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Wednesday, February 20, 2019

Greater Fools In Credit Markets And Recessions

For a number of reasons, we want to be able to forecast recessions. Unfortunately, many recessions are the result of disruption in credit markets. As a result, forecasting recessions accurately is equivalently difficult to forecasting the direction of the credit market accurately. The lack of investors of achieving this feat suggests that recession forecasting is inherently difficult. This article offers an overview of this chain of logic.

(This article is an unedited first draft of a front section of my upcoming book on recessions. I am outlining the big picture of why we are interested in recessions in the first place. As a result, there are a lot of assertions in it. The remainder of the book -- which is in a partially finished state -- provides the details.)

Sunday, February 17, 2019

Comments On The Green New Deal And MMT

There is considerable interest in the Green New Deal (GND) proposal by U.S. Representative Alexandria Ocasio-Cortez, and its relationship with Modern Monetary Theory (MMT). Although my preference is to focus on my business cycle book, since I am one of the many MMT bloggers, I should at least comment on the Green New Deal. The natural question arises: what does the Green New Deal mean, and is it feasible? Based on my very limited understanding of the American legislative process, I would guess that it is way to early to say anything definitive. That said, that has not really stopped anyone else from making wild claims about the proposal...

Thursday, February 14, 2019

Functional Finance Versus New Keynesian Economics, Krugman Edition

Paul Krugman has piled onto the "MMT explained by non-MMTers" bandwagon, with a critique of Functional Finance. Functional Finance is largely associated with the Old Keynesian Abba Lerner, and is one of the key intellectual roots of Modern Monetary Theory (MMT). In my view, the most interesting part of the article is that it contradicts the commonly made assertion that there is very little new in MMT (which Krugman hints at in the article as well). In presenting his summary of Functional Finance, Krugman obviously has theoretical blinders on, and the objective of MMTers is to point out the existence of those blinders.

There is a legitimate substantive debate about issues underneath the disagreement, I am not going to assert which side is correct. However,I would note that only the MMT side actually sounds like it made the effort to understand the ideas on both sides of the debate. As a result, there is no doubt that MMT represents an advancement of knowledge relative to the neoclassical consensus.

Wednesday, February 13, 2019

Real Estate And The Cycle

Figure: U.S. Residential Investment
Real estate -- particularly residential real estate -- is an extremely important factor when discussing recessions in the modern era. To a certain extent, real estate is where economic theory goes to die. One possibility is that the theory was largely developed when the norms in real estate investment were conservative, so attention was moved to the industrial sector. However, the herd tendencies in the housing market may now overwhelm the industrial cycle.

Tuesday, February 5, 2019

Publishing Pause

I will be off to Boston for a curling bonspiel later this week. As a result, will not be publishing anything for at least a week.

Monday, February 4, 2019

A Basic Investment Model

One of the basic concepts of Keynesian economics is that real activity is heavily driven by the pace of investment. The household sector is largely a passive actor; shifts in investment activity are the source of economic volatility.

In this article, I outline a preliminary model of investment, with the financial aspects stripped away. It is a stock-flow consistent (SFC) model, which is built upon the core of the sfc_models package, written in the Python programming language. (That package is described in my book, An Introduction to SFC Models Using Python.) The code that generates the model has been added to the examples folder of the package at (link to GitHub).

Saturday, February 2, 2019

Why Are MMT Critiques Generally Terrible?

The deluge of bad Modern Monetary Theory (MMT) critiques continues. Although it is possible that there are some diamonds in the rough, all the articles I read were downright stinkers. They were so bad that I refuse to dignify their existence by even citing them. However, as someone in the MMT camp, I just want to give a few pointers for my readers as to why those critiques stink.

There certainly are legitimate critiques of MMT, but they are hard to find. Even academics end up citing poor critiques written by non-MMTers; nobody can be apparently bothered to read the MMT academic literature. Which is a rather troubling commentary on the diseased state of modern academia (speaking as a hardline old school ex-academic). In this article, I just cover the ludicrous arguments; I will let the reader try to find some reasonable ones elsewhere. I am in the middle of developing an investment accelerator model within my Python SFC model framework, and I do not want to waste my time beating up on clowns.