And yes, the term "paradigm shift" is grotesquely over and mis-used, but I think in term of MMT/PK vs standard academic economics, it is the correct term as we really are talking about taking an entire worldview, not just an isolated theory, and all of the implications that come with it; and jettisoning it for something else. This is a multiple-organ transplant procedure here, not a buttock lift, so roll up your sleeves.
I think this recent piece by Kotlikoff that Warren has up on his site is a good example. It's mostly appeals to authority, but here's the nut graph:
The INFORM ACT, which I drafted in large part with the assistance of Alan Auerbach, requires the Congressional Budget Office (CBO), the Government Accountability Office (GAO), and the Office of Management and Budget (OMB) to do fiscal gap and generational accounting on an annual basis and, upon request by Congress, to use these accounting methods to evaluate major pieces of proposed legislation.Emphasis is mine. Note that Kotlikoff probably thought the third point, "[they] do not leave anything off the books" was the important one because the CBO currently scores things on a ten year time scale. This methodology means that lots of plans, such as Obamacare, are engineered to have triggers, cliffs, and vests right at the ten year mark in order to get the CBO score the politician wants. Kotlikoff, like any responsible economist/civil servant/authority wants those shenanigans to stop, thus the (reasonable, in context) move to fiscal gap and generational accounting which extends the window to infinity. And beyond.
While no measure of fiscal sustainability and generational equity is perfect, fiscal gap and generational accounting offer significant advantages relative to conventional measures of official debt. First, they are comprehensive and forward-looking. Second, they are based on the government’s intertemporal budget constraint, which is a mainstay of our dynamic models of fiscal policy. Third, do not leave anything off the books.
I'm emphasizing the second point though because that's the problem. Who cares how you do the accounting if it's conceptualized around an intertemporal budget constraint which is the mainstay of [the world's experts on this] dynamic models of fiscal policy--and this conceptualization is false?
MMT/PKers often complain to economists that "you're doing the accounting wrong" and they respond "maybe, so what?" because accounting is merely how you account for something after the fact, and so not fundamental to the conceptualization. Except in the case of finance, it is. But if you focus on the accounting without the broader context of the conceptualization it drives (or contradicts) then it just seems like bean counting. And those guys don't get invited to any of the good parties.
If you focus on the conceptualization, then the accounting has a point beyond bringing closure to anal retentives. But you'll need to make some simplifying/illumination assumptions along the way and those will be wrong.
I haven't seen any approach we successful yet with anyone that matters, and it's been 5 years since the crises hit. It will likely take a generation, with all new warm bodies occupying those tenured chairs, before the text books get rewritten.
"Mosler plays fast and loose with the language a little at time to better get his point across"
ReplyDeleteHis argument is actually that what he says is literally true, given that all of the institutional nuts-and-bolts don't change anything.
For example, he argues that the Fed will never bounce a Treasury check. As such, the intra-governmental accounting of Treasury checks and Federal Reserve deposits is irrelevant.
From his perspective, arguing that intra-governmental accounting is really important is like arguing that the movement of cogs in a clock is really important.
Thought provoking post, WS
ReplyDelete“Strictly the accounting” doesn’t really describe my position, IMO, although it is “strict on accounting”.
It’s more like (roughly) “accounting is a necessary but not sufficient condition for economics”.
That obviously doesn’t preclude conceptualization.
I think Mosler’s approach is one part of the tool kit, but like accounting, it is not sufficient.
The required paradigm shift IMO does not lie in that particular head knocking description, but in the role of accounting relative to economics. If that role become properly embedded in the intellectual framework for economics, then the rest follows.
The man on the street straw man attacks on accounting are never ending, persistently confusing the logical difference between “necessary” and “sufficient”.
And those macho men need to understand that it’s not about accountants. It’s about accounting. Big difference. Another straw man.
“Sometimes you need to hit them over the head”.
Yeah, but you need to balance that with kicking them in the gut, whacking them in the knee caps, and pulling out their fingernails.
Style of presentation is an intellectual choice in this case.
BTW, other PKEs have a completely different style. I’m closer to Godley/Lavoie. Everything Mosler says is incorporated there (referring specifically to description, not policy proposals) - without the vocabulary transformation, and stylized accounting revamp.
“Who cares how you do the accounting if it's conceptualized around an inter-temporal budget constraint…”
Clearly a fellow that is out of paradigm on the required application of accounting to economics. However, if the budget constraint is wrong, it’s because the accounting is wrong. Depends on exactly how it’s done, and what it purports to say. But any error along these lines can always be reduced to an accounting error.
