Printzipio berberak austeritaterako eta nagusitasun fiskalerako?

Bill Mitchell-en How come the principles supported austerity one day but fiscal dominance the next?


(i) Sarrera gisa

As part of the paradigmic turmoil that is confronting mainstream economists, we are witnessing some very interesting strategies. Imagine you establish a set of principles that are seemingly inviolable. They are the bedrock of the belief system, even though it is not called that. These principles then offer all sorts of predictions about, yes, the real world. They are without nuance. The predictions are so worrying, that politicians, whether they are knowing or not, proceed with caution in some cases, and, in other cases, openly damage the well-being of citizens because they have been told that shock therapy is better than a long drawn out demise into ‘le marasme’. The authority for all the carnage that follows (unemployment, poverty, pension cuts, degraded public infrastructure and services, etc) is these ‘inviolable principles’. Economists swan around the world preaching them and bullying students and others into accepting them as gospel. The policy advice is hard and fast. Governments must stay credible. Except one day they completely change tack and all the policy advice that established certain actions to be totally taboo become the norm. We observe things are better as a result. Does this mean those ‘inviolable principles’ were bunk all along? Not according to the mainstream economists who are trying to position themselves on the right side of history. Apparently, their optimising New Keynesian models can totally justify fiscal dominance and central bank funding fiscal deficits when yesterday such actions were taboo. Which leg are they trying to pull?

(ii) Gizarte zientziak

So this set of principles is held out as a science – a body of principles embedded in an understanding of human psychology and incentive systems. Except, the practitioners forget to tell you that they are not sociologists and psychologists, nor are they anthropologists.

And they ignore the fact that those social sciences actually are built on establishing a clinical and social understanding of human behaviour, motivation and organisation.

And so these ‘principles’ create an image of humanity that no other social scientist or medical scientist, for that matter, can identify as being human.

Never mind. Continue. Who are they to tell us what it right anyway?

These principles then offer all sorts of predictions about, yes, the real world.

The principles are abstractions but are held out as being of fundamental relevance to the real world.

As a result of the nature of the discipline, the predictions have manifest consequences for human well-being, physical, mental, and material.

And these predictions also condition the way our governments design and implement policy interventions, which link the world of thought to humanity.

It turns out at some point, the predictions are so worrying that politicians, whether they are knowing or not, proceed with caution in some cases, and, in other cases, openly damage the well-being of citizens because they have been told that shock therapy is better than a long drawn out demise into ‘le marasme’.

And all manner of damage is inflicted on communities around the world by governments who follow the advice of economists based on these inviolable principles.

Anyone who dares contest them is summarily dismissed as being unknowing, ideological, dangerous leftist, stupid, and all manner of slights that I, personally, could document over my career to date.

The principles are typically expressed in abstract mathematical language that even the true mathematicians find rather simplistic and naive.

Never mind. Continue. Who are they to comment?

The predictions and the abstractions sit uncomfortably next to each other.

In fact, while the defenders of these principles dwill never admit it openly, the predictions are not directly derivable from the principles.

The logic says they cannot be because in order to ‘solve’ the mathematical representations the ‘models’ (their abstract depiction of reality) are so simplified that they are incapable of ‘tracking’ the real world data.

Which means in English that without further ad hoc manipulation, the theoretical models have no empirical application.

So to satisfy some semblance of statistical congruency (using the established diagnostics of mathematical statistics and distribution theory), the operational frameworks deployed depart from the starting principles and framework.

(iii) Printzipioak, ad hoc-eko sinplifikazioak, estatistiak, gobernu-zorra, EBZ…

If that doesn’t make sense, try this.

They justify the principles as being ground, for example, in optimising behaviour by humans. The so-called ‘micro-founded’ macroeconomic models.

They harp on to their students about the beauty and authority of these ‘micro-founded’ approaches.

But as soon as they have to apply those models to the real world, they introduce all sorts of ad hoc manipulations, which help the statistical expression of the models ‘fit’ the data.

There are two problems for them as a result:

First, the predictions systematically fail to account for real world developments.

Fiscal deficits rise and interest rates or bond yields do not.

