11 ms·

Economists’ projections of interest rates and unemployment have proved too high

77 points by prostoalex 7y ago

joshuaellinger 7y ago
Except for the MMT people. They mostly got it right but they don't count as 'real' economists to the WSJ.
- aketchum 7y ago
  I love MMT in theory but it is terrifying to consider actually making policy decisions with MMT as the justification. The downside risk of MMT being wrong and the resulting runaway hyper inflation would destroy the dominant economic standing that the US has spent the entire post war era cultivating.
  - deleted 7y ago
    [deleted]
  - helen___keller 7y ago
    That risk exists independent of MMT. We could deficit spend an airdrop of a million bucks to every American with a bill today under modern economics, and still destroy the economy with hyperinflation. We could borrow trillions in a foreign currency and face hyperinflation risk today. As I understand it, MMTs actionable insights range from issuing less/no debt for the same government spending, offering jobs to the unemployed and underemployed through a federal jobs program, and tinkering with government spending /taxation as a tool for controlling inflation (as opposed to interest rates as a tool for controlling inflation). Note that regardless of your economic beliefs, these are all still subject to the same political system we live in today. Most of the worst case scenarios people imagine with MMT look like "we gave someone the power to print money and they printed too much money". But in the real world that's a problem with autocracy, incentives, and feedback loops. If we keep autocracy out and still monitor/alter incentives and feedback loops as needed, it's hard to imagine MMT having a massive downside risk any moreso than existing economic orthodoxy.
- virmundi 7y ago
  MMT is not enough to google for. Who are they and what do they think/teach?
  - lbotos 7y ago
    https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory
    - sol_remmy2 7y ago
      More like Post-Modern Monetary Theory (What really is money anyways? Why can't we just print as much as we want?)
  - deleted 7y ago
    [deleted]
  - jfengel 7y ago
    Modern Monetary Theory is the idea that the government can go ahead and just pay all its debts with IOUs, which is all cash really is anyway. You don't need taxes to pull in cash and dole it out, which just complicates things. You might do it anyway, to control inflation, but even orthodox Keynesian theory says that a little inflation is a good thing (since it encourages people to invest rather than put their money under a mattress). The idea is to pump enough cash into the economy that employers (or worst case, the government itself) will find jobs for everybody who wants to work. It's kind of the flip side of the inflation-averse Chicago/Austrian school of economics, with mainstream Keynesian economics in between. The Chicago school is strongly associated with the right wing, and MMT is receiving a lot of attention right now from the left, who want to use it to fund a lot of progressive spending policies.
- qubex 7y ago
  I have plenty of quibbles with MMT but I’d classify it as a theory of endogenous money (albeit one of the least savoury ones).
- claudeganon 7y ago
  Do you know does MMT says about printing money for the express purpose of infrastructure development? I’d be interested to see what their take would be on doing so for doing things like high speed internet expansion, decentralized green grids, etc. In housing, the fed doing this has obviously led to real estate asset bubbles, but what would happen in the case of public assets?
  - jmartrican 7y ago
    Is this what China is doing? I often wonder about whether there are real downsides to just printing money as long as the rest of the world buys into your currency. Seems like printing money fails only when there is lost in confidence. But as long as the confidence is there, maybe it can just continue working.
    - claudeganon 7y ago
      The United States flies nuclear bombs around the world and parks them off coasts of other countries. I’d like to see an economist explain the impact of this in the stability of US currency as well.
  - ambernightcruse 7y ago
    There's no reason to assume that there's real estate asset bubbles, we don't have overlending/unqualified lending. You could argue that there's scarcity in real estate, driven by local governments restricting the supply of housing through historic regulations and single family housing. And that as a result, the only time of private investment that can earn a return is luxury housing which fails to be affordable for a large segment of the population. MMT doesn't say anything about what you use the funds for, but, if you're a Keynesian then you need to keep your eye on productivity and growing GDP, and you need to worry about inflation. Depending on your politics then you could spend on public assets like infrastructure, green energy, etc. But most MMTers suggest a federal jobs guarantee that would create a buffer for people that the private market will not employ. The job guarantee would employ people to do all sorts of public projects to anyone willing and able to work. You just have to be careful about inflation. If you spend money on steel and concrete and you put people to work in construction, you're going to suck up resources that the housing industry needs, and if you don't have the resources you're going to get inflation. Ideally you'd spend money in areas where the private sector doesn't want to or cannot deliver low costs(e.g., education, environmental cleanup, healthcare.)
- seibelj 7y ago
  Their theory may work but I understand it's predicated on having control of a global reserve currency and being able to dynamically change income tax rates (and all tax rates?) on a daily basis. This is not possible so the theory can't be tested.
- tvanantwerp 7y ago
  I think the reliance on being able to adjust tax rates--especially upwards--makes MMT a non-starter politically. You'd basically have to remove the power of taxation from legislative bodies to unaccountable agencies, similar to how the Fed controls interest rates. And good luck convincing any legislative body to give up that power.
- AnimalMuppet 7y ago
  The problem with MMT is this: It might work if you spend the money on infrastructure. But who's going to be making the spending decisions? Congress is. Do you trust Congress to spend the way MMT says they should? I don't, not by a long shot. Congress will say "Free money? Great! Ponies for everybody!" or something equally wasteful. MMT might work (though I doubt it). MMT being run by Congress terrifies me.
- joejerryronnie 7y ago
  MMT works great, until it doesn't.
  - deleted 7y ago
    [deleted]
qubex 7y ago
