I like Ann's point about banks not creating money with every loan. Banks need borrowers to borrow and that creates the money. And as was said the money creates demand. So, something like, banks and borrowers create money when every loan is made. Or, banks are the source of newly created money when borrowers are willing and able (i.e., qualified) to borrow.
Last comment: anyone coming later to this can email me if they want to abuse me. I'll just say you'd better _first_ read Chapter 28 of _Macroeconomics_ by Mitchell, Wray & Watts, and find if they get anything wrong in this chapter on the ISLM framework (I do not see where they do). They would support Steve Keen's evisceration of ISLM (and DSGE). You cannot use an equilibrium analysis (like ISLM) for a dynamical system, no physicist would do this unless they first establish what "equilibrium" means, so as in thermodynamics: the more off-equilibrium you are the more variables needed. If you push a gas in a box off equilibrium by driving heat in, you find only tracking millions of cells with (p,v,E,n) will do, a global (P,V,T) will not suffice. In Keen's Minsky models he does the dynamics for a monetary economy, this allows prices, labour, output, etc to change in time, so it's the proper analysis, and will always beat ISLM on parsimony testing. It is valid for Peter Bofinger to ask for a "simple" analysis for the classroom. But he needs to understand that's like a physicist teaching equilibrium thermodynamics, which can be approximated for a gas in many tame circumstances, in the Lab mainly, or a very simple heat engine (but only for input/output, not for internal dynamics of the engine). Physicists do not teach fluid dynamics in the classroom, they know it's too complicated. They teach the principles, and leave it to postgrad work to actually get dirty with the PDE solvers. Economists can do the same. But they'll need to attract students with the brains. One way to do that is to promote MMT, which teaches macroeconomics is really a spiritual topic, it's about helping real people in real need and eliminating (not just alleviating) poverty and the causes of poverty (unemployment mainly). Emphasising the morality should attract decent students, brilliant students get bored to tears with neoclassical and NK ISLM shyte. You cannot find real world instances of a ISLM scenarios though, you'd need to somehow convince a government to fix their money supply, but they cannot, it's not a laboratory: they have to feed starving people who get unemployed, so the government currency issue is not discretionary, there are two many automatic stabilisers in effect, and _by law!_ (For good reason, a lot of people like to think they live in a civilized society and do not like seeing people die in the streets.) If you need to teach simple concepts then, you have to start with basic monetary operations: show students how the law and the institutions actually work. It's fascinating stuff, a lot of anthropology, psychology and false paradigms to explore. This can whet the appetite for learning the dynamical system modelling, because now the bright students sees a moral purpose.
Let me make one comment on behalf of Steve - the metaphor is akin to Atomic energy. The atom (concept of delivering shared resources) can be harnessed for the delivery of amazing energy however you can also engineer an explosive device that will eliminate life as we know it. It is time for a paradigm shift!
In response to Peters comments about Keen’s model not showing Assets; neoclassical explanations fail to consider the value of Nature’s free gift of mineral resources, free biological resources and free solar energy. Primary producers ( farmers, foresters, fishers and miners) can only pay their monetary debts by extracting those free gifts from the environment and returning degraded materials (pollution) and waste energy (entropy) to the environment. In response to his claim that ISLM models better explain responses to the pandemic than Keen, I think pragmatic governments have accepted the concepts of Modern Monetary Theory ( that sovereign govt deficits do not constrain the private sector - quite the reverse ) but hold to the neoclassical mythology of loanable funds, public austerity and private extravagance by the wealthy, 1% elite. Peter needs to spend the time to follow up Steve’s reading suggestions and to try and understand his Minsky model concepts, especially Godley tables and the fundamental accounting equation.
Also ISLM is wrong from the start, assumes "loanable funds" and fixed exchange rates. Keen's model will also do better on parsimony testing, like AIC measures, just because it can get the sectoral balances exact (which in economics is like getting accurate conservation of energy, and ISLM cannot do that). Thing is though, since governments tend to respond "as if" they only know ISLM or DSGE (based on NK advice) the response is often in accord with ISLM/DSGE, since the CB's only have monetary policy tools, and the governments use fiscal tools badly (no stimulus cheques needed to go to doctors, lawyers, professors and bankers). Often acting as if ISLM is valid makes it look valid, but it'll break down badly over a longer term, or if governments stimulated their economy at the base only.