Central banks buy massive quantities of government bonds, effectively financing fiscal deficits, and inflation rates hover at low levels and price expectations follow.

Government debt rises but bond markets keep queuing up for more except in the Eurozone where they start pushing up demands for higher returns to accommodate the increased risk because they know the governments do not have their own currency any more.

Except, even then the ECB steps in an absorbs all the yield pressure using keystrokes in computers to buy huge amounts of government debt.

The Treaties are written to prevent the ECB doing that and the economists talk relentlessly about maintaining credibility (one of those principles that are allegedly inviolable) but still the ECB breaks taboo because they know without them the common currency collapses fairly quickly such is the dysfunctional nature of the monetary architecture the economists insisted was put in place – following their ‘principles’.

Second, and moreover, no-one owns up to the fact that once the highly abstract, simplified mathematical models, that are constructed following the application of these optimising assumptions, are tampered with in order to get any semblance of a statistical fit to the real world data, the users can no longer say that the results (the predictions) flowed from the principles (the micro-foundations).

Once the ad hoc changes are made (lags added to relationships etc) then we are sailing in unknown waters – certainly not in any waters that their so-called optimising principles can apply to.

They don’t tell you that though.

If they did, their cover would be blown. They would lose their own perception of rigour or technical authority.

The reality is they have none.

(iv) Eztabaida teknikoa

Please read my blog post – Mainstream macroeconomic fads – just a waste of time – (September 18, 2009) – for more technical discussion on this point.

So humanity suffers and none of these characters lose their jobs, go to prison for professional incompetence, or lose their pensions when they decide to depart the scene.

They wander around appearing at conferences, write Op Eds that just repeat and repeat, in some cases receive huge speaking fees from organisers who represent segments of society that are the winners of the application of these principles, and that has been the world for some decades now.

As time passes, we start to put two and two together. We get four.

We realise that the outcomes that these professionals promised us, if only we sacrificed and pulled our belts in, haven’t transpired.

We realise that our wages haven’t grown much yet incomes at the top-end of the distribution have gone through the roof.

We realise that the quality of our jobs, if we are able to keep one, have deteriorated.

More of us are forced onto contracts without the old protections.

More of us are ‘casualised’. They tell us that this helps us achieve work-life balance – which sounds beautiful – but is, in reality, a road to a low-wage, precarious life with little balance being evident – split-shifts, zero-hour commitments, capricious and bullying bosses.

We realise that the investment in our public education and health systems is falling and services are deteriorating yet profits in the privatised health care and educational sectors are booming.

We learn that private education providers are receiving massive contracts from government in the ‘competitive’ educational sector and provide students with libraries that consist of one shelf in a sparsely occupied office in a back street of our cities.

I was approached this week by a student from some private college in Australia which boast it offers the No 1 on-line MBA in Australia. He wanted me to send him a published article I authored in one of the top Australian economics journals last year – a totally mainstream journal at that – because his college does not provide access!

Go figure.

Anyway, then the tide turns.

(v) Japonia

There is a commercial property collapse in Japan that leads the government to break ranks with the neoliberals and increase fiscal deficits, see the Bank of Japan buying up massive quantities of government debt.

Interest rates stay zero for decades.

Bond yields fall towards zero and into negative space.

Inflation struggles to record positive numbers.

But that is Japan – ‘cultural’. It doesn’t apply to us.

Then there is the GFC.

Bank of England, the ECB, the Federal Reserve all start looking very Japanese.

The treasuries (Ministries of Finance) all start looking very Japanese.

Big deficits, big central bank bond buying.

No inflation.

No interest rate or bond yields breaking through any roofs.

Then comes the pandemic.

The whole world goes Japanese.

And guess what, the economists start shifting ground.

They have to because even they know how stupid they have looked over these various crises.

(vi) IMF (Nazioarteko Moneta Fondoa)

How stupid did Olivier Blanchard look when he had to apologise in 2012 for overseeing the IMF recommendations to impose harsh austerity onto Greece and then to discover the underlying modelling they had used to justify that program was deeply flawed?

Not a little bit flawed. Deeply flawed to the extent the applying it would have generated exactly the opposite outcomes to what the IMF claimed would follow from the bailout program.

