Ep. 291 Douglas Robert Uses MMT to Challenge Bob’s Recession Call
Douglas Robert is a recovering Austrian who subscribes to the MMT framework as being the most useful for trading. He has a friendly debate with Bob over the inverted yield curve and whether a recession is at hand.
Mentioned in the Episode and Other Links of Interest:
- The YouTube version of this interview.
- Douglas Robert’s critique of Bob Murphy on yield curve.
- Douglas Robert’s YouTube channel.
- Bob’s article on Canadian expansionary austerity.
- Warren Mosler versus Robert Murphy debate.
- BMS episode featuring Warren Mosler.
- Bob’s recent critique of Mosler’s view on interest rates.
- Help support the Bob Murphy Show.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
The reason why the yield cute inverts is because of financial insider knowledge. It inverted in the summer of 2019 because there were financial insiders who knew, before official official government announcements, that this virus was going to affect the economy. When financial insiders see turbulence in the future, they buy 10 year UST’s as a flight to safety, which drives the yield down below the short end of the yield curve.
Yield curve inversions are a function of human action and not some sort of statistical anomaly.
This episode was truly painful to listen to. What on earth is Douglas even talking about? He defines “economic growth” as “number go up,” and then points at government money printing as vindication of MMT because, oh look, number went up.
Bob’s (in)famous sushi article (https://mises.org/library/importance-capital-theory) still remains the best popular treatment of what’s going on here. Douglas is cheerfully sitting in his hammock eating his 6 sushi rolls a day while the nets and boats slowly deteriorate. Worse, he somehow thinks that by printing infinite tickets with which to buy these sushi rolls means he’s helping the economy.
The nominal realm has its own failure patterns. Going by Steve Keen: Exponential expansion of private (company/mortgage) loans becomes expected part of aggregate demand that companies count on. A purely nominal issue (although misallocation may take place when you get and spend that loan to join e.g. a real estate boom). Yes there’s a real world that in many ways deteriorates (but it’s also kinda resilient). Unfortunately we don’t know nearly enough about that. The stories of loanable funds/hard money for this purpose have been a distraction because that’s never how most of an economy worked (although I do see plenty a reason for why people hold onto such stories). What I see in reality is virtual failures and a real economy that runs poorly checked (outside of e.g. US government planning and trying to push neoclassical or otherwise constraining economic theory on everyone else). The insight should be simple but the implications are broader than MMTers tend to recognize it seems.
so instead of trying to understand it seems like there will be the same “printing money” talking points and mockery of what is not understood ok this is why Austrian Economics will not be correct in the future in my opinion
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Bob, Do will you post the video on YouTube soon? I would like to watch the visuals mentioned in the podcast. Thanks! 🙂
Great talk between Bob and Douglas. I enjoyed it.
I have one thought to share. Bob commented at 4-5 minutes from the end where he says the MMT people will say, “there should be no reason for the Fed to start slashing rates” on the idea that Douglas says lowering rates could cause a recession.
From all of the MMT leaders comments I have heard in relation to the interest rate levels, is that there are indeed some good reasons to lower interest rates. I hear from Warren, Randall Wray, John Harvey and others that the higher rates adds to inflation and hurts the homeowners looking for a new mortgage or those who have variable rate mortgages, or small businesses who need to borrow, etc. As Douglas commented, and other MMT leaders say, the interest payments to the savers (mostly the wealthy and large institutions) is regressive. They already have money and don’t need this handout.
If the government/Fed could figure out that the inflation is caused by too much demand rather than other factors (i.e., continued supply chain issues, Ukraine war kicking off high energy prices, and corporate price gouging), then it would be more effective to raise taxes on the folks who are spending too much (let’s say middle and working class, along with the wealthy), or give these folks the option to park their savings (rather than go to restaurants/vacation) in long term savings bonds detached from the fund rate, kind of like what they did during WWII. However, no one has proven with data that it’s a too-much-demand problem.
I recall MMT leaders say that interest rates should be low (Warren says zero, Randall says low such as under 2%) and then just leave them there forever, and instead use fiscal policy to manage the economy. In our current scenario, lowering interest rates back to zero would eventually lower the injection of interest rates as new net money into the private sector. This doesn’t mean it will cause a recession if the government took other measures, such as spend more in infrastructure, climate change, military, or whatever to balance the retraction of spending on interest rates for the wealthy savers.
Truly bizarre that you think the government can just declare interest rates to be thus and such and things will run smoothly. Interest rates are a price. Prices must be set by the market, not by government. There is no other price you would make this absurd argument for, so why do you make it for interest rates? It just makes no sense.
@Dave H,
The Federal Open Market Committee (FOMC) sets the Fed Fund Rate. They decide what it will be, not the market. The FOMC is part of the Central Bank. The Central Bank is an arm of the federal government.
I can understand how people might think the market rates set interest rates when looking at bank loan interest rates. The banks will take the Fed Fund Rate as their base and then set their own markup on top of that to cover their operational costs, risk costs, and profit margins, and do so on a competitive basis.
Like all price controls, the Fed controlling interest rates has led to disaster.