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Newswire
Public sector debt concerns throw new spotlight on post-Keynesian ‘heresies’Post-Keynesian economists do not get much policy input with the monetarist orthodoxy prevailing at most central banks these days, but the growing debate on public sector debt may gain them a new audience.One of the best-known post-Keynesians, Hyman Minsky, languished on the fringe of orthodox policymaking until the recent financial crisis brought renewed attention to his analysis of financial crises and asset bubbles. The Levy Economic Institute’s annual Minsky conference this week in New York is drawing some very mainstream speakers – starting with former Federal Reserve chairman Paul Volcker and including Fed governor Kevin Warsh and regional Fed presidents Thomas Hoenig, Sandra Pianalto, James Bullard and Richard Fisher – to discuss regulatory reform. One of the most combative economists in the post-Keynesian school is the Australian Bill Mitchell, a prolific blogger (bilbo.economicoutlook.net/blog), who has taken on the International Monetary Fund and the Bank for International Settlements in recent blogs on public sector debt. Mitchell derides a January IMF working paper – ‘The Outlook for Financing Japan’s Public Debt’ – for once again predicting a meltdown for Japan while conceding that for the moment, at least, their models do not seem to properly account for the combination of high public debt and low government bond yields. “My assessment is that they have been saying this for 20 years already,” Mitchell wrote in a blog this week. “In five more years, they will still be disappointed and still prophesising doom. They are pathetic!” Mitchell, who heads the Centre of Full Employment and Equity at the University of Newcastle in Australia, is a leading proponent of Modern Monetary Theory, which argues that old monetary theories do not apply to today’s fiat currencies, which are completely decoupled from gold or other real resource anchors. He was equally scathing about a recent BIS paper – ‘The Future of Public Debt’ – criticising the authors for being unsophisticated and unscientific in their analysis. “This document is being held out as a piece of research from the BIS, yet you read descriptive terminology such as ‘an explosion of public debt’ and ‘enormous future costs’ and ‘increasingly large amounts of public debt that authorities are going to issue to finance their extravagant ways’ as samples of hyperbole that riddle the document,” Mitchell writes. “You have to ask, what is an explosion of public debt? When does an increase in public debt explode?” The whole issue of ‘financing’ government expenditure simply does not exist in a world of fiat currencies, according to MMT – the governments just borrow back what they have net spent. As heretical as this may sound in mainstream economics, Mitchell and his cohorts argue that it fits the observable facts in Japan and elsewhere better than the reigning orthodoxy. Perhaps his day, as it did for Minsky, will come.
Issue Articles
Greece rescue package offers relief - but for how long?While the weekend agreement among European leaders to provide a €30bn ($41bn) backstop for Greece offered some temporary relief on Monday, markets turned mixed later in the week as lingering concerns reasserted themselves.
Public sector debt concerns throw new spotlight on post-Keynesian ‘heresies’Post-Keynesian economists do not get much policy input with the monetarist orthodoxy prevailing at most central banks these days, but the growing debate on public sector debt may gain them a new audience.
Polish bank president offers a final word of scepticism in euro debateSlawomir Skrzypek, the Polish central bank president killed in the tragic airplane crash over the weekend, was like President Lech Kaczynski, who also perished in the crash, a eurosceptic.
China move on renminbi now appears to be a question of timingChinese authorities appear to have reached a consensus to let the renminbi float gently upwards against the dollar, but now face the delicate issue of timing so as not to inflame Chinese public opinion by appearing to bow to foreign pressure.
Arab currency union remains elusive target despite talkArab bankers continue to talk up the idea of a regional currency union, even though their comments seem more wistful than realistic. |
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