Sam Levey
@SamHLevey
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Assistant Professor at Illinois College. MMT and heterodox macro & political economy. Mobilization economics. Mastodon: @samhlevey @econtwitter .net
Kansas City
Joined September 2019
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I've been working on this on and off for over a year, but it's finally published! When I was learning linear algebra, I found the transpose of a matrix to be a very mysterious concept. This video is my attempt to demystify that a bit. I hope you enjoy :)
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When people do Econ 101 against price controls they often invoke the graph on the left, but the reality is that you need price controls for the situation on the right. When you have a necessary good (inelastic demand) and constrained supply, do price controls and rationing.
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Since this topic is in the air, here's an image from a video I'm working on about causal inference. You should *not* control for these types of variables:
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This short piece by John Kenneth Galbraith from 1941 on the inflation problem is a must-read for today, as it bears so much resemblance to today's situation. A thread...
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I like math as much as the next physics major but while math in economics *can* be used to "discipline your thinking" or whatevs, it also can be used to put a veneer of respectability in front of your bullshit, which might actually be harder to do if the story had to be in words!
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For luxury goods, who-gets-what CAN be based on who's willing to pony up the most. So for supply-constrained luxury goods, let prices rise, by all means...and then tax the windfall profits away. But a civilized society doesn't let this happen to essentials like food and energy.
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Supply is constrained so higher prices don't elicit more output; you would get higher prices only because sellers are exploiting their position of privilege to extract rents from buyers. For necessary goods, distribution shouldn't be based on who can pony up the most.
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Ever wonder how mainstream economics squares a “subjective theory of value” with objective statements like “their time isn’t worth $15”?
I provide research opportunities at my lab for undergrads as a way to expose them to the research process, to facilitate the pipeline into academia. There are other more efficient, cheaper ways I could get the work done. The reality is their time is not (yet) worth $15/hour.
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Paper thread! My new Levy Institute WP is entitled "Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment." In it I build mathematical models to illustrate several MMT concepts. /1
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So yeah, I defended my dissertation 😅🎓
Scott Fullwiler, Sam Levey, Rafed Al-Huq, Mathew Forstater (l-r), celebrating Sam and Rafed receiving their
@umkcecon
interdisciplinary PhDs. Great people, excellent research! Dr. Levey: “Three Essays in Mobilization Theory”; Dr. Al-Huq: “Dynamics of Economic Corruption.”
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How can an ECONOMIST say this with a straight face?
Instead of teaching them to think critically about what goes on in the world, we've handed college students in the U.S. a simplistic one-size-fits-all model to think about the world, and the model is misfiring badly when tested out of sample.
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The earnings call bit makes this so funny as a classic economist retreat to anti-empiricism and devaluation of qualitative data. Businesses here are **directly telling us what they are doing** and still some economists be like “no you’re not.”
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This graph from Michaillat and Saez () is quite damning. There were only 5 short periods since 1930 that can reasonably be called "full employment," mostly during wars.
Any model that assumes the economy tends toward full employment is basically invalid.
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My paper in which I build mathematical models of several MMT concepts is out as a Levy Institute working paper!
Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment.
(I’ll do a long thread on it later when I get time 😅)
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** No, MMT is not "the new supply-side economics."
The message below by Professor Ricardo Reis (
@R2Rsquared
) is receiving a lot of attention but... it is not a good thread.
I'm an MMTer, so let me offer some corrections for the record. /1
** MMT is the new supply-side economics
Forty years ago, some economists started from an uncontroversial (but important) result: a lower tax rate raises the tax base, so revenues won't fall as much. But then they ran with it, predicting tax rate cuts could raise revenues.
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My first peer-reviewed paper is finally out! "Modern Money and the War Treasury" is now published in the Journal of Economic Issues.
I did a thread about the working paper version here:
But let me add one more thing (which isn't even in the paper!)...
New Working Paper out with the Global Institute for Sustainable Prosperity!
Who once called taxation an "essential anti-inflationary weapon"? Was it one of those Modern Monetary Theory economists? Or was it...the US Government in 1942?
(A thread)
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The Platinum Coin really is pretty clearly the best option here, and my impression is that most of its opponents are basically just scared of the “where does money come from” question.
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Ok a few rebuttals to comments.
1) "price controls create shortages."