A relatively simple explanation? The concepts of QM-TIME Completeness are a kind of Virtual Work temporal superposition thermodynamical hyperfluid Vapourware. Professor Keen has a testable model. All the rest is Commentary.
Interesting. His points about the interrelation of worker income and creditor income parallel the observations of Helmut Creutz. I had wondered if there was any other analysis that agreed with it.
Also, I should say, the fundamental problem is economists have a moral deficit, not a government deficit. Krugman was, after all, half right: it should be all about people, when one is the monopoly currency issuer. You can always balance the economy for the people (full employment at decent wages with price stability). But you have to use the monetary operations to do so. It's wasted effort trying to legislate a pure endogenous money system to force people to work for shitty bosses, and force those bosses and the rentiers to spend all their surplus income (which is what is needed for stability in an endogenous money system).
I love love love Steve Keen, read and watched a lot of his stuff - but I really wish he wouldn't use 'patient' and 'impatient' as nominal variables for demographics because it uses ahistoric language; (i.e describing people existing in a vacuum) to describe groups of people that have been entirely defined by 'social' (and therefore entirely 'historical') functions. Using a word synonymous with 'lazy' to describe a group that is statistically linked with groups of people that have been described in the exact same way for centuries as an insult/scapegoat I think is a (I assume) minor unintentional oversight that could benefit from being adjusted
@23:00 did Ann miss the chance here to point out sovereign debt (in the sovereign's own currency, not a foreign currency q.v. Sri Lanka) is not the problem, private debt is the fragility, and increasing sovereign debt (in the form of cash and bank deposits) is what reduces private debt, dollar-for-dollar. So she was wrong to obsess about government debt. The obsession has to be where is the government spending injection going? Into non-productive asset speculation or into real green food and green housing production?
@1:06:00 not quite Ann. Sure, it is best to understand the monetary system[#] and the coupling to the real economy, energy and ecology, but the true paradigm change needed in economics is moral --- it is to understand we are dealing with life & death, not just ordinary differential equations (or in ecology PDE's). If you get the ethics right first, so support the lowest paid workers, the government budget balance is irrelevant for they are the monopoly issuer of the currency they accept for tax return. [#] Understanding is insufficient for a spiritual economics. Dick Cheney understood MMT perfectly well, he knew the Fed Gov deficit did not matter a dime, as long as he got his war. Dick Cheney was the inter-ocular test that Krugman was blind to ("hits you between the eyes" that MMT is correct, and can be used for evil.)
@37:00 Bofinger an idiot? Keynes never said "throw away supply-demand curves," he said they do not apply as a static equilibrium analysis, because the macroeconomy (not the microeconomics of one firm) are dynamic and unstable and subject to massive uncertainty, anxiety, and irrationality (even the autistic Austrian Schoolers agree at least on this). He is also wrong about inflation @33:20 --- inflation generated _from the base_ is healthy inflation, it does not reduce the lower _real wage,_ but does reduce purchasing power of _hoarded wealth,_ exactly as any progressive fair minded thinker would want. Firms with excess idle capacity also have a collectively massive ability to absorb a decent increase in base demand. What you do _not_ want to do is debt jubilee everyone with a single universal UBI, that would not be _real_ inflationary though, it would be nominal inflation (I think this is what Bofinger is confused about), it _would be_ a one-time currency re-gauging, and so would not improve the lowest real wage much. The problem with currency regauging is the lags and hysteresis, so it has to be done with care. Just typing an extra "000" onto public sector pay cheques is a psychological damage function! Stimulating more sustainable ("green" energy produced) supply is what permits a rising base wage without an inflation bias. For clues about how to do this Hickel's talks are better: ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-_fIrSZiFp64.html
Peter is unbearable at around 1:01:01 he completely ignores Steve’s explanation for his predictions about the 2007 financial crisis. He’s like a adult baby troll.
Hatte immer gedacht der Bofinger ist gar nicht so schlecht. Aber das Interview hat gezeigt was für ein Müll er erzählt. Das hat nichts mit Wissenschaft zu tun
