Home > Main > Our Story so far…

Our Story so far…

May 11, 2011

Just to recap the story so far, here at The Traders Crucible:

Government Budget Constraint: I think we put this old horse down.  [Update: More here.  We cannot tell ex ante if we are violating or holding to the no Ponzi assumption with any certainty.  Any violation is and can only be ex post knowledge. We can only act on what we can see today, which is probably inflation and the treasury yield curve. If you think there are unobservable factors and risks, well, how can we know what they are and what should we do about them today besides pray to the gods? If you want to take rational action, you need to act on the observables.]

Solvency vs. Debasement:  We Cannot Become Insolvent.  We Can Debase the Currency. Even Bill Gross – head of Pimco and the largest bond trader in the world – admits it now.

The TC rule: A simple rule that gives a target budget deficit. It will probably be linked to a floating tax holiday.  Needs work – and I have a post/update brewing, but it isn’t all bad as it stands today!

The Meta-Critique: Can we know this information before we make the decision? We cannot make decisions using information we do not know ex ante. Can we know this information at all?  I am seeing this pop up over at Matt Rognlie’s place.

Anti-Democratic Conspiracy in Economics: I’ll have more to say on this, but it is everywhere.

MMT on the move:  Moving to Violently Opposed.  Even Caroline Baum of Bloomberg fame knows about us. Paul Krugman is talking smack at us. The next step must be Self-Evident!

We live in bubble land:  We live in a world where the economy demands credit bubbles. Mr. Rowe disagrees with my interpretation. but I suspect that real rates, and not an unobservable, unknowable natural rate(ex ante and ex post – thanks JKH!), will prove to be the cause of this.

Shadow stats and the Hyperinflation Hoax: Gaining Traction here too.  The myth that we have high inflation right now, but the government won’t report it, is surprisingly common.

Crushing Austrian critiques of MMT: It’s obvious how to do it.  Looking at the comments section at The Pragmatic Capitalist (Cullen is doing gods work over there) and Mises.org reminds me how hard it is to think scientifically.  Some people – smart, educated, talented, productive people – can miss the subtle differences of scientific vs. logical thought, and there is little we can do to remove the scales from their eyes.

Oil demand is inelastic: We cannot impact the price of oil at all – so why bother with targeting it with monetary policy?  Matt Rognlie says something similar here.

More soon!

  1. Tom Hickey
    May 11, 2011 at 9:47 am

    I put up a reference to this on the MMT Wiki under MMT Debates. The wiki is still under construction and should be good to go soon, but it’s open for editing now.

    • TC
      May 11, 2011 at 10:20 am

      Thanks Tom,

      It’s much appreciated. May the debate continue… 🙂

  2. wh10
    May 11, 2011 at 3:35 pm

    This is excellent.

    TC, would be able to do a post on the debate that occurred over at Matt Rognlie’s and address the “long term real interest rate” in layman’s terms. IE, what is it, why does the mainstream care about it, how does MMT approach it, etc.

    I think that was the most intellectual, sophisticated debate I’ve seen in the MMT world. Scott Fullwiler also indicated he thinks the crux of the debate b/w MMT and the mainstream boils down to this issue, and that his MMT colleagues have been placing emphasis on issues secondary to this (to a fault). As such, perhaps it deserves more treatment.

    Thanks! Great site!

    • TC
      May 11, 2011 at 3:41 pm

      Hi wh10,

      Here is something I was working on about that debate already. It is not done and does not directly address your question. However, like the no Ponzi assumption, this debate is about one of the core premises of modern macro, the equilibrium long term real rate.

      JHK follows the meta critique outline with this set of questions:

      “But how on earth do we relate that sort of empirical ex post rate effect to a concept of some ex ante “rate” that appears at a point in time right now? And why would an equilibrium real rate not be in a state of constant flux anyway?”

      JKH is about 1,000 times smarter than I will ever be, and knows about 1,000,000 times more than I’ll ever know about economics and monetary operations. Here he is using the meta-critique exactly as it should be used – against a claim that our human action is influenced and bound by something we cannot see or measure in real time, and is really, really hard to estimate even after the data is in. We can’t even measure the equilibrium long term real interest rate very well after it happens.

      If we cannot see, measure, know and/or change something right now, and barely know what it is even after it happened, how can it be used to make any reasonable economic calculation? Austrians, I’m with you there – some economic calculations are really hard. These calculations that use the long run equilibrium real interest rate are so hard we cannot even know the precise answer after it happens.

      How can something this unmeasurable influence our behavior? Why would we want it to influence our behavior? Who uses such vague and unknowable criteria to make vastly important decisions about their future?

      More importantly, why use this vague and unknowable idea as the basis for a model that we then use to make decisions today? We won’t be able to tell if our actions – guided by this model – make any difference at all! Why bother acting in accordance with the model?

      It is anti-scientific. It isn’t falsifiable – hell, it isn’t even clearly measurable after the fact.

      • Peter D
        May 11, 2011 at 11:29 pm

        Truth is born of arguments! I’ve been following all these MMT discussions since last Fall and only now, that MMT is actively engaged, do we see these profound points of difference finally crystallize and come to the fore. Because what the hell is the difference between Krugman and MMT? Billy and Warren would say Krugman doesn’t understand monetary operations. Maybe, but that’s not the deep difference. The deep difference is that K believes in some sort of IGBC. And why does he believe that? My guess is because he believes in this mysterious interest rate! So, really, all the MMT blogs – at least those addressed to the mainstream orthodoxy – should start with that and not with sectoral balances and other stuff (because we have Nick Rowe confirming sectoral balances to Bob Murphy, so, no disagreement there! And Krugman knows sectoral balances too!)
        So, it took all these recent skirmishes to drill down to the basic defining issue of interest rate that truly separates MMT from the orthodoxy?
        I know heteconomist actually did talk about it but in a bit obscure way – at least I missed the profundity of the issue. Maybe its time to go back and re-read his posts!

