Tuesday, February 5, 2013

A Modern Monetary Theorist in the Days Before the Roaring Argentinian Price Inflation

Paul Krugman is not the only one with egg on his face praising the pre- hyperinflation Argentinian economy.

MMT proponent L. Randall Wray wrote just this past October:
On the surface, the data from Argentina look awfully good—among the top performers in the world over the past decade. And she’s apparently done it without a run-up of either private sector or government sector debt. In other words, Argentineans have bucked the trend among developed countries, that saw (mostly) tepid growth fueled almost entirely by debt.
He then dissed reports of high inflation:
 As already discussed, the official numbers are around 10% but unofficial measures put it as high as 25%. People that I think are reasonably credible argue that the official number is too low, but the actual number is probably substantially below 25%.
Here's one of the reasons he and Krugman have to downplay the real extent of the inflation. He writes:
 More importantly, if prices are rising at a 25% pace that means real GDP is vastly overstated. Indeed, it must have been falling at a very rapid clip.

He's absolutely correct here, the "magnificent" GDP growth that he hails along with Krugman, never happened if the price inflation is as bad as it currently appears. The GDP growth was simply price inflation.

Then, he goes on to say that even if inflation is at 25%, it's no big deal. Get a load of this (my highlight):

 If inflation really is running at 25%, so be it. Does that make Argentina’s central bank the worst in the world? I don’t think so. 
I realize that people hate inflation. Economic studies actually find that the negative economic effects of moderate inflation are small—and by moderate I mean in the range of 10% to 20%; one famous study by orthodox economists even found only small effects up to an inflation rate of 40%.
Wray then proceeds to throw supply and demand out the window by claiming that price controls work:
 It is relatively easy to formulate a policy to bring down inflation (although implementing the policy will be more difficult). Despite what you hear all the time, wage and price controls work.

Got that? 40% inflation is no big deal and, by the way, if it is bothersome, don't blame the central bank, just slap on price controls.

Welcome to the world of MMT economics.

(ht David Burns)



  1. Wray has no conception of economic calculation problems or prices as information and their distortion by inflation. He has no conception of Cantillon effects or the first receivers of the new money robbing everyone else of purchasing power.

    Here's his brilliant analysis of the Austrians:

    Q: Philip: Austrians use a bait and switch operation—denying that what we have is capitalism and comparing it to some sort of ideal utopian capitalism.

    A: Agreed. That makes it easy to blame all of real world capitalism’s problems on its deviation from utopia. It is fundamentally an anti-scientific approach. Let’s analyze what we have and try to make it better. We cannot have utopia. We’re dealing with human society, after all.


    Of course, these are the same people who constantly shout that EVERYTHING CHANGED IN 1971 (for the better!).

    I would say that Wray is the No.1 or No.2 MMTer in academia. We should be able to take these cement-heads without much effort.

    1. MMTers accusing the Austrian school of being anti-scientific. Oh, that is rich.

      If only one of them could explain to me the SCIENTIFIC basis for things like "aggregate demand", "general price level stability", "deflation causing depressions", "counter cyclical policy", and all the other cockamamie baloney that they have repackaged from the Keynesians.

    2. Read that little Q&A. Those two clowns don't actually understand what a "bait and switch" is. Philip rightly implies we don't think money printing, bailouts, and debt monetization is capitalistic, and then the other guy replies, "that makes it easy to blame all of real world capitalism's problems on its deviation...". Duh. You mean massive amounts of State intervention into the economy isn't capitalistic? So by their very own proclamation it's actually not a bait and switch. I'm not sure if they could be any worse at logic if they actually sat down together and tried.

    3. "That makes it easy to blame all of real world capitalism’s problems on its deviation from utopia. It is fundamentally an anti-scientific approach. Let’s analyze what we have and try to make it better. We cannot have utopia."

      >> These people have gazed too long into the abyss. It is they who are the utopia seekers. Who arrogantly believe that by tinkering with prices, interest rates, capital flows, reserves, etc., they can guide their monetary thermometer up or down manipulating individual human behavior into some preconceived desirable macroeconomic outcome. It's preposterous on its face. Just once, I want these guys to admit that it's conceivable, if not inevitable, that by manipulating market prices and distorting risk, it's they who cause these boom/bust mass misfortunes on everyone. These monetary Keynesians have had to tip the world upside down to claim the high ground.

  2. I'm an economics undergrad at UMKC where Wray teaches. MMT has quite a few proponents there, as well as Institutional, Marxist, post-Keynsians etc.

    It's not all bad though. Most of the coursework is standard neoclassical training, but I am taking a special topics course on Austrian Economics. It's an individual class and I've been happy with it so far. We've particularly hit on Kirzner's view of entrepreneurship.

    The program overall has been enjoyable; no interaction thus far with MMT'ers, myself.

  3. The good thing about this post on MMT is that they already concede their positions by correctly pointing out reality. They said, "people hate inflation". Yep. And then they claimed inflation brings with it negative economic effects. Yep. So even they admit that people hate inflation because it brings negative economic effects. Case closed. We don't need to refute anything because they've already conceded that their ideas bring misery to everyone.

    To be honest it's kind of refreshing that these guys openly admit what their policies will ultimately lead to, and that even they know it won't be good for people and it'll be disliked by pretty much everyone.

  4. Search for "1971" on Mike Norman's Magic Money Tree site and you get:

    "On August 15, 1971: Great Day in U.S. History"


    But you really can't differentiate pre-1971 from post-1971 nor can you differentiate pre-1913 from post-1913 because it's all "capitalism" and we all know "capitalism" all the same. Right?