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Keynesian Deficit Doves vs. MMT Deficit Owls

letsgetitdone's picture

In a comment on another post of mine, Kelly Canfield, a blogger and commenter at FDL, asked me for the following.

What I would appreciate is a simple, 3,4 bullet point method as to why I should support, and more importantly, tell others that MMT is superior to the Keynes theories which I have pointed out and illustrated to others before this current situation.

I can easily explain that the private sector is not providing demand, and that the Fed sector should, and people would be better off with demand stimulus.

Explain to me how I EXPLAIN that MMT is superior to that basic premise, if it is?

Not sure I want to do that in three or 4 bullet points. But what I will do is to state what I think are some differences that are very significant for policy activism between a Keynesian approach employed by people like Paul Krugman, Brad DeLong, and Robert Reich and a Modern Monetary Theory (MMT) approach employed by people like Warren Mosler, L. Randall Wray, Bill Mitchell, Jamie Galbraith, Stephanie Kelton, Marshall Auerback, Scott Fullwiler, and Pavlina Tcherneva. So, here are some contrasts between the two approaches on seven important issues. Out of these contrasts, there should be much material for short explanations about why MMT is superior to Keynesian approaches. [Readers? -- lambert]

1. Government deficit spending for recovery -- Keynesian deficit dove position: provide high fiscal multiplier Government deficit spending or tax cuts to stimulate aggregate demand.

MMT position: provide high multiplier Government deficit spending: targeted on payroll tax cuts that will get more money into the hands of working people quickly; providing revenue sharing grants to States for maintaining existing State-level jobs; and direct job creation (job guarantee for anyone who want to work)

Significance: MMT says it's not just about increasing aggregate demand and GDP. It's about targeting and getting rid of unemployment!

2. Government fiscal policy over the business cycle -- Keynesian deficit dove position: deficit spend in bad (less than full employment) times; have government surpluses in good (full employment) times.

MMT position: Government surpluses withdraw net financial assets from the private sector. Therefore, they should only be run when the private sector is over-heated and demand-pull inflation exists. Since the size of the Government deficit, without explicit Government attempts to raise taxes, is determined by 1) the level of savings of the private sector; and 2) the level of the trade deficit (surplus), it is perfectly possible that the Government may have to run deficits continuously to maintain full employment, if there is demand leakage from a trade deficit and/or private savings that the Government must make up for by deficit spending.

Significance: MMT says: ”Don't worry about this simple fiscal rule.” Whether deficits are needed depends on the situation and specifically on our trade balance and our desires to save in the private sector.

3. Long Term Deficit Reduction Planning -- Keynesian deficit dove position: We can and should engage in long-term deficit reduction planning since the fiscal policy can control the deficit, and since there is a long-term inter-temporal budgetary constraint on Government spending due to the potential of the bond markets to impose an insupportable interest burden on the budget when continuous deficits, increasing national debts, and increasing debt-to-GDP ratios accelerate too fast and/or get too high.

MMT position: We cannot and should not formulate or implement plans for long-term deficit reduction. First, because such plans assume that Government fiscal policy can accurately predict the effect on deficits of its attempts to close deficits by austerity measures. In fact, however, raising taxes or cutting programs always reduces net financial assets in the private sector, which in turn reduces aggregate demand and the level of economic activity, which, in its turn, drives up Government expenditures and, inadvertently increases its deficits. We already see this in the UK. the austerity measures of the Conservative/Liberal coalition government aren't decreasing its deficits, but are increasing them, and driving the UK closer to a double-dip recession.

Second, because we should not be distorting fiscal policy by targeting it at deficits and surpluses, national debts, or debt-to-GDP ratios at all. Fiscal policy should, instead, be targeted on fulfilling public purposes including full employment, price stability, the elimination of poverty, providing universal health care as a right, maintaining public safety, creating an excellent educational system for all of our children, strengthening the social safety net, re-inventing the energy foundations of the economy, and so on. These, and not deficit reduction or debt-to-GDP ratio stabilization should be our real goals, because for fiat currency systems with floating exchange rates, non-convertibility of currency, and no external debts in any other currency or pegs to any external currency or basket of such currencies, there is no inter-temporal or any other kind of budgetary constraint on Government deficit spending imposed by previous deficit spending.

That is, it doesn't matter what such a Government's national debt is, or what it's debt-to-GDP ratio is. It still has the same capacity it has always had to buy anything it wants to buy for sale in its own currency, since it can always spend/create what its legislature appropriates.

Third, unlike Keynesian deficit doves, who evidently think that without long-term deficit planning and control of deficits, interest rates will rise catastrophically, and eventually consume the Federal budget; MMT deficit owls, point to the capability of the Government to spend without issuing further debt, use coin seigniorage, or issue only short-term (3 months or less) debt as measures the Government can take to either eliminate Treasury bond interest costs altogether, or to lower them to a level arbitrarily close to zero. MMT deficit owls say: Governments sovereign in their own currency are “in charge” in the bond markets, not bond market vigilantes, whose very existence depends on the sufferance of the Government.

Significance: MMT says: long-term deficit reduction plans are a no-no and should be opposed! They're based on false theories and put constraints on Federal deficit spending that are sure to damage the economy. Most importantly, they hinder progressives in solving real problems

4. Long Term Deficit Reduction Projections -- Keynesian deficit dove position: Organizations like the CBO can produce useful long-term projections of deficits and debts that can be used as the basis for long-term deficit reduction plans

MMT position: Organizations like the CBO can produce long-term projections based on certain assumptions; but they aren't and can't be useful because the assumptions are always unrealistic, often self-contradictory, and always fail to take into account the emergent character of political and economic reality.

