What you says is true. It's a little unfair to criticize his description of economics for what he says in a short article, but I'm not criticizing so much what he says here but his point that there are four essential truths of Macro that justify the current framework.
>"And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha."
I disagree with that. There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized).
There is a good way to see it. If you know the mainstream model of macroeconomics, you can make predictions, are the predictions about the last decades right or wrong? What the model (the framework that the author is defending) says about what would happen with big increases of bank reserves in the system?
Because the predictions were wrong, instead of changing the theory, they speculate that the world has change while they were not looking. It seems to me that would not be allowed in other sciences.
> There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized).
Repeating a falsehood does not make it any less false. QE policy was designed by mainstream economists who did not want to see massive inflation, and as they predicted they did not see massive inflation, for reasons [partly] explained in the second sentence on that topic you have for some reason overlooked. The concept that the relationship between money supply and inflation was contingent on another variable called "monetary velocity" dates back to 1911 and the extent to which monetary stimulus produce growth rather than inflation in recession is the fundamental debate of macroeconomics. QE and Zero Lower Bound debates were not new in 2008 either.
Your assertion that economists' reaction was to "speculate that the world has change while they were not looking" no discussion is a confession of your own ignorance of contemporary macro, nothing more. (There's nothing wrong with being ignorant of contemporary macro - more exciting hobbies than reading macro papers exist - but plenty wrong with dismissing an entire field of study by reading and understanding only the first sentence of a summary paragraph)
I go back to my CAP theorem example. It would be possible to conclude from a one-line summary of CAP theorem that computer scientists cling to theory as an excuse for not working on better sharding technologies or anticipating the possibility of building databases at social media scale. But it would also be laughably wrong.
Ok, it seems you know what you are talking about. Maybe you can help me with some doubts:
-Japan have been monetizing the debt for decades, what is the consequences predicted by the textbook mainstream for inflation and interest rates? And what mainstream think are the consequences of its high public debt?
-In 2011-2012 there was a crisis of sovereign debt for some countries of the Euro-area. The reason was that "the markets" perceived the debt of those countries as too risky, so, they demanded a high return. How was, by textbook macroeconomics, the crisis solved? Currently, those countries have bigger public debt that then, and, a very big (Covid) crisis in their hands. How mainstream economics explain that the returns demanded by the market are so low now compared to then?
-When was the last time that a country payed its public debt and what would happen if they do (by textbook macro)?
-What is the mechanism that produce inflation when you increasing reserves (monetary policy) instead of spending in the economy (fiscal policy) and why has not worked (except for the stock market)?
-What are the measures that Cowen is talking about when he says: "[..] central banks simultaneously act to decrease the velocity of money — that is, if they take measures to reduce borrowing and lending [..]"
1) Japan's public sector debt has risen over time, but is not unusually high by global standards. Mainstream macro suggested that Japan would struggle to stimulate further growth once its interest rates hit zero (structural reasons why Japan's economy slowed down is a book length topic) which is of course what happened to Japan before the rest of the world. QE was a slightly unconventional way of achieving the textbook macroeconomic goal of injecting more money into the economy when it slows down.
2) The European Central Bank announced emergency measures to ensure all governments affected by COVID have access to reserves of Euros. In 2011-2012 it didn't, taking the view that countries with massive deficits should resolve their problems by cutting spending. Bond buyers didn't trust that they would, which made national debt servicing even more expensive, though these countries would have had problems even without that.
3) I'm not aware of any country repaying all its public debts or any textbook macro suggestion that this would be a remotely sensible goal for them to aim for. Textbooks would imply that continuing to aim for the necessary fiscal surpluses during an economic slowdown would result in massive recessions long before the debt got near zero.
4) Monetary policy produces inflation from credit becoming cheaper resulting in more money being available to spend on goods and services (and less reluctance to lend or spend based on concerns about the cost of debt service). The responsiveness to monetary policy is reduced when people still don't want to borrow more and central banks can't make it any cheaper to borrow money than it already is. More unconventional interventions like buying stocks obviously directly and immediately increase stock prices, but the average stock holder is less likely to go out and buy more goods, services or staff with their returns than the average borrower, so doesn't necessarily boost the economy/inflation as much as injecting money to reduce interest rates.
5) Cowen's phrasing is, admittedly, vague and crap here. Much of the velocity of money decrease has already happened because people are not spending or investing or borrowing as much in the middle of an economic crisis. On top of that, you've got much of the additional spending being ring fenced or restricted to those not spending.
That's a long and good answer. Thanks for taking the time.
This is an interesting discussion but I don't want to extend it ad infinitum. A parting thought:
Your answer about ECB tell me that you agree that central banks can control bond yields. So, I have to ask myself who is the "mainstream economics" that we are discusing about. Maybe we are thinking of different people.
Was not Martin Feldstein? (1) is not Paul Krugman? (2)
Feldman quite clearly states that Japan moving from deflation to inflation would be the trigger that caused a central bank to increase interest rates (orthodox policy response to inflation) which would increase public debt service costs. So there's no contradiction between central banks affecting bond yields and the effect of the central bank increasing the cost of borrowing being bad for the budget of the Japanese government issuing those bonds.
You'll forgive me for not bothering to defend the half dozen articles Mitchell takes exception to in the second post (though I will say Krugman is given to glib generalisation when writing for mainstream audiences. A quality shared with pretty much every MMT blog going...)
>"And the exception to the rule that increasing the money supply is dealt with by the very next sentence from the one you've singled out as a gotcha."
I disagree with that. There is evidence that the mainstream view is wrong on this, but it's never recognized, not even discussed because it's one of the "truths of macroeconomics" (and because the rest of the building would start to wobble if recognized).
There is a good way to see it. If you know the mainstream model of macroeconomics, you can make predictions, are the predictions about the last decades right or wrong? What the model (the framework that the author is defending) says about what would happen with big increases of bank reserves in the system?
Because the predictions were wrong, instead of changing the theory, they speculate that the world has change while they were not looking. It seems to me that would not be allowed in other sciences.