Monograph Chapter
In Banking, Monetary Policy and the Political Economy of Financial Regulation
Edited by Gerald A. Epstein, Tom Schlesinger and Matías Vernengo
- Published in print:
- 25 Jul 2014
Journal Article
In European Journal of Economics and Economic Policies: Intervention
- Published in print:
- Dec 2016
Thomas Palley
Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky breaks. Despite much evidence against the NRU, and much evidence and theoretical argument supportive of the Keynesian Phillips curve, the NRU hypothesis remains ascendant. The hypothesis has had an enormous impact on macroeconomic theory and policy. 2018 is the 50th anniversary of Friedman's introduction of the NRU hypothesis. The anniversary offers an opportunity to challenge rather than celebrate it.
Thomas Palley
The essential claim of Modern Money Theory (MMT) is sovereign currency issuing governments, with flexible exchange rates and without foreign currency debt, are financially unconstrained. This paper analyses the macroeconomic arguments behind that claim and shows they are suspect. MMT underestimates the economic costs and exaggerates the capabilities of deficit-financed fiscal policy. Those analytic shortcomings render it poor economics. However, MMT's claim that sovereign governments are financially unconstrained is proving a popular political polemic. That is because current distressed economic conditions have generated political resistance to fiscal austerity, and MMT fits the moment by countering the neoliberal polemic that government lacks fiscal space because it is akin to a household.
Reference Entry
In The Elgar Companion to Post Keynesian Economics
Edited by J. E. King
- Published in print:
- 29 Jul 2003
Handbook Chapter
In A Handbook of Alternative Monetary Economics
Edited by Philip Arestis and Malcolm Sawyer
- Published in print:
- 26 Jan 2007
Thomas I. Palley
This chapter presents the post-Keynesian theory of endogenous money supply and shows how it is fundamentally different from conventional money-supply theory. The conventional approach relies on the money multiplier and bank lending is invisible. Post-Keynesian theory discards the money multiplier and focuses on bank lending, which drives money creation. The chapter emphasizes the structuralist version of post-Keynesian theory, which retains Keynes’s liquidity-preference theory of long-term interest rates and also recognizes that banks are subject to financial constraints which limit their lending activities. The chapter then shows how to derive the LM schedule in an endogenous-money economy, which is a necessary prelude to reconstructing the IS–LM model.
Monograph Chapter
In Advances in Endogenous Money Analysis
Edited by Louis-Philippe Rochon and Sergio Rossi
- Published in print:
- 27 Oct 2017
Keynesian Macroeconomics and the Theory of Economic Growth: Putting Aggregate Demand Back in the Picture
Challenging the Supply-side Vision of the Long Run
Thomas I. Palley
Monograph Chapter
In The Economics of Demand-Led Growth
Edited by Mark Setterfield
- Published in print:
- 26 Jun 2002
Pitfalls in the Theory of Growth: An Application to the Balance-of-Payments-Constrained Growth Model
Challenging the Supply-side Vision of the Long Run
Thomas I. Palley
Monograph Chapter
In The Economics of Demand-Led Growth
Edited by Mark Setterfield
- Published in print:
- 26 Jun 2002
Handbook Chapter
In Handbook of Alternative Theories of Economic Growth
Edited by Mark Setterfield
- Published in print:
- 31 Mar 2010