There’s no Conspiracy Against Post-Keynesians

Steve Keen says there’s a “conspiracy against post-keynesian” economics.  As if the evil neoclassicals have all gotten together to team up on the poor little post-keynesians.  This is nonsense.  I’ll tell you why.

The post-Keynesians, a school which Monetary Realism is highly sympathetic towards, are one of the more disorganized schools around.  When I was talking to Noah Smith the other day on Twitter he didn’t even know that MMT and PKE are not necessarily the same thing.  Like most people, he just bunched them all in there together.  This confusion derives from the lack of organization in the PKE schools.  Most people don’t even know what PKE is.  They just hear “post-KEYNESIAN economics” and assume it’s some sort of big government ideology to ruin the world with government spending.  That’s totally wrong of course, but the message hasn’t been changed because PKers haven’t communicated it to the world properly.

The reality is that PKE is based on understanding the foundation of operational reality and recognizing the importance of the actual institutional structures that exist within a monetary system (that involves understanding the government institutions within the monetary system, the endogeneity of money within the banking system, etc).  As you know with MR, we start by understanding what is and not what can be.  We don’t inject ideology and policy into our work because it’s all rooted in understanding how the world actually is.  So we base our work in real-world realities such as:

  • Double entry bookkeeping.
  • Understanding sectoral balances and the flow of funds in the system.
  • Accounting identities based on an operational understanding.
  • Banks matter in an economic model because they issue most money.
  • Understanding reserve accounting.
  • The money multiplier is a myth because banks aren’t reserve constrained.
  • Government taxing and spending is a redistribution of bank money.
  • We have a government that’s highly involved in the economy.
  • The private sector dominates economic activity.

The problem is, PKers don’t emphasize this enough.  From the standpoint of the crisis, PKers killed it because of this superior operational understanding.  We knew that the expansion of QE wouldn’t cause hyperinflation.  We knew that the USA wasn’t going to suffer from a Greek crisis.  We knew that Europe was screwed.  We knew the stimulus wasn’t nearly as “stimulative” as most presumed.  We knew interest rates weren’t going to rise.  We knew corporate profits were going to boom due to the government’s deficit.  These weren’t small predictions.  They were epic predictions.  Predictions that should have validated PK thinking.  Instead, they’ve been lost in a void of mangled communications.

The big problem is, PKers can be extremely ideological.  In fact, I’d argue that it’s the ideologues in some PK schools who turn so many people away from PKE due to their bad attitudes, defensiveness and “I know everything, you are an idiot” approach.  It’s really unfortunate, because the PK school has a huge amount to offer.  But it’s been poisoned by ideologues and the extremely powerful operational message has been drowned out by people claiming to have predicted the crisis while selling some self serving message or policy approach that is a non-starter.  And we’re all worse off for it.


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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  1. Am I wrong or do you actually sound mad that the crisis has passed without validating the PK school?

  2. Good post Cullen. Though it will be used as further evidence you’re part of the conspiracy. :o)

  3. Nice post Cullen. There seems to be plenty enough arrogance to go around in the economics world. The Austrians, NKers, MMers all exude it, and there’s no reason PKers should be different I suppose.

    BTW, I just asked Gary-uk what evidence would make him change his mind (on his repeated hyperinflation prediction). It occurred to me that this is an excellent question for all of us.

    Let me ask the same of you: can you think of reasonable evidence that might make you change your mind about a major aspect of how you think our economic system functions? I’m just curious. I think I’m going to start asking all the bloggers I read this question. You are in the minority in that you actually have a sense of humility to start off with!

    Take a look at this post for example:

    Now he wants to boot not only banks but finance from macro! And yes… it CAN do harm, he says, because it distracts from what’s really important. The arrogance of that is astounding! But just because he’s arrogant doesn’t mean he’s wrong… but I wonder if there’s any evidence at all (even in theory) that would convince him that he might not be correct. I wonder if he could honestly identify what that evidence might be.

    I suspect that many economists live in what amounts to an unfalsifiable world, wherein evidence hardly matters. If it doesn’t appear to fit their theories at first take, then it needs to be re-interpreted so that it does. What’s your impression?

  4. Astounding really. Macroeconomics is the study of understanding the aggregate economy. To remove finance and banking from macro means that you don’t think finance or banking impacts employment, GDP, etc.

    Someone is certainly free to believe that, but it’s incredibly naive.

  5. I am sorry – the title is incorrect. Conspiracy may be a misleading word in the original by Keen but there is just a huge amount of hostility in academic circles.

    I don’t have the link but even Krugman conceded that anything Keynesian is dissuaded in academic journals.

    One big example: removal of the Cambridge Economic Policy Group funding by Thatcher when Wynne Godley and Co predicted each and every disaster Britain went through accurately.

  6. Ramanan, I think we’d both agree that policy in recent decades has had a strong neoliberal bias. No doubt. But I think we’re way overstating things to claim that Keynesians have been pushed out of the mainstream policy debate. The USA is in the process of unwinding the largest countercyclical policy that was ever enacted. 4 years ago we all became Keynesians whether we want to admit it or not.

    Also, who cares about economic journals? Let them dominate economic journals. The world of information and knowledge in the future is not going to spread through economic journals. It will spread online via open forums and open discourse. Economic journals are dying faster than newspapers and their influence is dying with it. Let the neoliberals dominate them. Who cares.

    Look at the growth of the Market Monetarists. Those guys are all bloggers and their message is clear and concise and they’ve garnered more attention in 3 years than PKers have in 100 years. Lack of publishing in journals is not an excuse.

    I know there’s hostility, but I don’t think the flaw is in the oppositions refusal to view our perspectives, but in our ability to properly communicate them.

