Thursday, August 27, 2015

Mitchell, Colander, Keynes, and Lerner.


In a recent post, Prof. Bill Mitchell says that "the roots of MMT do not lie in Keynes", but in Abba Lerner, father of functional finance and the "Milton Friedman of the Left" (here), with contributions from Marx and MichaƂ Kalecki. Warren Mosler (another leading MMTer) comments: "Totally agree! Go Bill!".

Mitchell censures Keynes' idea that "the ordinary Budget should be balanced at all times. It is the capital Budget which should fluctuate with the demand for employment."

For Mitchell,
"This is the precursor to the modern concept of the 'golden rule', which limits fiscal deficits to the rate of public investment in productive capital.
"The 'golden rule' essentially means that over some defined economic cycle (from the peak of activity to the next peak) the government deficit should match its capital (infrastructure) spending".
Equivalently, over the economic cycle social spending must be balanced.

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You would have thought that Mitchell's readers, self-described as "progressives" and avowed anti-Austerians, would share his concern.

You would have been mistaken. The online Keynesian Martyrs' Brigade was quick to howl in outrage before such blasphemy. But that's old news and it's not what drives me to comment here.

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Amongst other things, Mitchell points to a humorous anecdote Lerner included in his 1961 article "The Burden of Debt" (The Review of Economics and Statistics, Vol. 43, No. 2, pp. 139-141):
"But look," the Rabbi's wife remonstrated, "When one party to the dispute presented their case to you, you said 'you are quite right' and then when the other party presented their case you again said 'you are quite right', surely they cannot both be right?" To which the Rabbi answered, "My dear, you are quite right!"
Mitchell also references Prof. David Colander's 1984 article "Was Keynes a Keynesian or a Lernerian?" (Journal of Economic Literature, Vol. 22, No. 4, pp. 1572-1575), which includes many interesting things, among them the same joke.

According to Colander, although "Lerner was the perfect prophet of Keynes", the relationship between "Allah" and his functional finance "Prophet" was troublesome: a credible witness relates an occasion when Keynes qualified Lerner's ideas as "humbug", scolding Lerner in Lincoln's words: "You cannot fool all of the people all of the time". (Update: for the relationship between MMT and functional finance: here)

For Colander, Keynes' attitude towards Lerner's functional finance was variable, and perhaps the adjective opportunistic would apply:
"As to the question of whether Keynes was a Lernerian, I suspect that depended on his mood, his reading of the political forces of the day, and the time he had to reflect upon the issues". 
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Personally, I have three reactions to this.

For one, I think it worthwhile to explore a little more the relationship between Keynes and Lerner (a brilliant if eccentric Bessarabian Jew of lower class, in every respect contrasting with the stereotypical denizen of Oxbridge).

My second reaction is that there is irony in an anti-Semite having so much in common with a character in a Rabbi joke. (As Prof. Colander may have discovered: subtlety is a bitch)

Finally, contrary to views dear to "progressives", experience shows that "progressive" is not synonymous with "smart". In fact, at times, the opposite seems a much better fit.

UPDATE:
09-09-2015. Oh my!
"Has Simon Wren-Lewis just become a Lernerian--a devotee of and an evangelist for MMT? It looks to me as though that is the case! Mirabile visu." (here)

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