Paywalled, couldn’t read. As an economist, strongly allergic to this kind of title. The theory of endogenous money (as opposed to non monetary and/or fractional reserve banking theories) accounts for what is described in the title fairly effectively: money needs to be viewed as a medium of exchange, and it needs to be plentiful so that information never gets bottlenecked: this will surprise no software developer if they compare it to, for example, storage space and/or network bandwidth. Economic theories that either ignore money as irrelevant or ascribe inherent value to it (as does neoclassical economics, and as do crypto-currency enthusiasts who effectively seek to recreate artificial sources of scarcity just as the gold or more accurately bimetallic standard did) fail to account for the economic expansion that accompanied the expansion of monetary supply; endogenous money models, though less widespread, do not make such disproven predictions, and thus should be allowed to stand whereas the others should be held to be manifestly disproven. Now, could we please sit down and figure out not what the next currency shall be, but what an ‘antibank’ is going to be?
- Rerarom 7y ago
  There's something I don't get about endogenous money vs. fractional reserve. Namely, the factual claims. So fractional reserve says that money is created by loans between banks as restricted by the money multiplier and endogenous money says that banks can create unlimited money. [1] My question is not which of these is true but rather how can this be under dispute? Aren't the workings of banks established by laws and regulations? Can't one just ask the relevant people what are they actually doing? [1] https://www.amazon.com/Where-Does-Money-Come-Ryan-Collins-ebook/dp/B00FFAKEQU https://www.amazon.com/Where-Does-Money-Come-Ryan-Collins-eb...
  - qubex 7y ago
    Indeed the Bank of England famously proclaimed that it adheres to the Endogenous Theory of Money in an unexpected set of articles its economists published to dispense with the nonsense. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - 7y ago
martindale 7y ago
Satoshi got it right; "Chancellor on Brink of Second Bailout for Banks" — 10 years and running strong. Seems the Austrians are winning back a century of lost ground!
- qubex 7y ago
  Satoshi got it extremely wrong, to the point that if he had any economic background at all I’d suspect the first wave of crypto currencies to be a sick joke: artificial scarcity (and more generally, inflexible money supply) of the kind engendered by bitcoin and its ilk are the exact embodiment of what money must not be if one is to not artificially crimp the economy’s growth. There’s a very good reason why we came off the so-called Gold Standard (bimetallic standard, actually), and why coming off it heralded the greatest period of economic growth in Western history.
  - koheripbal 7y ago
    Bingo. Money is only a useful medium of exchange if it is stable, and deflationary currencies are inherently volatile.
    - DanTheManPR 7y ago
      Double bingo. Money is only useful insofar as it has velocity. If speculators are just sitting on it, it's not facilitating economic activity.
      - qubex 7y ago
        I’d never thought of it that way but I wholeheartedly agree.
    - lawn 7y ago
      Don't delude yourself to thinking that the volatility of Bitcoin is due to it's constrained supply. It's because it's used for speculation almost exclusively, and not for it's intended purpose: buying stuff.
neonate 7y ago
http://archive.md/nUmz5 http://archive.md/nUmz5
- frandroid 7y ago
  Thank you for your service
Excel_Wizard 7y ago
a savings glut is the thing that Krugman has suggested, and is the thing which makes sense to me. Which stinks because I hate Krugman.
- nathan_compton 7y ago
  Can you elaborate? Intuitively, no one I know has a "savings glut." If anything, people in my generation are saddled with debt.
  - Excel_Wizard 7y ago
    There is more money saved up than there are good productive investments available for it, in comparison to the past. This correlates with a few things: - Inflation of the value of investment assets (high P/E ratios) - Low interest rates on bonds - Secular stagnation
    - nathan_compton 7y ago
      That I can believe, but it seems a bit double-speaky to call it a savings glut, right? My untutored intuition tells me that its a glut of savings in a small number of people's hands. People who don't have a glut of savings, or even significant debt, which is a lot of people, can probably think of a lot of good uses for that money. Assuming this sketch is accurate, the problem is too much money in the hands of too few. Not a savings glut. To call it such seems like a nakedly political way of avoiding the real issue.
      - twic 7y ago
        The thing that's glutted is the savings themselves - the number of dollar bills that have been scanned in and put in spreadsheets. That the spreadsheets are in the name of a small fraction of the population doesn't change the fact that there is a glut of the dollars.
        nathan_compton 7y ago
tuberelay 7y ago
The official US inflation measure is garbage. It doesn't include enough of the big 3 costs in people's lives : housing, education and healthcare. It includes whacky stuff like "oh your cellphone is faster now than 5 years ago, we're going to say that you're getting 10x the phone for roughly the same price and use that to disprove inflation". It ignores asset inflation (stocks, real estate, venture capital, everything else) driven by QE. The average person never saw the QE because it went straight to banks and inflated asset prices. Rich people with assets made 4x their money. Wage slaves saw none of it. None of this is counted in inflation measures.
- joycian 7y ago
  Could you point me to resources where I could learn about this?
  - oppositelock 7y ago
    The BLS is completely nuts with computing CPI. What the previous poster is referring to is called "hedonic adjustment" [1]. For example, the CPI contains a TV, and adjusts its price [2]. As an example, say that you put a 19" CRT TV in there in the 1980's, and it cost $400 at the time. Over time, as televisions got better, and it became impossible to buy that specific TV, the BLS started adjusting the price of the original tv down, because it's clearly inferior to anything available today. At the end of those adjustments, you end up with a situation where the TV may "cost" $100 post-adjustment, but it's impossible to buy any $100 TV today because that would be the price of something which doesn't exist. This type of adjustment happens in many categories, and it biases the CPI downwards. It's a giant sham. 1: https://www.bls.gov/cpi/quality-adjustment/home.htm https://www.bls.gov/cpi/quality-adjustment/home.htm 2: https://www.bls.gov/cpi/quality-adjustment/televisions.htm https://www.bls.gov/cpi/quality-adjustment/televisions.htm
    - TheCoelacanth 7y ago
