Keynes, James Bartholomew, and The Bocconi Boys

After a chain of links (that will show up in the next article…) I ended up on a page about Keynesian Economics here:

I wanted to leave my usual short comment per Keynes that “Keynes wasn’t wrong, the present interpretation of Keynes is wrong. Keynes himself said government stimulus would only work for about 2 years, after which it would fail, and that during times of economic growth the government must run a budget surplus to repay the debt. Both conditions violated by modern interpretations.”

But they require a Disqus sign in or use of a social media account login to comment. I will not do either. Disqus is broken (I posted about it once some time back) and Social Media is entirely a security breach posing as service (IMHO, as a security guy who must fight off data leakage from companies…) So I could not post my comment there.

The article, other than that one omission, is well written. The author, James Bartholomew, does a very good job. It was one of his other article, where I clicked on his name, that landed me on a page of all his articles, and the one above caught my attention. gives the list of articles.

In the above first article, the primary thesis is “it just hasn’t worked when repeatedly tried”

The one thing most people think they know about economics is wrong

Keynesian deficit spending makes sense – but over and over again it has not worked
In fact, during the past 50 years, there have been a number of times when the validity of this central part of Keynesianism has been put in doubt. But the idea has been like Tom, the cat in Tom and Jerry. However many times it is squashed under a ten-ton weight or falls from a great height on to rocks, it comes up smiling and unrepentant.

My addendum is simply that real Keynesian Policy has NOT been tried. How many of those “trials” ran a government surplus during good times? How many cut off “stimulus” and deficit spending after at most 2 years? Zero you say? Then it was not in accord with what Keynes himself said were the limits of utility.

Then there is this interesting paragraph:

Gradually, however, reasons to think it is not true have grown in number and received a heavier weight of support from academics. The most significant work has come from a group of Italian economists. A landmark paper was written by Francesco Giavazzi and Marco Pagano in 1990. This has been followed up by more work by Alberto Alesina, Silvia Ardagna and others. They have been dubbed ‘the Bocconi boys’, which makes them sound like a mafia gang but is in fact a reference to the university in Milan where many of them have been professors or students.

The 1990 paper looked at the performance of Ireland and Denmark in the 1980s. It noted how these countries had reduced their government budget deficits, which according to Keynesian theory should have depressed the economy. But on the contrary, the economies did particularly well. From that beginning, the Bocconi boys have gained territory and influence, spreading representatives into the Bank of England, the European Union and Harvard.

I’d not heard of The Bocconi Boys. Looks like I have a bit of catching up to do ;-)

Somehow it seems appropriate that they would be from Italy. One of the places that tried hardest and longest to “make it work” with massive deficit spending and inflation of the currency. Now pining for the good old days pre-€ and pre-deficit limits.

One hopes they have reviewed the history of Keynes and Keynes comments on Keynes… I remember his comments from back about 1973? or so. A bit of film with him commenting on the limits in time and need for positive budgets in good years. Part of when I was in University learning Economics, and Keynesian Theory. My professors were remarkably good, and assured we knew the limits Keynes had on his “money printing”… In later years, a school of thought took over that the limits didn’t matter. This is called “Modern Monetary Theory” and, INHO, is “exactly wrong”

Modern Monetary Theory (MMT or Modern Money Theory), also known as neochartalism, is an economic theory that details the procedures and consequences of using government-issued tokens as the unit of money, i.e., fiat money. According to modern monetary theory, “monetarily sovereign government is the monopoly supplier of its currency and can issue currency of any denomination in physical or non-physical forms. As such the government has an unlimited capacity to pay for the things it wishes to purchase and to fulfill promised future payments, and has an unlimited ability to provide funds to the other sectors. Thus, insolvency and bankruptcy of this government is not possible. It can always pay”.

MMT aims to describe and analyze modern economies in which the national currency is fiat money, established and created by the government. In sovereign financial systems, banks can create money but these horizontal transactions do not increase net financial assets as assets are offset by liabilities. “The balance sheet of the government does not include any domestic monetary instrument on its asset side; it owns no money. All monetary instruments issued by the government are on its liability side and are created and destroyed with spending and taxing/bond offerings, respectively.” In addition to deficit spending, valuation effects e.g. growth in stock price can increase net financial assets. In MMT, vertical money (see below) enters circulation through government spending. Taxation and its legal tender power to discharge debt establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that must be met. In addition, fines, fees and licenses create demand for the currency. This can be a currency issued by the government, or a foreign currency such as the euro. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, maintains its value. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.