BTW, some others have come up with a few of the core ideas that appear prominently in Mosler’s policy proposals. Bondless money financing of deficits is one that has been around forever. Permanent zero rate proposals have been around since at least the 1930’s. Loans create deposits as a statement of fact has been around forever, going back to BC, depending on your interpretation of the history of endogenous money. MMT is one outpost for some ideas that have been kicking around for a long time.
The whole trick is in explaining this stuff. But you know this. And you’ve written about “the academy”. It’s a supertanker that takes a long time to turn around.
“But if you focus on the accounting without the broader context of the conceptualization it drives (or contradicts) then it just seems like bean counting. And those guys don't get invited to any of the good parties. If you focus on the conceptualization, then the accounting has a point beyond bringing closure to anal retentives. But you'll need to make some simplifying/illumination assumptions along the way and those will be wrong.”
Again, it isn’t a job for accountants. Accounting is just a mathematical tool, just like differential equations. Both have their place in economics. But accounting is far more important than differential equations for that purpose, IMO. A little more algebra and a lot less calculus would be helpful as well. And then, some common sense about having a gander at the real world.
Regarding the party life, I’m not exactly looking for the Plato’s Retreat of economics – although I am avoiding certain Animal Houses at this time. As Lesley Gore put it in 1965, it’s my party and I’ll cry if I want to.
:)
BTW, I think this is easily a 20 year job. By that time, Krugman will have learned T accounts, and the deal will be sealed.
JKH:
ReplyDeleteThanks for your note : )
I have no idea which, if any, of Mosler's MMT ideas originate with him. I think of him more of a popularizer than a pioneer, but I may be being unfair.
Regardless, this discussion is not about where the idea came from but more about how it may spread. And I agree, it is only when Krugman retires that he will be able to understand T accounts. It is his role and identity which is preventing him from understanding this, not his intellectual abilities.
You guys really think Krugman has that much influence on the intellectual
ReplyDeletedirection of economics discussion in our country, maybe even world?
All we need to do is get Krugman to understand T accounts and the deal is sealed huh?
Let's see... I followed a triplet of attempted humor with... a dollop of sarcasm. What a disconnect.
ReplyDeleteGuess I broke the rules of Krugman bashing - rules which are taken very seriously indeed by those who will tolerate only his diminishment.
I hope you arent including me as a Krugman basher. He is certainly one of the good guys I think.
ReplyDeleteI realize on a second read that my post sounded dismissive and I was guilty of not reading all of your post JKH.... I kind of skipped to the end and missed your gist... sorry.
I am beginning to think however that none of this is an understanding problem, its not rocket science. Its, at the hardest, algebra 2. What we have is a mostly a problem of empathy. Many leaders in politics and business, and their paid shills in economic think tanks, dont really want a "good" economy. Or at least not a good one which includes as many of Americas 300 million that it can. They like it exactly how it is.
The people in charge, private and public sector, have made conscious informed decisions to get where we are. We have what they want for the most part.
Thats the intentionality.
I hope you are wrong that it will take 20 years to get people who want something else
I imagine the whole process of trying to gain acceptance for MMT was like officially adopting heliocentrism when Galileo came along.
ReplyDeleteFor the average person who cares? There had been debate and speculation for hundreds of years. Regardless, the sun always came up the next day and they had to get to work. In the same way most people just don't care about national accounting. My bank account is this, my salary is that and you're really asking me to consider philosophically what money is and why banks have reserves? This is not fertile soil for sowing a change in popular thinking.
And that's just the problem, without a mechanism for mustering broad support, there's not much pressure to bring to bear on entrenched interests who will protect incorrect doctrines for all sorts of reasons. By the same token it's not like those Ptolemaic systems were simple, I bet those guys could look pretty good to the non-experts when debating against the truth of heliocentrism too. Just as some Congressman will say "when our families have tough times we cut back, look at this budget projection" to lots of nodding heads, I can just hear "look above you, how can anybody say the sun doesn't move around the earth, look at my complicated chart".
That's where the political proposals do come into play. I was intrigued by how much more effectively the country could be governed if MMT were an accepted truth. Most people don't get why this stuff really matters to them so the debate occurs off the field of real life as it were. It's one of the reasons I really like some of Mosler's formulations "we have to debate how big an army, police force, regulatory system etc. is best, but paying for it isn't a matter of tax revenue".
JKH writes about the supertanker of the academy and he's certainly right and maybe even optimistic about 20 years. I think the only way to speed that up is to make it more uncomfortable for people to be wrong and that certainly includes a citizenry with a few heuristics that point in the right direction, even if they have the accounting wrong.
We need popularizers!