This is apparent when we look back at CBO, OMB, and other fiscal projections in the past. In 2002 and after, where were the surpluses as far as the eye can see being projected by CBO at the end of the Clinton Administration? Where were the projections of the housing bust of 2007 and thereafter and its effects back in 2006? Where were the projections in 2007 of the great crash of 2008? Where are the projections right now of what happens if the United States suddenly decides to stop issuing debt instruments while doubling its deficit spending? The answer is that projections like these could not be made by CBO because their projections are always based on assumptions that cease to hold because of their sensitivity to unanticipated political occurrences.

Significance: MMT says: Since long-term deficit projections are invalid, and since they don't affect the Government's fiscal capacity. Stop doing them! And stop worrying about them! Worry about jobs, poverty, education, energy foundations, health care, global warming, the environment, the rise of global plutocracy, etc. These are the real problems!

5. Funding Government spending -- Keynesian deficit dove position: Government spending must, over the long-term, be funded by some combination of taxing and borrowing.

MMT position: Government spending isn't “funded.” It occurs under the authority of the Government to issue currency, which authority is unlimited by any constitutional requirement for “funding.” There is therefore no intrinsic Government Budgetary Constraint, (GBC) either static or inter-temporal. This means that we never need to ask the question, “how will we pay for it?” when considering Government deficit spending. There are many things we do need to consider: the likely results of such spending, how it's targeted, its implications for full employment; its impact on inflation. However, we never have to ask “how will we pay for it?” or worry that “the Government is broke and can't afford it,” because the Government of the United States is the currency issuer, not the currency user and it always spends and simultaneously issues “currency” when it does so.

Significance: MMT says: We never have to worry about the Government finding financial resources or “how are we gonna pay for it!” So, we can just do what's right when it comes to balancing off the real resources being used to create real wealth!

6. Social Security Solvency -- Keynesian deficit dove position: The Keynesians accept the Government's projections that Social Security will become insolvent and unable to pay full benefits by 2037. So they advocate doing something about that by raising the current salary cap on FICA taxes, and sometimes even raising the retirement age, though not by as much as deficit hawks want to see it raised. Even if a Keynesian deficit dove opposes all changes except for raising the FICA salary cap, they still acknowledge that there is a long-term SS FICA revenue shortfall that must be met either with increased taxes, or by cutting Social Security benefits, and which ought not to be handled through deficit spending.

MMT position: In contrast, MMT says that since Government spending isn't and need not be “funded,” there is no Social Security revenue shortfall problem. The only problem is Congress and whether it is willing to guarantee Social Security at present or increased levels for retirees. Stephanie Kelton has put this very well:

”Funding Social Security is always and everywhere a political choice. The strongest evidence of this comes directly from the 2009 Annual Report of the Trustees. In that report, they predict gloom and doom for Social Security because “there is no provision in current law that would enable full payment of benefits, once the Trust Funds are exhausted”.

In contrast, the Supplementary Medical Insurance (SMI) Trust Funds are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.”

It is that simple. The former is in ‘trouble’ because the government isn’t committed to making the payments, and the latter gets a clean bill of health because the government will always make the payments.”

Significance: MMT says: There is no revenue shortfall problem for Social Security because SS payments need not be funded, only appropriated, by Congress. The real problem is a Congressional and presidential guts problem; not a Social Security revenue problem!

7. Proposed progressive reform programs -- Keynesian deficit dove position: Whatever programs are proposed must fit within “progressive” deficit reduction plans and their projected glide path toward a declining public debt-to-GDP ratio. However, important the programs, the problems they address, and the expected benefits from them, the overall deficit reduction plan with its various targets must have priority and provides spending constraints for the various progressive reform programs.

MMT position: Progressive reform programs must always be evaluated in the specific economic and social context of the proposed legislation and the key issue is always the assessment of their likely impact and the real benefits and costs (including side effects) of this legislation. Considerations of the size of deficits, debt-to-GDP ratios, or trends in such statistics are not among the impacts that are relevant. Impacts on employment, inflation, and a whole host of social, economic, and political factors are all relevant. And whether or not there is deficit spending, is certainly important because Government deficit spending adds to private sector net financial assets. However, prioritizing a long-term deficit reduction plan over progressive measures that will result in greater benefits for Americans is fiscally irresponsible because it sacrifices real increases in well-being to an erroneous theory about non-existent Governmental Budgetary Constraints.

Since Keynesian deficit doves as well as deficit hawks are doing just that with their long-term deficit reduction plans, they too are committed to fiscal irresponsibility over the long term. And in their willingness to compromise with deficit hawks out of a shared belief that their really is a long-term deficit problem, they also are willing to allow a certain amount of deficit reduction activity in the short and medium term, even though they know this is likely to be damaging to our already suffering economy.

Significance: MMT says: Escape from real fiscal irresponsibility (trying to target abstract fiscal indicators of budget performance rather than real outcomes of spending) and fiscal unsustainability (pursuing fiscal policy that reduces real economic capacity by destroying industry, manufacturing, and people skills) to true fiscal responsibility (targeting government spending at full employment, price stability, and other real public purposes) and true fiscal sustainability (Government spending that at least maintains and generally increases the real, rather than nominal capacity of the economy to produce the goods, services, and conditions that people value and fulfill public purposes).