Not generally. Actually the shortage happens *first*, then either the market responds by raising prices, or we do controls. We should do controls whenever it's better than the alternative, which is sometimes.
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Some people desperately want to believe that they are not part of a society, or are not dependent on anybody else. They then decry their social obligations as tyranny while conveniently overlooking all the benefits they receive from society. This is the height of childishness.
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Menu costs don't cause sticky prices. Sticky prices cause menu costs.
If firms already don't intend to change prices very often, they can post them in a way that's costly to change. If they did intend to change them often, they'd do what financial markets and gas stations do.
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Here's a chance to clear up a basic misunderstanding about MMT.
Does MMT say that taxes are the go-to tool to fight inflation?
No it does not. It's a case of people hearing what they want to hear and not what MMTers are saying...🧵
I'm old enough to remember when MMTers said they would just hike taxes whenever inflation became a problem.
Now inflation is raging and the same crowd won’t even endorse requiring the educated upper class to pay back state subsidized loans.
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In my experience, a lot of the debates around MMT ultimately boil down to differing views on the following 3 questions:
1) the substitutability of money and Treasury bonds
2) the determinants and effects of interest rates
3) whether the economy tends toward full employment 🧵
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A new blog post! I took my mathematical model of MMT's theory of the price level, and built it in
@ProfSteveKeen
's Minsky modeling software. Here are the results.
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@JustinWolfers
@jimtankersley
Most people’s personal income do not automatically grow at the average nominal income growth rate. Often, people see their incomes lagging, then have to take some (generally extremely unpleasant) action to make up lost ground.
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I defended my dissertation proposal ☺️
Many thanks to my committee, for great feedback and support!
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The Fed cannot set the inflation rate.
The Fed cannot set the price level.
The Fed cannot set the quantity of money.
The Fed cannot set the unemployment rate.
The Fed cannot set NGDP.
They set interest rates while vaguely hoping to influence other variables. It doesn’t work well
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I made a few diagrams representing some Modern Monetary Theory concepts. Here they are, explained in more detail below...
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This is your periodic reminder that “the natural rate of interest” is fake. So is the “natural rate of unemployment.”
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How anybody can teach “crowding out” with a straight face is beyond me.
10-year U.S. Treasury bond yields vs. U.S. government debt/GDP ratios
The higher the U.S. government debt/GDP ratio gets the lower the 10-yield U.S. Treasury bond yield is.
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All the takes about “the economic damage is worse than the virus” ignore that 100% of any long-term economic damage is avoidable by better economic policy.
“The economy” isn’t something god hands us, outside of our control. We build it, every day, by the policy choices we make.
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@RadicalAdem
@icecube
This is a good question with an unpleasant answer: we absolutely could provide for these people (particularly by creating good-paying jobs for them), but we're choosing not to.
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Japan has monetized the equivalent of the entire US national debt. We were promised this would cause hyperinflation
…but it didn’t happen.
Which is more plausible: that it *did* happen but was perfectly cancelled out a “hyperdeflation”…or that monetizing doesn’t do anything?
@StephanieKelton
A country with persistent current account surplus.
Even then, Japan's fiscal deficits were inflationary too. Their monetized deficits offset the private sector deleveraging which would have been deflationary, resulting instead in low inflation rather than negative inflation.
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Why does macroeconomics jump to believe one completely absurd thing after another, generally acknowledged to be mistakes in retrospect, yet also steadfastly refuse to consider heterodox points of view like MMT and Post-Keynesian theory?
By the mid-80s, then, the Lucas model of the business cycle had intellectually imploded. Unfortunately, by then many macroeconomists had invested all their intellectual capital in this failed project, and refused to give up 9/
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MMT says that, because the currency is a monopoly, the price level is necessarily a function of prices paid by government when it spends or lends.
Just for fun, I made a toy model that demonstrates this claim.
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This kind of nonsense is why the Left needs MMT.
If you believe that capitalists finance the government, then you need capitalists to stay in control!
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The top tax rate was 94% during WW2. This wasn’t for “economic” reasons, but because average citizens threatened not to cooperate with the war effort if the wealthy reaped huge profits from citizens’ mass suffering.
We may see this soon with the pandemic response.
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Educational opportunity! What do central banks do?
- The CB is a bank for the government.
- CB is a bank for private banks.
