Gerard MacDonell (3/30/17)

Twitter: @GerMacDonell

I grew up in Halifax, Nova Scotia and moved to the US in 2000. I now live in Westport CT with my wife and five-year-old boy.



26 thoughts on “About

  1. Thanks, Jerry. Brian and I used to work together at BCA in the distant past. He is a very good guy — and our occasional disagreements are always in good fun. Don’t ya find, though, that the MMT guys are one note wonders? Ok, two note wonders. Accounting identities and WE NEED MORE DEFICITS. Seemingly always. they are not to my taste. As for ISLM, I am not a huge fan of that either. I alluded to a slightly different approach in one of my posts on this issue. I think the second from last. Thanks, again. G.


    • If commenters were generally as on point and polite as yourself, I would gladly have a comments section. But you have the correct take of the actual situation there! Please feel free to contact me anytime. You provoked me into writing about MMT. They are definitely not to my taste. But I confess I never try to engage them directly. This is not to say I don’t follow them. The very first post to this blog was a review of Mosler’s innocent frauds. I took it down, cuz it bored me. πŸ˜‰


    • Thanks. Clearly, we disagree fundamentally about the “truth” in this case. It is not my point to withhold it. I just disagree with you on what it is. Which is fine. Whether the government literally “runs out of money” is not interesting to me. To imply that there is no budget constraint beyond that imposed by inflation seems wrong to me.

      I agree with your sense of how the financial balances add up. My disagreement is not with you, but with others, like Mosler, who say more simply that the deficit creates savings. We agree that is wrong.

      As for your being rude or bothering me with your comments, that is not an issue at all. You seem like a smart, respectful, well-informed guy to me. Thanks for reading my stuff. Best, Gerard


  2. Hello. I see from you latest post that you have changed you mind about talking about MMT. I would like to thank you for that even though I don’t agree with all of your conclusions.

    I know you don’t welcome comments and will try to keep this very brief. And I realize you are under no obligation to read it and I wont be insulted if you don’t.

    You say- “The problem with MMT is that it would promote bad fiscal planning, eventually a loss of confidence in the real economy and in risk asset markets, and then ultimately extreme disappointment and in some cases hardship among stakeholders in the public sector.”

    Well that is a judgement call or opinion on your part. No economic school of thought that I am aware of denies that bad fiscal policy can lead to bad outcomes- this is not particular to MMT. Now maybe it is reasonable to be concerned that if the public and their policy makers came to understand that there really isn’t any time the Federal government could actually run out of US dollars that they would then demand to push policy towards excessive and unwise spending. But that is similar to saying we should withhold the truth or else people will hurt themselves by knowing it. Its not an argument I agree with.

    To keep this short I will just point out that at the mystical point of full employment, where all resources available to an economy are already being put to their most efficient uses, MMT does not drastically differ from standard economics. Any additional spending from any source at that point would require a reduction in spending power from someone else or inflation will result. Taxes are one sure way to reduce spending power. Bond issuance, as currently practiced, is not a sure way to reduce spending power, as bonds (to my knowledge) can be used in exchanges and can be used as collateral for loans from the banking system.

    One more thing, MMT does not say that the totality of private savings are determined by the government fiscal balance. MMT says that the change in the governments fiscal balance will always equal the change in private sector savings held in financial assets assuming a closed economy. Another way of saying this is that the government balance is often partially an outcome of the private sector’s changing desires to save during that year.

    If you read this far I do want to thank you. I enjoy your blog and find it very interesting reading. And I thank you for writing about MMT (and for revising your revised post on Krugman). I wont bother you with anymore comments.


