Nakedkeynesianism ha appena pubblicato la prima parte della mia risposta a Wray, e a seguire inserirà la seconda. Certamente degli amici italiani le tradurranno. Buona lettura. La risposta di Wray è qui
http://www.economonitor.com/lrwray/2012/08/29/minsky-and-mmt-in-the-news/.
Utile perché contrappone due scuole: Kaldor-Thirlwall per i quali il
vincolo della bilancia dei pagamenti è l'ostacolo principale alla
crescita, l'altra (l'MMT) secondo cui con una moneta sovrana, oplà, il
problema scompare.
A reply to Wray -
Part 1
“The fact that individual
countries no longer have their own currencies and central banks will put new
constraints on their ability to run independent fiscal policies. … But more disturbing still is the notion that with a common
currency the ‘balance or payments problem’ is eliminated and therefore that
individual countries are relieved of the need to pay for their imports with
exports. Quite the reverse: the existence or a common currency makes a
country more directly dependent on its ability to sell exports and import
substitutes than it was before…”. Godley
1991
There are two aspects of the discussion that has taken
place in the last weeks (here,
here,
here,
here).
The first mainly concerns my
first post and regards whether monetary sovereignty is a condition both
necessary and sufficient for any country to pursue development and full
employment policies; the second concerns the Eurozone (EZ) crisis and was the
subject of my
second post. Wray mainly focuses on the second issue, and I will do the
same. In part 1 of my reply I will, however, briefly dwell on the first aspect
that is anyway preliminary and which will lead us to touch upon the EZ troubles
anyway. The two questions we deal with in part 1 will, respectively, be: are
balance of payments (BoP) preoccupations irrelevant for countries endowed with
full monetary sovereignty? Can a currency union suffer of internal BoP
troubles? Part 2 will then be
devoted to Wray’s explanation(s) of the EZ crisis.
1. Born in the US
The main argument of my first post was that monetary
sovereignty, although a necessary condition for development and full employment
policies, is not the magic wand to solve the foreign constraint to those
policies. This constraint can be summarised as the necessity for peripheral
countries – a set that include from developing countries to highly developed
countries like France or Italy – to acquire enough international liquidity to finance
the amount of imports generated by a satisfactory level of growth (a useful
critical discussion of the theory
of the balance-of-payments-constrained growth as presented by Thirlwall - and
inspired by Kaldor - is in Palumbo (2012)). Unless a country issues an
internationally accepted currency, no monetary sovereignty would automatically
allow fiscal policy to sustain domestic demand in peripheral countries without
risking the vicious circle of a falling foreign exchange rate and high
inflation. When Mitterand took power in 1981 with strong Keynesian ideas, few
month were enough to change his mind – that is to realise that without the
German cooperation, that was not there, no expansion in a single country was
possible (unless you are ready to adopt more radical measures like import
restrictions that, indeed, were in those years proposed by Godley). And that
was France!
This is not to say that full monetary sovereignty is not relevant, quite the
opposite, in the first place in order to pursue a competitive exchange rate and
in order to release more space to policies in support of domestic demand
consistently with current account (CA) equilibrium. Unfortunately, at least
until the late 1990s, peripheral countries have traditionally tried the
shortcut of stabilising the nominal exchange rate and financial liberalisations
in order to attract foreign capital inflows. In a meaningful sense the poor
experience of a number of peripheral countries in the European Monetary Union (EMU)
– including Spain, Ireland and Portugal - has been similar and is
described on similar lines by Roberto Frenkel
(2012), Cesaratto (2012a),
Bibow (2012) and
many others. We shall come back on this.
From the
ensuing debate on blogs, FB etc, it seems that my position has convinced a
number of people, likely opening the eyes to some.[1] This
was very important for my country in which it is very dangerous that too simple
formulas enter into the political debate, already suffering from the mainstream
vulgarities also influential on the left (see Cesaratto
and Pivetti), and from “Berlusconism”. Of course, “Modern Monetary Theory” (MMT)
as such has nothing to do with this.[2] I have
also been careful to isolate the important messages that come from it, e.g.
that a country with full monetary sovereignty cannot default on its sovereign
debt if denominated in its own currency. This is important and refreshing, but
we cannot stop there.
MMTs
recognise of course that CA imbalances can be a source of troubles, but are
likely not convinced. With which arguments? Let us quote in this regard a
revealing passage by Wray:
“So, yes, the US
(and other developed nations to varying degrees) is special, but all is not
hopeless for the nations that are “less special”. To the extent that the
domestic population must pay taxes in the government’s currency, the government
will be able to spend its own currency into circulation. And where the foreign
demand for domestic currency assets is limited, there still is the possibility
of nongovernment borrowing in foreign currency to promote economic development
that will increase the ability to export.
There is also the possibility of
international aid in the form of foreign currency. Many developing nations also
receive foreign currency through remittances (workers in foreign countries
sending foreign currency home). And, finally, foreign direct investment [FDI]
provides an additional source of foreign currency.”