      You can easily buy a TV for $100. BestBuy alone has 9 different TV models for under $100: https://www.bestbuy.com/site/tvs/tvs-under-500/pcmcat1539183860210.c?id=pcmcat1539183860210&sp=%2Bcurrentprice%20skuidsaas https://www.bestbuy.com/site/tvs/tvs-under-500/pcmcat1539183...
gonational 7y ago
If you can find me economists that have predicted economic activities/results with any level of accuracy (e.g., greater than 50% even), then I will find you ~10 times as many prominent economists who have predicted the opposite. Economists probably predict things accurately at a rate lower than throwing a 20 sided die into the air and guessing which number will be facing up when it lands. Does that matter? Well, if they can’t predict things with any degree of accuracy based on the data given, this must mean that they don’t understand the ends that are achieved by the means that generated the data, doesn’t it? If economists don’t understand the outcomes that result from the inputs, then they shouldn’t be trusted to advise on the inputs? TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers. Economics, as a study / practice, has been corrupted by the followers of Keynes, and by the worship of monetarism, and, as a result, fails to provide any value to the economy, let alone to society as a whole. Business leaders. Business leaders provide value to the economy by staking their own success on being able providing enough value to turn a profit. Business leaders make predictions, and when they fail they don’t make money (they probably lose a lot of money). If their predictions come true, they become rich. Economists just sit on the sidelines, watching and squawking like railbirds, and postcasting things to boost their ego, staking nothing but the time it takes to type out 280 characters of their precious wisdom.
- sideshowb 7y ago
  > TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers Because the people with data to prove this are themselves economists. Yes, economics has had a lot of failures (I often find myself informing people of these) but anything you replace it with is ultimately going to be another form of economics. For every successful business leader you could probably find 100 who failed: taking your guidance from business leaders just leads to survivorship bias.
  - gonational 7y ago
    I think it’s pretty core to my thesis that economics is a practice/study that provides little to no value to anyone, so why would it need to be replaced?
duxup 7y ago
Is it because say unemployment has proven to be a strange concept these days with "underemployment" being a larger concern? Perhaps they were simply predicting the wrong thing / things that don't seem as relevant.
- CoolGuySteve 7y ago
  The US non-farm payrolls report does include average hourly earnings and average hours worked per week but for some reason it's not as widely reported. IMO the multiple of those 2 values and participation rate are much more meaningful than the total number of jobs added or removed. The average hourly earnings has been hovering around a 3% YoY increase for years now: https://tradingeconomics.com/united-states/average-hourly-earnings https://tradingeconomics.com/united-states/average-hourly-ea...
  - Craighead 7y ago
    "Lowest black unemployment of any administration" has a certain ring to it for a certain crowd.
- AmericanChopper 7y ago
  Underemployment is an entirely subjective concept though. Having skills that that you can’t sell due to insufficient demand doesn’t necessarily say anything about the market at all.
  - Can_Not 7y ago
    One person not being able to sell their skills is a personal problem, a significant number of people who can't find work with their skillset and a significant number of employers unable to find people with skills is a market failure. We're at a market failure and there is economic loss as a result.
    - AmericanChopper 7y ago
      Yeah not really. It depends on a lot more context than just number of skilled people unable to find employment. If I became the best person in the world at playing Pac-Man, but couldn’t find a job as a professional Pac-Man player, it would be ridiculous to say I was underemployed. The only situation I would find it reasonable to describe underemployment as a problem is when people who’s skills were marketable at the time they acquired them, are no longer marketable. But even then, it takes more context to describe that as a market failure. If I decided to never learn another skill at work, then my skills would eventually become obsolete. In that situation, the market hasn’t failed me, I have failed me. Then you have people who’s skills were known to be completely unmarketable at the time they acquired them. This isn’t a market failure in any way. The most common context where this occurs could be described as a governance failure though. The fact that you can get huge amounts of credit to pursue an education that doesn’t have any market value at all isn’t a market failure. It’s a failure of government for financially guaranteeing something that doesn’t have any value. When people who made bad decisions fail, that is a market success.
DubiousPusher 7y ago
I'm not a subscriber so I can't read the article but I have a personal hypothesis about this. Developed economies have begun to enter a post scarcity state. Daily goods like food and household items are not responding to inflation because they are no longer scarce. The combination of economies of scale, automation and cheap foreign labor have brought many goods to this point. Meanwhile, things which are still governed by scarcity, medicine, property, education are skyrocketing in price. In part because those are more opaque markets with some bad incentives but also in some part ecause people can devote much greater percentage of their income to these things. What it really looks like to me is these economies are straddling a the line between acarcity and non-scaecity. I'm no economist though.
- legitster 7y ago
  Whether intentionally, you are describing the Baumol effect - where productivity gains in some sectors actually cause other sectors to become more expensive in comparison.
- airstrike 7y ago
  https://www.fullwsj.com/articles/economists-got-the-decade-all-wrong-theyre-trying-to-figure-out-why-11576346400 https://www.fullwsj.com/articles/economists-got-the-decade-a... ;-)
- harryh 7y ago
  Inflation has nothing to do with the scarcity of goods. It has to do with the scarcity of money.
  - ambernightcruse 7y ago
    The first sentence is incorrect, inflation is about too many dollars for the amount of goods available for purchase. You're thinking of deflation, which is the relatively small amount dollars for real goods in the economy.
imglorp 7y ago