How stupid did Reinhardt and Rogoff look when, after swanning around gaining world-wide attention for their debt threshold study (‘this time is different’) it was discovered by a postgraduate student that their spreadsheet calculations were wrong?

We will never know whether this was deliberate or just incompetence but policy makers took heed of their initial claims as part of the justification for imposing harsh austerity onto citizens.

How stupid did Paul Krugman look when he claimed in 2017 that “Deficits Matter Again” only to change his mind again when nothing happened according to his script, which in his own words “didn’t come out of thin air … [but] … was based on well-established macroeconomic principles.” (Source)?

How much time have I got?

I could document these idiocies for days on end and still not get close to the end.

But the point is that now we are witnessing papers and Op Eds coming out from various economists and groups which now claim that the fiscal dominance we are witnessing with central banks effectively keeping the private bond investors at bay, while governments continue the unnecessary act of issuing public debt to match their fiscal deficits is fine and they knew it all along.

Just a short time ago, they were arguing that it was not.

(vii) Banku Zentral Independenteak

Then they said that counter-stabilisation (macroeconomic policy) had to be the domain of ‘independent’ central banks at arm’s length from government and that fiscal policy had to concentrate on reducing public debt, which meant it had to be biased towards surplus.

Where did they get those recommendations from?

Their inviolable principles of course.

Apparently, assigning policy precedence to monetary policy and eschewing fiscal policy was the outcome of their modelling logic following the application of their ‘micro-founded’ New Keynesian frameworks.

A reasonable person would then ask such an economist this sort of question.

If your micro-founded principles and resulting analytical framework so strongly established this macroeconomic policy mix yesterday and today you are advocating quite the opposite, does it mean your underlying analytical framework that you used yesterday was wrong and that you have abandoned it?

Quite a reasonable question.

You wouldn’t have to know anything about economics to ask that question.

Well it turns out that it seems that the underlying analytical framework still applies but because it is obvious that fiscal dominance is the only way to save capitalism, which is now on state life support systems, the framework can be tweaked to justify the abandonment of the old policy recommendations, which, as we all know were presented more as taboos than preferences.

That is where the mainstream is at now.

Totally confused. Adrift. Hanging on to their security blankets (the principles) but trying to convince us that they are on top of things.

A good example of this sort of sophistry was released by the Centre for Economic Policy Research in partnership with the International Center for Monetary and Banking Studies (ICMB), under their so-called “Geneva Reports on the World Economy” (No 23) on December 15, 2020.

The CEPR are funded by their membership base and the “financial sector currently makes up two thirds of the membership base”. They claim that they are “broadening the membership base” and cite “for example, the support of most European Union Central Banks as well as the ECB, World Bank, IMF, EBRD and the BIS.”

I would not call that broadening. I would call that deepening the Groupthink base.

Anyway, their paperIt’s All in the Mix: How Monetary and Fiscal Policies Can Work or Fail Togethernotes that “the notion of the monetary-fiscal policy mix has made a spectacular come back” because of “the COVID-19 pandemic”.

They claim that:

To deliver the required macroeconomic stabilisation, monetary and fiscal authorities had to join forces and pull together, blurring the traditional boundaries between monetary and fiscal interventions.


The policy mix, long forgotten in the public debate as well as in economics textbooks, is back with a vengeance, and with it the impression that the conventional wisdom about the respective roles of monetary and fiscal authorities is seriously outmoded.

So they ask whether this shift:

Are we witnessing a policy revolution that will shatter the decades-old consensus on the respective roles of central banks and treasuries?

The answer to the question is that what we are observing now should definitely “shatter” the New Keynesian ‘consensus’ once and for all.

But they couldn’t bring themselves to reach that obvious conclusion because then they would have to make further admissions along the lines of what have they been doing all these years while taking good salaries.

That wouldn’t be a very comfortable exercise.

Which is why Groupthink is so hard to, dare I use their word again “shatter”.

So to save face we get the usual tripe.

This new policy mix – fiscal dominance/central banks basically funding the deficits and more – is only possible – “can only work”:

if the credibility of their commitment to desirable long-term goals – healthy growth under price stability and public debt sustainability

And that means that policy makers have to start moving back to the old policy mix.