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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Submitted by Hugh on

I think the primary difference is one of conceptual frames. Keynes was writing under a gold standard. MMT is a post-gold standard theory. Conservatives, neo-classical economists, neoliberals, and Establishment liberals like Krugman and Delong continue to act as if the gold standard never went away. They continue to address conditions that no longer exist.

letsgetitdone's picture
Submitted by letsgetitdone on

But, when we talk about that we always get people who ask us what difference does the "frame" difference make? So, here, I tried to expose 7 policy relevant differences. Over at FDL I'm still getting comments saying that they (the commenters) don't see the contradictions. See:

http://my.firedoglake.com/letsgetitdone/...

http://my.firedoglake.com/letsgetitdone/...

http://my.firedoglake.com/letsgetitdone/...

Submitted by Hugh on

Personally, I use a resource frame rather than the two you are comparing. It addresses much better why wealth inequality and kleptocracy are the problems they are. They represent a siphoning off and sequestration of society's resources. You don't need to know anything about capital markets, or efficient market hypotheses, to know that if the resource allocation is screwed up, then capital markets have failed.

I think this area is much more productive for understanding our current economical predicament. It is also much simpler and approachable to the public than MMT is. MMT is too much of a reaction to the economics that was: neoclassical and Keynesian (and I could throw in Austrian school as well). It spends too much of its time looking at the past rather than looking at the future.

But as long as you are looking at the past, the gold standard is the key feature that separates the standard monetary theories from MMT. Money operates one way under a gold standard and in a completely different way when that standard is removed. With a gold standard, there is an external arbitrary referent. So government debt has to be managed and financed with regard to it. Deficits matter. Government default is a possibility.

In a post-gold standard world, there is no reason for a government to finance its debt. T-bills are unnecessary. There is no hard standard against which debt is measured. The only constraint is inflation. The only real question at this point is how does the public through its government choose to deploy our society's resources, and it is this which brings us back to a resources approach. A resources approach always has front and center what kind of a society we want to determine how resources will be allocated to achieve that society. Money is just a secondary characteristic, tokens or entries, that gives access to resources to accomplish the goals we the public set forth.

When we concentrate too much on money, or nowadays where we treat it as some kind of primal matter independent of its societal function, we lose sight of our goals as a society and that the only rationale for money is to serve those goals.

MsExPat's picture
Submitted by MsExPat on

n/t

Submitted by Hugh on

Nice links. When we talk about Keynes and Keynesianism, it is really that part of his work that exists within the framework of the gold standard. While he denied the importance of deficits in the short term, I don't know that he ever repudiated their significance in the long term.

When the British went off the gold standard in 1931, it was a limited case because most notably the US did not. So the British could arbitrage and benefit from the difference.

Keynes also saw inflation as the primary constraint for currencies not on the gold standard, but I don't know that he ever thought globally about the implications of what a non-gold standard world would look like.

And while Krugman derides goldbugs, he has never gotten beyond the gold standard in his thinking on debt, and it is a criticism I share with MMTers that he doesn't seem to have a clue about what having a fiat currency actually means.

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Submitted by malagodi on

Since I'm really economics challenged, I appreciate the explanation.

But I have one question, one that arises over my befuddlement about the basic 'sovereignty' idea and why it still exists today. Sovereigns are 'sovereign' with regard to the law within their jurisdiction or territory; what the King or Emperor or Legislature says is what goes, by what used to be divine right or brute force depending on your view. But historically, even the mightiest kings were not sovereign with regard to money. They were trapped in an international (or inter-city/state) system, as they are today. Sovereigns would find themselves beholden to others outside of their jurisdiction, and the stronger sovereign rules.

Or am I completely wrong about this?

letsgetitdone's picture
Submitted by letsgetitdone on

of commodity or commodity-backed money which was convertible to the underlying commodity.

Since 1971 when Nixon took the US, and indirectly all other nations off the gold standard, nations have operated under fiat currencies imposed as legal tender, by the nations issuing them. Some nations (US, Canada, Australia, New Zealand, Japan, the UK and others) have non-convertible fiat currencies which they can issue at will, allow to float freely in the international currency markets, and also have no appreciable external debts in currencies not their own. We say that these nations are sovereign in their own currencies because they aren't subject to any other agents that can restrict their ability to spend for whatever is for sale in their own currency.

Other nations, on the other hand, are not sovereign in their currencies. Some have given away their sovereignty to join a supranational currency zone. These include all the nations that are part of the Eurozone. Their the ability to create money lies not with the individual member nations, but with the European Currency Board. This means that all national debts are owed in a currency the individual nations do not control. That's why international bond traders and speculators can drive up interest rates for the member nations of the Eurozone up to insupportable levels. Right now we see this happening in Greece, and we will also see it in ireland, Spain, and Portugal soon, unless the Eurozone breaks up and the various nations go back to their own fiat currencies.

Still other nations appear to have fiat currency systems. However, these currencies are either pegged by their Governments to the value of a freely floating currency (e.g. China pegs the Yuan to the US dollar; or owe substantial debts to other nations or international organizations in foreign currencies they don't control and cannot issue at will (often foreign debts are de-nominated in dollars). In both instances, the Governments in question have made arrangements that constrain their ability to spend using their own constitutional authority.