Someone please correct my impression here, but why aren't both macro- and micro-econ viewed as a largely academic ideal that completely ignores many realities of human civiliation? I'm thinking specifically of malice and manipulation, at all levels of all systems: if there is a way to enrich (ie steal), motivation is towards it happening and towards weakening rules and oversight. For example, who wants to quibble over peanuts like $1T federal deficits or $10T NASDAQ total caps when there are $370T tied to the LIBOR, which has a big fat steering wheel on it? Your econ textbook doesn't have a nice chart for that. https://www.bloomberg.com/news/articles/2018-05-06/libor-refuses-to-die-setting-up-battle-for-benchmark-supremacy https://www.bloomberg.com/news/articles/2018-05-06/libor-ref...
- ur-whale 7y ago
  > why aren't both macro- and micro-econ viewed as a largely academic idea Because it's easier to get funding when you claim to be a science. The fact that the discipline has exactly zero predictive power is rarely brought up by practitioners (of course), nor particularly noticed from the people who consume the by-product of said discipline.
  - baja_blast 7y ago
    Economists are the Wizards/Shamans of today, both pretend to have special insight and knowledge of how future outcomes will unfold only difference is instead of cutting off the head of a chicken and seeing where it lands, they have "models".
- paulddraper 7y ago
  For the same reason that computer science focuses on academic ideals more than user privacy, social engineering, censorship, fraud, addiction, etc. Those do affect how computing is done in the real world, but they are very squishy and opinionated topics.
jokoon 7y ago
Politically I will always be against policies that attempt to reduce unemployment. It's counter productive. Jobs is not a good metric. There are way too many subsidies to sustain wage slavery. I'm not against capitalism, but fighting unemployment has not reduced inequality. The UBI, even at a low amount, would enable a much more virtuous labor economy.
aazaa 7y ago
> Economists have been casting around for the answer, a theory to explain their inability to peer accurately in the months ahead, let alone the years. ... No mention of "quantitative easing" anywhere. QE ran in various forms from 2008-2013. Short term rates were held at zero in the US from 2008-2015. Several industrialized areas now have negative nominal rates. The Fed has started QE back up again to prop up the failing repo market, insisting that what's happening isn't another round of QE. None of these unusual activities were considered worth discussing by most economists prior to 2008. No wonder why their predictions are so off the mark. Can ultra-loose monetary policy lead to marketplace distortions? Can it lead to malinvestments like we see in the tech sector? Can it lead companies into a false sense of security, delaying and scaling back layoffs, because the usual economic signals have been swept under the rug by government policies? Of course. The only surprise here is that the WSJ chooses to completely ignore these completely obvious distortions.
- ambernightcruse 7y ago
  There's no mention about QE because QE is only about lowering the cost for the private sector to borrow money. The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. The repo purchases are operating as intended, with new liquidity requirements for banks from Basel 3 reforms. Also you complain about negative nominal rates, which make banks less likely to lend; then you speculate on malinvestments and market distortions. So which way do you want it, is money too tight or too loose?
  - Retric 7y ago
    Banks are far from the only lender. The US bond market is 40 trillion dollars worth of loans, where banks are closer to 14 trillion in loans.
  - tenpies 7y ago
    > The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. Obligatory comment that the measure of inflation used by the Fed - core inflation - intentionally under presents inflation. It literally takes a basket of all goods, sorts by least volatile, and picks the least volatile items possible.
hash872 7y ago
It's fascinating to me that even august publications like the Wall Street Journal continue to use 'unemployment rate' as any kind of reliable metric, and says stuff like 'the unemployment rate is at a 50 year low now'. Unemployment just measures those who are actively looking for full-time employment but are unable to find it (and yes there is a separate underemployment metric, which seems a little more accurate). The reason we have 'slack' in the labor market is because the adult prime-age participation rate in the economy was quite low for a long time after 2008, and even now is only getting back to early 2000s numbers. This just seems like a much better metric to understand the health of the labor market & perceived slack. Disability has exploded over the last 20-30 years, and someone collecting a disability check- especially if they are simply milking the system- doesn't show up as 'unemployed' because they're not actively looking for work. It's actually pretty concerning for the US how low the adult participation rate has fallen. There's pretty good evidence that this decade of low interest rates has started to slowly bring in people off the sidelines who weren't looking for work, had given up, were in the informal sector and weren't counted, etc. That's a massively good thing for society. I don't think you can understand labor market slack or the point at which wages will start to rise until you ditch the somewhat gimmicky 'unemployment rate' and start looking at adult participation in the economy period
- bhupy 7y ago
  The U6 rate is also at historic lows, and that's the broadest definition of "unemployment", which includes discouraged workers. https://fred.stlouisfed.org/series/u6rate https://fred.stlouisfed.org/series/u6rate
  - coldtea 7y ago
    What they never measure is the big rise in BS near-substinence hand-to-mouth jobs over higher quality gigs - which is the case in many (most?) countries...
    - bhupy 7y ago
      You're right, that information is captured by the median weekly inflation-adjusted earnings for wage and salary workers, which is actually at historic highs. https://fred.stlouisfed.org/series/LEU0252881600A https://fred.stlouisfed.org/series/LEU0252881600A Combining the U6 unemployment rate with the real median earnings paints a more complete picture.
acd 7y ago
But that there are economic expansion without inflation depends on globalization. We are importing goods from low wage countries. In other words we are importing low inflation until trade barriers stop that. Ie central banks try to operate like they control wage inflation. But wage inflation is a global market nowadays.
whydoyoucare 7y ago
There is a reason why Economists aren't billionaires! :-)
- Mikeb85 7y ago
  Two of the richest investors I can think of off the top of my head (Warren Buffett and Steven Cohen) have an education in economics. In fact, lots of fund managers do. Also, economists as a group are quite varied, and dare I say the more successful ones are making millions trading and working for banks, not making public predictions.

