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Stephanie Kelton, a prominent Modern Money Theory (MMT) proponent, has a new book out, The Deficit Myth, and it is finally making the rounds of reviews by economists and commentators. As to be expected, there are some whataboutisms. In the case of Josh W. Mason’s largely positive review in the American Prospect, the question is: what about the banks?

I guess something that needs to be stressed here is that The Deficit Myth isn’t meant to be “the” book on MMT that explains all aspects of economics. MMT as a body of work is a vast literature for which Kelton…


One of the most important lessons from Econ 101: Nominal figures tell us nothing.

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The media likes to report nominal figures which can give news consumers a false sense of the trends. But in a monetary economy with inflation (increasing prices), nominal figures tell you almost nothing. Using real numbers, which are adjusted for inflation, give you a much better sense of what is really going on in terms of actual gains and purchasing power for workers. For example, if your salary has increased 2-percent, but the cost of everything has also increased 2-percent, you are not earning more than you did before in real terms. …


Given the recent Supreme Court decision in Janus v. AFSCME, the public sector union case, I thought it worth explaining why labor unions are so important aside from the usual explanations given.​

In 1956, Richard Lipsey and Kelvin Lancaster, developed the Theory of Second Best for the Walrasian model. They demonstrated in their paper that when one optimality condition cannot be satisfied, manipulating other variables away from optimum can create a second best outcome in an economic model. In other words, if one market distortion cannot be removed, then a second best equilibrium can be achieved by imposing a second…


Vox Media has an interesting YouTube video floating around on Facebook about pennies (see below). If you haven’t seen it, you have probably heard a take on the theme: pennies are useless and cost the government more money to make them than they are worth ($0.0107 per penny). While this is true, one might be misled into believing that the government is somehow losing millions of dollars from the manufacturing of the currency, but it’s not when you factor in the rest of coins and bills the U.S. produces into the equation.

In monetary economics, there is a concept…


I often get into debates online with generally smart people about the inefficiencies of socialism. These conversations often revolve around the planned economy of the Soviet Union. I have argued elsewhere that the Soviet Union was not really socialist (so I’ll avoid addressing that myth here). The most important point to get across to people is that central planning and state ownership are not necessary conditions for a socialist economy. My own preference is a market socialist economy, one in which the majority of firms are worker-owned and consumer cooperatives, but resources continue to be allocated via regulated markets. Although…


Since the candidacy of Bernie Sanders for U.S. president in 2016, socialism has been garnering more interest, particularly among young people. A Harvard University survey in 2016 found that 51 percent of young people, between 18 and 29, did not support capitalism, and 31 percent support socialism. The survey clearly indicates young people favor an alternative, but the gap in support for socialism suggests an ambivalence toward what that alternative should be. I would also suspect that of the 31 percent that do support socialism, many do not have a clear idea of what it would look like — in…


​There were many underlying factors which contributed to both the financial crisis and the Great Recession. The trigger of crisis and recession begins with the burst of the housing bubble in mid-2007. As subprime mortgage default rates began to accelerate, overly leveraged financial institutions holding risky products such as mortgage backed securities (MBSs) and collateralized debt obligations (CDOs) triggered a crisis of asset devaluation. Financial institutions holding both MBSs and CDOs and financial derivative products such as default swaps took a double hit inducing a liquidity crisis and immediate default risk.

According to economist James R. Crotty, retired professor at…


It has been some years since the financial crisis of 2007–08 and subsequent recession, yet the recovery of economic growth is still anemic relative to the years leading up to the crises. The gap between potential GDP and real GDP has closed, but only because potential GDP estimates have been continually revised downward. Despite years of near-zero interest rates, real gross domestic investment growth continues fall since its initial recovery in 2010 (see Figure 1). However, identification of these trends have been pinpointed as occurring before the financial crisis. According to Summers (2015), looking back to 2003–2007 “no one will…


I t’s at the same time amazing and disturbing that mainstream introductory economics textbooks still teach fractional reserve banking and the money multiplier. Undergraduate students, myself included when I was an undergrad, learn that banks operate as intermediaries between savers and borrowers. If you are lucky enough not to have to spend all of your income, you deposit that unused income in a reputable bank. The bank in turn loans out those deposited funds to someone else at a profitable rate of interest. By loaning out your unused funds, this creates a multiplier effect by which the borrower spends the…


One of the popular interpretations of the Soviet system by socialists is that it was a form of state capitalism in which the bourgeoisie class was replaced with a statist class. Some of the proponents of this view include Charles Bettelheim, Stephen Resnick and Richard Wolff, but each with their own slightly different take. The common version of this view is that the top officials of the communist party became a new capitalist class which appropriated surplus value from employees of the state. Beginning with Bettelheim’s version of this analysis, from his book Class Struggles in the USSR, he suggests…

AARON MEDLIN

Doctoral student of Economics at the University of Massachusetts Amherst. Commentary, research and more at aaronmedlin.weebly.com

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