  7. I like to think of neoclassical economics as equilibrium based economics where the market is some sort of auction process where rational participants veer towards a natural state of full employment and price stability when all goods and services clear at market prices. In designing such a model you assume the economy actually operates at or near an equilibrium point, you eliminate the state from the model (because it’s a “free market”) auction model in essence and you remove money from the model because you don’t need money in what is essentially a barter model of the economy. It’s basically an antiquated model for viewing the monetary system and how it actually exists.

    Neoliberalsim is the ideology that backs this liberalized view of the economy. It’s the philosophy that says the economy should be liberalized and free of govt intervention, etc. The “free market” rules everything, etc. It’s basically a big fantasy based on an alternative reality where the world operates without govt, without central banks and without money. Some people might WANT that, but it’s not our reality whether they like it or not. There’s a big govt and it operates with many arms in many things. There’s a central bank that messes with everything. There’s money that is distributed primarily by private banks and it influences everything. These old economic models just ignore all this stuff or at least distort how it works….

  8. It is easy to get attention. But attention itself is not success. Although in the blogosphere, the Market Monetarists are popular, has anyone even remotely tried their policies?

    But academic journals are important. You are grossly underestimating its importance. Economists write there and they find jobs with the government and switch back and forth between government and academia.

    100 years is misleading. Keynes became popular and then Keynesian policies were used by governments. In fact, it was the monetarist counterrevolution which pushed back Keynesianism. Since then the world is ruled by Mankiwish ideas.

    It took Galileo a lot of effort to convince what he discovered and he was pushed back. So it isn’t just a lack of communication is it? There is dogma on the other side of the profession – the mainstream. I don’t know how you deny hostility.

  9. Cullen, I want to add an additional perspective to yours, supported by Noah Smith, no less. The other day he wrote:

    “Anyway, I really agree with this:

    He speaks of “a kind of Politburo of correct economic thinking” that rules the profession. “They predict disaster where none occurs. They deny the possibility of events that then happen.” But, “No one of them loses face, in the club, for having been wrong. No one is disinvited from presenting papers at later annual meetings. And still less is anyone from the outside invited in.” And this remains pretty much true to this day.

    Now let’s think very carefully about how to bring down that monopoly..”

    So even Noah Smith believes there is something unfortunate that resides within the mainstream economics profession that is very resistant to novel thought. In fact, if you agree with the word choice “Politburo,” then “conspiracy” really isn’t far off. That all said, I’m not sure using inflammatory words like “Politburo” and “conspiracy” is going to help build bridges, and I am not sure if they’re accurate in this context – but it is interesting to note that in a more depersonalized context, Noah Smith and many others do not disagree with the characterization.

    All that to say, if we’re going to formulate a game plan “to bring down that monopoly,” we first need to establish a fair and comprehensive assessment for why heterodox ideas struggle to penetrate into the mainstream. And so while the disorganization and personalities of members of PK may be part of the reason, they’re clearly not the only reasons, and in formulating our game plan, I’m not sure if makes sense to ignore the other reasons. To be clear, it may still be the case that a large part of the solution may be improving the communication of heterodox ideas and making it a habit to avoid inflammatory language and “take the high road”, etc. etc. I’m just saying that, from a historical and diagnostic perspective, there is more to the story. And from a game plan perspective, if it is true that the mainstream economics profession is sub-optimally resistant to novel thought, then, at the very least, getting more people to understand that truth is the first step in making way for a better system of dialogue.”

  10. Personally, I’d say they’ve made huge waves already. Woodford’s big paper last year got huge amounts of attention. More than anything PKers have written in the last decade. And you could argue that Abenomics is almost an MMers dream come true.

    I don’t discount that econ journals are important. But I don’t think you need journal publication to make your ideas well known or validated by smart people who influence policy. The world’s changing fast. Communication and influencing views is not happening in newspapers and journals these days. It’s happening in alternative online forums. That’s why more and more professors are turning to blogging and online discussion formats. Heck, I published a silly paper 4 years ago that was 10 pages when it was first published and it has since grown to 40 pages and is the 6th most read paper on the entire SSRN database. I get emails from professors and public officials about it regularly. And I am just some poor beach bum….If real economists can’t get their message out then they’re not trying hard enough….

    Fine, 50 years. 10 years. 1 year. Whatever it is, PKers suck at getting the message out succinctly and cleanly.

    I 100% recognize the hostility, but I also think PKers have a tendency to fight dogma with dogma. You don’t been a religious man with another religion. You beat him with superior understanding and scientific fact. PKers tend to fight dogma with dogma. It’s self defeating. There’s a HUGE amount of evidence from the last 5 years validating core PK principles and operational facts. There are things that are undeniable that only an ideologue could reject. But PKers have not explained these points well enough to prove to the world that their views are valid. Instead, they’ve focused on more policy and more ideology. I’ll bet they even attack me for this. They don’t view the world through even an ounce of introspection and instead revert to confirming their own biases at every twist and turn. That’s part of the problem.

    That’s my view at least. I could be totally wrong. Hell, I am sure most PKers think I am.

  11. Yeah, this is not their perfect blend of MM. Plus, they’re hedging in case Abenomics fails. Sumner is a snake oil salesman.

  12. The fun part is when Sumner says ” If in 2007 you told the world’s elite macroeconomists what the path of NGDP would look like over the next 6 years, most of them would have predicted a deep recession and slow recovery in the US, and a deep recession, slow recovery, and then double-dip recession in the eurozone. And that’s exactly what happened. ”

    See? easy! They didn’t predict the crisis, but they could have if they just cared to do it or if someone bothered to ask! “The state of macro is good”.

  13. Thanks Cullen, that’s a nice summary.

    Despite NKers and MMers both advocating monetary expansion, the MMers never miss an opportunity to stick it to the NKers (and vice versa!… although Krugman did extend an olive branch recently). I’m always confused by this since it seems the natural enemy of MMers are the “inflation hawk” old-school monetarists on the right or the Austrians, not the NKers (although the MMers do complain loudly about their foes on the right as well). However, I think I get a sense of the basis of some of the MMer’s resentment in this post:

    “So I sympathize with the Keynesians, but only a tiny bit. You see I can’t help recalling their attitude in 2008. It was full of gloating at the failure of the deregulated, Chicago School, neoliberal, laissez-faire, Anglo-Saxon capitalism model.”