What this ignores is simply that ongoing deficit spending causes inflation; and failure to repay Real Value, in using future inflated currency to repay, results in lenders unwilling to lend and rampant inflation. See the current state of the economy in Venezuela as the most recent example of dozens (hundreds?). Inflation having ramped up from very low to about 800% / year over the last couple of decades in sync with deficit spending. The current exchange rate of the Bolivar about 10,000 / $ on the black market (and much less, about 10/$ ‘officially’). Airlines cutting off service due to monetary and fuel issues. Imports of essentials like drugs and machinery halted. The spiral decent into monetary collapse in full throated roar. THAT is the inevitable end game of MMT writ large…

As noted in that quote above “in concert with private confidence and acceptance of the currency, maintains its value.”, but adding that as soon as that “private confidence and acceptance” evaporate, as it always does, the house currency implodes.

So, in short, do not confound unlimited MMT with Original Limited Keynes. They are vastly different beasts.

Now I need to go digging in the work of the Bocconi Boys to see iof they have the same historical perspective on Keynes, or are really calling MMT “Keynesian Economics” and attacking it by proxy.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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8 Responses to Keynes, James Bartholomew, and The Bocconi Boys

  1. Oliver K. Manuel says:

    Yes, Disqus is broken. My ResearchGate and Disqus accounts were both closed without explanation and locked after I posted information like this:

    It is no mere coincidence that almost all members of “national” Academies of Sciences worldwide are now unable to “see” the message clearly recorded in exact rest masses of the ~3,000 types of atoms that compromise all matter (See Figures 1a, 1b and 1c):

    When world leaders united nations and national academies of sciences on 24 OCT 1945 to hide the source of energy that made and sustains every atom, life and planet in the solar system, they inadvertently planted the seeds of revolution that will remove them from power.

    I again beg them to accept amnesty and peacefully resign.

  2. Graeme No.3 says:

    The original, or at least documented, occurrence of deficit spending was in France in 1719-20. Known as the Mississippi bubble, but overshadowed by the (near copy) South Sea Bubble in the UK.
    At the height of the Bubble 6 printing presses in Paris were working 24 hours a day printing sheets of banknotes. These were subsequently burnt as valueless.
    John Carswell’s The South Sea Bubble has one of the best descriptions of both Bubbles, the false theory, the political corruption, the inflation and the cleanup.

  3. Larry Ledwick says:

    Paper money and deficit spending actually dates much earlier, China invented the issue of paper money on April 3 1024 the Imperial Sung treasury began to print and circulate “Chiao-tzu” notes. The value of the Chiao-tzu dropped to 80% of their 1024 value by about 1100, then cratered to essentially zero value by 1127. The Chin government repeated the experiment when it began issuing the “Chiao-ch’ao” note in 1153, it held it’s value for about 40 years then crashed to zero value by 1233 after they began run away printing of money to finance defense against the Mongol invasions of the period from 1211 to 1234.
    The Southern Sung did the same thing again between 1127 and 1275, again 100% loss of purchasing power of the Sung Paper “hui-tzu” money.

    Rinse repeat over following years all documented in the book “Fiat Paper Money” The history and evolution of our currency. In the back of the book he lists 433 national currencies which collapsed between 1910 and 2010. The worst decade understandably was 1941-1950 when 63 countries currencies became worthless. The next worst was the decades of 1971-1980 (40), 1981-1990 (50), 1991-2000 (55), 1991-2000 (57), 2001-2010 (33).

    The lesson is that every paper fiat currency eventually collapses, because of the pressures for the issuing government to try to print their way to prosperity, and it is rare for one to last as long as the US Dollar or the British Pound once it is disconnected from its fixed value anchor.

  4. Brent Buckner says:

    MMT itself is not a mainstream school of thought, although it may share features with mainstream thinking.

  5. David A says:

    MMT may not be mainstream school of thought, but certainly appears to be mainstream school of practice and quite irresistible to human nature. Great list Larry L.

    The failure of formal Keynesian economics was, in my view, a failure to understand basic human nature, which thus precludes following the two year rule and unspent surpluses, and humans under the pressure of “political expediency” will find such discipline makes them in general unelectable as government becomes sugar daddy. So it appears that “MMT” is the inevitable end of embarking on Keynesian formal, just as communism or some form of sheer totalitarian government is the inevitable result of beginning the socialism experiment, and that dark aspects of human nature enable or even demand both.

    There is some talk of attempting to engineer some sort of economic reset, as now days most money is simply bits in central bank computers, and trying to unwind all this leveraged debt via a simple reset. Essential this appears to me to be a convoluted way of attempting a “free” society, where money does not exist.

    Again, the darker side of human nature gets in the way of a moneyless “everything is free” society. Unfortunately the number of do nothing takers grows exponentially, and the political pressure to claim victimhood becomes the biggest racket of all.

    So in my mind the BIG question is; “Can society and education and principles of noble behavior ever mature to the point that money is simply eliminated?

