Dear God and this man is a professor

So far, so good then: they recognise that almost all economics has got banking wrong and they realise the way the world really is. But then they ask this:

In which circumstances do the money-creation and loanable-funds approaches yield the same outcomes? In our paper, we establish a simple benchmark result. In the absence of uncertainty and thus of any bank default, both processes yield the same allocation. Hence, in such cases, using the loanable-funds model as a shortcut does not imply any loss of generality.

So, having recognised that economics has got banking wrong these two authors then expend considerable effort in trying to prove that they can ignore what they know to be right and can instead persist in using a model that they know to be wrong. What is more, they claim to have shown that this is possible, because what else can the word ‘establish’ mean? All they asked their fellow economists believe is that there is a world in which there is no uncertainty and that banks cannot, as a result, ever default. Or to put it another way, they say ‘let’s just assume that 2008 did not happen and carry on as we did before’.

No, that’s not what they said. Rather, they said that which model of banking we’re going to use does not change allocation. Jeez, someone who is unable to grasp that sort of qualification of a statement really shouldn’t be an academic, should they?

There are those who would like to suggest that Howard Reed was wrong to say that economics needs reconstruction. You do, however, only need to see a paper like this, which is designed solely to maintain the economic status quo based upon an absurd set of assumptions to support the claimed existence of a market that cannot, and does not, exist in reality, to see why that reconstruction is essential. We can no longer live with this sort of crap. Or to put it another way, we can no longer live with this sort of completely rubbish approximation to the truth.

I’d need to be rather more secure in my own academic credentials before I made statements like that.

8 comments on “Dear God and this man is a professor

  1. “In the absence of uncertainty and thus of any bank default,”

    Sounds real-world to me. You?

  2. This is part of a the wider debate on what drives money creation. The simple point of this paper is to create a general model that shows there is equivalence between two schools of money creation thought when there is no uncertainty and no default.

    https://www.econstor.eu/bitstream/10419/172466/1/1008766178.pdf

    What you can then do is ask what forms of uncertainty or default lead to different results depending on the form of money creation you model.

  3. The idea that there may be two or more equivalent mechanisms by which one can arrive at the same conclusion is unremarkable in the hard sciences and mathematics (e.g. Schwinger-Dyson vs. Feynman, Pythagoras’s peacock tail vs. Bhaskara’s dissection, etc. ad libitum). That Murphy is unaware of this is to expose yet another yawning gulf in his knowledge.

    We could do some “Murphy so ignorant” jokes along the lines of “yo mama so fat”. For example, “Murphy so ignorant he think the Battle of Salamis be two Italian dudes hitting each other with sausages”.

  4. “We could do some “Murphy so ignorant” jokes along the lines of “yo mama so fat”. For example, “Murphy so ignorant he think the Battle of Salamis be two Italian dudes hitting each other with sausages”.”

    Given how easy it is to find information perhaps that should read: “Murphy’s so ignorant he didn’t think to check Google before concluding the Battle of Salamis was two Italian dudes hitting each other with sausages”.”

  5. Slightly unrelated but where on earth does all the stuff about government debt and taxes being necessary in order to have a currency come from? Is it some MMT related indigestion?

    Regarding MMT, one of the things which smells about it is the central idea that Government Which Issues its Own Currency is Special. Taking that to extremes, what then happens with MMT if everyone is their own government issuing their own currency? Or to the other extreme, what happens if we have one global government and currency?

  6. Phil said:
    “Slightly unrelated but where on earth does all the stuff about government debt and taxes being necessary in order to have a currency come from?”

    I think it’s an attempt to justify his “all your money belongs to the State” attitude. If there is no money without the State, then he thinks that gives the State to “take back” however much of it it wishes.

  7. @Phil

    It’s something MMT people just ignore. They say the UK government can just print all the money it wants to do whatever it wants, tax stops inflation and that’s it. Ask them why Bristol city council can’t do the same or why I can’t do the same myself and they mumble about confidence or lack of standing. Ask them why the same lack of confidence in a currency couldn’t apply to sterling and they change the subject.

    MMT works in narrowly defined artificial models. It could never work in the real world.

    But someone as arrogant as Spud is immune from the real world. Don’t forget this is someone happy to say all economics and all economists are wrong and he alone is right. Along, of course, with a few who have accepted Spud’s divinity.

  8. We can no longer live with this sort of crap. Or to put it another way, we can no longer live with this sort of completely rubbish approximation to the truth.

    Is that why he retreated into Murphworld some time ago?

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