So I’ll be letting the libel pass by.
The libel itself?
By extension, a snake oil salesman is someone who knowingly sells fraudulent goods or who is themselves a fraud, quack, charlatan, or the like.
Hmm, Ritchie? Economics? Well, umm….???? And to still any doubts:
So let’s now look at the economics on offer from Paddy. In doing so I can’t help but start with a quote from a Danny Blanchflower paper from 2012 in which he in turn quoted Oliver Blanchard’s 2008 description of the standard macroeconomist’ approach to an issue (Blanchard is now chief economist at the IMF):
A macroeconomic article today often follows strict, haiku-like, rules: It starts from a general equilibrium structure, in which individuals maximize the expected present value of utility, firms maximize their value, and markets clear. Then, it introduces a twist, be it an imperfection or the closing of a particular set of markets, and works out the general equilibrium implications. It then performs a numerical simulation, based on calibration, showing that the model performs well. It ends with a welfare assessment.
And that is, almost exactly, what Paddy Carter does. I will come back to all his other assumptions in a minute. What is most telling to me about Carter’s whole approach is that is his whole criticism of PQE is based on the logic of this paragraph:
And here’s why People’s QE (PQE) is snake oil. So long as the BoE is still targeting inflation, it will still be pushing and pulling money in and out of the system, as required to meet demand for money at the interest rate it has set. If the BoE is still targeting inflation, then whatever money PQE puts into the economy on one hand, the BoE is going to be taking out with the other. Or, if the BoE happens not to take the money out, that implies it would have been putting it in, anyway. And that means that over the long run the rate of seignorage, or the extent to which the government is able to spend without borrowing, is not affected by PQE.
For the sake of doubt, let me deconstruct that. What Paddy Carter is assuming is that at the moment PQE is introduced the economy is in equilibrium (the first Blanchard condition). In other words, Carter assumes PQE would be introduced into what he thinks is an already perfect world – because that’s what he has apparently taught piles of students is what exists in the macroeconomic world. The consequence is that he assumes that the only need the Bank of England would have if PQE was introduced would be to immediately cancel the consequence of it because the world was perfect before PQE happened. This is the fulfilment of the second Blanchard condition: introducing PQE is to create an imperfection in an already perfect world. And the third Blanchard condition requires that the imperfection must be addressed, which is why the impact of the PQE funding must be cancelled by pulling it out of the economy as fast as possible in Carter’s opinion by selling bonds. And then in the final sentence we get the fourth and fifth Blanchard conditions combined: there is no impact on ability to spend without borrowing as a consequence and so no net welfare change, it is claimed.
Err, no, Paddy doesn’t assume equilibrium and he also doesn’t assume that PQE is an imperfection.
It’s not looking good for the retired accountant versus the PhD in economics really…..
And now let’s explore why that is total nonsense.
First, we are not in a state of general equilibrium. We are very far from it. We have (to list just a few of the reasons why this assumption is not true):
Limited investment by business
A chromic shortage of necessary social infrastructure like affordable housing
A market unable to price minor issues like climate change and the funding needed as a consequence
An impending exogenous shock in the form of China
Depending upon who you want to talk to 1) might or might not be a condition of GE. But items 2-6 have absolutely nothing to do with it at all.
Third, monetary policy has not worked for more than six years because we are at the lower bound of interest rates and there is little sign that is going to change.
His last post but two or three was all about how QE, which is monetary policy, has worked.
So, let’s summarise this. First, Carter’s macroeconomics is a proof existing solely in its own fantasy world that in turn exists solely in his imagination and that of his fellow so-inclined macroeconomists.