So Wray recognise the particularity of the U.S. and of some other developed countries that,
as Australia,
have enormous endowments of natural resources and stable institutions. What the
normal countries might do is then to appeal to official aid, to rely on
remittances or on FDI,[3]
or finally … to liberalise finance and commit to a stable nominal exchange rate
in the attempt to attract foreign capital (what is implied by Wray’s suggestion
of “nongovernment borrowing in foreign currency”). A similar position expressed
by Bill Mitchell is quoted by blogger “Lord
Keynes” (who has words of appreciation for my posts, thanks!) as a possible
MMT reply to my view. What Mitchell says is that we should have a new and
progressive IMF that alleviates the foreign constraint. But we have not it and
we shall not have it, even admitting that it would be sufficiently powerful to
solve the problems of big countries.[4]
Well, anybody can judge the
frailty of these replies.[5] So we
remain with a single result: a sovereign central bank is a necessary, essential
step, but is not the solution to any problem in all countries.[6]
2. Born in the EU
Of course,
the renunciation to full monetary sovereignty is at the bottom of the EZ
crisis, but as I argued in my posts, in the first place from the “external”
point of view of the ensuing loss of competitiveness for peripheral countries
and not-so-peripheral countries like Italy (we shall see in the second part that Wray is close to recognise this in his reference to Kregel; monetary
unification and financial liberalisation
created further troubles on which we shall return in the second part). Wray
tends, however, to deny that the origin of the EZ crisis is mainly in the
foreign imbalances.
His main argument is that had the EZ been a currency
area like the US,
it could not have balance of payment crisis. This is so because in the US “we use fiscal
policy [that is fiscal transfers] to try to overcome the negative effects on
standards of living across states due to different multipliers and other
factors related to these current account flows.” (Wray here). So the conclusion is that the EZ
crisis “it is not a simple current account story. It is an MMT story about the
constraints imposed due to the setup of the EMU, which separated fiscal policy
from the currency.” Consider also (Wray here):
“We went on to examine the claim that the Euro crisis is a simple BoP
problem. That, too, is fallacious. If the EMU had been designed properly, it
would not matter whether some member nations ran current account deficits—much
as many US
states run current account deficits.” So the problem is that the EZ is not the US, since if it
were, no BoP crisis would have occurred! It is as if one warns not to drive a
car with three wheels and somebody else replies: don’t worry, just assume you
have four. Warren Mosler’s (implicit) reply
to my posts admits it: the CA imbalances are a problem that a sovereign central
bank cannot solve and one solution is for the EU to have fiscal transfers of
the size of the US
and nobody would talk anymore of the EU imbalances. Well, but we have not this Europe
and we shall never have it (I clearly myself wrote, as “Lord
Keynes” correctly recalls, that the EZ could
be a perfect MMT country).
To sum up, Wray’s
reasoning is the following: the monetary unification might well have created CA
problems (see in Part 2 of this
post his reference to Kregel). Transfers from a substantial federal European
budget backed by a genuine European central bank (CB) could compensate those
imbalances without much pain for the richest local states but as a component of
full employment policies.[7]
We may then deduce from this that since Europe
has not this framework, then it suffers from a CA crisis (although a specific
one, as Frenkel
or myself have pointed out, we shall return on this). Wray, however, infers
that since the EZ could have avoided the crisis, had it the right framework,
then it is wrong to talk of a CA crisis. This sounds rather illogical, doesn’t?[8]
However, once the argument is presented in an ordered way – a wrong
institutional design of a non-OCA precisely produces a (specific) BoP crisis –
the distance between Wray and me may disappear (see Godley
1991 and Kregel).
Notably, the origins of this “wrong institutional design” are not in the
ignorance of the political designers. The same inventor of the OCA, the
conservative economists Robert
Mundell, has recently pointed out that the Euro has not been a failure as
long as the ensuing disasters are leading to the destruction of trade unions
and the social state, but I suppose this is also an area of broad agreement.
[2] MMTs should, however, detach themselves from the open support to the
bad-mannered conduct of the presumed guru (a journalist) of the Italian MMTs.
This is irrelevant for me and the colleagues of mine victims of various
vulgarities – we are appreciated by the international (heterodox) scientific
community and well-known by the serious Italian progressive forces, so we do
not take care of this, really –, but not
for the reputation of the academic institutions some MMTs are attached to. The
Italian contribution to the heterodox tradition has been and still is second to
no other country, so one would expect that foreign economists with little
knowledge of the Italian situation to enter in the Italian debate seeking in
the first place to be in touch with their local colleagues, e.g. here.
To do otherwise would sound a wasp-neocolonial or an American Evangelic mission
to educate less gifted people, a mission fortunately confined to political (let
alone cultural) irrelevance. Things have changed in the meanwhile. Stephanie Kelton has showed great understanding for us, and I believe that her feeling is shared also by other MMTs. We are thinking about having an event together in Rome during her visit to Italy (with Auerbach and Mosler). Even if we shall not be able to organize it, the very fact that we tried is very encouraging.
[3] In an old paper, that I quote in Cesaratto
(2012), Kregel warns that FDI is a dangerous form of foreign debt.