77 points by prostoalex 7y ago

joshuaellinger 7y ago

Except for the MMT people. They mostly got it right but they don't count as 'real' economists to the WSJ.

aketchum 7y ago
I love MMT in theory but it is terrifying to consider actually making policy decisions with MMT as the justification. The downside risk of MMT being wrong and the resulting runaway hyper inflation would destroy the dominant economic standing that the US has spent the entire post war era cultivating.
- deleted 7y ago
  [deleted]
- helen___keller 7y ago
  That risk exists independent of MMT. We could deficit spend an airdrop of a million bucks to every American with a bill today under modern economics, and still destroy the economy with hyperinflation. We could borrow trillions in a foreign currency and face hyperinflation risk today. As I understand it, MMTs actionable insights range from issuing less/no debt for the same government spending, offering jobs to the unemployed and underemployed through a federal jobs program, and tinkering with government spending /taxation as a tool for controlling inflation (as opposed to interest rates as a tool for controlling inflation). Note that regardless of your economic beliefs, these are all still subject to the same political system we live in today. Most of the worst case scenarios people imagine with MMT look like "we gave someone the power to print money and they printed too much money". But in the real world that's a problem with autocracy, incentives, and feedback loops. If we keep autocracy out and still monitor/alter incentives and feedback loops as needed, it's hard to imagine MMT having a massive downside risk any moreso than existing economic orthodoxy.
virmundi 7y ago
MMT is not enough to google for. Who are they and what do they think/teach?
- lbotos 7y ago
  https://en.wikipedia.org/wiki/Modern_Monetary_Theory https://en.wikipedia.org/wiki/Modern_Monetary_Theory
  - sol_remmy2 7y ago
    More like Post-Modern Monetary Theory (What really is money anyways? Why can't we just print as much as we want?)
- deleted 7y ago
  [deleted]
- jfengel 7y ago
  Modern Monetary Theory is the idea that the government can go ahead and just pay all its debts with IOUs, which is all cash really is anyway. You don't need taxes to pull in cash and dole it out, which just complicates things. You might do it anyway, to control inflation, but even orthodox Keynesian theory says that a little inflation is a good thing (since it encourages people to invest rather than put their money under a mattress). The idea is to pump enough cash into the economy that employers (or worst case, the government itself) will find jobs for everybody who wants to work. It's kind of the flip side of the inflation-averse Chicago/Austrian school of economics, with mainstream Keynesian economics in between. The Chicago school is strongly associated with the right wing, and MMT is receiving a lot of attention right now from the left, who want to use it to fund a lot of progressive spending policies.
qubex 7y ago
I have plenty of quibbles with MMT but I’d classify it as a theory of endogenous money (albeit one of the least savoury ones).
claudeganon 7y ago
Do you know does MMT says about printing money for the express purpose of infrastructure development? I’d be interested to see what their take would be on doing so for doing things like high speed internet expansion, decentralized green grids, etc. In housing, the fed doing this has obviously led to real estate asset bubbles, but what would happen in the case of public assets?
- jmartrican 7y ago
  Is this what China is doing? I often wonder about whether there are real downsides to just printing money as long as the rest of the world buys into your currency. Seems like printing money fails only when there is lost in confidence. But as long as the confidence is there, maybe it can just continue working.
  - claudeganon 7y ago
    The United States flies nuclear bombs around the world and parks them off coasts of other countries. I’d like to see an economist explain the impact of this in the stability of US currency as well.
- ambernightcruse 7y ago
  There's no reason to assume that there's real estate asset bubbles, we don't have overlending/unqualified lending. You could argue that there's scarcity in real estate, driven by local governments restricting the supply of housing through historic regulations and single family housing. And that as a result, the only time of private investment that can earn a return is luxury housing which fails to be affordable for a large segment of the population. MMT doesn't say anything about what you use the funds for, but, if you're a Keynesian then you need to keep your eye on productivity and growing GDP, and you need to worry about inflation. Depending on your politics then you could spend on public assets like infrastructure, green energy, etc. But most MMTers suggest a federal jobs guarantee that would create a buffer for people that the private market will not employ. The job guarantee would employ people to do all sorts of public projects to anyone willing and able to work. You just have to be careful about inflation. If you spend money on steel and concrete and you put people to work in construction, you're going to suck up resources that the housing industry needs, and if you don't have the resources you're going to get inflation. Ideally you'd spend money in areas where the private sector doesn't want to or cannot deliver low costs(e.g., education, environmental cleanup, healthcare.)
seibelj 7y ago
Their theory may work but I understand it's predicated on having control of a global reserve currency and being able to dynamically change income tax rates (and all tax rates?) on a daily basis. This is not possible so the theory can't be tested.
tvanantwerp 7y ago
I think the reliance on being able to adjust tax rates--especially upwards--makes MMT a non-starter politically. You'd basically have to remove the power of taxation from legislative bodies to unaccountable agencies, similar to how the Fed controls interest rates. And good luck convincing any legislative body to give up that power.
AnimalMuppet 7y ago
The problem with MMT is this: It might work if you spend the money on infrastructure. But who's going to be making the spending decisions? Congress is. Do you trust Congress to spend the way MMT says they should? I don't, not by a long shot. Congress will say "Free money? Great! Ponies for everybody!" or something equally wasteful. MMT might work (though I doubt it). MMT being run by Congress terrifies me.
joejerryronnie 7y ago
MMT works great, until it doesn't.
- deleted 7y ago
  [deleted]

qubex 7y ago

Paywalled, couldn’t read. As an economist, strongly allergic to this kind of title. The theory of endogenous money (as opposed to non monetary and/or fractional reserve banking theories) accounts for what is described in the title fairly effectively: money needs to be viewed as a medium of exchange, and it needs to be plentiful so that information never gets bottlenecked: this will surprise no software developer if they compare it to, for example, storage space and/or network bandwidth. Economic theories that either ignore money as irrelevant or ascribe inherent value to it (as does neoclassical economics, and as do crypto-currency enthusiasts who effectively seek to recreate artificial sources of scarcity just as the gold or more accurately bimetallic standard did) fail to account for the economic expansion that accompanied the expansion of monetary supply; endogenous money models, though less widespread, do not make such disproven predictions, and thus should be allowed to stand whereas the others should be held to be manifestly disproven. Now, could we please sit down and figure out not what the next currency shall be, but what an ‘antibank’ is going to be?