Which means that austerity is back in town even though governments are doing exactly the opposite.

I don’t recommend you read their report – it is 181 pages of standard guff.

I read this stuff every day – it is sort of a rod I took on when I became an economist unfortunately. I suspect you all have much better things to do with your time.

The issue is clear enough.

(viii) Eta orain, zer?

Apparently, they now believe that:

successful stimulus requires fiscal and monetary authorities to create policy space for each other. With high debt, monetary stimulus creates fiscal space by determining favourable borrowing conditions for the treasury. But for this space to be effective, the central bank must also provide a credible monetary backstop to government debt – essentially shielding the debt markets from belief-driven surges in sovereign risk. With rates at their lower bound, the treasury creates space for monetary stimulus via QE and unconventional measures by offering a contingent backstop to the central bank balance sheet, so that monetary authorities do not face the risks of losing control of money creation and inflation even in the case of large losses.

So, it’s all there. The myths.

1. Governments have to issue to debt to spend above taxation revenue.

2. Private bond markets rule but occasionally they don’t.

The question they can never answer is when it is optimal for the switch to be made from private markets determining the bond yields to central banks determining the yields?

It is obvious that central banks can always keep yields at whatever level they desire. Why don’t they always do that?

3. Central bank can go broke if they buy too much public debt and markets crash so the treasury has to guarantee that won’t happen.

Of course, central banks are not corporations that can become insolvent. They could operate with negative capital forever and no-one would be the wiser.

They could also just type a zero against all the public debt they currently own as a result of their various bond-buying programs and nothing else would happen.

Other than, the public debt ratios would dramatically fall.

When would it be optimal to do that? Always, but the New Keynesians have no analytical capacity to answer that question even though they claim lower public debt ratios are preferable.

4. QE could lead to money creation getting out of control and inflation accelerating – taboo taboo taboo.

They just cannot get over the fact that central banks have been doing this for years now and inflation has gone the other way.

They just cannot comprehend that the central banks have been telling us they are trying as hard as they can to get their inflation rates back up towards their so-called (arbitrary) price stability levels and they have failed.

But, undaunted, the CEPR authors continue to invoke the old principles:

1. “a ‘fiscal backstop’ to central banks’ unconventional policy cannot work if public debt sustainability is in jeopardy” – how can the public debt be unsustainable if central banks hold increasing proportions of it and control yields over the rest of it?

This is a scare-type threshold that has no meaning. The dramatic shift in policy mix that they acknowledge has demonstrated that once and for all, even though they cannot seem to comprehend that.

2. “What the two authorities cannot do is fall into a regime where optimal temporary actions turn into a permanent situation, leading to disaster.”

Taboo doesn’t apply now. But it will later logic.

3. “the budget should tend to be in surplus in booms to create a fiscal buffer for rainy days.”

A ridiculous proposition. Why would that ever been sensible.

What if the boom (high employment) was accompanied by high overall saving from the non-government sector according to preferences?

Then the boom would only have been possible with fiscal deficits of a size commensurate to offset the overall non-government saving.

And if we decompose the non-government sector, what happens if the boom was accompanied by an external deficit, and a desire to save overall by the private domestic sector, which one might offer is a pretty normal situation for a nation to be experiencing?

Then the fiscal deficit would have to even bigger and continuous.

So these context-free claims that the fiscal position has to ‘save’ up currency for rainy days is preposterous and unfounded.

Governments that issue there own currency can always increase deficits no matter what they were doing yesterday or the day before.

They can always respond to declines in non-government spending to protect jobs and incomes.

And their central banks can always ensure bond yields (if debt is issued) are low, irrespective of how much debt is currently outstanding.

There is never a situation where a currency-issuing government can go broke.


(1) So the question remains: if all this talk of credibility and sustainability and the rest of it justified austerity in the past, how can it now justify a diametrically opposite approach to policy?

(2) The answer is that it cannot.

(3) The inviolable principles are bunk.

(4) Which is why the sky hasn’t fallen in on Japan.

(5) Which is why central banks cannot really push up inflation rates despite trying.

