Thursday, June 20, 2013

Robert Mugabe should be in charge of economics at Harvard.

And several other leading universities.
Reason is – and this is scarcely believable – that Mugabwe has tumbled to the fact that governments can print money, whereas there are any number of leading economists who don’t seem to have grasped that point. At least there are any number of leading economists who write articles which ASSUME that a deficit can only be funded by extra debt, when in fact deficits can be funded by new money, as pointed out by Keynes and Milton Friedman.
Moreover, both Keynes and Milton Friedman were pretty indifferent as between the two options: funding deficits via extra debt and funding them via printing.
Here are three examples of articles by respectable economists in respectable publications making the above daft assumption. But give me time and I could dig up far more than three.
1. John Plender in the Financial Times: 
2. Niesr authors.
3. Raghuram Rajan in the Financial Times.  
And of course we mustn’t forget those two Harvard university plonkers, Rogoff and Reinhart. I particularly like these two sentences in a letter from Reinhart to Krugman:
“What is the foundation for your certainty that as peacetime debt hits new records in coming years, the United States will be able to engage in  forceful countercyclical fiscal policy if hit by a large unexpected shock?  Furthermore, do you really want to find out the answer to that question the hard way?”
Well the “foundation of my certainty” is the simple fact that if the debt is too high and/or interest rates look like they are too high, the US government / Fed can “engage in forceful countercyclical fiscal policy” by printing. Doh!!
As for Reinhart’s bit about “finding out the hard way” that simply begs the question. That is, it ASSUMES a particular answer to the point under discussion (the answer she promotes). In sexist circles, that’s called “female logic”. 

Inflation – oh la la.
Of course the stock response of the economically illiterate to the phrase “print money” is “inflation”. Well the answer to that is that if enough is printed to get us out of the recession, but no so much as to cause excess inflation, then “problem solved”.
I can think of some far more abstruse and interesting aspects of economics to discuss. Unfortunately it looks like the most productive use of my time I need to spend my time putting right basic, simple elementary mistakes made by so called professional economists.
As to the “abstruse and interesting” points, that would be pearls before swine, so I might as well not bother.
And finally, I’ve just noticed that while writing the above, Bill Mitchell put a post on line which also refers to the simple, elementary mistakes made by supposedly professional economists.


P.S. (21st June 2013): In similar vein (and shock horror) - Japanese finance minister realises that Japan can print Yen. 

P.S. (22nd June 2013): Comment after a post on Dean Baker’s site: “I actually hold an A.B. from Harvard. Rogoff, Reinhart, Mankiw, Feldstein, Ferguson et al. make me ashamed.”


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