mean, here (1) is a review of what text-books say about money creation. In my opinion (and it seems yours too) this is not the same that we see in practice. So, my question would be, do mainstream economist believe different things that what they write in the textbooks? (1)- https://ac.els-cdn.com/S1057521915001477/1-s2.0-S1057521915001477-main.pdf?_tid=c65874c0-d35b-4292-8a78-fb701f0a6141&acdnat=1525695254_c56168f383e2603eda0126b8c1205e21 https://ac.els-cdn.com/S1057521915001477/1-s2.0-S10575219150...
    • notahacker 8y ago
      Undergraduate physics textbooks provide introductory examples using simple friction-free Newtonian classical mechanics. It's just there isn't a school of dissident physicists citing undergraduate textbooks to argue that the mainstream physics profession consists of stupid ignoramuses who don't believe in friction. And the reality of money creation is pretty fuzzy too and depends a lot on what you define as "money supply" and the "banking sector" (funnily enough, even pretty basic physics has a degree of this problem too, which is why you get concepts of waves and particles that both fit some of the facts, though you don't get anyone inside or outside the mainstream very strongly committed to arguing against wave-particle duality...). Ultimately private banks both intermediate between deposits and savers and create credit borrowed from central banks. They're only permitted to do the latter because their role in doing the former makes the government unwilling to let them fail. The "credit creation" emphasisers are right to emphasise that the limits on individual bank credit creation are soft because the "bank capital" they are permitted to borrow against is not a fixed variable, the intermediation emphasisers are right to note that when the commercial banking system borrows more money, the central bank tends to pull money out of the rest of the economy in the very short term, and propose raising interest rates in the slightly less short term, and so the banking system is only really able to expand the money supply when the central bank is comfortable with it doing so. More generally, it's possible to entirely agree with Werner and MMT on banks' present role being far better described as primarily one of credit creation and entirely disagree with their respective alternative preferred policy approaches to central banking (or vice versa for that matter). What mainstream economists are primarily concerned with is the principle that raising interest rates for a variety of reasons (including but not limited to its effect on demand for bank credit) somewhat reduces inflation (and demand) and lowering them somewhat increases demand (and inflation) which is pretty much the most theoretically and empirically sound conclusion ever reached in macroeconomics (despite a few edge cases where it might not be true).
• dragonwriter 8y ago
  > they would do well in saying so. IME, the simplifying assumptions are often explicit, so they do.