What establishes the value of fiat currencies? First, it is that fiat currencies must be used by people to pay taxes. So, its value is dependent on the continued coercive authority of the State in the realm of tax collections. Second, the international value of a freely floating fiat currency is set by the foreign exchange markets. And third, the value of a currency is also influenced by the real wealth and productive capacity of the nation using the currency. If, such a nation produces real wealth and retains the capacity to do so; then its currency will continue to have value in the international currency markets.

How is all this affected by deficit spending? Deficits add net financial assets to the private economy. The larger the deficit, the more money and the more aggregate demand it adds. Does deficit spending debase the value of money and lead to inflation? This is an empirical question. And its more like does deficit spending lead t inflation and so debase the value of money? MMT economics holds fast to the view that demand-pull inflation won't occur until the output gap is filled and full employment is reached. Only then will deficit spending result in inflation rather than full employment.

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Submitted by okanogen on

What kept me from understanding MMT initially, was the lack of having it described in a functional, real-world basis. How most of the people talking about MMT do it now seems more designed to make them look educated, rather than actually educate. They are talking to their peers, and quite frankly, often are rather condescending to lay people trying to get a handle on it. Pointy-headed academics talking down from their ivory towers. Maybe they are exasperated that people don't recognize reality? I understand that, but they should get over that, because that is just the nature of our world. When I explain to people why it doesn't matter (right now) what our national debt is, and why it doesn't matter if we have deficit spending, and why we don't really need to raise federal revenues through taxes (at this time), is the following:

1. Who is going to default on the US government? You? China? Boeing? Is Citibank going to foreclose? Do you really think a Social Security check is going to bounce? That a bank isn't going to cover a US government check? As a practical matter, how could that happen? Only if the government decided to not pay its checks. It doesn't even need to actually print the money, it just increases the numbers in the bank's computer account. So the only way it can not pay a check is if it refuses to raise the debt ceiling and just pay the check. There are NO OTHER LIMITS.

2. Regarding our foreign trade deficit, for argument sake, say China "calls in their debt". What would the US government do? Well they could write them a check, in US dollars, because that is what they owe. Here ya go China! Here's a check! Or they increase the number in China's US bank accounts by that amount in US dollars. No wholesale shipment of gold bullion, or our first born, or anything else like that.
But China would never do that. Why? Because it would make the US dollars they hold worth less. Not worthless, but worth a lot less in value, i.e. what they can buy with them. And that is their only option. What other option do they have?

2. Yes, your state/city/county whatever actually can go bankrupt. But that is exactly what I'm talking about. They can because they aren't the US government. They can't just make US dollars, the US government can. If Obama and the Democrats had been smart, they would have given federal grants to the states to cover their deficits as part of the stimulus package. Because they didn't do that, the states have to raise taxes and cut spending and that is just one more thing dragging the economy down again, hurting small business, and preventing employment from happening.

3. So what about Greece, and what is happening to them? Same thing, they use the Euro, not their own sovereign currency. They can't print Euros. They are like a US state in that way.

4. Ok, yeah, there's no such thing as a free lunch. In the US we have a sovereign currency, it isn't tied to gold, or another currency or land or anything else tangible. So while the government can make as little or much as they want of it, ultimately the value of it is based on people's faith in the US government to keep that value stable to exchange for things that we need in our everyday lives. So the US government distributes dollars through entitlement checks (a small percentage) and mainly through banks as loans. It maintains the value of the dollar by determining the quantity of loans it gives out, as well as the interest rate it requires from banks in return.* All of this ultimately comes back to US banks, who are forced by the government to accept US dollars in payment for all debts, in exchange for the exclusive ability to borrow money directly from the federal government.

5. Another method the government uses to close the loop and maintain the value of the dollar, is to pull dollars back out of the economy via taxes. It then uses those taxes to supposedly fund all of its spending. But the key point here is that the US government doesn't have to do it that way anymore! Not since leaving the gold standard behind. The US government (and any other government with a sovereign currency not tied to a standard) could simply fund all of its expenses through its own power, and its own decision on what a dollar is worth!** That is basically how it works anyway. We just have taxes on the federal level as a fig leaf that our currency is only worth what the goverment says it is worth. It's a vestigial appendage of the old gold standard days, and (here is a mind-blowing speculation) you have to wonder if the political parties aren't maintaining that fiction, as a way of protecting some powerful interests in a previous status quo invested in the edifice of taxes, and/or maintaining a useful two-party system political battle regarding balanced budgets, deficit spending, taxes and tax policy, lack of revenue for welfare, or childcare, or healthcare, etc..***

* This is the most difficult part to describe.
** This is also the most difficult part to describe.
*** Talk about when tin foil isn't tin foily.

letsgetitdone's picture
Submitted by letsgetitdone on

you expressed this beautifully until:

5. Another method the government uses to close the loop and maintain the value of the dollar, is to pull dollars back out of the economy via taxes. It then uses those taxes to supposedly fund all of its spending. But the key point here is that the US government doesn't have to do it that way anymore! Not since leaving the gold standard behind. The US government (and any other government with a sovereign currency not tied to a standard) could simply fund all of its expenses through its own power, and its own decision on what a dollar is worth!** That is basically how it works anyway. We just have taxes on the federal level as a fig leaf that our currency is only worth what the goverment says it is worth. It's a vestigial appendage of the old gold standard days . . .

I basically agree with this, but a few points. First, using taxes to take money out of the economy, the US Government reduces demand and fights inflation in that way. Second, also, the US does not use taxes to fund its spending anymore. You imply that point, but I think it needs to be emphasized. The tax collection and spending processes are operationally separate and the money collected in Federal taxes is destroyed and replaced with new money in the Government spending process.

