Saturday, December 22, 2012

Gunnar Tomasson — Mainstream monetary economics and a Fool's Errand


Interesting message to gang8 from Gunnar Tomasson, Mainstream monetary economics and a Fool's Errand, on Claudio Borio's recent BIS paper.
In correspondence with Samuelson, beginning in 1977, I made the point that it was LOGICALLY impossible to integrate what Tobin referred to as the "income" and "asset" sides of the economy.

Samuelson did not challenge the point, noting only that he was "confident" that "any who were expert [in such matters] would not agree that [I] had isolated a contradiction in [his] Foundations."
Later, when I put the very same point to Tobin, he did NOT address its merits but advised that he had "now" - after a quarter century of doing otherwise - come to "like the stock-flow-stock" approach to the subject matter.

That is to say, he had given up on PROVING what Samuelson had ASSUMED/HYPOTHESIZED.

Tobin did not explain WHY he had given up on his long-time quest, but referred me to his Nobel lecture delivered in 1981.

As noted by Claudio Borio, the models of mainstream economists do NOT include money - and there is a very good, but unspoken, reason why that is so:

INCOME FLOWS, measured in money, cannot in principle be placed in a unitary conceptual framework/model with ASSETS, measured in money.

Economists who seek to graft money onto their macroeconomic models are attempting the impossible - both Samuelson and Tobin KNEW that there was a problem with that.

One assumed the problem away - the other tackled it valiantly for a quarter century but changed tack without ever acknowledging (to the best of my knowledge) that it was a fool's errand.
There is also a link at the bottom to an interesting post in The Economist.

1 comment:

paul said...

This is a claim that I have been making consistently since the day I began posting here…the money circuit is untethered from the asset side of the balance sheet and there is no way to look at them as a combined entity…the solution to any problem that includes them both becomes indeterminate.

MMT focuses on the money circuit and how it then affects the asset side. The asset side "follows" what happens on the money side and there is no feedback from the asset side that can affect the money side.