    So it sounds like perhaps the MMers are PO’d that the NKers used 2008/2009 to take a dig at the “neoliberal” basis of monetarist thought in general.

    Is Keen correct to classify both NKers and MMers as “neo-classical?”

  14. Okay, but the main reason there seems to be a “conspiracy” is because no one has debunked the conspiracy. I know Keen claims to have and others claim to have written seminal pieces that change the landscape, but the landscape hasn’t changed because the message has not been properly disseminated. Instead, Keen yelled at Krugman and called him names (not my preferred approach). MMTers populate Keynesian comment forums and annoy the living hell out of everyone. PKers themselves fight all the time (I am 100% guilty of this at times). It’s all self defeating mainly because there isn’t a clean message to communicate. There is a vague operational foundation in PK which is not succinctly communicated anywhere (and not entirely agreed upon in all PK schools) and then there are lots and lots of policy add-ons all over the place. It’s kind of a mess. And the results are messy. No one should be surprised that a guy like Paul Krugman or Noah Smith doesn’t understand the PK message. Heck, there are MMTers in Krugman’s NY Times comments section whose job it seems to be to annoy the crap out of him and call him names. Krugman should be PK’s best damn friend. Instead, he won’t even mention it because he’s probably been turned off by it. The inability to “get in” the club is mainly because those outside the club are screaming and whining like 10 year old kids outside the doors. Of course they get turned away. They appear to have nothing to contribute but their own hostility.

  15. Monetarists are true neoclassical spawns. NKers are less directly related, but the two combined is generally considered the “neoclassical synthesis”. They’re buddies in a lot of way and you’ll see them work with a lot of the same models. That’s why Krugman and Sumner both remove money from their models, downplay banking, and use IS/LM models all the time. I think Sumner and MMers try to position MM as “heterodox”, but it’s really not.

  16. OhMy, my take is slightly different. I think Sumner’s position is that the crisis was not predictable. For Sumner bubbles don’t exist. They can’t due to the EMH. Yes, perhaps there was a sub-prime / banking crisis brewing, but if NGDPLT had been in place that would have just amounted to a minor “demand shock” (or is it a “supply shock?”)… well in either case, a “shock.” Everything comes back to these almost-wholly unpredictable “shocks.”

    Somehow NGDPLT is forward looking, and had Bernanke just lowered rates a 1/4% more at that critical time in early 2007 (as any true Milton Friedman fan would have certainly done… looking at the evidence available at that time) then the Great Recession could have easily been avoided. It would have just been a minor recession. He’s actually written those words! … and you know… I certainly can’t say he’s WRONG about it… but I’m truly astounded at the certainty with which he makes such statements! If only they’d listed to the MMers, all this could have been avoided… it all came down to that 1/4%… all that was needed to keep NGDP on target.

    So he might be correct about NGDP (as far as I know) … maybe if most economists could have looked ahead in time and seen that fall in NGDP they WOULD have said, “That’s terrible! That’s a big recession coming our way!”, but how can he be so sure that it could have so easily been avoided?

  17. Cullen, I think you’re being a bit too PK-centric. When Noah Smith agreed with that comment, I don’t think he had just the hostile PKers in mind – in fact, I’m not sure he had them in mind at all, especially given that he’s not really familiar with PK at all. Same with Krugman, when he’s criticized the insularity of the profession. So while what you say may be part of the truth with respect to PK or at least specific elements of it, I do not think it’s the whole truth. If we step away from labels for a bit, my impression is that there is a whole range of thought out there that is commonly rejected from the core academy. I sorta doubt the reason is because everyone is hostile.

    Moreover, I don’t think critical introspection and receptivity to novel thought (this on the mainstream’s part) should require a full debunking of the mainstream. In general, rejection of diversity of thought is not a recipe for success and progress. This is why people like Noah, Krugman, etc. can get behind the idea that the way the academic system is set up is not ideal.

  18. It’s not even that he thinks it wasn’t predictable. It’s that he doesn’t think it ever needed to happen. He thinks the Fed could have set a NGDP target and that nothing bad would have happened. I don’t know precisely how he thinks this should have been implemented, but my guess is he’d have had the Fed set a NGDP target and then just buy everything the Fed needs to buy to get there. And he means ANYTHING.

    What he doesn’t understand is that the Fed buying burritos from Taco Bell is the Fed doing fiscal (which, are not real “burritos” by the way). It’s real money printing. It’s the Fed acting as a zero interest bearing issuer of Fed liabilities. Yes, that’s a form of money that Sumner wants out of macro. More importantly, this is a form of fiscal policy (which, he also ironically, says is bad). But he doesn’t get any of this because his neoclassical model is inapplicable to the current monetary system.

  19. In fact, judging by Noah’s publicly published opinions of Keen and other hostile PKers, I’m pretty sure those aren’t the people he has in mind when he thinks the mainstream too readily rejects non-orthodox thought. That means there is a separate force here – one that is real and independent of the ideologue/hostility factor you have identified.

  20. I just fundamentally disagree to a large degree. You can’t prove the sun is the center of the universe unless you can provide facts supporting this. The concept of retrograde motion was novel in supporting the idea that the earth was actually moving around other objects and not vice versa. Once we could observe a pattern in this motion it became an irrefutable fact that the earth was not the center of the universe.

    There are lots of facts in the foundation of PK analysis that I believe are proven, but not widely accepted. We understand them, but we haven’t communicated many of the concepts. Instead, we’ve muddied the waters with other more controversial concepts and worse, we’ve spent huge amounts of time arguing about these concepts internally or externally when the focus should be on operational facts. That’s my view at least.