Third, I'm not sure what to make of the "fig leaf" notion here. Federal taxes have three important functions. 1) they are a tool for regulating demand. 2) their existence forces people to acquire US Dollars, simply because the only acceptable tax payments are in dollars. So, taxes are the most basic factor establishing the continuing value of our currency. And 3) Federal taxes can also function to redistribute wealth in American society. For the past 40 years Federal Tax policy has been used increasingly to redistribute wealth upward. We need to change that over the coming years if we intend to save our democracy.

Finally, I really, really liked your plain talk in the first four points.

okanogen's picture
Submitted by okanogen on

Thanks for the props, and you are right about my 5th point. I do think that needs to be sharpened. Probably because I went off on a tangent.

I said "supposedly" uses that tax money to fund spending. But that isn't a strong enough word. A better way to say it is

5) "You think taxes fund government spending, but you are wrong." Taxes are how the government pulls money out of the economy. As well as cutting off or decreasing how much it lends to banks, the government also uses taxes to maintain the value of the US dollar. Also, since, that is the only currency it lets you use to pay US taxes, it keeps banks or somebody else from using another currency, like the Euro, or Chinese Renminbi, or bartering with gold or ganja or something else. You have to have US dollars to pay taxes, that ties you to the currency.

Nope, the government doesn't use taxes to fund entitlements or any other kind of spending. It prints checks (or direct deposits), and it gives you US dollars for them (or lets you pay the bank $3.50 per $100 to withdraw it, but I digress again...).

As for the "fig leaf" comment, I think it's becoming clear to me that if I, a lowly citizen, can understand the reality that the current deficit argument of both sides is a sham, then the MOTU, and their lickspittles in elected office, unless completely stupid (see: Sarah Palin or Michele Bachmann), understand this also.

So neither side is arguing about what is happening to our economy, or the deficit, or taxes, or entitlements, or any other damn thing honestly. The Republicans are Evil and/or Stupid and the Democrats are Stupid and/or Evil. What I'm starting to realize is they continue to squawk about balanced budgets and federal debt and every other non-factor for some other reasons that are just on the edge of my understanding. Some reasons maybe tied to the notion that there is a status quo whose whole existence is based on the falsity of federal taxes paying for federal spending.

Yep, taxes have been used to redistribute wealth, but federally-funded health care, child care, and education could/would do the same thing better, and if people knew that affording these things isn't now and hasn't for decades been tied to the taxes they have been paying, there might just be a revolution from both sides of the political equation that would make the Tea Party look like a pre-school picnic.

And maybe now I know why both major parties are dedicated to keeping the taxes-pay-for-spending myth alive. I also remember what this reminds me of.

letsgetitdone's picture
Submitted by letsgetitdone on

that what you stated above isn't the MMT view?

In a post-gold standard world, there is no reason for a government to finance its debt. T-bills are unnecessary. There is no hard standard against which debt is measured. The only constraint is inflation. The only real question at this point is how does the public through its government choose to deploy our society's resources, and it is this which brings us back to a resources approach. A resources approach always has front and center what kind of a society we want to determine how resources will be allocated to achieve that society. Money is just a secondary characteristic, tokens or entries, that gives access to resources to accomplish the goals we the public set forth.

When we concentrate too much on money, or nowadays where we treat it as some kind of primal matter independent of its societal function, we lose sight of our goals as a society and that the only rationale for money is to serve those goals.

That is, Warren Mosler could have written the above, or Randy Wray, or Bill Mitchell, or Stephanie Kelton, or Pavlina Tcherneva, or Marshall Auerback, or Scott Fullwiler, or any of my MMT friends, including myself. So, where exactly do you disagree with MMT economics?

Submitted by Hugh on

They concentrate on the money and I concentrate on the resources and goals. I don't remember any piece written by any of these that made the goals of society the centerpiece of their argument. Rather they have MMT and then they have various add ons about jobs, entitlements, or whatever. However, if you go my route, you get a cohesive explanation. It is a lot easier to follow and far easier to present to the public.

Submitted by lambert on

... should be used for public purpose. That's the thread that ties together what you percieve as "add ons." It's also a completely "cohesive" explanation. In particular, the Jobs Guarantee not only solves the aggregate demand problem, it's a humane, even moral, way of buffering people from the economic cycle.

UPDATE I'm not sure what's wrong with a strong focus on money, either, from a purely pragmatic standpoint. The top 0.01% certainly seem focused on it. And the focus was strong in the populist movement as well.

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Submitted by nihil obstet on

MMT is a powerful explanation of how policy can work, but it does take some interest in and knowledge of economic theory.

Most people think that currency and money are the same thing. Most people would agree that Social Security money could be put in a bank and then benefits be paid out of the interest. Most people think that running deficits is the government printing money, and in Weimar Germany people had to take money to the store in a wheelbarrow to buy a loaf of bread (in fairness, that one is dropping off the radar, but it can be brought back easily). Everybody has used money, but most people have never made entries in spreadsheets, so they'll need some convincing that money is an entry in a spreadsheet.

You can spend an awful lot of time explaining to people how wrong they are about money before you can ever get to public purposes. In fact, as long as you focus on money, you'll have to. That's from a purely pragmatic point of view. Note how many times commenters on this blog, hardly the least well-read people in the country, have indicated their difficulties understanding the theory. If you haven't done so, I'd suggest that you try to explain MMT to people with whom you're having reasonably casual political discussions. A successful report will make me reevaluate my judgment and my own explanatory powers.