    Again this falls back to requiring a different understanding of human nature. Only in this case it an understanding of a very positive side of human nature; one where people are brought up to understand that utility and service to others are an essential component of human happiness. How I wish our education system taught this universal principle instead of teaching the blame game, and how to monetarily profit from it.

    Mr. Smith, as a side note I was curious if you had yet read the section on Vedic mathematics in the book I loaned you. You had commented words to the effect that there are lots of interesting mathematical tricks. It is some thirty years since I read that book, but my understanding was that is was a shortcut to many mathematic disciplines, from addition, subtraction and multiplication, to calculus.

    I am certainly no mathematician, and less of a computer geek, but I was curious how computer code handles mathematics, and if this system was inclusive or universally applicable to these disciplines, if they could possibly, say in very mathematically complex computer systems like climate models or engineering applications for instance, allow faster computers if the code was written in Vedic mathematical form vs. standard methodology???

    (Please share a small portion of your royalties if this is possible and you make a fortune from it. (-;

  6. E.M.Smith says:

    @David A:

    Yes, read it. Most of it would not improve computer math. Why? Because some of it is almost the same, IMHO.

    I think the key bit in what he does is an extension of “ten’s compliment”.
    Computers do math base 2, so use the “two’s compliment”.

    Once I saw that I thought I needed to reread and prove it, but didn’t get there yet. But in essence, I think computer math chips alredy use the same or close enough “tricks”.

    It does extend it into multiplication, but I think I saw that done somewhere else, too. In short, some more search on prior art needed.

    “A binary computer does exactly the same, but with binary numbers. In binary encoding each long number is multiplied by one digit (either 0 or 1), and that is much easier than in decimal, as the product by 0 or 1 is just 0 or the same number. Therefore, the multiplication of two binary numbers comes down to calculating partial products (which are 0 or the first number), shifting them left, and then adding them together (a binary addition, of course)”

    That partial product and shift looks familiar… But it needs a few hours working one method vs the other to see where they match and differ to test this thesis of similarity.

    Per moneyfree economics: As long as there is trade, there is money. Even if it is just the Austrian School most tradeable good. One can eliminate currency, but not money. This gets back to the old “pizza and beer” economic model. In a world where you have pizza and I have beer, we are each better off trading some for the other. Even if done as barter, this is effectivly you having pizza slice money and me having beer mug money and agreeing on the exchange rate…

  7. E.M.Smith says:

    Or maybe it just reminded me of some binary methods I had seen before due to a bunch of folks already applying it to computers:

    lests a lot of them…

  8. David A says:

    E.M. thanks and you appear to be quite correct that such ‘compliments” work is foundational to computers to a degree, and from your web search, already being done, or has been done, although how extensive its reach, I am not certain. From your link I found this abstract interesting and cogent.

    Binary Division Algorithms based on Vedic Mathematics: 2015 paper published in the Intl journal of electronics and engineering.
    From the abstract…
    “There are various fields in digital world which demand excessive multiplication and division. For them algorithms based onVedic Mathematics have proved to be much faster than other algorithms and there is further room for improvement also,which attracts further attention from researchers working on these algorithms.”…

    Prabir Saha et al
    [1) used Nikhilam Navatascaramam Dasatah (NND) sutra of Vedic Mathematics to develop a Vedic Divider Architecture for binary numbers and it was implemented on spice specter through existing 90nmCMOS technology. Comparison of new architecture was done with digit recurrence, convergence and series expansion based architectures and found improvement of 50%, 45% and 41% respectively in vedic architecture. Furthermore power consumption was less by 44%, 35%and 27% respectively. They calculated that EDP(Energy Delay Product) was reduced by 73% compared with series expansion based architecture (the best architecture reported so far). ..
    Well nice to know my impulse had some validity and better minds then mine are working on this.

    Concerning a free society your thoughts help me better understand the implications of such a system, or more directly, the necessities for money even if it is in the form of barter, which I think will continue to increase in proportion to the central government control and attempts to move to a cashless society.

    Something of value must be given for something of value. it was always clear that this “all is free” was not workable and a large portion of the population would take advantage. (IMV this illustrates a large problem with big Government; all sugar daddy, no discipline no responsibility for one’s own life and decisions even allowed, food, shelter, healthcare, etc.. all administered by the government, and no requirement to give anything in value in exchange, zero personal responsibility, everyone is “less fortunate”, not less willing. less educated, or simply lazy)

    The Star Trek idea of a free society, free as in no money/no barter, would appear to be unworkable. Who gets the waterfront mansion with the infinite edge pool and all the water toys? (Certainly not everybody) Does everyone drive a rolls Royce or a Ferrari, or both along with whatever toys they want? The idea of a Star Trek like free society appears to require large dictatorship like central government.

    But can the modern system of debt be reset, unwound, debts credited, paid, whoever is left with the bag receives credits or deposits, a financial system reboot?

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