    And yes, I hate the labels too. I wish I could rid MR of all labels. But it is what it is. It’s a synthesis of many schools, but most closely resembles PK understandings. It is what it is. Unfortunately, in order to clearly communicate a concept you need to call it something. More unfortunately, PK doesn’t have a very succinct concept that underlies all of its principles and too many PKers would probably just describe it as the closest relative of Keynes’s original thinking, which I personally think is misleading in more ways than one.

  21. Let me ask you then – why aren’t these concepts more widely accepted? You really just think the old guard is locked up in their old ways and refuse to even consider outside ideas? That’s it?

  22. True… however the “buy anything” approach I think comes more from what they think needs to be done now though, or at least what needed to be done after the recession really got going.

    Regarding early 2007, I understand his thinking to be: “that lowering of the FFR by another 1/4% [beyond what they actually did lower it by] would have sent the right MESSAGE to the market: that the Fed was willing to do what was necessary.”

    So in other words, had the Fed sent the right message at the right time then extreme actions might not have been necessary later on.

    In another post Sumner explains his focus on criticizing Krugman & NKers most of the time:

    “I go after the only group still standing in the way of global market monetarist dominance—the Keynesians.”

  23. Perhaps I didn’t choose my words properly, and we’re getting a bit side-tracked by this debunking issue. Ideas take time and replication to validate. It doesn’t happen instantaneously. It happens when many people engage in debate and discussion and come to a consensus. But when you impede that process and suppress debate, progress is difficult. Noah Smith seems to agree that the mainstream suppresses that process, that there is a force independent of any short-comings of alternative thinkers that suppresses progress.

    My point was just to highlight that there are other reasons independent of poor communication / ideology / hostility for rejection of non-orthodox thought in the mainstream. Given that Noah Smith and Krugman lament the insular nature of the mainstream economics community, and given that they don’t have exclusively in mind the PKers you’re thinking of, I think there is more to the story – if we put any stock in Noah’s and Krugman’s opinions.

  24. No, not at all. I wrote above that I wanted to *add* a perspective to yours. I think there are many reasons, and it’s not just one side’s fault or the other’s. I even said the communication/hostility thing may be a big part of the reason. I just don’t think it’s the only reason, and if we’re going to make a game plan, we should have a good idea of all of the reasons.

  25. Okay, so maybe we’d agree that there’s elements of a conspiracy. Old habits die hard. I know that. But a lot of this should be accepted as fact. Maybe I need to write a balanced post about why PK thought should be more widely explored following the crisis. We need to validate our views, but we need to do so objectively, maturely and thoroughly. I think guys like Krugman and lots of others are open to outside opinion and introspection, but they don’t want to be told their life’s work is shit in the process (which is what heterodox econ basically says to a lot of the main schools). There’s a better way to tap into these people and build bridges rather than acting like we’re always on the attack or being locked out….

  26. Agreed. (And, again, I’m not sure “conspiracy” is the right word, but there is definitely some sort of resistance that is just perhaps just a part of human nature.)

  27. Or they can quietly do what Krugman has done and say “look, I don’t know everything and I was wrong about that, but oh yeah, I already knew that anyhow”. :-)

  28. I should add – the reason I wrote this post is because I think there’s a real problem here. Maybe I don’t know what it is, but when I see someone say “it’s not our fault, it’s their fault”, it’s usually got more to do with the guy pointing fingers.

    This isn’t Austrian mumbo jumbo here we’re talking about. There’s some seriously rigorous analytics behind PKE. Provable stuff. So there’s a big problem with the message distribution if people aren’t getting it. I know there are other issues, but this is a problem we should explore deeply and thoroughly and SOLVE! Because there’s obviously something wrong and it’s not all someone else’s fault in my opinion…

  29. You probably will hate it Cullen, but some might label MR as a subbranch of PK. I certainly do.

    Other than that a really good post, sad but true. Read that in the beginning PKers at Camebridge were arrogant and dismissive towards those who had not been a personal friend of Keynes. Hardly an recomonded approach to gain popularity.

  30. MR is heavily PK influenced so it is what it is. I don’t really care what people call it so long as they understand the operational realities it’s based on. If you understand MR and feel like the govt should close up shop then be my guest. If you understand MR and want the Fed to buy up assets to support a NGDP target (as Market Monetarists say) then be my guest. But don’t tell us banks don’t matter or banks lend reserves or govt spending is necessarily inflationary or that the USA has run out of money….

  31. With all due respect, I don’t really think you understand academia. This isn’t the world of entrepreneurship where self starters go out and take what they want. You have to establish credibility and validate tour views theough peer review. You seem to be the opposite of an academic type which is why you don’t understand how this works. That’s great for you, but you can’t just force views on people because you think they’re right. In academia (which you’re not a part of) your views must undergo a process of review. The PK views have been reviewed and rejected already.

  32. Despite NKers and MMers both advocating monetary expansion, the MMers never miss an opportunity to stick it to the NKers (and vice versa!… although Krugman did extend an olive branch recently). I’m always confused by this since it seems the natural enemy of MMers are the “inflation hawk” old-school monetarists on the right or the Austrians, not the NKers (although the MMers do complain loudly about their foes on the right as well

    This I think sums it up quite well:

  33. Steve Keen is a loud mouth blowhard. He has discredited himself at several points over the last few years yet no one calls him out. His recent article on Naked Capitalism was an accounting disaster and as well as an analytical nightmare. He constantly screams at other people about how he knows everything and they know nothing. It’s not one bit surprising that the University he taught at decided to fire him. He’s an egomaniacal, self serving jerk.

    He has a small cult following of people who don’t understand where he goes wrong. That’s about the extent of his relevance. Carry on.

  34. Let’s take it easy with the name calling. We’re not solving problems here by doing precisely what I said was part of the issue in the first place….Geez.

