Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
"I am using the language of economics and finance."

And that is the basic problem. What you learned was 'Mainstream US Economics' - basically Neo-Classical Economics with a few permutations over the decades. US economics has never come close to capturing the essence of Keynes. That is why Joan Robinson, who knew Keynes, called what the US calls Keynesian Economics, the Samuelson Synthesis, bastard Keynes.

Afraid of being labeled a 'Socialist' after WW II, given the smear job Wm. Buckley and others applied to Lorie Tarshis 'Introduction to Economics', which followed Keynes closely, as Tarshis has studied under Keynes at Cambridge in the '30s, Samuelson smuggled in some derivative concepts from Keynes' followers - Hicks and Hanson and the IS/LM diagram and the Phillips Curve. These were toy classroom models that also were specific to the economic conditions for the time they were developed. The world changed. The toy models failed, and Milton Friedman blamed Keynes.

Most American economists had only that very limited understanding of Keynes. Left behind was Keynes' deep uncertainty. That would have been corrosive to the facile explanations that were the best Neo Classical Economics could provide. Neo-Classical asumptons are that the laws of economics are invariant. Keynes held that all economics is historically contingent. These are the underpinnings of Post Keynesian Economics, of which MMT has become a part.

Another difference between Keynes and Neo-Classicals is their understanding, or lack thereof, of money and its role in an economy. The standard Neo-Classical explanation for money is that it is a 'veil over the economy' and that economists have to abstract away from money to see the real economy. That is a convenient view as the rich do not want people understanding money. If you can't see the money, it is hard to follow the money. That is how US Mainstream Economics became housebroken for the rich.

MMT is based on actual monetary practice by people who have had the opportunity to closely observe how money is created, used and destroyed. It is now an integral part of Post Keynesian Economics. For MMT and Post Keynesian economists money is clearly endogenous. Around 97% of all US 'money' is bank money, created out of thin air via double entry bookkeeping when banks make loans. Money is not just a thing, but a social relationship.

Once a country has its own fiat currency that is freely traded on the ForEx markets there are policy spaces for government action that do not exist under a gold standard. The limit on deficit spending comes to be inflation, not debt. Since the Federal Reserve has not yet managed to actually hit the 2% inflation rate that they target, our economy has been seriously under performing. And 2% is a rich man's compromise number for tolerable inflation. A more realistic figure would be 3%.

Sadly, most US citizens, to the extent they have any understanding of economics, have been mis-educated to the Neo-Classical Economics view, which is compatible with the gold standard, which no longer exists. So we continue to be frightened about debt, regardless of the absence of inflation. Europe is more of he same. As, apparently, are you.

There is, however, a free and enjoyable way to get up to date on matters related to Money and Banking. Perry Mehrling of Barnard College, Columbia University, has an online version of his Money and Banking course, as senior level economics course at Barnard, available on Coursea. You can audit the course for free and most of the readings are online as well. You might find Stigum's 'Money Market' book interesting, but it is not essential to understanding what the course is about for those just auditing the course. The same is true for Mehrling's excellent 'The New Lombard Street', but it you might want to check out of a library. It is short and sweet.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 6th, 2019 at 09:42:12 PM EST
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