I'm with Hugh in thinking that what's easy to grasp is the public policy: "We're the richest country the world has ever seen. We have enough wealth to insure that everyone has food, shelter, health care, education, and the means to a decent life throughout their lifespan."

letsgetitdone's picture
Submitted by letsgetitdone on

First thing you hear is "what about inflation" if the Government prints money? Or first thing you hear is that the Government can't afford to "fund" its programs because it can't borrow indefinitely and we're against raising taxes. I think MMT ideas can be expressed simply, and that we will get through to people before too long and get them to accept that the only real constraints are our resources and inflation if Government spends so much that there's so much demand that it overwhelms our capacity to produce.

Eureka Springs's picture
Submitted by Eureka Springs on

There is a time a place and great import for those who understand these things in great detail. I don't even want to be one of them... I personally would rather sit on a dilapidated porch and watch paint peel. That being said I would really like to take the substance as it would appeal to regular folk and discuss it, but for the most part I still won't touch the subject in worldly discussions due to my own uncertainty. And I've read a fair amount of these and other posts and commentary to put it mildly. Now if you arm me (and others like me) in repetition with solid and consistent real life examples as Hugh suggests and okanogen did so well above.. we can take "plain english" into our cafe conversations and advocate.

Submitted by Hugh on

There are a few points I wanted to make.

First, none of the MMTers has really focused on kleptocracy. Second, I don't think they take seriously all the resultant money floating around in the paper economy and its potential impact on the real economy, despite the 2008 meltdown. Third, along these lines, I have seen nothing coherent from them about how to address and reverse the massive inequality in wealth we see. Fourth, I don't see them relating this to our nation's failing infrastructure, declining manufacturing, high unemployment, poor education, and expensive and spotty healthcare. Fifth, they are piss poor on the politics. Saying that further suspensions of employee contributions to the FICA are OK because, according to MMT, Social Security could be funded even in the absence of a FICA misses the point that those in power will use it later to justify cuts in Social Security because A) they don't believe in MMT and B) a payroll tax cut feeds into the narrative they have constructed about Social Security underfunding. Sixth, saying deficits don't matter really has nothing to do with what kind of a society we should be building. Seventh, the same can be said about a Jobs for All program. The one MMTers have proposed is really a stopgap to address current high unemployment, but wages under such a program from all I have seen would be low. They would almost certainly not constitute a living wage. So again not a societal goal. Eighth, what is MMT's take on capitalism given kleptocracy, the meltdown, and the bailouts? Ninth, we have been telling MMTers pretty much from the start that they do themselves and MMT no favors by being unnecessarily defensive, elitist, and obfuscatory. As far as I can tell this has had no effect upon them whatsoever. Their two reactions are either to be dismissive or to say, yes, we already do that. Letsgetitdone said above that any of names in MMT could have written what I wrote about the kind of society we want and the goals we should set for it. But the important point is that they haven't. More disturbing is the thought that they may think that they have.

Most people don't understand money. This is especially true after 35 years of corporatism, neoliberal indoctrination, and kleptocratic propagandizing. Most people do have a sense about the society they live in and the society they want. They can grasp the idea of resources where money would live them cold. If you talk about wealth redistribution the reflexes that have been inculcated in them by kleptocratic propaganda will make them fearful of it, but talk about a redistribution of resources and I think they can be persuaded and see the fairness and common sense in it. And that's OK because resources, physical and intellectual, precede money anyway.

I will tell you this that when an MMT post goes up at Naked Capitalism you can almost hear the collective groan from the commenters. And that should be one of the most friendly venues to MMT going. But they know it is going to be long and convoluted, that it will misread the politics, and that it will lack all social vision. We keep raising these points and MMTers keep ignoring them. It has become an exercise in futility and frustration.

Submitted by lambert on

Sweating the small stuff on the threads at Yves's place:

I'd need a bit more evidence on "collective groan." That suggests a consensus level of disagreement that I don't think is present, and I'm there constantly. Some groan, no doubt, among them, you. And dense explication causes one to groan, there's always Eschaton. Alas, the truth can only propagate through constant repetition and the stepwise refinement of talking points.

For the larger issue, I'll focus on one term of the indictment:

Fourth, I don't see them relating this to our nation's failing infrastructure, declining manufacturing, high unemployment, poor education, and expensive and spotty healthcare.

Category confusion #1: If the MMT school were a political faction or lobby, a prerequisite for them to "relate" (whatever that means; I'm going to assume policies) MMT to problems and solutions in the political realm would be a consensus on political philosophy among MMT proponents. They are not, and so there isn't. Does this matter? Of course not. I'd certainly rather be fighting it out with political opponents on the basis of the knowledge of the real operations of taxing and spending that MMT supplies. Otherwise, we might as well be making agricultural policy based on the ideas of Comrade Lysenko (who, oddly or not, did not attend the University of Chicago. Or Princeton).

Category confusion #2: If the MMT school were, say, the Center for American Progress, or if MMTers held office, it would indeed be their duty to "relate" MMT to policies that truly do serve the "public purpose." They are not, and so it isn't. MMT says "the money is there" (because the state creates it) and "inflation is not a threat" (until the limits of our productive capacity are reached). It's up to people like us to figure out what to do with the money, and not MMT!

Finally, I'm going to excerpt the part of the quote that I find, quite frankly, outrageous:

Fourth, I don't see them relating .... high unemployment....