- CB serves as “lender of last resort,” fending off financial crises by lending when nobody else can.
- CB sets monetary policy, primarily interest rates.
BREAKING: 🇦🇷 Argentina President-elect Javier Milei confirms he will shut down the Central Bank
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I really cannot bring myself to teach introductory students that marginal costs rise, given evidence like this.
"Law" of diminishing returns? Because I'm teaching it later this semester, I just re-read Blinder et al's "Asking About Prices," where they interviewed executives about their costs and pricing policies. Only 11% of executives said their own firm faces increasing marginal costs!
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Very nice slide from
@IsabellaMWeber
on the process of inflation. She says we should think of conflict as *resulting* from an episode of inflation, rather than as the direct source of the episode.
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Unlike in supply/demand diagram models, real-world firms care about PR and maintaining image relationships with customers. That means they generally need a reason/excuse to raise prices, they don't immediately do it just because they can. Inflation provides a good excuse. 1/2
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While at the
#ASSA24
conference I went to a presentation on national debt sustainability. Now, mainstream econs tell me that they've improved their understanding of public debt, and that "MMT has nothing new," but what I saw, pictured below, was just the same old nonsense! 🧵
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Kinda crazy to say “**if** Ricardian equivalence fails and output is demand-determined,” as if these weren’t two indisputable facts about the world.
If Ricardian equivalence fails and output is demand-determined, then fiscal deficits can finance themselves through a mix of output boom and higher inflation, from George-Marios Angeletos, Chen Lian, and
@ChristianKWolf
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L. Randall Wray describing how paper money worked in the early American colonies. “What did they do with their tax revenue? They burned it.”
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Finally, the short-run does matter. There are other policies besides just ridiculously-high prices that can spur investment, and meanwhile keeping people alive and warm and such is actually good.
Any discussion about price controls needs to weigh the benefits against the costs,
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a big problem! People don't live in a vacuum where prices are the only way they encounter the world.
Second, *high* prices might help with calling forth investment, but it does not follow that *higher* prices *always* calls forth *more* investment. Returns need only be so high.
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If you think of the national debt as an interest-bearing form of money, then it becomes immediately pretty obvious why most of this is wrong.
Slides from class today on the costs and benefits for debt. Discuss!
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2 things I have seen in the last month:
1) this tweet saying MMT has been debunked.
2) conference at the Fed, where Fed people explain “new way to think about monetary policy,” that’s actually just straight MMT.
MMT is Schrödinger’s paradigm: simultaneously losing and winning.
Oh another nice byproduct of the pandemic inflation episode: MMT as a radical cultish (at one point potentially virulent) political ideology has been pretty thoroughly debunked and rejected. 😊
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Toying with the idea of making a series of video lectures this summer that would cover MMT more or less from top to bottom (at about the undergrad level). Would there be interest in that?
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@kausmickey
@JStein_WaPo
Work requirements are unjust and immoral if we don’t have a macroeconomic policy regime that guarantees full employment at all times. Which we don’t.
The labor market is a game of musical chairs. We shouldn’t be punishing the people left standing.
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On the investment point, finally finally, there really genuinely are some situations where more output will not be forthcoming for a long time, even at high prices - supply stays inelastic. War comes to mind. That's why we see price controls and rationing during major wars!
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My 2 cents on the current hubbub: mainstream economics has a framework that basically says "assume markets work well in every case until proven otherwise." The response of "but look at all the cases where we've proven otherwise!" doesn't really change that fact.
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Wild that some people seem simply incapable of accepting that ‘more debt’ does not necessarily cause ‘higher interest rates.’ It’s like, a devastating blow to some people’s worldview if that’s not true.
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How many crypto people learned today that the prices are never going to stabilize, and that whole theory of how they would was always garbage?
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From my dissertation defense last week. (I intend to post the dissertation publicly soon.)
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Markets don’t just “exist,” they are constituted. They can be constituted in ways that promote decentralized power or ways that don’t. The biggest problems of our time won’t be solved until we reconstitute these markets (and eliminate some that shouldn’t exist at all).
You have got to love how it is almost a requirement in the media to treat inequality as something produced by the market, which we need the government to rein in. It is completely heretical to point out the government rigs the market to generate inequality
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Furman believes that high unemployment is preferable now because otherwise inflation will force us to raise unemployment even higher in the future.
