Intentionality and Accounting

Some weeks ago I had a good back-and-forth with the indomitable JKH in the forums about how useful Mosler's "paradigm shift" approach was vs JKHs "strictly the accounting" strategy. Mosler plays fast and loose with the language a little at time to better get his point across, and my position was (and remains) that if your goal is to knock people out of one way of thinking and into another, then sometimes you need to hit them over the head. But I don't think anyone has quite cracked that nut (no pun intended).

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.

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.

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.

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.