(6) Which is why bond yields are low and have been in, say Japan for years despite high, continuous fiscal deficits.

(7) Which is why the New Keynesian paradigm in economics is breaking down.

(8) This lot will eventually die out.

Iruzkinak (2)

  • joseba

    Have mainstream economists really embraced large deficits and central bank bond purchases?

    When John Maynard Keynes wrote his essay – Economic Possibilities for Our Grandchildren – which was published in 1930 he considered that workers would be able to work just 15 hours a week because of the likely technological shifts over the 100 years from the date of his publication. He was right about the productivity gains that have been created but wrong about the benefits workers would gain from them. He thought the productivity would be more evenly shared out. He underestimated the capacity of capital to extract the gains for profits and capture the state to ensure it used its legislative and regulative capacity to suppress wages growth. Mainstream economists have aided and abetted the rising inequality and the reconfiguration of the state as a agent for capital. This bears on how we understand some of the apparent shifts in views by mainstream economists about fiscal deficits and central bank debt purchases. Yesterday, it was all bad. Today, all good. History warns us to be cautious in how we appraise these shifts. There is something to be said for consistency.
    Keynes was both correct and incorrect

    Keynes was no supported of radical change to capitalism.

    He wrote in that short essay that:

    … both of the two opposed errors of pessimism which now make so much noise in the world will be proved wrong in our own time – the pessimism of the revolutionaries who think that things are so bad that nothing can save us but violent change, and the pessimism of the reactionaries who consider the balance of our economic and social life so precarious that we must risk no experiments.

    But as you read, he was also not a fan of the conservatives who wanted to stop socio-economic changes that might spread income more evenly or change the balance of power within workplaces.

    He talked about the “the enormous anomaly of unemployment in a world full of wants”.

    His essay was an exercise in forecasting – 100 years hence – so what will things be like in 2030 – when “our grandchildren” would be in the mid-life phase (or a bit older).

    He predicted that:

    … the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day.

    A fairly broad range – 4 to 8 times.

    How did his prediction fare?

    In 1930, Real GDP per capita in the UK was £5,042.

    By 2014, it was £26,394 (using Bank of England’s 300 year database for 1930 and 2014).

    In 2017, it was £29,670 (according to ONS).

    So Keynes’ prediction was correct (at the lower end of his very wide range) – around 5.9 times increase over the period.

    His predictions applied to US data were similarly correct (at the lower end).

    In 1947, Real gross domestic product per capita was $14,118. By 2019, it was $58,113.

    So a 4.1 times increase (Source):

    But in his narrative he used the “eight times better off” as his benchmark, which probably explains why his other forecasts were inaccurate.

    He acknowledged that there would always be those who continued to strive for more wealth – and his rehearsal of the story of the Professor in the Lewis Carroll novel – Sylvie and Bruno – was a testament to that idea.

    But for most of us, he believed we would only work 15 hours per week to satiate our material desires and “to make what work there is still to be done to be as widely shared as possible”.

    This would be made a reality because of the growing abundance delivered by technology which would reduce the need for labour yet provide massive wealth to workers.

    The point is that Keynes broadly predicted the rise in productivity that has occurred since he wrote the essay but he failed to understand capitalism.

    How do we reach that conclusion?

    It is because the productivity growth that has occurred over this period has not been spread evenly among workers.

    Keynes was naive in that respect – thinking that the great gains in productivity that could free workers from the capitalist workplaces would actually be shared across society.

    The social democratic era that marked the Post World War 2 full employment consensus certainly had that in mind.

    I am often surprised when people today express ignorance of the fact that in Australia we used to have an annual ‘productivity’ hearing conducted by our judicial wage setting authorities, which would determine how much output per unit had growth on average over the previous year and then award a commensurate wage increase to ALL workers based on that estimate.

    It meant that the lowest-paid workers who toiled in labour intensive, low productivity workplaces could enjoy real gains in their material standards of living.

    The system was vehemently opposed by employers, which is why it eventually was abandoned by a – wait for it – Labor government intent on providing its neoliberal credentials in the 1980s.

    The gap between growth in real wages and productivity has widened ever since as capital has increased its profit share by approximately 10 percentage points at the expense of workers.