But what if we try addressing inflation in ways *besides* throwing people out of work? Please question the basic logic here.
Thinking out loud: I don’t fully believe this but worry my qualms reflect wishful thinking:
Monetary policy remains very asymmetric. The risk/consequence of undershooting the inflation target are low. The overshot risk/consequence is high. So policy should be much tighter.
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2) 'Higher prices may not work now, but they'll work over more time, as demand and supply become more elastic in the long-run.'
First, substitution can happen in response to rationed output, not just prices. It can also happen in response to, you know, everybody knowing there's
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A friend trying to get a bartender job last week was told that the bar interviewed EIGHTY (80!!!) people.
I don’t think the economy is anywhere near “overheating.”
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Please stop talking about increasing deposit insurance caps and talk instead about the government offering checking accounts to everybody. We don't need to subsidize private banking if we provide a public option instead!
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For a while there was a belief that if we get inflation to be low and steady, then unemployment will take care of itself.
MMT flips this on its head: if we eliminate unemployment with a Job Guarantee, that will help stabilize inflation too.
MMT - revolutionary like that.
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The puzzle completely goes away if you recognize that fiat currency is a transferable tax-credit.
It's worth noting that the paradox that an inconvertible, non-interest-bearing exchange medium should command value today despite the certain knowledge that it will eventually cease to be valuable, has long puzzled monetary economists.
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As an academic, how am I supposed to respond to something like this? Marc is just abandoning all principles of serious argument (eg. citing sources, charitable interpretation, quoting authorities rather than random reply guys), and just dunking because it draws an audience. 1/4
MMT: Deficits don’t matter
Also MMT: we never said deficits don’t matter, they can cause inflation - which tax increases can correct
Also MMT: we never said tax increase should fight inflation
Also MMT: inflation has nothing to do with fiscal or monetary policy
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Randy Wray: the mainstream thinks that inflation is mostly a demand-side problem while slow growth is a supply-side problem, but the reality is the opposite.
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Inflation driven by high demand for basic labor probably leads to higher real wages. Inflation driven by material bottlenecks probably doesn’t...but it’s also not driven by government spending being too high.
Either way, “high gov spending is hurting workers” doesn’t check out.
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Here’s a question: why doesn’t Kalecki’s “Political Aspects of Full Employment” get more airtime in mainstream macro?
They’ve just never heard of it? Or is there empirical evidence against it? Or it does and I just missed it? What’s the story here?
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For roughly the same amount of money that interest payments have increased, we could employ every single person who wants to work.
Federal government current expenditures: Interest payments – now more than $1,000 billion...
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@megormsby
Sorry, but the debt ceiling (something no other country has!) is a much bigger gimmick than coinage (something every government has done for thousands of years).
There's also nothing remotely inflationary about it, given that the budget is set by Congress regardless.
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Deep contradictions in the orthodoxy on display here. We should *not* use interest rates for financial stability but *should* use them for inflation/employment. Never mind that they are massively more effective at impacting financial stability than impacting inflation/employment.
The Fed already has a hard enough job using one tool (interest rates) to achieve two goals (inflation and employment). Adding a third goal makes it even harder, especially when the Fed has other tools to advance that goal.
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Rep
@AyannaPressley
is absolutely ON FIRE right now talking about a Federal Job Guarantee! A permanent program, a legal right to a job, doing neglected care work. Equity and systemic change, the Fed can’t achieve full employment by itself. Yes! 🔥🔥🔥
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Anyway, the point of this thread is to demonstrate what thinking seriously about inflation looks like. Notice that Galbraith doesn't say anything about raising interest rates - for the problems he described, raising rates would either do nothing or be counterproductive. /Fine
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I'm in the mood to argue about MMT, so come at me.
(Yes, I am trying to avoid grading.)
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To distract me from studying, here's a thread entitled "What Did War Bonds Actually Do - For the Layperson"
Tl;dr: the goal of war bonds is to get you to stop spending your money at the store. /1
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The Bank of England public museum rejects the Quantity Theory of Money.
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@drsparwaga
So you're admitting that the government controls the rate and that the debt isn't unsustainable...
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The response to the protests are demonstrating that the government can move VERY VERY QUICKLY when they really want to.
So, all those problems that they told you would take years to solve, those changes they said would take years to make?