Rerarom 7y ago
There's something I don't get about endogenous money vs. fractional reserve. Namely, the factual claims. So fractional reserve says that money is created by loans between banks as restricted by the money multiplier and endogenous money says that banks can create unlimited money. [1] My question is not which of these is true but rather how can this be under dispute? Aren't the workings of banks established by laws and regulations? Can't one just ask the relevant people what are they actually doing? [1] https://www.amazon.com/Where-Does-Money-Come-Ryan-Collins-ebook/dp/B00FFAKEQU https://www.amazon.com/Where-Does-Money-Come-Ryan-Collins-eb...
- qubex 7y ago
  Indeed the Bank of England famously proclaimed that it adheres to the Endogenous Theory of Money in an unexpected set of articles its economists published to dispense with the nonsense. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- 7y ago

martindale 7y ago

Satoshi got it right; "Chancellor on Brink of Second Bailout for Banks" — 10 years and running strong. Seems the Austrians are winning back a century of lost ground!

qubex 7y ago
Satoshi got it extremely wrong, to the point that if he had any economic background at all I’d suspect the first wave of crypto currencies to be a sick joke: artificial scarcity (and more generally, inflexible money supply) of the kind engendered by bitcoin and its ilk are the exact embodiment of what money must not be if one is to not artificially crimp the economy’s growth. There’s a very good reason why we came off the so-called Gold Standard (bimetallic standard, actually), and why coming off it heralded the greatest period of economic growth in Western history.
- koheripbal 7y ago
  Bingo. Money is only a useful medium of exchange if it is stable, and deflationary currencies are inherently volatile.
  - DanTheManPR 7y ago
    Double bingo. Money is only useful insofar as it has velocity. If speculators are just sitting on it, it's not facilitating economic activity.
    - qubex 7y ago
      I’d never thought of it that way but I wholeheartedly agree.
  - lawn 7y ago
    Don't delude yourself to thinking that the volatility of Bitcoin is due to it's constrained supply. It's because it's used for speculation almost exclusively, and not for it's intended purpose: buying stuff.

neonate 7y ago

http://archive.md/nUmz5 http://archive.md/nUmz5

frandroid 7y ago
Thank you for your service

Excel_Wizard 7y ago

a savings glut is the thing that Krugman has suggested, and is the thing which makes sense to me. Which stinks because I hate Krugman.

nathan_compton 7y ago
Can you elaborate? Intuitively, no one I know has a "savings glut." If anything, people in my generation are saddled with debt.
- Excel_Wizard 7y ago
  There is more money saved up than there are good productive investments available for it, in comparison to the past. This correlates with a few things: - Inflation of the value of investment assets (high P/E ratios) - Low interest rates on bonds - Secular stagnation
  - nathan_compton 7y ago
    That I can believe, but it seems a bit double-speaky to call it a savings glut, right? My untutored intuition tells me that its a glut of savings in a small number of people's hands. People who don't have a glut of savings, or even significant debt, which is a lot of people, can probably think of a lot of good uses for that money. Assuming this sketch is accurate, the problem is too much money in the hands of too few. Not a savings glut. To call it such seems like a nakedly political way of avoiding the real issue.
    - twic 7y ago
      The thing that's glutted is the savings themselves - the number of dollar bills that have been scanned in and put in spreadsheets. That the spreadsheets are in the name of a small fraction of the population doesn't change the fact that there is a glut of the dollars.
      - nathan_compton 7y ago

tuberelay 7y ago

The official US inflation measure is garbage. It doesn't include enough of the big 3 costs in people's lives : housing, education and healthcare. It includes whacky stuff like "oh your cellphone is faster now than 5 years ago, we're going to say that you're getting 10x the phone for roughly the same price and use that to disprove inflation". It ignores asset inflation (stocks, real estate, venture capital, everything else) driven by QE. The average person never saw the QE because it went straight to banks and inflated asset prices. Rich people with assets made 4x their money. Wage slaves saw none of it. None of this is counted in inflation measures.

joycian 7y ago
Could you point me to resources where I could learn about this?
- oppositelock 7y ago
  The BLS is completely nuts with computing CPI. What the previous poster is referring to is called "hedonic adjustment" [1]. For example, the CPI contains a TV, and adjusts its price [2]. As an example, say that you put a 19" CRT TV in there in the 1980's, and it cost $400 at the time. Over time, as televisions got better, and it became impossible to buy that specific TV, the BLS started adjusting the price of the original tv down, because it's clearly inferior to anything available today. At the end of those adjustments, you end up with a situation where the TV may "cost" $100 post-adjustment, but it's impossible to buy any $100 TV today because that would be the price of something which doesn't exist. This type of adjustment happens in many categories, and it biases the CPI downwards. It's a giant sham. 1: https://www.bls.gov/cpi/quality-adjustment/home.htm https://www.bls.gov/cpi/quality-adjustment/home.htm 2: https://www.bls.gov/cpi/quality-adjustment/televisions.htm https://www.bls.gov/cpi/quality-adjustment/televisions.htm
  - TheCoelacanth 7y ago
    You can easily buy a TV for $100. BestBuy alone has 9 different TV models for under $100: https://www.bestbuy.com/site/tvs/tvs-under-500/pcmcat1539183860210.c?id=pcmcat1539183860210&sp=%2Bcurrentprice%20skuidsaas https://www.bestbuy.com/site/tvs/tvs-under-500/pcmcat1539183...