  3. LOL The thing I like about Melissa is that she always starts strong, like a good novel. You have never once irritated me. Like I said before, you seem respectful and well informed to me. I noticed some guys coming over from EV yesterday or maybe the day before. Maybe that was you! Best, Gerard


  4. I am not confident about all this stuff. For a very long time I was super dovish because people were arguing about totally stupid shit like QE being inflationary or extreme hysteresis or non-existent bubbles or other crazy reasons to be hawkish, when the environment clearly favored dovish. I see it as tougher now, because on plausibly dovish approaches, such as B/L we are getting closer. I think anybody who claims to know now is probably overconfident, which I would not have said anywhere from nine to two years ago. I am dovish in the sense that I think the Fed is AIMING for, not just tolerating the risk of, inflation above 2%. Does that mean they cannot go in March. I don’t know. My tools are not that finely tuned.

    As regards your specific issue, I don’t really think that goes to slack. You imagine that the business sector offers more high productivity / high wage jobs than they did before. That would have the effects you imagine whether the staring point were lots of slack or a little.

    As for the view we stick with, mine ain’t that far from yours. I think they want to aim at growth at or just slightly above potential within a year. I guess you think they should still be going full bore to the extent that is even possible. I guess that is a bit different, but I am not some super hawk here. I just see more nuance than I did.


  5. Actually, I think I underrated your point there. You are saying there is more EFFECTIVE labor supply than is recognized. Sorry. That makes sense. But maybe there is also skills mismatch. For your thesis to work you would need jobs growth in the skills underemployed. That is possible. Not sure. Sorry, I missed your main point, initially. Also, thanks for being in touch. You don’t need to be so polite you know! πŸ˜‰


    • I could also throw in lefty snark. πŸ˜‰ When I was on Wall Street I did not pay much attention to the attitudes of academics. Was too busy trying to use whatever I might take from them. But now that I am off Wall Street I am just way more aware that what they do and what I did are very different things, very different measures of “success.” I am not ranking, but more insisting that there is no ranking. And I don’t think either side gets that. Academics are condescending and Wall Street types are dismissive. Pity on both sides.


  6. Of all the books I have read in the past, say, ten years, the one that made the most impression on me was Sean Carroll’s. I think emergence is in Chapter 9. If you read JUST that, it will be worth the price of the book, IMV. I am late to learning about this. Feel kind of dumb I got this old without knowing! Maybe we are dumb together. πŸ˜‰


    • In 2008, I spent a lot of time arguing that MEW was irrelevant and thereby missed the CDO tower of doom. I am trying to discipline myself to spend less time focusing on things I believe are irrelevant. There are only so many hours in the day and so many brain cells in my head. I think the central premise of MMT is insane, so I am out, not persuadable, sorry.

      I also find it extremely tedious that MMT so often claims you don’t understand when they mean they disagree. There are a lot of guys who “get” reserves accounting and identities and still recognize that putting the Freedom Caucus in charge of the US inflation rate would be stupid.

      In other news, I think I saw somewhere that you now reside in London. Are you in markets over there? If not, what do you do for day job. I don’t have one, personally.


  7. I live in Hartford. I mostly make people’s older houses work better for them. I guess I am in a few markets such as building materials, real estate, and both sides of the building services and labor market but only in a way that is imperceptible in the larger scheme. My bigger projects would be kitchen remodels and additions. People seem happy to hire me though and it is useful work that I feel proud of when I finish. Doesn’t pay anything like wall street I’m sure.

    It is too bad that you have ruled out being persuaded by the MMT description of how things work. I do apologize if I have accused you of not understanding when in fact you do understand but disagree. I never intended to do that.

    I have not thought much about what would be the central premise of MMT before. At this moment, I would say that it is that we live in a fiat currency, Monetary Economy (as opposed to a barter economy), where the monetary units we use are determined by the government, and the value of the currency is derived from the government’s ability and willingness to impose taxes payable in that currency only. From there, MMT goes about describing how this system works currently. That central premise might be wrong, but it is not insanely wrong. And the description of how it does and perhaps could work might also be wrong. And believe me, I am very interested in finding out what might be wrong with it. Because it does seem insane at first, and too good to be true, and everything else you were always warned about to avoid getting conned. So I look for and appreciate reasoned criticism of MMT. And I look a lot for it, because I don’t want to be some sucker falling for pie in the sky nonsense.