[4] I found particularly timely the reference
by Ramanan,
in the discussion of one of my posts, to the Mexican case of 2008 that well
illustrates a typical case of a country with full sovereign monetary that has
to recur to the IMF and accept its conditionality to avoid an exchange rate
crisis. He rejects the thesis, that "with
floating rate currency there are always takers [of the currency] at some price”
since eventually it “would become extremely profitable for some to buy stuff
from Mexico."
To this Ramanan retorts that if “that were the case there would have been no
need for Mexico
to have gone to the IMF. Now you can start arguing that the central bank didn't
use this huge line of credit offered but it’s the availability of this line of
credit which gave confidence to the currency markets. In this case the IMF
helped but it is not bound to rescue every time. And whenever such events
happen, domestic demand has to give in to stabilize the external debt. You
can't simply say that there is a price and the markets clear and this is the
end of the story. A fall in the currency can stabilize temporarily but this is
in expectation of something happening such as an intervention. Now, if the
central bank doesn't react to this, it could have created a further outflow of
funds depreciating the currency further. Also banks - most importantly - have
liabilities in foreign currency and an outflow can further increase this with
depreciation leading to banks ending up in trouble rolling over their
liabilities. It is for this reason as well that Mexico used the Fed's swap lines.
In other circumstances, there is sale of reserve assets, incurring of
liabilities of the government in foreign currency etc to help the currency
markets function. If what you think is true there would have been no need for Mexico
to have gone to the IMF at all. Unfortunately that is pure fantasy stuff.
There's a huge literature on how the growth of nations is explained by the
balance of payments constraint and its funny how ‘modern monetary theory’
suddenly appears as Magic Pudding Economics!” Italy,
a leading industrialised country, in a similar situation had to recur in 1975
to an official German loan (that the social-democrat Chancellor Schmidt
accorded using nasty expressions about Italy)
[5] I wish
to be conciliatory and avoid sarcasms in this note, but these replies remind me
the sentence that Rousseau attributed to Marie Antoinette: « Enfin je me rappelai le
pis-aller d’une grande princesse à qui l’on disait que les paysans n’avaient
pas de pain, et qui répondit : Qu’ils mangent de la brioch » . Unfortunately,
like Marie Antoniette’s brioches, neither conspicuous official aid, nor a
progressive IMF, nor democratic FDI that distribute or reinvest profits in the
host country, nor successful currency board are there to help.
[6] The non generality of the MMT’s view has
been acknowledged by “Lord Keynes”: “MMT would work very well for (1) the US,
(2) those nations with strong trade surpluses (say, Germany and Japan), (3)
those nations that seem to run near perpetual current account deficits but
attract a lot of foreign capital (say, Australia), and (4) even the Eurozone,
if it were suitably reformed with a union-wide fiscal policy, would be able to
achieve full employment via MMT-style policies. In short, for most of the Western
world: it certainly makes sense, and can be regarded as just a more radical
form of full employment Keynesian economics. That is why Post Keynesians, by
and large, are reasonably receptive to it.
replied that "for most Western nations" is
inexact: “Most Western includes Spain
as well which obviously has a constraint. You guys will always make overkills
to prove a wrong point.” Interestingly Dan Kervick
added: “On neo-chartalist principles, the scope of a county's ability to
generate demand for its currency would be determined by the scope of its power
to tax. If the Duchy of Grand Fenwick can successfully impose and collect a tax
on its people payable in Fennies, then it can successfully create demand inside
its country and among its own people for Fennies. That doesn't mean it can
create demand for Fennies in Indonesia
simply by imposing the tax on Grand Fenwickians”. And “Bruce said”: “MMT is not a magic pill that can convert a country
that is deficient in vital scientific and business skills into a wealthy
nation.” (I do not believe these people are Trolls, although I
much preferred that everybody would use their proper name, particularly of
academics, that are without problems of professional privacy). All quotations
from here.
[7] The direct
intervention of the ECB to sustain the public debts of uncompetitive peripheral
EZ countries is a surrogate of fiscal transfers, as Wray
alludes in a discussion with Ramanan (who, of course, fully agree): “’transfer’
is the wrong word. Uncle Sam issues the currency and does not have to reduce
income in one state to increase it elsewhere. … If we had a fixed economic pie
then in real terms we'd be transferring real stuff to the poor regions. But
that ain't true, either, as outside WWII we've never operated continuously at
anything approaching capacity”. In other words, it would be equivalent if,
using the MMT’s wording, a federal Bruxelles “writes a cheque” (creating a
deposit at the ECB) financing “fiscal transfers”, or if the ECB directly buys
the deficit countries public debt (for a clarification of the MMT’s view see Lavoie).
[8] So the presentation of my thesis that Wray
provided is rather unfair: “As discussed at GLF recently,
Sergio Cessaratto [sic] (and others) think we got it wrong–our claim is
‘spurious’. MMT is not useful for helping to understand the crisis. It is not a
sovereign currency crisis, it is a balance of payment crisis. They have not yet
explained why South Dakota or Alabama or Mississippi
is not suffering the fate of Greece.”
Precisely because Greece is
not South Dakota,
that country is suffering that fate.
Nessun commento:
Posta un commento