gonational 7y ago

If you can find me economists that have predicted economic activities/results with any level of accuracy (e.g., greater than 50% even), then I will find you ~10 times as many prominent economists who have predicted the opposite. Economists probably predict things accurately at a rate lower than throwing a 20 sided die into the air and guessing which number will be facing up when it lands. Does that matter? Well, if they can’t predict things with any degree of accuracy based on the data given, this must mean that they don’t understand the ends that are achieved by the means that generated the data, doesn’t it? If economists don’t understand the outcomes that result from the inputs, then they shouldn’t be trusted to advise on the inputs? TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers. Economics, as a study / practice, has been corrupted by the followers of Keynes, and by the worship of monetarism, and, as a result, fails to provide any value to the economy, let alone to society as a whole. Business leaders. Business leaders provide value to the economy by staking their own success on being able providing enough value to turn a profit. Business leaders make predictions, and when they fail they don’t make money (they probably lose a lot of money). If their predictions come true, they become rich. Economists just sit on the sidelines, watching and squawking like railbirds, and postcasting things to boost their ego, staking nothing but the time it takes to type out 280 characters of their precious wisdom.

sideshowb 7y ago
> TBH, why do we even care what “economists” think at all, given the above? Economists are no better, from an objective value perspective, then tarot readers Because the people with data to prove this are themselves economists. Yes, economics has had a lot of failures (I often find myself informing people of these) but anything you replace it with is ultimately going to be another form of economics. For every successful business leader you could probably find 100 who failed: taking your guidance from business leaders just leads to survivorship bias.
- gonational 7y ago
  I think it’s pretty core to my thesis that economics is a practice/study that provides little to no value to anyone, so why would it need to be replaced?

duxup 7y ago

Is it because say unemployment has proven to be a strange concept these days with "underemployment" being a larger concern? Perhaps they were simply predicting the wrong thing / things that don't seem as relevant.

CoolGuySteve 7y ago
The US non-farm payrolls report does include average hourly earnings and average hours worked per week but for some reason it's not as widely reported. IMO the multiple of those 2 values and participation rate are much more meaningful than the total number of jobs added or removed. The average hourly earnings has been hovering around a 3% YoY increase for years now: https://tradingeconomics.com/united-states/average-hourly-earnings https://tradingeconomics.com/united-states/average-hourly-ea...
- Craighead 7y ago
  "Lowest black unemployment of any administration" has a certain ring to it for a certain crowd.
AmericanChopper 7y ago
Underemployment is an entirely subjective concept though. Having skills that that you can’t sell due to insufficient demand doesn’t necessarily say anything about the market at all.
- Can_Not 7y ago
  One person not being able to sell their skills is a personal problem, a significant number of people who can't find work with their skillset and a significant number of employers unable to find people with skills is a market failure. We're at a market failure and there is economic loss as a result.
  - AmericanChopper 7y ago
    Yeah not really. It depends on a lot more context than just number of skilled people unable to find employment. If I became the best person in the world at playing Pac-Man, but couldn’t find a job as a professional Pac-Man player, it would be ridiculous to say I was underemployed. The only situation I would find it reasonable to describe underemployment as a problem is when people who’s skills were marketable at the time they acquired them, are no longer marketable. But even then, it takes more context to describe that as a market failure. If I decided to never learn another skill at work, then my skills would eventually become obsolete. In that situation, the market hasn’t failed me, I have failed me. Then you have people who’s skills were known to be completely unmarketable at the time they acquired them. This isn’t a market failure in any way. The most common context where this occurs could be described as a governance failure though. The fact that you can get huge amounts of credit to pursue an education that doesn’t have any market value at all isn’t a market failure. It’s a failure of government for financially guaranteeing something that doesn’t have any value. When people who made bad decisions fail, that is a market success.

DubiousPusher 7y ago

I'm not a subscriber so I can't read the article but I have a personal hypothesis about this. Developed economies have begun to enter a post scarcity state. Daily goods like food and household items are not responding to inflation because they are no longer scarce. The combination of economies of scale, automation and cheap foreign labor have brought many goods to this point. Meanwhile, things which are still governed by scarcity, medicine, property, education are skyrocketing in price. In part because those are more opaque markets with some bad incentives but also in some part ecause people can devote much greater percentage of their income to these things. What it really looks like to me is these economies are straddling a the line between acarcity and non-scaecity. I'm no economist though.

legitster 7y ago
Whether intentionally, you are describing the Baumol effect - where productivity gains in some sectors actually cause other sectors to become more expensive in comparison.
airstrike 7y ago
https://www.fullwsj.com/articles/economists-got-the-decade-all-wrong-theyre-trying-to-figure-out-why-11576346400 https://www.fullwsj.com/articles/economists-got-the-decade-a... ;-)
harryh 7y ago
Inflation has nothing to do with the scarcity of goods. It has to do with the scarcity of money.
- ambernightcruse 7y ago
  The first sentence is incorrect, inflation is about too many dollars for the amount of goods available for purchase. You're thinking of deflation, which is the relatively small amount dollars for real goods in the economy.