    In the six or seven years I have been learning about MMT, I have learned far more about, and have a much better understanding of even standard economics than I did when I graduated with a B.A. in Economics in 1990. The economics I learned in school had been very much improved by criticism from John Maynard Keynes, but even so, was only applicable in gold standard economies and under the assumption that money only performed the task of improving barter exchange. The descriptions of how the banking system works; how the money multiplier lets the Central Bank control the money supply; how the labor market functions; how interest rates determine savings and investment through the loanable funds market or vice versa; the entirety of utility theory and a lot more- well it all seemed like bullshit to me and now I know it is bullshit.

    Anyways, I enjoy reading your blog and plan to continue. Hopefully you are not disappointed your reader doesn’t live in London and isn’t in markets. Please do continue with your reasonable discussions of MMT, maybe I will learn something new and have an epiphany or something. Thanks.


  8. A seemingly gratuitous attack on MMT- Thanks. Thinking you like the attention.

    “I can’t help but concluding with a reference to how this relates to my recent – and admittedly tedious – forays into MMT. Hard as it is to get advocates to be straight on this issue…” – Doesn’t seem hard to me if you read my other comments.

    “MMT and religious believers are pretty similar. If you can just repeat back at them what they claim to believe, making it as tangible as possible, then the merit of their case becomes self-evident. Forget the sacred texts, this is what you are saying about what will actually happen. Really?” – Seems intended by the author as a double insult to both people who are religious and to people who think MMT is accurate by comparing them to people who are religious. But this isn’t an insult to anyone who knows extremely intelligent yet religious people. Guessing you don’t. Unfortunate.

    “In fairness to MMT, many of them think themselves quite progressive…”- Yes thanks for the “fairness”. No one would consider that at all condescending.


  9. “Incidentally, ignore the GDP deflator β€” ALWAYS. Never mind why. Need to know basis only. And you don’t need to.”

    LOL- I will take your word on this one.


  10. “Another criticism, which you will hear from MMT, is that the bastard Keynesian model is wrong and that the whole idea of limited fiscal capacity is an β€œinnocent fraud.” I am convinced MMT is wrong about this and think I could demonstrate it if I could ever get an adherent actually to debate with me.”

    Well an MMT debater who knew what they were talking about would say that If the real resources were available and If they were for sale in exchange for the currency and If the possibility of inflation was of no concern, Then the currency issuing government faces no fiscal constraints. But why wait for some MMT economist to debate you when you could just go ahead and demonstrate why that would be wrong?


  11. “The public sector budget constraint is either non-existent or a trivial accounting identity with no practical implication. Accordingly, tax and spending policy should be set without any regard to the deficit and long-run trajectory of the debt/GDP ratio. Fiscal policy may occasionally need to be tightened, but the signal for that would be only an acceleration of inflation to an undesirable pace. Worrying about the trajectory of the debt itself is merely a reflection of a misunderstanding of how the payments system works. ”
    Throw in the standard caveats about fiat non-convertable money, floating exchange rates, no debt in other currencies, the capability and willingness to levy and collect tax payable only in the currency whenever necessary so as to ensure a stable value and that is very close to my understanding of what MMT thinks about the government budget constraint in regards to fiscal policy. Also, the assumption that the Central Bank will work keeping the goals of the government in mind as an agent of the government is also helpful. So that is mostly a yes to your question from this particular MMT adherent.


    • So I have a question for you the answer of which may illuminate the MMT position on the government budget constraint. In your opinion, is it any more difficult for the Japanese government to finance its operations now when its debt to GDP ratio is over 200% than when its debt to GDP ratio was under 100%? MMT says no it is not. But MMT would also say that it might be more difficult for Japan to find the workers needed to complete any particular government project when their unemployment rate is near 2% as opposed to when it was 5% because available labor is a real constraint on government not a financial constraint.