  35. That’s pretty bold isn’t it? “global market monetarist dominance” Hahahaha! … According to them NOBODY is currently “doing it right” … not Europe, or Japan, or the US! I scarcely think China or India or Brazil are either (but I don’t know what he thinks about them). How can MMers be on the verge of world dominance when, according to MMers, nobody on Earth is doing MM correctly??

  36. Cullen
    I certainly don’t want to get into a MMT-MR debate with you, but I have just one question……

    You regularly criticize the MMTers for spreading their ‘ideologically liberal big govt spending as the cure’ to most economic downturns agenda…….but what is liberal about increasing the deficit by suspending FICA or lowering tax collections as a % of GDP as the means of increasing NFAs and the money supply to combat the sluggish private sector credit growth that is retarding the economy? How is increasing NET govt spending, like the MMTers say can be done either way (more spending or tax cuts) regularly, an ideological opinion in your mind?

    Do you disagree that there is a theoretical level of Govt deficits that will ensure ‘full-employment’ (non- JG style) and relative price stability (however one defines it)?

  37. MMT doesn’t just propose deficits via tax cuts. The ideal MMT position is actually deficit spending and the JG. The entire MMT position is based around the JG. It is “central” to MMT as Bill Mitchell says. And you’re unlikely to reach sustained FE without it. MMTers know that. So lets not go around saying MMT is conservative friendly with tax cuts. MMT would actually go much further than that.

    Let me add – it’s not so much the policy agenda that bothers me about MMT. It’s the way the presentation of the system is distorted to imply that “there is no alternative” to the JG because of myths like the “money monopolist”, “taxes destroy money” or there being only 9 bones for 10 dogs so the govt must supply the extra bone. I was never entirely against the concept of a JG. I’m very much against rationalizing it based on a series of myths that are presented as “operational reality”.

  38. Interesting post and comment thread. I feel like I’m spying by reading it!

    You realise, of course, that us MMs are nobodies. Nobody had ever heard of us until we started blogging. We didn’t even really exist as group, until Paul Krugman called us “quasi-monetarists”, and we realised we were a sort of group, and had better think up our own name for ourselves. (Actually, I’m still not sure we really are a group, because we disagree on a lot as well, but we seem to get on OK, so far.)

    From my experience, academics do sometimes tend to be a bit biased towards people who think like them. But the idea that there is only one big dividing line, with “orthodox economists” on one side, and “PKEs” on the other side, waging eternal war on each other, seems hopelessly wrong. If there is a war, it’s a war of all against all. Every ambitious academic wants to be the winner of that war, all by himself. And sure he’ll look for allies, but sometimes he’ll also look for interesting colleagues, even if they do seem to be saying something a bit different that isn’t what he’s spent his life doing. As long as the new guy doesn’t call him an idiot in public and doesn’t look like he would be a difficult colleague. By the time we get middle-aged and tenured, most of us don’t care much anyway. All the stuff we learned in grad school is now seen as hopelessly old-fashioned or hopelessly wrong. All our theory-specific human capital is next to worthless anyway. So who cares, as long as the new guy isn’t an asshole.

    You know that equation by SK that Ramaman showed made no sense accounting-wise? Spending = GDP + change in debt (or something like that.) I keep meaning to write a post saying “yes, Ramaman was right, but if you change what SK was maybe really trying to say into XYZ, you can sort of see that it kinda makes sense and is worth looking at.” But it’s not worth the aggro.

  39. “MMT doesn’t just propose deficits via tax cuts.”
    So, smart Govt investments are the foundation of increasing private sector productivity….whats wrong with Govt spending playing a role as part of increasing the Govts contribution (re: deficit) to the economy?

    “The ideal MMT position is actually deficit spending and the JG.”
    Big deal, you don’t like the JG, reasonable people can always disagree over various policy prescriptions….noone has all the answers and thats why we need to experiment.

    “The ideal MMT position is actually deficit spending and the JG.”
    This is totally wrong and just shows your anti MMT bias. I read just as much current MMT literature as you or anyone else (there’s not that much new stuff posted daily) and the JG is not at all central to all MMT writing.

    ” It is “central” to MMT as Bill Mitchell says.”
    Who gives a fuck what Bill says with regard to this one thing….MMT is a framework, it belongs to no single individual….the same goes for MR or any other philosophy or idea

    “And you’re unlikely to reach sustained FE without it. MMTers know that.”
    Everyone should know this…since 1980, we’ve reached unemployment at or below 5% 3 times, and all of those came at the crest of large private sector debt increases (greatly expanded credit money supply from the banks)

    “So lets not go around saying MMT is conservative friendly with tax cuts. ”
    If tax cuts are considered “conservative friendly (and how can they not be since conservatives have spent decades advocating for them), then MMT is conservative friendly….its a tautology.

  40. Nick
    SK’s equation or logic was….

    Spending = Income + Change in Debt

    This is in the aggregate of course… you have a link to Ramanan’s rebuttal to this concept?

  41. Look, I am not going to regurgitate all my MMT debates from the last 3 years. But let’s get a few things clear.

    1) I never rejected the JG. A few years ago before the MMTers all decided I was the devil, I said we should start it small and scale it up. Scott Fullwiler then proceeded to throw a hissy fit because I wasn’t fully on board and then the rest of the MMT mob attacked me for not diving 100% into MMT right off the bat. But I never said “I don’t like the JG”. I said I was skeptical of its efficacy and that MMT economists hadn’t proven that it was an optimal or even superior policy tool. So I said “proceed with caution”. Not, “we shouldn’t ever do this”.

    MMTers always try to say I “hate” the JG because they want to paint me as some sort of closed minded conservative ideologue. You’re wrong and you make yourselves look silly when you just blatantly misrepresent someone else’s very open-minded and prudent position….

    2) The MMT economists have been clear about the importance of the JG in their work. Pavlina Tcherneva made this very clear recently:

    “Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between the descriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy.”

    Bill Mitchel has made similar comments in this regard:

    “The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.”