imglorp 7y ago

Someone please correct my impression here, but why aren't both macro- and micro-econ viewed as a largely academic ideal that completely ignores many realities of human civiliation? I'm thinking specifically of malice and manipulation, at all levels of all systems: if there is a way to enrich (ie steal), motivation is towards it happening and towards weakening rules and oversight. For example, who wants to quibble over peanuts like $1T federal deficits or $10T NASDAQ total caps when there are $370T tied to the LIBOR, which has a big fat steering wheel on it? Your econ textbook doesn't have a nice chart for that. https://www.bloomberg.com/news/articles/2018-05-06/libor-refuses-to-die-setting-up-battle-for-benchmark-supremacy https://www.bloomberg.com/news/articles/2018-05-06/libor-ref...

ur-whale 7y ago
> why aren't both macro- and micro-econ viewed as a largely academic idea Because it's easier to get funding when you claim to be a science. The fact that the discipline has exactly zero predictive power is rarely brought up by practitioners (of course), nor particularly noticed from the people who consume the by-product of said discipline.
- baja_blast 7y ago
  Economists are the Wizards/Shamans of today, both pretend to have special insight and knowledge of how future outcomes will unfold only difference is instead of cutting off the head of a chicken and seeing where it lands, they have "models".
paulddraper 7y ago
For the same reason that computer science focuses on academic ideals more than user privacy, social engineering, censorship, fraud, addiction, etc. Those do affect how computing is done in the real world, but they are very squishy and opinionated topics.

jokoon 7y ago

Politically I will always be against policies that attempt to reduce unemployment. It's counter productive. Jobs is not a good metric. There are way too many subsidies to sustain wage slavery. I'm not against capitalism, but fighting unemployment has not reduced inequality. The UBI, even at a low amount, would enable a much more virtuous labor economy.

aazaa 7y ago

> Economists have been casting around for the answer, a theory to explain their inability to peer accurately in the months ahead, let alone the years. ... No mention of "quantitative easing" anywhere. QE ran in various forms from 2008-2013. Short term rates were held at zero in the US from 2008-2015. Several industrialized areas now have negative nominal rates. The Fed has started QE back up again to prop up the failing repo market, insisting that what's happening isn't another round of QE. None of these unusual activities were considered worth discussing by most economists prior to 2008. No wonder why their predictions are so off the mark. Can ultra-loose monetary policy lead to marketplace distortions? Can it lead to malinvestments like we see in the tech sector? Can it lead companies into a false sense of security, delaying and scaling back layoffs, because the usual economic signals have been swept under the rug by government policies? Of course. The only surprise here is that the WSJ chooses to completely ignore these completely obvious distortions.

ambernightcruse 7y ago
There's no mention about QE because QE is only about lowering the cost for the private sector to borrow money. The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. The repo purchases are operating as intended, with new liquidity requirements for banks from Basel 3 reforms. Also you complain about negative nominal rates, which make banks less likely to lend; then you speculate on malinvestments and market distortions. So which way do you want it, is money too tight or too loose?
- Retric 7y ago
  Banks are far from the only lender. The US bond market is 40 trillion dollars worth of loans, where banks are closer to 14 trillion in loans.
- tenpies 7y ago
  > The main threat to QE is inflation, which is hovering around 2% and stubbornly low, so QE is in the clear. Obligatory comment that the measure of inflation used by the Fed - core inflation - intentionally under presents inflation. It literally takes a basket of all goods, sorts by least volatile, and picks the least volatile items possible.

hash872 7y ago

It's fascinating to me that even august publications like the Wall Street Journal continue to use 'unemployment rate' as any kind of reliable metric, and says stuff like 'the unemployment rate is at a 50 year low now'. Unemployment just measures those who are actively looking for full-time employment but are unable to find it (and yes there is a separate underemployment metric, which seems a little more accurate). The reason we have 'slack' in the labor market is because the adult prime-age participation rate in the economy was quite low for a long time after 2008, and even now is only getting back to early 2000s numbers. This just seems like a much better metric to understand the health of the labor market & perceived slack. Disability has exploded over the last 20-30 years, and someone collecting a disability check- especially if they are simply milking the system- doesn't show up as 'unemployed' because they're not actively looking for work. It's actually pretty concerning for the US how low the adult participation rate has fallen. There's pretty good evidence that this decade of low interest rates has started to slowly bring in people off the sidelines who weren't looking for work, had given up, were in the informal sector and weren't counted, etc. That's a massively good thing for society. I don't think you can understand labor market slack or the point at which wages will start to rise until you ditch the somewhat gimmicky 'unemployment rate' and start looking at adult participation in the economy period

bhupy 7y ago
The U6 rate is also at historic lows, and that's the broadest definition of "unemployment", which includes discouraged workers. https://fred.stlouisfed.org/series/u6rate https://fred.stlouisfed.org/series/u6rate
- coldtea 7y ago
  What they never measure is the big rise in BS near-substinence hand-to-mouth jobs over higher quality gigs - which is the case in many (most?) countries...
  - bhupy 7y ago
    You're right, that information is captured by the median weekly inflation-adjusted earnings for wage and salary workers, which is actually at historic highs. https://fred.stlouisfed.org/series/LEU0252881600A https://fred.stlouisfed.org/series/LEU0252881600A Combining the U6 unemployment rate with the real median earnings paints a more complete picture.

acd 7y ago

But that there are economic expansion without inflation depends on globalization. We are importing goods from low wage countries. In other words we are importing low inflation until trade barriers stop that. Ie central banks try to operate like they control wage inflation. But wage inflation is a global market nowadays.

whydoyoucare 7y ago

There is a reason why Economists aren't billionaires! :-)

Mikeb85 7y ago
Two of the richest investors I can think of off the top of my head (Warren Buffett and Steven Cohen) have an education in economics. In fact, lots of fund managers do. Also, economists as a group are quite varied, and dare I say the more successful ones are making millions trading and working for banks, not making public predictions.