    The flattening of real wages growth and the rise in household debt as workers found the only way they could maintain consumption standards was to increasingly borrow from financial markets, deregulated by neoliberal governments, has meant that most workers have to find more hours rather than less just to stay afloat.

    While those who dabble in identity studies applaud the liberation of women and their entry into the labour market, the dark side of that social trend has been the growing pressure on two-income families to make ends meet in this stifled wage environment.

    A women who has to work in maybe two or three casual cleaning jobs every day – with shifts split over the day – is hardly enjoy the liberation of her gender from patriarchal society.

    Which is why per capita income comparisons across a long historical span are highly misleading.

    While Keynes saw technology cutting the needs for workers across all occupational categories and render high-pay and low-pay together technologically unemployed, the reality of capitalism is very different.

    Unemployment remains a burden that is largely borne by the most disadvantaged workers.

    The development of the gig economy, a further contrivance of modern capitalism to entrench the inequalities that have accelerated over the neoliberal period, now interacts with this cohort of disadvantaged workers.

    So we see workers competing with each other for ridiculously low-paid work, which is not only precarious in tenure but dangerous to boot (several scooter delivery drivers have been killed in motor accidents recently in Australia as they rush around clawing for pennies).

    These workers now occupy the casualised denizens of modern capitalism – unable to accumulate wealth, unable to purchase houses, unable to be secure if they get sick, unable to take a holiday with pay, and unable to look forward to a retirement with a secure pension.

    Their outlook is myopic – it has to be because they have little future – in the way Keynes envisaged it and in the way the baby boomers could look forward to as a consequence of the social democratic period.
    How does this tie in with the shifts in economic thinking right now?

    It is clear mainstream economists are falling over themselves lately trying to make out that they are on top of the debate about fiscal dominance.

    Economists who just a few years ago were preaching the dangers of fiscal deficits (even when unemployment and underemployment was high) are now championing big spending governments and central bank purchases of debt.

    That last taboo – the central bank debt purchases – has now seemingly fallen. It is now hardly scorned within the economics profession.

    Just this week, a mainstream economist Ross Garnaut came out and said that the Governments of Australia (Federal, State and Territory) should increase their fiscal deficits until we reach full employment and that the Reserve Bank of Australia should buy up all the debt issued to match the deficits.

    He considered the RBA should push interest rates into negative territory.

    He also advocated a basic income paymentin the form of a Milton Friedman style negative income tax.

    He considered that would stop the Australian dollar appreciating

    I remembered back to early in my career when I gave a workshop at Parliament House in Canberra on the early MMT ideas and Garnaut was in the audience and took the floor in Q&A and in his stentorian way proceeded to tell the audience that I was crazy and that rising fiscal deficits would bankrupt the nation.

    This was at a time when surplus mania was unleashed within Federal government.

    It was an unpleasant interaction but relatively normal for me at that time.

    If you run against the mob, retaliation is to be expected. That is how Groupthink works.

    Garnaut is one of those characters who rely on us having a short memory. Their ability to airbrush history is amazing.

    In 2016, he was warning us that “Australia’s is too weak” to justify the monetary policy stance of the RBA (interest rates too high) but that (Source):

    We need a tighter budget but we need to do it gradually because we have a weak economy and we don’t want to shock it by suddenly and radically tightening fiscal policy, either by raising taxes too suddenly or reducing spending by too suddenly. We need moderate and targeted tax increases and we need moderate and targeted spending cuts …

    There is no law of nature that says Australians are incapable of coming to grips with a severe budget problem of the kind we have.

    At the time, Australia’s broad labour underutilisation rate was around 14.9 per cent.

    And this character was advocating fiscal austerity because we had a “severe budget problem” – which was just an on-going deficit many billions short of what it should have been.

    He has consistently been on about deficits.

    Go back to December 3, 2004, when he gave the Sir Leslie Melville Lecture at the Australian National University, where was was then Professor of Economics.

