Economists first underestimated inflation, then consumers and the labor market
nytimes.com
nytimes.com
I spent some time last year trying to understand money "once and for all", and it's astonishing how complicated it is, and how even the general educated public has no inkling whatsoever. (E.g. just basic understandings such as that money is created by banks not governments, and that banks create money out of thin air and not out of deposits.)
I gave up after a while because the information is just so non-accessible. My biggest takeaway is just how a modern educated person is relatively easily able to have a working knowledge of domestic politics and foreign affairs, of basic literary and artistic culture, of history and geography, and of basic math and sciences -- but trying to gain a basic working knowledge of how money actually works -- as opposed to the bunch of shockingly oversimplified and misleading models you learn in Econ 101 -- is shockingly difficult.
Which is not a great state of affairs in democracies, when things like inflation and interest rates can wind up affecting elections. It's relatively easy to judge whether you think Biden is doing the right or wrong thing on Ukraine or Israel; it's virtually impossible to judge what you think the central bank is doing under him.
Ultimately the best starting resource I found was "Where Does Money Come From?":
https://www.goodreads.com/book/show/19241338-where-does-mone...
If it was just created as needed in an uncontrolled fashion, then we’d end up with up consequences such as runaway inflation.
https://cepr.org/voxeu/columns/banks-do-not-create-money-out...
> This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise.
When a bank makes a loan of $10K to a person, it's not "transformed" out of anything. Saying it's "transformed out of the borrower's ability to repay" is sheer nonsense. It makes as much sense as saying it's transformed out of fairy dust.
It's not transformed out of anything. It's simply created, the way any IOU is.
But nobody is claiming the creation is money is unconstrained, on the other hand. Just because it's generated out of nothing doesn't mean there aren't rules around it if you want to keep your bank in business.
Money is created out of thin air. But in a controlled fashion (as in: regulated, central bank / government policy).
The central bank of USA "Federal Reserve" is not under the President. It is a private bank cartel which answers to Congress, which steadfastly refuses to do a real audit of this contractor. Federal Reserve has no government employees.
Beneficial to everyone except for those that print it, which is why is intentionally and needlessly over complex and laden with deceptive jargon.
Macro is hard. It’s really, really, really hard.
It’s _really easy_ to write down a moderately realistic macro model which you have absolutely no hope of ever solving numerically (an “extremely realistic model” would be even worse). That’s not going to do anyone any good.
It would be a totally empty exercise: “here’s something which I bet would be great but we’ll never know!”. It’s impossible to confront such models with data, which is absolutely the bread and butter of any macro paper.
It is still hard but somewhat less hard to write down a simplified model which you can solve and which can give you insights. By necessity you lose some realism in this exercise. There is no way around that. It’s not a lack of cleverness or imagination.
It is possible to confront such models with data to make the whole exercise empirical, which credible macro is and must be.
By necessity these insights might be useful or not depending on how much of the useful machinery of realism you dropped from your model to make it solvable.
If you personally want something “better”, you are welcome to try. I encourage you! If you show that your method works - that it involves plausible assumptions, can be solved, and can be made empirical - the macroeconomists of the world will beat a path to your door and gladly study your methods.
The exercise not a charade. There are currently no alternatives to mainstream empirical macro bc all of the purported alternatives are (for lack of a better word) complete BS (example: MMT).
I don't think that's the claim you're arguing against either. Rather, the argument seems to be that there is misplaced confidence in macroeconomic models.
i.e. the people displeased by them would rather hear "I don't know" much more often from the modelers than they currently do.
But I think any macro scholar would tell you quite honestly where they think the limits of their models are. It’s like any other scientific endeavor: “this paper on Topic X is our best understanding right now but it’s subject to revisions.”
Similar example from outside macro: there are not many finance professors who will make large bets on the prices of specific assets on the basis of their models, including models in which they have high confidence as being on the current research frontier. That certainly doesn’t mean they are idiots or that they aren’t trying or whatever. It just means it’s really hard.
Imagine a physical science, but make it harder bc you generally cannot do controlled macro experiments (sometimes there are natural experiments if you are very lucky) you can certainly never repeat them AND when your experimental subjects discover that you are trying to predict or understand their behavior they might change it on purpose bc they don’t want to be understood or predicted!
In several ways it’s a lot harder than physics! Murray gell-man said something to that effect once. Something like “imagine how hard physics would be if electrons could think.”
How is MMT any more bullshit than the mainstream that fails constantly?
Helpful explanations are another.
(Philosophy of science has moved on since Popper!)
MMT is bullshit. Total and complete bullshit. That’s a bigger topic than I have time or space for. You can’t even get those clowns to commit to anything their theory implies at all! Every time an obvious objection is raised they say “oh well that’s not what we mean!” Yeah ok so tell us what you DO mean.
Sorry but MMT is extremely frustrating. It’s not even playing the same game as normal macro. It as as much a “competitor” to standard macro as astrology is to astronomy. Like astrology, it has essentially nothing to do with reality.
If you want to learn more, you are spoiled for choice. There are lots of places to look. Here’s a random list from the top of my head right now.
Ljungqvist and Sargent’s Recursive Macroeconomic Theory is a standard grad level text taught nearly everywhere. Has been for probably 20 years.
Stokey, Lucas and Prescott is another, more math methods focused.
DeJong and Dave is a macro empirics book.
Jianjun Miao’s book is another solid option.
Stachurski focuses on computational methods.
Acemoglu has a book on modern growth theory.
McCandless “the abcs of rbcs” is IMO underappreciated.
Beyond this you’ll need chapters from various volumes of the Handbook of Macro and related texts. There’s a long one by Fernandez-villaverde and co-authors about modern DSGE models. That’s available for free on his website I think.
It’s a huge literature. If you are serious about it, enjoy and good luck!
In Australia the rates are variable or if fixed only for a couple of years, so interest rates bite consumers harder. Yet the construction industry is still flat out.
Looks about right: https://www.statista.com/statistics/269959/employment-in-the...
Could someone post up the population against the unemployed? I'd believe the 1/3 of today, is probably a bit high, but not crazy.
But how could anybody could have thought that the economy would tank, once we all got out from the Covid shutdown, plus the fact that the Biden stimulus bills just pumped $3 trillion into areas of the economy (like creating Solar Farms or building Fabs) which would immediately start creating jobs?
The economy tanked because they started raising interest rates.. That was certainly an expected consequence to some degree
What was less expected was for inflation to remain high at the same time the economy was tanking. It's already understood that people spend less in low-inflation environments
I don't agree.
The economy is underperforming compared to pre-covid and it's due to inflation. Raising interest rates is an attempt to stop the inflation. And while higher rates don't seem to actually be helping, they aren't the cause of the slowing economy.