    So you can go around screaming about who “gives a fuck” about Bill Mitchell and Pavlina, but their positions are crystal clear and they clearly contradict your thinking. Maybe you don’t understand MMT as well as you think?

  42. @ Nils,

    Yes, he agrees with the deficiencies of tax cuts to achieve full employment and yet promotes a monetary theory that promotes full employment. And then has the balls to come here screaming and cursing as he explains that MMT is policy consistent with a view that doesn’t achieve full employment.

    He’s just another MMTer who is an expert at talking out of both sides of his mouth.

  43. yes and no, I didn’t want to get into a full blown dialogue over technical differences.

    I too don’t like the “taxes destroy money” meme

    The Govt is the monopoly issuer of reserves, cash, it has the monopoly on guaranteeing deposits as well as providing risk free NFAs
    The dog analogy is for a lay audience, so while its not the best….its certainly not the worst analogy I’ve ever heard….I suspect Cullen dislikes it because of the dispute over the extent of the Govt “money monopoly”

  44. No, I dislike the dog analogy because it’s intentionally misleading. There’s plenty of bones in the system. It’s just that some capitalists like to have 2 of the bones so the other 9 dogs can fight over 8 bones. That’s a fact of a capitalist system. You end up with retained earnings and saving. It’s not the result of a “money monopoly” or a lack of money in the system. There are more than enough bones, but the distribution of bones is not some socialist distribution where everyone gets a trophy for playing. That’s just not how capitalism works. You might not like it and you might want all the kids to get a trophy for participating, but that’s a policy decision. Not one grounded in monopolist myths.

    The “taxes destroy money” meme is equally misleading. Money does not get “destroyed” when taxes are paid. Inside bank money gets redistributed necessarily. Painting this as “destruction” and creation totally mangles the actual flow of funds that starts in bank money and ends in bank money.

    You mess up the entire understanding of the system when you endorse these kinds of things….

  45. Cullen,
    Please don’t put words into my mouth….you are too good to need to do that.

    “Yes, he agrees with the deficiencies of tax cuts to achieve full employment and yet promotes a monetary theory that promotes full employment”

    This is all wrong…If federal tax collections were 0% (lets not get into the chartal theory stuff here, we still would have state and local taxes), and we maintained 22% of GDP spending….than we would have full employment. Does anybody disagree with this foundational logic?
    Of course, price stability would be hurt in this example, but as a point of logic you could cut taxes low enough to have full employment.
    I have done no such thing as promote a monetary theory of anything….not once did I mention assets swaps of interest rates…. I am only talking fiscal.

    “And then has the balls to come here screaming and cursing as he explains that MMT is policy consistent with a view that doesn’t achieve full employment.”
    Seriously? when did I scream? Did I use all caps somewhere and forget that I did it?
    Boo-hoo, I used a naughty word to describe how silly I think it is that MMT is “owned” by Bill Mitchell and that everything he says, or anyone else for that matter, must be taken as gospel. I make up my own mind about the world. Everyone is wrong all the time….its human nature. Take everything with a grain of salt.

  46. Pardon me. Maybe I am jumping to conclusions, but the tone of your comment and the language certainly sounded angry….If I am wrong then I apologize, but I don’t generally like that tone of debate here. I have a perfectly fine potty mouth, but it has no place in this forum. MMTers have a tendency to have a very short fuse and consistently immature debate tactics so I might be bunching you in unfairly….

    You’re contradicting yourself when you say “Of course, price stability would be hurt in this example”. MMT is a theory of price stability AND full employment. That’s the main goal of MMT. And that’s why the JG is the central piece of the theory. It’s THE policy proposal that gets you there. Saying you’re an MMTer who doesn’t support the JG is saying you’re an MMTer who doesn’t support FE and PS. You can claim that I guess, but I don’t know if Bill Mitchell would actually say you’re an MMTer….

  47. I don’t know enough about your personal differences with the MMT academics to offer a comment about it. I’m sure they would describe the situation differently than you have….who to believe? I don’t care.

    I’ve never painted you as anything. I don’t know you personally and you seem to be a nice enough guy for what its worth. If the MMT brass has done something untoward…then thats bad on them. Nobody is perfect, but that doesn’t a priori dismiss their views or claims.

    Oh, I understand MMT pretty well for a layman.
    MMT as I see and accept it:
    Federal Govt is the currency issuer that can’t run out of its own fiat money invention.
    Govt is constrained by real resources and not financial ones.
    Sectoral balances
    Functional finance (who cares about the amount of money deposited into securities accounts at the Fed…you want less “debt” than stop issuing securities….why spend $200,000 grand for a $100,000 bridge after all the interest is paid?)
    Taxes help drive demand for a currency
    A focus on stock-flow and double entry accounting consistency

    Thats how I read, perceive, and apply MMT. You will notice that there is no JG…who is to tell me that I am not an “MMTer” just because I didn’t include the JG in my foundational list. Like you, I would suggest experimenting with it on a small scale first.

    The above list (minus the functional finance bullet) should be standard knowledge for all economic schools of thought…Its just operational reality. It shouldn’t have anything to do with MMT or MR or neoclassical etc.
    If a biologist were to come in and say that evolution isn’t true, nobody would take him seriously. This is the same way it should be for economists when it comes to these very straight forward and basic realities

  48. Right you are with regard to the dog story….thats why I said its not the best. Certainly Warren knows the score as far as the distributional components of a capitalistic system…Yes, if $1 trillion was literally redistributed from the wealthy to the bottom 20%, then spending and consumption would likely increase and bring us closer to full employment.

    I said I don’t like the taxes destroy money meme…the only time that could remotely be considered applicable is if we were running budget surpluses since the Govt can’t “save” its own liabilities to itself.