I can't say that this statement is complete falsehood or fabrication because of the qualifier "I don't see." I will say that it demonstrates a failure to do homework so gross as to vitiate the remainder of the critique; if you "don't see," you're either blind or not looking. I'm not even going to dignify this statement by responding with linky goodness; a moment's work with the search engine of your choice will provide the material necessary for you to issue a retraction.

There is one, and exactly one, school of economics that has consistently advocated a Jobs Guarantee that would give a government job to everyone who wants one, like an expanded, and permanent CCC/WPA. The MMT school advocates this for two reasons: First, as individuals, on the grounds of humanity. It's immoral to regulate the economy through the process of DISemployment. Second, as economists, the lost productivity is staggering.

NOTE The issue of kleptocracy is an interesting one. Since money is created by the state, what are the implications of the fact that the state is run by thieves? I will say, however, that MMT is as well-placed to address this issue as any school. Surely, Hugh, you are aware that William Black, like many other MMTers, is on the faculty at UMKC? Then again, a more constructive approach, as ever, is to do for one's self the work that one recommends that others do....

UPDATE On FICA, this discussion has been had elsewhere (too lazy to find the link). The defense of Social Security by defending FICA assumes that the government "raises money" through taxes. But that assumption has been shown, empirically, to be false. That assumption does not conform to the operational realities of taxing and spending, as MMT has shown (and as luminaries like Alan Greenspan and Ben Bernanke admit). I don't think the left can ever get anywhere by starting from false assumptions; bullshit on the imperial scale requires a great deal of funding for "scholars," "reporters," "commentators," and the like, and we can't fund that level of bullshit. Therefore, we need to go another way. How about starting from what's true?

nihil obstet's picture
Submitted by nihil obstet on

I haven't been able to convince many people of my point of view by telling them that they should just go do their homework. That doesn't bode well for mass persuasion.

But two things sort of set me off here. First, I'm one of the ones who think a payroll tax holiday, given the current political narrative is playing into the hands of the pain caucus. Combine it with a transfer of funds from the General Fund into the Social Security Trust Fund and I'll march in the streets for it. Otherwise, it's a strategic retreat on the part of the moneyed to convince the population of the need to kill social programs. I don't make any assumption about the need to tax; I do make assumptions about the need to work in a narrative that people know and understand.

And that gets me to the place where I guess I really am a lying hypocrite. I don't really believe in Jobs for Everybody. I believe in adequate income for everybody. We are at a point where we can and should separate income from paid work. If you want to spend your time gardening and blogging and generally making a political ruckus, you should be able to do it, and still have adequate shelter, health care, and the other necessities of a decent life. There's a reason paid employment is called "wage slavery" -- it does turn you into a slave, and we can now dispense with that. MMT says we can.

In the past, I've raised the issue of whether it is a good thing to argue for paid employment for every person, rather than for access to adequate resources for every person. I agree that it's immoral to regulate the economy through disemployment, but I also think it's immoral to regulate the populace through the need to be employed. 16th c. Elizabethan parlance more directly called the unemployed "masterless men". Big social problem.

The truth is, we don't need full employment. So in truth, I guess I should be arguing against the whole jobs issue. But politically right now, I think decent jobs for all is the best we can hope for, so I hypocritically support the platform.

I guess I just need to clear the air on the darkness of my lying little soul.

Submitted by lambert on

I generally don't adopt "do your homework" as rhetorical strategy but in this case homework is definitely something I would have expected that the commenter has done.

On the right not to work: I agree in principle, but I'm taking the centrist position ;-)

okanogen's picture
Submitted by okanogen on

" Starting from false assumptions"

+1000

letsgetitdone's picture
Submitted by letsgetitdone on

in a few installments, since I want to address each of your points and don't have time tonight. Here are my replies to your first four points.

“First, none of the MMTers has really focused on kleptocracy. . . ”

No? What do you mean by “really focused”?

How about Bill Black, Michael Hudson and Randy Wray? Bill writes about little else except Kleptocracy and control frauds. Michael Hudson focuses mostly on Kleptocracy in the Eurozone and Iceland and does a great job. Randy has co-authored a number of things with Bill and also written on the MERS mess himself. His writing on fraud and the need for prosecution is eloquent and trenchant. Here are some links:

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

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I could do a lot more, but I think that on their face they show that MMT people have all kinds of focus on kleptocratic behavior; whether their focus is 'really focused” enough for you, I cannot say; but it does seem to me that the ball is back in your court to clarify what you mean by “really focused.”

“Second, I don't think they take seriously all the resultant money floating around in the paper economy and its potential impact on the real economy, despite the 2008 meltdown.”

Again, I don't know what you mean by the vague “take seriously” MMT bloggers have said an enormous about QE's likely impacts on the economy. By and large they have argued that QE has had little lasting impact and only some short-term impact based on the erroneous beliefs of economists who thought it would be inflationary. You may not agree with this conclusion or the reasoning behind it; but the amount of attention MMT bloggers have devoted to QE suggests that they do take the issue seriously; but simply disagree with others about the inflationary impact of money that is now out there. Here are numerous links to documents mentioning MMT and QE:

From: New Economic Perspectives: http://neweconomicperspectives.blogspot....

From: Billyblog: http://bilbo.economicoutlook.net/blog/?s...

From: MoslerEconomics: http://moslereconomics.com/?s=quantitati...

From: Mike Norman Economics: http://mikenormaneconomics.blogspot.com/...