        • TC
          May 12, 2011 at 11:55 am

          We are getting somewhere. This is very true – debates are how stuff gets worked out. Or at least how the proper topics for century long, unsolvable disputes.

        • May 14, 2011 at 10:00 am

          I can’t agree Peter. From a scientific standpoint, the belief of the deficit doves in that interest rate isn’t important yet because they can’t measure the rate and show that it translates into a GBC in the here and now. In addition, the reasoning and arguments over the existence of that rate are very abstract and very philosophical, so the MMT position on this issue, while perhaps important to convey to people like Matt and PK isn’t very important too write about for the consumption of politicians, the public or even most economists.

          Also, while PK, Nick Rowe and others may understand Sectoral Balances, the politicians and the public, and most economists don’t understand that model or its implications. In addition, we’ve got all kinds of data and charts illustrating propositions that arise form the sectoral balance model.

          We also have a lot of data suggesting that the mainstream school’s ideas on interest rate behavior are refuted by facts, while MMT ideas are not, and that MMT ideas on demand-pull inflation and QE are also unrefuted, while mainstream ideas are in conflict with the facts.

          So, in my view, what we ought to do with MMT is focus on the consequences of both MMT and mainstream assumptions and show that MT survives the facts far better than mainstream economics, and leave the philosophical criticisms relating to the self-evidence of underlying assumptions, like unmeasurable long-term equilibrium real interest rates to forums like this, where we discuss deep questions.

          I blog at Correntewire, FDL, Ourfuture.org, DailyKos’s Money and Public Purpose blog, All Life Is Problem Solving, and fiscal sustainability.org. None of those blogs would be good venues for the kind of discussion we’re having here about MMT vs. mainstream economics.

      • beowulf
        May 12, 2011 at 2:54 am

        “If we cannot see, measure, know and/or change something right now, and barely know what it is even after it happened, how can it be used to make any reasonable economic calculation?”

        Paul Davidson is right with you, he’s quoted in a (fairly positive) Mises.org review of his Post Keynesian book “The Keynesian Solution”:

        The classical ergodic axiom, which assumes that the future is known and can be calculated as the statistical shadow of the past, was one of the most important classical assumptions that Keynes rejected… For decisions that involved potential large spending outflows or possible large income inflows that span a significant length of time, [Keynes argued that] people “know” that they do not know what the future will be. They do know that for these important decisions, making a mistake about the future can be very costly… (pp. 46–7)

        • TC
          May 12, 2011 at 11:54 am

          Check out this paper on the natural rate of interest:


          The number of assumptions vs. observables is huge.

          That book looks great. I am very hard on the Austrians, but they do have some very great ideas. I just despise the “bow tie wearing crank” that dominates their discussions.

        • beowulf
          May 12, 2011 at 12:35 pm

          Thanks TC, I’ll check out that paper. I flubbed name of Davidson’s book, its “The Keynes Solution”.

        • May 14, 2011 at 10:03 am

          That’s very true. Look at the consequences we’re already incurring from austerity policies, a clear case of mistakes about the future being very costly. Unfortunately, they’re not costly for the economists who are making the mistakes; only for everyone else.

    • TC
      May 11, 2011 at 3:49 pm

      And I agree, that was one of the best discussions ever. Snytime JKH and Steve Randy Waldmann show up, it has great potential. I like to think that I pointed the way to how to approach this new debate with my critique of the no Ponzi. 🙂

  3. wh10
    May 11, 2011 at 4:23 pm

    Who is JKH?

    • wh10
      May 11, 2011 at 4:25 pm

      Because I agree, he is very intelligent.

      • TC
        May 11, 2011 at 4:35 pm

        I do not know. He is quite mysterious.

  4. wh10
    May 11, 2011 at 4:43 pm

    I guess one more thing while we’re on the topic of worthwhile MMT debates.

    I am sure you are familiar with Scott Fullwiler’s paper “Interest Rates and Fiscal Sustainability,” in which he chooses to go down the “loanable funds” avenue to refute the idea of the IGBC. Is there a link between that paper and your recent “No Ponzi” posts and this debate surrounding the “long run equilibrium real interest rate?” It’s been a while since I read it (and I have not read it enough), but I do not remember it explicitly addressing long term rates, although of course I could be mistaken. Anyways, there seems to be lots of ways to approach this argument and a synthesis would be nice, for non-economists such as myself.

    • TC
      May 13, 2011 at 10:28 am

      That is one of the greatest papers. Lots to digest in it.

  5. gf
    May 11, 2011 at 7:33 pm

    Here is a debate that I believe will have to be faced by MMT.


    It is between 2 people (Burk and gregor) that basically consider MMT to be reality.

    Gregor thinks that MMT would more or less allow the current paradigm of resource exploitation to the detriment of dealing rationally with issues like peak oil.

    Burk thinks that MMT does allow us to tackle these types of issues without perpetual exponential growth (mathematically not possible).

    My take is if the “Right” ever gets MMT (which I doubt), they will pervert it for their agenda (resource exploitation, even more war spending etc ).

  6. May 11, 2011 at 9:54 pm

    I actually addressed that with Gregor in tweets, my short answer was rents on resources. IIRC he didn’t have a refutation of that, just commented on his interest in stuff by Hotelling. However he may have a differing recollection.

    • TC
      May 14, 2011 at 10:15 am

      There is so much work to do. MMT does not solve every problem – it is not a panacea. It can solve a few problems with the economy. These are huge problems. But it will bring up other problems, such as the ones Gregor brings up.

      I am not surprised at all to find that ya’ll know Gregor. He is one of the best out there.

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