I take the following as given:
- Contemporary heterodox economists are continuing communities that have been around for generations in leading universities. And they are and have been publishing in scholarly peer reviewed journals.
- Many in these communities accept theories of endogenous money, that a central monetary authority cannot control the quantity of money in use in the economy.
- Many in these communities reject the loanable funds theory of interest in all runs. Interest rates cannot be explained by the interaction of supply and demand, savings and investment.
- These perspectives are not taught in mainstream textbooks (which are almost all a matter of shedding darkness).
Nick Rowe demonstrates the truth of the last proposition while pretending the opposite. To appreciate Rowe's refusal to honestly state that he and the mainstream textbooks do not teach the existence of the heterodox perspectives on money I list above, one must read the comments to the linked post. For example, Nick Rowe states, "The idea that banks just act as intermediaries between savers/lenders and spenders/borrowers is about long run equilibrium." Nowhere does he state that this idea is controversial.
One sees a lot of other ignorance and stupidity on display in the comments:
- One W. Peden pretends that a "majority" of heterodox critiques of economics are, like climate change denialism, "by outsiders to the discipline".
- Ian Lippert pretends "there is [an] unified methodology to ... microeconomics", even though commentators earlier in the thread demonstrated that heterodox economists severely criticize microeconomics, just as well as macroeconomics.
- DavidN also pretends that "micro and the various subfields" do not get critiques from the heterodox.
- Stephen Gordon, after being told more than once of specific political programs associated with Modern Monetary Theory (MMT), such as a program for an Employer of Last Resort (ELR), continues to pretend MMT has "No policy implications/recommendation". (For his gross stupidity and illiteracy, he owes the commentator DeusDJ an apology.)
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That blog represents the myriad living in Plato's Cave and the comments are from the prisoner's in the capitivity of the neoclassical orthodoxy beholden to loanable funds, general equilibrium and representative agents. The rare occasion that I read it is to remind me that the zombies walk amongst us.
"Robert: you may have a lax comments policy on your own blog, but that's not how things work here. Do not return."
Was this directed at you? Did you curse him out in the comments or something?
This is just stupid. Why don't heterodox economists start playing economists at their own game and saying 'ah well you are just not aware of the higher levels of heterodox literature' and see how they respond?
I think Nick needs to read the neoclassical literature and not be stuck in Friedman circa 1970 toy models. Then he would know that in neoclassical economics--(1) you can multiple equilibrium (2) you may not have any equilibrium (3) the equilibrium may change (in a dynamic sense, path dependent)--that is the short-run may influence the long-run. So, the natural rate of interest is not so natural.
So, when you question him about the dynamics from short to long run, you are likely to get a post about "concrete steppes" and Friedman's thermostat, Chuck Norris because you know Friedman taught us inflation, Philips curve, blah blah.
I now understand why heterodox economists are so prickly. Because the other side is disingenuous.
@unlearningecon: you think they don't?
I certainly don't see it as much as I do from mainstream economists.
Anonymous said...
"I think Nick needs to read the neoclassical literature and not be stuck in Friedman circa 1970 toy models. Then he would know that in neoclassical economics--(1) you can multiple equilibrium (2) you may not have any equilibrium (3) the equilibrium may change (in a dynamic sense, path dependent)--that is the short-run may influence the long-run. So, the natural rate of interest is not so natural."
You mean, models like this?:
http://www.jstor.org/discover/10.2307/135363?uid=3739464&uid=2&uid=3737720&uid=4&sid=21101124879307
Hedlund, Rowe was reacting to a now deleted comment more or less repeated as my post.
I kind of had a feeling it would be something like that. How odd. I've come across your comments before, and they're never without content - even when, as above, they have something of an edge to them.
Yeah, it kind of backfired on Rowe, he argued from the position of authority "you guys read a textbook" but then it turned out that textbooks indeed contain such garbage that reading them is like reading creationists - you don't need to learn what they say to know it is bunk. Amazing that they still try to argue from authority.
Still, I think Market Monetarists improved a lot thanks to MMT, now they can cogently talk about bank capital and channels of monetary policy, they used to be confused on the difference between reserves and capital.
ps. And yes, Steven Gordon's "performance" was just pitiful. Ban the guy for proving him wrong! "No I will not read MMT!". Your loss dude.
I like Rowe and while I do enjoy reading his blog and I am thankful for his continued engagement with heterodox economics (primarily amateur MMters), I find this recent Post by Rowe to be odd. The phrase "loans creates deposits" has a particular meaning within Post Keynesian literature, it is shorthand for a reversal of causality in the money creation process (the money multiplier becomes a useless ratio). It implies that banks are not constrained in their ability to lend by their reserve position. furthermore, it argues that central banks cannot set the a quantity of the monetary base as their operational target, instead they can only use interest rates as their operational target.
At times it appears that Rowe does understand what is meant by this, but then other times it seems that he is confused by it. In either case, he then employs a long-run and short-run distinction, to argue that even if the description above was accurate, it would only apply to the short-run.
But this is beside the point, as Rowe's contention is that you will find the 'loans creates deposits' story in macro textbooks. However, this demonstrates Rowe's ignorance of the term and what it actually means. I'm in my final year of study, and I can definitely say that I have not come across any mention of the "loans creates deposits" story or any mention of monetary policy and banking that reflects Post Keynesian theory of endogenous money, or even (more broadly) the positions reflected by people such as Goodhart, Bindseil, etc.
MDM
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Endogenous money seems obviously true, given the definition of money (medium of exchange, therefore store of value, also unit of account).
However, there does seem to be some effect whereby it is possible for the government to *influence* the supply of money. Perhaps best described as a psychological effect.
I think one of the problems is this: Economists have understood for a long time (as shown by M1/M2/M3 etc) that things have *variable money-ness* -- that is, some things are "more money-like" than others, but there is no hard line between money and not-money.
However, there is no established way to measure the quantity of money-ness within the economy; we can't measure the velocity of most types of money, we can't measure the quantity of most types of money in circulation (vs. stored in vaults).
I would suggest that the GDP, based as it is on a sum of the prices of transactions, is roughly a measure of money-ness. As such GDP growth is by construction a measure of the monetary situation. GDP is not a measure of the domestic product -- such a measure would be something involving industrial and agricultural production, measured in bushels and tons of steel.
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