The truth was they just didn't want to.
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The mainstream story is that the economy tends toward full employment but sometimes temporarily diverges from it in recessions.
The alternative story is that we live in what Kornai calls a "surplus economy": there is always excess capacity, and sometimes there's just more of it.
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I'm sorry but "the coin is unserious" is just the dumbest critique imaginable. A) None of this entire situation is in any way serious/rational. B) Coin seems to be required by current law. The law isn't serious?? C) Coinage is one of the oldest/most serious things that states do!
Good on both counts - the
#FourteenthAmendment
is sensible and unambiguous;
#MintTheCoin
is gimmicky and unserious; prioritizing payments much better than following the advice of
#MMT
radicals
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Kalecki's "Political Aspects of Full Employment" remains hugely important to making sense of the world.
My paper on (Kalecki's) Political Aspects of Full Employment: Eight Decades On in Review of Political Economy now available open access
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So, trying to rebut the "corporate greed theory of inflation" by drawing supply and demand graphs doesn't cut it. If you think real-world, it's not all that surprising that a sudden increase in inflation would provide PR cover to start exploiting market power harder. 2/2
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I wanted to do a more detailed thread on my paper draft that formalizes the Chartalist theory of the price level using individual optimization, and I'm thinking I better do it before Twitter implodes, so, here goes... 🧵
Paper is here:
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Dream scenario:
1) US mints a trillion dollar coin to skirt the debt limit
2) inflation subsequently falls as supply chain issues resolve themselves
3) this causes mass popular rethinking of “printing money causes inflation.”
Hey, we can dream, can’t we?
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Periodic shameless self-promotion: read my mathematical model of MMT’s theory of the price level!
Paper thread! My new Levy Institute WP is entitled "Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment." In it I build mathematical models to illustrate several MMT concepts. /1
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This for when you don’t know shit about fuck but still also somehow control huge levers of power in society.
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My paper on Monopoly Money gets a shoutout from L. Randall Wray at
#MMTSummerSchool22
(during a stimulating talk about value theory)!
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IMO "are people rational or not?" is basically a bad question.
1. Simple mathematical models of "rationality" are very wrong about what problems people actually face.
2. People take actions toward goals, but often are themselves mistaken about what their own goals are.
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Friedman saying imports are a benefit and exports are a cost.
A) Wow, I've never heard this before from Friedman
B) It's the same as what
@wbmosler
says on this.
C) However it does not follow that, as Friedman says, "the proper objective for a nation" is to maximize its...
You have it upside down Senator. Trade "deficits" are actually a gain from trade. Dependency on China specifically is another issue best addressed with more trade with other nations and better domestic policy, not with higher tariffs.
Milton Friedman explained it best.
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Some opponents of a Job Guarantee argue that the economy tends to full employment on its own, so we don't need one.
Response: if true, then it can't hurt! Institute a JG, then if nobody shows up looking for work, great! But then when we do need it, like recessions, it's there.
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I believe I heard Randy Wray once say something to the effect of “the mainstream sees unemployment driven by supply and inflation driven by demand, but in reality unemployment is driven by demand while inflation is driven by supply.”
Adieu Phillips curve. Amazing that all the discussion of inflation, especially in and around the Fed, centers on the labor market.
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Next, Galbraith challenges the distinction between bottlenecks and general inflation, a conversation we're still having today.
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Ok folks, at the risk of this one being very unpopular, I've got a new draft paper out. In it, I build a mathematical model of MMT's theory of the price level, but using the traditional tools of orthodox economics, namely individual optimization. 🧵
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Anyway, here's the link to the new version:
Also, much thanks to
@mattybram
, Scott Fullwiler,
@FadhelKaboub
and the folks at
@GISP_Tweets
, the nice people at JEI and the reviewers, and everyone else who helped make this paper happen! And happy new year!!
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Second, for those areas that are currently under bottleneck, Galbraith calls for specific price controls. With inelastic supply, higher prices don't induce more capacity, they just shift income unfairly to those sectors. Price controls prevent this and check inflation.
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Currently reading about macroeconomic policy in WW2, and a New Keynesian macro textbook. Really incredible how utterly disconnected they are. Like, not 1 word in the macro textbook feels like it's talking about the real world, and nothing prepares you for those real challenges.
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