Points of Public Interest

This week’s best and most intriguing for your weekend reading:

1. Krugman on (or maybe off) Keen

A Nobel Laureate is taught the limit of his own assumptions. Others pile on: Philip Pilkington: Krugman Makes Accusations of Fundamentalism to Defend His Own Dogma and Debt, Income and Aggregate Demand: Scoring Krugman vs Keen

2. Why Some Multinationals Pay Such Low Taxes

Insight into Google’s use of a “Double Irish Dutch Sandwich” and many other clever practices being used by GE, Microsoft, Apple, etc.

3. WHY MINSKY MATTERS: Part One

A former student of Minsky’s elegantly outlines the important aspects for understanding the reality of our financial and economic system. More on Minsky: Was 'Post-Keynesian' Hyman Minsky an Austrian in Disguise?

4. The worst anti-regulatory travesties in the financial sphere have had broad, bipartisan support

Without much fanfare, the “fraud-friendly JOBS Act” passed Congress this week with overwhelming support. William Black, a professor of law and economics, offers a history of anti-regulatory bills over the past several decades. If history is any guide, the JOBS Act will be front and center as having aided and abetted massive frauds during a financial crisis in the not too distant future. More on the JOBS Act: Bill Black: “The only winning move is not to play”—the insanity of the regulatory race to the bottom

5. Liberating The Hunger Games and What Happened to Liberty in the The Hunger Games Movie?

What can I say...talk of The Hunger Games is everywhere these days!

6. The Real Leadership Lessons of Steve Jobs

The bottom 99% fall further behind:

Source: NYT

Returning Economics to Reality

As I mentioned recently in the Quote of the Week, Hyman Minsky’s work on financial instability continues to play a major role in my own thinking and in several strands of heterodox economics. A dissertation advisee of Minsky’s, Randall Wray, partially founded Modern Monetary Theory (MMT) which falls within a similar realm of economic thinking. When I began exploring economic blogs nearly two years ago, MMT offered an escape from mainstream (neo-classical synthesis) thinking and provided a better fit with my perception of reality. Diving deeper into the theory, I continued to learn a great deal from the descriptive aspects but felt there lay an inconsistency with the prescriptive, political policy recommendations. Luckily Cullen Roche of Pragmatic Capitalism (who has played an invaluable role in my learning) has helped create a solution.

Just over one week ago, Modern Monetary Realism: Economics Without Politics... was launched. Attempting to remove the prescriptive aspects from MMT and basic economic thinking, “Modern Monetary Realism (MMR) is a description of the monetary system within a nation operating a fiat currency which involves an autonomous monetary system, monopoly supply of currency and floating exchange rates.” Only days after posting a primer, Understanding Modern Monetary Realism, a fascinating discussion broke out in the comments section involving Cullen and JKH, among others. Although I recommend reading through the entirety of the page, the general conclusion is that MMT relies upon a federal Job Guarantee program and corresponding nationalization of the financial sector. As with any grouping of individuals, there will certainly be some MMTers whom only align with certain aspects (myself included). Regardless, these policy positions are clearly at the heart of my concern in accepting the prescriptive measures of MMT. (I hope to elaborate on both the positive and negative aspects of MMT in a future post.)

The Great Recession has exposed many ways in which mainstream economic theories are devoid of any realistic application to our current social (human) environment. Modern Monetary Realism, in its limited time, has already made a significant impact in bringing economics back to reality. My hunch is that MMR will ultimately play an important role in defining the future direction of economics. Understanding the operational aspects of our monetary system is a critical first step in grounding policy discussions. Hopefully more widespread recognition of these descriptive factors will lead to better, more informed policy decisions in the future.    

Quote of the Week

...is from p.162-163 of Hyman Minsky’s superb book, John Maynard Keynes:

“The economy is now a controlled rather than a laissez-faire economy; however, the thrust of the controls is not in the direction envisaged by Keynes. Investment has not been socialized. Instead, measures designed to induce private investment, quite independently of the social utility of investment, have permeated the tax and subsidy system.”

“The success of a high-private-investment strategy depends upon the continued growth of relative needs to validate private investment. It also requires that policy be directed to maintain and increase the quasi-rents earned by capital—i.e., rentier and entrepreneurial income. But such high and increasing quasi-rents are particularly conducive to speculation, especially as these profits are presumably guaranteed by policy. The result is experimentation with liability structures that not only hypothecate increasing proportions of cash receipts but that also depend upon continuous refinancing of asset positions. A high-investment, high-profit strategy for full employment—even with the underpinning of an active fiscal policy and an aware Federal Reserve System—leads to an increasingly unstable financial system, and an increasingly unstable economic performance.”

Minsky has been on my mind frequently over the past few months as much of today’s economic work in Post-Keynesianism and Modern Monetary Theory stem from his unique insights about instability in a capitalist society. In Facebook's $500 Million Tax Refund and The BIG Political Lie, I was trying to shed light on the manner by which politicians control the tax system to redistribute income upwards. Minsky brilliantly expands on this concept above, noting how policy that guarantees profits (quasi-rents) from speculation leads to instability. The rise in non-traditional mortgages, extremely low levels of down payments and government support in the recent housing crisis represents a prime example of the consequences highlighted above. As long as policy continues in this manner, economic performance is likely to be volatile and current income inequality will persist or expand even further.