    At time he gave this speech, inflation was low but labour underutilisation remained around 12 per cent (unemployment and underemployment). Yet he claimed, in relation to fiscal policy, that:

    … it would have been better if the surplus had been even larger at the height og the 1980s boom, to perform its counter-cyclical task. If true for the late 1980s, this view would hold more strongly for fiscal policy over recent years …

    It would help if fiscal policy were now tightened considerably. It would have been better done much earlier, but now is better than later. This would take pressure from domestic demand without raising the exchange rate—as tightening monetary policy would do.

    The fiscal surpluses that were being recorded and the ‘boom’ were products of a massive rise in household debt which had allowed consumption growth to continue for the time and flood the government with revenue.

    But the labour wastage remained high.

    The surpluses were highly irresponsible, yet characters like Garnaut want them to be higher.

    Which means he wanted unemployment and underemployment to rise even higher.

    Fast track 2021 – he claims to be concerned about the lack of attainment of full employment.

    His quite abrupt change of attitude towards fiscal deficits etc is one of many that are going on around the world.

    Mainstream economists, fearing their own irrelevance, are shifting positions and claiming they knew this all along. Or that the facts have changed.

    Nothing material has changed.

    Fiscal policy still works in the same way.

    The monetary system still operates as it has since the early 1970s.

    Exchange rates still fluctuate.

    What has changed is the number of rats in the queue deserting the ship.
    Shouldn’t I be happy about this?

    I get asked that question a lot now by journalists that ring me most days to discuss one thing or another.

    They say that finally economists are giving voice to the ideas I have advocated all my career and that Modern Monetary Theory (MMT) is now the flavour of the epoch.

    Well, not quite.

    It might look like this but I suspect another agenda is at work.

    About a year ago, the UK Guardian Editorial (February 17, 2020) – The Guardian view on a comeback for Keynes: revolutionary road – reflected on this march of economists to the ‘other side’.

    It reflects on how the dominance of Keynes in the period after World War 2 and up to the 1970s was “toppled” by the conservative arguments that:

    … generous welfare spending did not just undermine capitalism, but had inflationary, destabilising consequences and hence was a threat to democratic governance.

    That is, the sort of policies and trends that were behind Keynes’s 1930 predictions about worker gains.

    With Monetarism at the helm, the decades that followed have undermined those predictions.

    The mainstream economists who mouthed the Monetarist doctrines are the same ones who are now mouthing fiscal dominance.

    The rise in acceptance of Monetarism and subsequent mainstream variants was not based on an empirical rejection of the Keynesian orthodoxy. It was just an argument based on highly abstract a priori theorising and reasserted the conservative ideology at the expense of liberal thinking.

    Alan Blinder in his 1988 book – Hard heads, soft hearts – wrote that the rejection of Keynesian ideas (p.278):

    … was instead a triumph of a priori theorising over empiricism, of intellectual aesthetics over observation and, in some measure, of conservative ideology over liberalism. It was not, in a word, a Kuhnian scientific revolution.

    It was not, in a word, a Kuhnian scientific revolution.

    At the time, any Keynesian remedies proposed to reduce unemployment were met with derision from the bulk of the profession who had embraced the NRH and its policy implications.

    Remember that mainstream economics serves the interests of the ruling class and in the modern era has advocated policies that have undermined the working class.

    As the UK Guardian Editorial notes (with respect to Britain):

    Monetarism, the economic theory that took over, has failed. Growth in UK GDP per head since 2008 has been almost zero.

    But it goes on to note that:

    Many authoritarians are now using state power to lock in the dominance of the rich. That is what Iain Duncan Smith meant when he told the BBC “you need a dose of Keynesianism to restore monetarism”. Austerity meant the economy was starved of demand when inflation was low. The answer is for governments to spend. But Mr Duncan Smith was not talking about the state intervening on the side of labour, redistributing wealth or socialising investment. Instead, the right now proposes a Keynesianism without Keynes.


    So when you ask me whether I am happy that all these rats are jumping ship, think about whether they are really leaving the ship or just disguising it to sail under the radar for a while, to give the surplus extracting system time to reorganise after the two shocks in a decade – GFC then the pandemic.

    When in crisis, capital always calls up the state’s financial capacity to bail it out.

    Its economists may have made the journey across the line.

    But then they may (probably) have not.

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