August 31, 2020
The new economic Paradigm requires a new textbook
Comment on Bill Mitchell on ‘US Federal Reserve statement signals a new phase in the paradigm shift in macroeconomics’
Bill Mitchell summarizes current events “Regular readers will know that for the last few years I have been documenting the way that the dominant paradigm in macroeconomics (New Keynesianism) is slowly disintegrating as the dissonance between its empirical predictions and reality becomes too great to ignore and justify. … Last week, the US Federal Reserve Bank Chairman, Jerome Powell made a path breaking speech ― New Economic Challenges and the Fed’s Monetary Policy Review ― at the annual economic policy symposium sponsored by the Federal Reserve Bank of Kansas City at Jackson Hole. On the same day, the Federal Reserve Bank released a statement ― Federal Open Market Committee announces approval of updates to its Statement on Longer-Run Goals and Monetary Policy Strategy. We have now entered a new phase of the paradigm shift in macroeconomics.”
Bill Mitchell feels validated “This has progressively opened the door for Modern Monetary Theory (MMT), the emerging rival paradigm.” Mainstream economics has failed “But we are making progress.”
“And, if you scanned the textbook market in macroeconomics looking for guidance to all of this, then you would find only ONE offering that allows you to understand all of this ― yes ― Macroeconomics (William Mitchell, L. Randall Wray, and Martin Watts). Small sales pitch ― but that is the fact.”
Yes, a Paradigm Shift is going on, but it is not headed toward MMT. Yes, mainstream textbooks are obsolete #1, #2, #3 but this does not mean that the new MMT textbook is scientifically acceptable. The fact of the matter is that the foundational MMT sectoral balances equation is provably false.#4 Because of this, the analytical superstructure of MMT is false and as a consequence, the new MMT macroeconomics textbook is scientifically worthless.
The Paradigm Shift moves from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#5
The good news for teachers and students is that the axiomatically correct textbook Sovereign Economics is now available.#6
REPLY to Tom Hickey on Sep 2
Bill Mitchell commented on the FED’s announcement of a new monetary strategy: “We have now entered a new phase of the paradigm shift in macroeconomics.” And “Jerome Powell’s speech at Jackson Hole was described by a Reuters report (August 28, 2020) ― With new monetary policy approach, Fed lays Phillips curve to rest ― in this way: ‘One of the fundamental theories of modern economics may have finally been put to rest.’
This may be politically true but is scientifically false because the Phillips curve had been put to rest already in 2012.#1
The folks at the FED are a bit slow, worse, they still do not get the point.
The axiomatically correct macroeconomic Employment Law states that in order to increase employment, wages must go UP, and/or prices must go DOWN. To push inflation is pure idiocy.
Yes, for the micro-brains of economists this appears counter-intuitive. But then, microeconomics is long dead. The Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations is an accomplished fact.#2
#1 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster, see Links on the Phillips Curve