  49. I think you’re missing my point though. The MMT “operational realities” are not all correct. There’s no such thing as a govt money monopoly in our system. There’s no such thing as taxes destroy money. There’s no such thing as the govt creating money when it deficit spends. There’s no such thing as there not being enough bones in the economy. There’s no such thing as the Fed and Tsy being consolidated. There’s no such thing as reserve being atop some “hierarchy of money”. The MMT “general case” is not applicable to the present system so there are crucial understandings within MMT that are just blatantly misconstrued. These points are all crafted in MMT to create some sort of scientific rationale for the JG. That’s the whole point. If you strip out the JG you misunderstand the entire theory. Unfortunately, you can only justify the JG on their terms if you’re willing to stretch the truth a little bit.

  50. Well, that’s kind of a crucial point though. If the US economy got to a trade surplus position there would actually be no need for a budget deficit at all. Many of the most prominent PKers were balanced trade advocates and I think that’s a reasonable position. But again, MMT builds their position around trade deficit nations because then the sectoral balances math can be used to justify permanent budget deficits (which would be a necessary piece of the JG in all likelihood). Again, it’s all devised to support a fiscalist approach to the economy. I am not against that, but I vehemently disagree with the way it’s presented….

  51. Note taken…in the future, do not use profanity even if not in anger….check

    With all due respect Cullen….
    I would not describe MMT as a theory of price stability and full employment.
    I would say MMT is a descriptive analysis of the operational realities of our modern monetary system. This understanding leads to the possibility of having full employment and price stability. Which would make the neo-liberal NAIRU concept obsolete or at least inapplicable in floating exchange rate fiat currency regimes.

    But you say tom-AY-toe and I say tom-ahh-toe

  52. Oh, and I don’t care how Bill Mitchell would describe me. I don’t ascribe value to myself based off of other people’s most likely incorrect perceptions of me.

  53. In all fairness….you didnt rebut anything I said in the comment you are responding to.

    You: MMT is wrong about Govt money monopoly (right, only reserves, cash, deposit guarantees, and NFAs)
    Taxing doesn’t destroy money (right, except arguably during a budget surplus), no such thing as Govt creating money when it deficit spends (only if you consider issuing securities as removing money from the economy and thus the deficit spent SS check money is simply replacing the money eliminated by the securities issuance), no such thing as consolidated Fed and TSY (right again, both separate and are under the nominal purview of Congress), no such things as reserve supremacy (I never said there was).

    This is all well and good….however, I said I perceive and apply MMT as follows:
    Federal Govt is the currency issuer that can’t run out of its own fiat money invention.
    Govt is constrained by real resources and not financial ones.
    Sectoral balances
    Functional finance
    Taxes help drive demand for a currency
    A focus on stock-flow and double entry accounting consistency

    You never mentioned a single one of these things in your reply….probably because they are the same things you accept (save for probably the functional finance bit and you would probably use the article “A currency issuer” instead of “THE currency issuer”

  54. Fair enough. Personally, I don’t really care whether you need the JG for MMT or not. What I know is that you don’t need MMT to understand how the monetary system really works. And in fact, it will probably lead you astray….

  55. Sure, but you’re taking the parts of MMT that you like and ignoring the rest. You’re basically ignoring the “general case” upon which MMT is based and you’re ignoring the policy side of MMT. In my opinion, that means you’re just taking the best parts of Post-Keynesian economics and cherry picking what you like and don’t like. As the post the other day emphasized, MMT does NOT = PK.

  56. Fair enough about the trade balance. Personally, I don’t see anything wrong with a trade deficit as long as it doesn;t infringe on our national security. Better for the Chinese to work 12hrs a day making my socks than for millions of americans to be employed doing that kind of work. Better to employ people as researchers, doctors, scientists, engineers, teachers, construction workers, etc using fiat money than to have a nation of factory workers.

    Everything between you and me comes down to the JG, but you don’t see me advocating for the JG so its kind of a one-sided debate as far as that goes. While you may disagree, I am free to consider myself a MMTer and still not vociferously advocate for a JG, and everyone else is free to do the same….in my humble opinion

  57. Thats right, as an autonomous individual I am free to accept or reject any logic or idea I wish. I choose to disbelieve some of the things the MMT brass says because I am an atheist and they are just fallible primate animals just like me, and I have never read or met anyone in my life that I agree with on absolutely every single matter or issue…..which I am quite sure is the same for you and everyone else on the planet

  58. Well, you’ll like the fact that MR is based on operational facts and not some self imposed ideology….Personally, I don’t care what people’s policy agendas are. But I really want you to get the operational realities right. That’s all MR is really.

  59. Personally, I think we should strip out any controversial aspect of PK so that we can at least get more people to agree to some common fundamentals. Floating exchange fiat money and the loanable funds theory simply can’t mix.

  60. Now you understand why I started MR! That is the EXACT thinking behind it. Let’s get people onboard understanding the operational realities of the money system. Then they can debate the other stuff. I know we can afford full employment. I know the USA isn’t “running out of money”. But most people don’t get that. And we need them to understand the basics before they dive into misunderstanding the policy stuff. In my opinion, MMT distorts the realities to confirm the policy approach and actually turns people off of the PK understandings in doing so….

  61. If an economic theory is shown to be truly valid and was then universally accepted to really predict economic behavior, everyone would act in unison. The consequences would be unique, and effectively destroy the theory.
    Economic behavior ACTS IN A LOOP, where where every action causes changes that require a different action and so we go around and around, never able to find a crystal ball.

  62. I see what you’re saying and have thought the same thing. However, you could have a theory which makes contingent predictions along the lines of:

    if A, B, and C happen, then X will happen.

    if A, B, and D happen, then Y will happen.

    if B, G, and H happen, then Z will happen.


    I don’t see how you avoid that actually, because you never know what individual decision makers will do (i.e. central bankers for example). And you don’t know about Earthquakes or other “shocks” which might have real impacts on the economy. Now can you cover all the basis like that? Practically, I doubt it!

