The aim of QE is to reduce long-term interest rates, boost private sector lending, and raise asset prices to generate a positive wealth effect on private spending. Altogether, these are meant to raise private sector consumption and investment, and thus economic growth.
Richard Koo, economist at Nomura and originator of the theory of balance sheet recessions, has outlined the potential problem of the ‘QE Trap’ (2015). While QE might have the effect of mitigating such a recession, once the recovery is underway, its withdrawal could lead to slower growth than otherwise. In other words, over the longer term, its overall effect might be negligible or even negative: Continue reading →
Plenty of economists, investors and others have been wondering what will happen to financial markets and the real economy as monetary stimulus in the form of Quantitative Easing is wound down by central banks from the US to the Eurozone in the face of stronger growth.
I will be writing more about it next week, considering the perspectives of critic Richard Koo among others, but here is Michael Hudson from, as ever, his iconoclastic and insightful ‘dictionary’ J is for Junk Economics (p.189-91): Continue reading →
A nice interview with post-Keynesian Professor Steve Keen, in which he discusses what are (or should be) some of the most important issues in modern economics.
He covers the role of finance and private debt in generating inequality and what can be done to reduce it; the idea and feasibility of a universal basic income; economics and planetary ecology; and the incorporation of energy into economic models.
Last week I posted several times on Modern Monetary Theory (MMT), a set of ideas which seems to have plenty of support, or at least generates plenty of debate, judging by its presence on the internet.
MMT is an offshoot of post-Keynesianism. The policies which flow from its main theses suggest that a wise and benevolent state can ‘print’ money, within certain limits, to achieve full employment and moderate inflation.
Some MMTers also support an Employer of Last Resort (ELR) function for the state too. In other words, the state should provide a job at a set wage for all those who want one, so that full employment can be sustained even when economic growth slows or the economy goes into recession. The ELR policy was supported by Hyman Minsky whose ideas have also influenced MMT. He saw it as a more productive alternative to forms of welfare which pay people while they are inactive in terms of formal employment. Continue reading →
Continuing this week’s slightly eclectic series of posts on Modern Monetary Theory, here is a repost of a repost(!) of some thoughts on MMT and Marxism by blogger Scott Ferguson, via the Union for Radical Political Economy blog. The link is below.
David M. Fields has kindly asked me to expand my critique of David Harvey’s latest project for the Union for Radical Political Economics blog. The result is a brief essay titled, “Some Remarks on MMT & Marxism in Light of David Harvey’s “Marx, Capital and the Madness of Economic Reason”.
A short video featuring L. Randall Wray, one of the leading proponents of Modern Monetary Theory. He discusses the reasons why economists and politicians struggle to understand it, and why non-economists, particularly those working in financial markets, apparently do not have this problem.
Towards the end, he mentions policymakers’ fears regarding the potential for inflation, which I shall return to in the context of MMT in a future post.
There is an enormous amount of information across the internet on Modern Monetary Theory (MMT). A search in google gives around 2.6 million results, while that for post-Keynesian produces a mere 974 thousand! Marxist economics gives even fewer, at 913 thousand.
Having said that, a search for Marxism produces 13.3 million results. Of course, Marxist thought has had an influence far beyond economics, and even philosophy, politics and sociology, into such fields as anthropology and psychology.
Here is maverick economics Professor Michael Hudson on MMT, taken from his book J is for Junk Economics (p.155-7). Hudson is supportive of the theory and the economic policies which it implies.
Later in the week I will outline some ideas on money and inflation drawn from Anwar Shaikh‘s 2016 work Capitalism. Shaikh is critical of some aspects of MMT and provides extensive theoretical discussion and empirical evidence to make his case for a ‘Classical’ theory of modern money and inflation. Continue reading →