      So say Japan is at full employment and everyone who wants a job has one, but the government wants to add a million people to its full time army and for political or moral reasons doesn’t want to draft them in against their will. Well it has to either persuade the labor force to increase by a million or it has to compete with the private sector to persuade a million to leave their old job and come work for the army voluntarily. In either case this persuasion probably includes an increase in wages offered by the army in order to draw the necessary real resources (the one million people). MMT would say that the wage increase in and of itself is absolutely not a financial problem for the government. The government will never find that it cannot access the amount of Yen needed for this increase in wages as long as there is a million people who would come work for the army at some wage paid in Yen .

      But MMT says that the spending on the wage increase can pose other problems. Wages might rise across the economy which might lead to inflation if private sector employers (who all do face financial budget constraints) were unable or unwilling to bear that cost and passed it on through higher prices. And the production of other goods might be constrained if up to one million people left their old assumingly productive jobs in the private sector to join the army. That might cause inflation also if people were unwilling or unable to reduce their consumption of those goods and bid up prices. The point is that in a situation of full employment any increased spending is only possible at the cost of decreased spending (whether voluntarily through an increased desire to save in the form of financial assets, or involuntarily through tax hikes) elsewhere in the economy unless production is able to be expanded at the same time or you get a risk of inflation. MMT recognizes this even though many MMT critics don’t recognize that it does.

      What most MMT economists Do believe is that capitalistic economies rarely find themselves in a position of real full employment without government intervention. This is borne out by history. And it also completely opposite to what neo-classical economists believe. Many MMT economists also believe that production is often more demand constrained than supply constrained and that firms are often happy to increase production rather than prices when an increase in demand is experienced. That doesn’t seem unreasonable to me either.


  12. https://beinnbhiorach.com/2017/05/24/remedial-remittance-arithmetic
    Your latest post is making me think way too much and it is starting to hurt my head. So I want to ask some questions which in no way are meant to trap you, but just to improve my own understanding of what you are saying. These questions might also point why we disagree about MMT or they may just point out my own ignorance.

    What do you mean by Fed profitability? And why would it be of any importance aside from possible effects on the economy? Can the Fed balance sheet ever be characterized as normal compared to a private bank or company or individual? If the Fed is making profits (whatever they are) through seniorage, aren’t they increasing the amount of money held by the private sector? If the Fed is making profits through “carrying” are they decreasing the amount of money in the private sector? Is the term “term premium” πŸ™‚ at all useful in the context of the Fed?

    How illiquid are US government bonds? If I bought a ten year bond today for $100,000 , does that really tie up that money for ten years? I mean, how long would it take for me to sell it if I decided I wanted a new Mercedes instead? If I didn’t want to sell, it could I use it as collateral for a loan from a bank? If yes, would the loan from the bank constitute newly created bank money? If yes, when the US government issues debt to match its deficit spending, is that spending really less likely to create inflation than if it just spent by printing up the amount of the deficit?


  13. There were only 7 different commenters on Brian’s reply to your question. 5 out of 7 doesn’t seem so bad. Obviously I was one of the 5. As to your update on May 25- stating that Brian and MMT are reckless is not really an argument that MMT is wrong about the government budget constraint. I was hoping you would have a real response that would clarify where Brian is wrong. Or for that matter where I am wrong above. I rather liked his post. His rewrite of your MMT understanding hit most of the same points of my comment from May 20 as far as I can see. So what is so wrong about it, now that you have trapped me and him into mostly agreeing with your proposition? Calling it reckless and irresponsible seems very similar to my characterization of what people think when they start to realize the implications of MMT- that they get worried about what the effects might be and reject those before even considering if MMT describes things accurately. You rejected this argument when I made it back in January, as being the 2nd worst of 5 criticisms of your MMT post then. At least I have never faulted you for being unscholarly πŸ™‚


  14. I hope you are enjoying your fishing trip and not losing sleep worrying about the projected debt to GDP ratios πŸ™‚ I do however enjoy your commentary, even though I like to argue. So I do hope you will resume at some point when you come back from your trip.


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