  63. Thanks. Here’s my post (extremely short version).

    What SK should have said/meant to say was: Planned spending – expected income = change in bank money = change in bank debt.

  64. Hey Nick! Fancy seeing you here! While you’re poking your nose in, take a look at Cullen’s “Endogenous” post regarding a Sumner post. You’ve made a statement very much like what Sumner says (years ago) but saying stuff like “perfectly elastic” and “perfectly inelastic” wrt this or that, and that always confused me. Especially the “perfectly” part. I went to the trouble of decoding what you meant by “elastic” but I could never understand the “perfectly” qualifier (which implies either perfect vertical or horizontal lines on your chart, as I recall). Could you elaborate and explain why it’s “perfect?”

  65. Nick,

    Yeah something of the sort. I’ll probably add a dimension about expectations not being met or something but the above is a nice extremely short version. The funny thing about it is that Keen seems to say PKEists themselves do not know this but Lavoie’s book Monetary Economics already has such things.

  66. Ramanan, could Keen be trying to say something along the lines of Y “minus” financial assets including the MOA/MOE = C + Igoods ?

    I thought Keen said income plus change in debt = aggregate demand.

  67. Thanks for the post, Nick. Two related questions.

    How representative is the economics blogosphere of the actual academic economic community, in terms of what ideas garner the most support? In other words, I feel like many ‘outsiders’ extrapolate what they see in the economics blogosphere to the state of consensus in the actual academic community. Obviously, there is going to be some disconnect, but how wide is it?

    Two – your point about war against all makes sense, but do you not think there is truth to Galbraith’s comment about the “Politburo?” Obviously, there isn’t a clear line as to what’s accepted and what’s not, but I feel like reading various commentators, one could put together various criteria that do a decent job of defining the dividing barrier.

  68. Tom: in this case, “perfect” is just a name for “infinitely elastic” (or zero elasticity, if it’s perfectly inelastic). There’s nothing necessarily good (let alone perfect) about it.

    “X is perfectly elastic wrt Z” just means “a very small percentage change in Z will cause an infinitely large percentage change in X”.

  69. Ramanan: “I’ll probably add a dimension about expectations not being met or something…”

    Yep! If everybody (in aggregate) is planning to spend in the coming period more than the expect to earn in income in the same coming period, they are going to be pleasantly surprised to find their income is higher than they expected (unless they hit supply constraints, and are unable to spend what they had planned to spend). In aggregate they will see (with hindsight) that they didn’t need to borrow more in order to spend more.

  70. wh10:

    1. I don’t know. I’m too disconnected to academic economics nowadays to know what it’s thinking. But I think there’s a lag. The blogosphere gets new ideas much more quickly than the academics. E.g. almost every econoblogger knows something about Scott Sumner and NGDP targeting. Many in academia won’t have heard of him.

    And I’m pretty sure the reaction of most academic macroeconomists to e.g. my latest post, saying finance was irrelevant to the recent recession, would be exactly the same as Cullen’s: something like “you are nuts Nick!”

    2. I reckon there’s some truth to it. But it’s a strange sort of Politburo, because it keeps changing its doctrine. They used to snigger at anyone who “assumed full employment”, then they switched to sniggering at anyone who “assumed sticky prices”, then they switched to…And it’s nowhere near as monolithic as that name suggests.

    Take on example: that guy doing experimental games around WEIRD (I forget what that’s an acronym for). His results run totally counter to what almost every economist has been doing since.. I dunno, maybe Adam Smith, which is that people are basically all the same world over and that in order to explain different equilibria you just have to look at different economic systems/constraints. And he’s saying that’s totally wrong. Yet he gets hired by an economics department while the anthropologists won’t touch him! (Which is really weird).

  71. So Nick, given this sentence of yours:

    “At the Bank of Canada’s medium term horizon, the supply of money is perfectly interest-inelastic. It’s perfectly income-inelastic. It’s perfectly almost everything-inelastic, except for one thing. It is perfectly inflation-elastic.”

    Then you’re saying that in Canada, under the current inflation targeting monetary policy, that over a medium term horizon (or longer?) the supply of money could change an infinite percentage with a small percentage change in the targeted inflation rate?

    And for everything else, in the medium term, even an infinite change (say to the interest rate) results in no change in the supply of money.

    Is that correct? I know when I actually plugged your “infinitely large % change” into the sentence it sounds a little extreme, and that’s perhaps not precisely what you meant here.

    But, over the medium term, saying that the supply of money is perfectly inelastic wrt the interest rate is kind of meaningless isn’t it? Since there is no medium term interest rate, since the interest rate is a dependent variable (over a medium time horizon), right? In other words, we can expect the interest rate to bounce all over the place over a medium time horizon, and you can’t really say it’s at any particular value. The only thing that should be clustering around a fixed value in the medium term is the true inflation rate, and that value should be the targeted value (if all is working correctly).

    It seems to me there’s a problem here with defining what the independent and dependent variables are. As a thought experiment, lets simplify our lives and say the BOC has access to a sufficient set of noise free real-time economic statistics, and instead of meeting every six weeks, the governing board is replaced by a computer to implement inflation targeting continuously in real time. That should allow us to get rid of the short, medium, and long term categories, right?

    So now it seems to me that the interest rate target (which is now a continuously changing value) is a dependent variable. One of the things it’s dependent on is the inflation target (or on the error signal between the target and the true inflation rate). Correct? The supply of money is also such a variable, etc. These dependent variables depend on MORE than just the inflation rate error signal of course, but that’s ONE of the things they depend on. The supply of money would also be dependent on the individual desires of all the people to borrow money, which is in turn dependent (in each of those individual cases) on the interest rate (and a bunch of other things), which is in turn dependent on the inflation error (and a bunch of other things), etc. The true inflation rate is also a dependent variable in that we’d expect that it doesn’t track the inflation rate target precisely (in this feedback control system). The inflation target itself is truly an independent variable.

    Do you take issue with any of that?