Tag Archives: Budget constraint

“Moderne monetäre Theorie: Ein makroökonomisches Perpetuum mobile (The Macroeconomic Perpetuum Mobile),” NZZ, 2019

NZZ, April 25, 2019. PDF.

  • Modern monetary theory (MMT) is neither a theory, nor modern, nor exclusively monetary.
  • I discuss fallacies related to MMT.
  • Dynamic inefficiency requires permanent, not transitory, r<g.
  • For now, policy makers should rely on common sense rather than MMT.

“Die SNB schuldet den Pensionskassen nichts (Nothing the SNB Owes to Pension Funds),” NZZ, 2019

NZZ, March 13, 2019. PDF. Updated: Ökonomenstimme, March 22, 2019. HTML.

  • Long-term real interest rates do not reflect monetary policy.
  • In the recent past, monetary policy has contributed to lower fixed-income interest rates but also to higher returns on other asset classes.
  • Complaining about low rates but not adjusting one’s portfolio makes little sense; there is no “financial repression.”
  • If politicians want to subsidize pension funds they should contribute funds from the government budget rather than asking the central bank to contribute.
  • Larger and earlier SNB dividend payouts to the government may not be in the government’s interest.

Economics: The Core

The Economist reviews core ideas in economics. The introductory article to a new series points out that

economists’ fundamental mission is not to forecast recessions but to explain how the world works.

It argues that economists have delivered and it discusses six exemplary areas of economic research:

  • Nash equilibrium (article, August 20);
  • Mundell-Fleming trilemma (article, August 27);
  • Minsky financial instability (article, July 30);
  • Stolper-Samuelson trade effects on wages (article, August 6);
  • Keynes fiscal multiplier (article, August 13); and
  • Akerlof et al information asymmetries (article, July 23).

Refreshingly, the article argues that

[t]hese breakthroughs are adverts not just for the value of economics, but also for three other things: theory, maths and outsiders.

I agree. But the value of economics also derives from more elementary insights, related to, for example,

  • budget and resource constraints;
  • the information content of prices;
  • public choice; or
  • the link between monetary aggregates and the general price level.

Today, these latter insights might appear even more trivial than those picked by The Economist. But they are central, and emphasizing them might lead to different policy conclusions than the common focus on economic frictions and aggregate demand.