Ep 72 [1/2]: John Harvey: The Battle of the Bulge (and the nitty gritty of Exchange Rate Determination)

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Welcome to episode 72 of Activist #MMT. Today I talk with Texas Christian University PhD. economics professor and , John Harvey. The topic of our conversation is exchange rate determination. However, be forewarned that this episode is not an introduction but a deep dive into the weeds of John’s 2009 textbook, . For a proper introduction, you’ll find links in the show notes to several good recommendations, including two MMT Podcast episodes (, and ), John’s with Modern Money Australia, a on the economics blog Naked Capitalism, and a layperson-friendly . This interview took three months of preparation. When I first read John‘s book, I only made it halfway through and, in all honesty, aside from the introduction, I got very little out of it. John’s writing has nothing to do with it, it’s simply an intense and completely (if you’ll forgive the pun) foreign topic. Chapter two, especially, was impenetrable. It’s a summary of the major exchange rate models in neoclassical economics and frankly made zero sense. I took a nap after every few paragraphs and watched videos on each type of model, but none of it felt relevant. (John briefly goes over this chapter in his August 2020 lecture.) I started the book over again and grew fascinated by a five page section in chapter one called Post Keynesian Economics. You’ll find it on pages five to nine. The section is an introduction to post Keynesianism and specifically how it contrasts with neoclassicism (the latter of which is currently mainstream economics). Without exaggeration, I read the section around twenty times and wrote pages of notes and questions, several of which I posted on the Facebook group, Intro to MMT (which, I wasn’t then, but am now, a moderator of… and I recommend you join it). I spent the next two months diving into the basics of mainstream economics, starting with a 2019 paper expressing the common concern for the long-term fiscal sustainability of government spending, and its corresponding debt and interest. I then read and interviewed the authors of the 2020 paper responding to it, by German MMT economist Dirk Ehnts and Danish PhD. candidate Asker Voldsgaard. I also read a paper on historical time as recommended by Asker, and a 2006 paper by Scott Fullwiler. The interview inspired a post where I break down the topic in detail: I then read Steve Keen’s 2011 book, . I didn’t understand much more than I did understand, but it was fascinating and enlightening nonetheless. It also provided excellent background for my next interview with UMKC PhD economics candidate Sam Levey, with whom I discussed the core assumptions of mainstream economics. Links to all of these papers, posts, and interviews can be found in the show notes. [The interviews with Ehnts, Voldsgaard, and Levey will be released to the public in February. Patrons of Activist #MMT can hear them right now.] Before returning to John’s book, I read several papers by John and Ilene Grabel, plus the 2004 book by Oberlechner, called . I especially recommend Oberlechner’s book as a layperson introduction to exchange rate determination. It’s particularly easy-to-read and also comes highly recommended by John. As is made clear in Oberlechner’s book, one of, if not the, most important determinant in the reality of exchange rates is group psychology. Finally, I read John‘s book straight through, beginning to end. This time, I was better prepared to distinguish between what to discard and what to focus on. Re-reading chapter two, I now realize that it’s less that I didn’t understand it and more that it’s just not understandable. You would not lose much from skipping the chapter entirely. Its primary benefit is not to learn about foreign exchange but to provide a benchmark for just how far off mainstream is from reality. The other major lesson I take from John‘s book is that people do not want only to trade – meaning purchase physical goods and services from a company in...