Monday, December 10, 2012

Goldman does MMT

Goldman's chief economist, Jan Hatzius, invokes sectoral balances as his reason why U.S. growth will accelerate next year.

" "...every dollar of government deficits has to be offset with private sector surpluses purely from an accounting standpoint, because one sector’s income is another sector’s spending, so it all has to add up to zero. That’s the starting point. It’s a truism, basically. Where it goes from being a truism and an accounting identity to an economic relationship is once you recognize that cyclical impulses to the economy depend on desired changes in these sector financial balances."

Read entire article here.

It's what we, MMTers have known for a long time. Anyway, Warren says Haztius is reading his blog. Sure seems like it. (Maybe this one, too!)

Goldman's chart

17 comments:

Lars said...

This is not MMT. It is Godley. MMT does Godley. And in this case, Hatzius is doing Godley, not MMT.

Tom Hickey said...

This is not MMT. It is Godley. MMT does Godley. And in this case, Hatzius is doing Godley, not MMT.

Good point. I am not sure that Hatzius gets MMT yet. Anyone have any clues.

Mike Norman said...

I stand corrected. GS does secular balances.

paul said...

"MMT does Godley" - Lars

Godley figured out what arithmetic and systems allowed, and based his economic poilcy prescriptions on those realities.

MMT follows similar logic, it doesn't "do" Godley. MMT economists have their own policy prescriptions as a result of the same facts, although there is common ground.

Everyone's view of MMT (or anything) is somewhat different…that's just human nature.

Lars said...

Paul,

I've been a PhD economist for 20 years and I've only just come across MMT in the last few years. But I've seen all of their ideas in other literature in some form.

One of the first things I ever read at University was Minsky's Employer of Last Resort. The same thing MMT calls a "Job Guarantee". To the trained economist who is familiar with many of the MMT concepts (as espoused by others) there is an alarming amount of deception regarding the proper attribution of these ideas.

MMT did not create the sectoral balances accounting. It did not create the job guarantee. In fact, I don't know if MMT has actually created anything at all? Care to enlighten me?

paul said...

Lars, no one has said MMT created anything, it has only pointed out what has always been and has been known by many for many decades if not hundreds of years.

MMT economists, to my knowledge, have never claimed to have invented anything, they have merely packaged many ideas together in a framework and added their own conclusions or way of looking at things re the economy as it relates to the monetary system.

Personally, my views happen to come from my background in engineering, math and physics, and nothing I've seen in MMT is really new except I was never previously aware of sectoral balances. Not saying MMT invented S/B. That's just where I saw it first.

That said, I also haven't seen anything presented by MMT economists that violate the laws of systems and mathematics.

Godley didn't "invent" any of these things either, he discovered something that was hidden in plain sight, as most things are.

What's the problem again?

Tom Hickey said...

MMT did not create the sectoral balances accounting. It did not create the job guarantee. In fact, I don't know if MMT has actually created anything at all? Care to enlighten me?

MMT is an outgrowth of Warren Mosler's "Soft Currency Economics" (1996). Randy Wary and Bill Mitchell, both in the Post Keynesian tradition, elaborated on it. According to Randy, the original aspect of MMT, other than integrating Warren's original insights, lies in the combination and use made of already existing ideas, which are attributed in the professional literature.

Also according to Randy, who was a PhD student of Minsky, the MMT JG is somewhat different from Minsky's, and it was contributed to by Bill Mitchell based on a buffer stock of employment. The MMT JG functions as a bufferstock of employed and a price anchor, establishing the value of the currency wrt a unit of unskilled labor.

geerussell said...

GS does secular balances

Best freudian slip ever.

James said...

I haven't been PhD economist for 20 years, but in the short time that I've been reading the work of those involved in MMT, I can say without any doubt that they regularly mention the work of Godley, Minsky and Lerner.

So if I, a non PhD economist of 20 years can recite those names without thinking twice, all due to what I've read on MMT sites over the past few years, then I think it's safe to say the authors have made it perfectly clear and given credit where it was due.

Matt Franko said...

Lars,

Tom has all the background on this issue of "credit where due", etc... as far as the professional courtesies, and citations and so forth...

I have to agree with James here, I have nothing to do with economics but from simply reading the MMT sites I am familiar with the academics listed in James' comment as well as all the different "schools" of economics and only could have recvd this info via the MMT literature...

To Paul's point, a lot of this is just plain math to me... and nobody owns the truth...

We should all be working to simply expose all the falsehoods that the orthodoxy/policymakers are caught up in....

rsp,

David said...

The other thing is Mosler re-discovered a lot of this stuff independently, and unencumbered by academic theory and the associated jargon, he found his own words and metaphors to describe what was going on, which were much more accessible than what could be found in the professional literature, assuming one even knew where to look to find them. Isn't that the main reason MMT is an "item" in the blogosphere?

Tom Hickey said...

What the blogosphere considers MMT is pretty much Mosler economics developed in "Soft Currency Economics."

DaRkJaWs said...

Dr. Lars,

MMT is the faction that has been pushing this identity front and center in the blogs for a long time. Yes, this is ultimately Godley's stuff, but there should be no doubt where he got the idea from this graph from. Which group of economists has been pushing Godley's work? Certainly some post-keynesians like Marc Lavoie and others, but the Minsky conference is run by Drs Wray and Kregel among others and they are as MMT as you can be.

DaRkJaWs said...

Should have said, this guy has attended some Minsky conferences, according to someone on facebook.

R VMarkov said...

The interesting thing about MMT, as far as I know, is that Warren Mosler reached to all of his conclusions independently of the already available economic theory - just from his personal business experiences in his every day job.
Practice proved theory.

Tom Hickey said...

Yes, Warren said that when he realized how currency issuance is a public monopoly the rest fell into place.

Roger Erickson said...

Lars,
You raised the key point. If all this logic has "always been present" throughout economic literature (something even Warren Mosler admits, after having read back over literature as far as John Law & before) then here's are the real questions.

1) Why the hell is theoretical economics so uselessly separated from operational banking ... so that it took someone like you 20 years to even hear of currency operations (aka, MMT)?
[Don't feel bad, Krugman has no idea how banks operate either.]

2) What are economics curriculum committees going to DO about this mess?