From: Cullen Roche: http://pragcap.com/?s=QE&x=0&y=0

Perhaps you're not mainly talking about QE, and are just talking about the expanded money supply since the Crash of 2008. If so, I'd like to know the transmission mechanism that makes the current levels of money a danger to us?

“Third, along these lines, I have seen nothing coherent from them about how to address and reverse the massive inequality in wealth we see.”

See Jamie Galbraith's very well known and “coherent“ work on inequality and also:

http://utip.gov.utexas.edu/default.html

In addition: Bill Mitchell writes about inequality and mal-distribution of wealth frequently. See: http://bilbo.economicoutlook.net/blog/?s...

See also: Pavlina Tcherneva's paper: http://pavlina-tcherneva.net/Tcherneva-w...

"Fourth, I don't see them relating this to our nation's failing infrastructure, declining manufacturing, high unemployment, poor education, and expensive and spotty healthcare."

You're kidding, right? Randy, Warren, and Bill Mitchell have all written about health care, and all are for some variation of Medicare for All. Nearly every MMT economist has written at one or another time about the Job Guarantee, which is the definitive cure for high unemployment. It can also reduce inequality, if, over time, the JG wage is raised high enough to bring workers' share of productivity gains up to where they should be. The JG can be used to support infrastructure projects, health care, education, and community needs in general. The money would be supplied by the Government, but the projects people would work on would be defined locally based on community needs. Google Randy Wray, Warren Mosler, and Bill Mitchell on the Job Guarantee. You'll see that it supports most of the areas you mention in your question.

I'll try to address the remaining points you've offered tomorrow evening, and certainly by Wednesday.

letsgetitdone's picture
Submitted by letsgetitdone on

“Fifth, they are piss poor on the politics. Saying that further suspensions of employee contributions to the FICA are OK because, according to MMT, Social Security could be funded even in the absence of a FICA misses the point that those in power will use it later to justify cuts in Social Security because A) they don't believe in MMT and B) a payroll tax cut feeds into the narrative they have constructed about Social Security underfunding.”

I don't know anyone who's an expert on politics, including myself, a Ph.D. in political science who's studied politics all my life. What I do know is that the “smart money” in politics is wrong so much of the time during periods of change that sometimes it makes more sense to count on the opposite of what they predict than it does to credit what they say. I also know that you, like the rest of us, have no special claim to expertise and perspicacity when it comes to politics. We all just guess! That's not to say that your observations are not interesting, and always worth reading. But it is to say that the conventional wisdom you're giving us above as the basis for your opinion that MMTers are piss poor about politics is far from proving the truth of your opinion. It's just a guess and I think it's a bad one for these reasons.

First, MMT writers always couch their recommendation for the payroll tax holiday in the context of an explanation that Government spending isn't “funded.” That's the truth. It's an empirical matter. People must come to understand it. If you know this truth, but also deny it for political expediency, or clever messaging, then it is you who is piss poor both at politics and education of the public. If you don't know this about “funding,” then learn it once and for all and quit talking about SS being “funded.” SS payments are Government spending; they don't have to be “funded.”

All Congress has to do to ensure SS payments forever, is to amend the law, so that the appropriations for “the trust fund” are always automatically renewed every year, just as they are now “. . . for Part B of Supplemental Medical Insurance (SMI), which pays for doctors' bills and other outpatient expenses, and Part D, which pays for access to prescription drug coverage, . . . “

Second, what makes you think that the public is going to keep accepting the fable that 'funds” are necessary before SS payments can be made, and that the Government can't afford anything when it has no trouble bailing out banksters and fraudsters to the tune of Trillions? Do you really think that most of the people can be fooled all of the time?

The payroll tax holiday, with the Government issuing the SS bonds that would have been issued if the payroll tax were collected, will prove that the Government doesn't need the tax money to make the payments. For the observant, it will even show that the Government doesn't use that payroll tax money to pay anything; but just marks up private sector accounts when its payment is due, without even using that FICA money.

Third, Social Security and Medicare, and the other elements of the social safety net are entitlements for many people. They are not entitlements because we paid for them, even if FDR felt it necessary go create such a justification back in the '30s. Guess what? It's not the 1930s any more! Now they are entitlements because we are American citizens who contributed in numerous ways to the development of this hugely wealthy society and culture, and as citizens we deserve and are entitled to the basic level of support necessary for a decent life free from want and fear. We can make this case if we try. We can get the austerians to shut up! We can chase them off the stage of history. But to do so, we have to quit reinforcing their frames, and quit saying that SS needs to be “funded.”

Since the basic level of support needed for the social safety net can be provided to us with the mere issuing of US Dollars that the Government has the Constitutional authority to issue, “we” will, in the end, not accept any BS financial arguments about how “the Government can't afford that,” offered by the deficit hawks and austerians. Also, if they mean to take those entitlements away from us, or continue to water them down when they should be strengthening them; then they are in for the fight of their lives. Contrary to what they think, we will not, in the end go quietly, we will not die quickly, and we will do all we can to see to it that they give back all the money they stole, and spend their declining years in orange jump suits. And, pretty soon now, that's going to be very good politics!

“Sixth, saying deficits don't matter really has nothing to do with what kind of a society we should be building.”

Hugh, I'm very disappointed that you would stoop to the canard that MMT economists say that deficits don't matter. I know you've read at least one blog here that has pointed out that MMT economists don't say that, and that this post linked to other MMT posts that directly contradict that claim. You've not contradicted that post previously or defended the false claim that MMTers think that deficits don't matter, before now.

The post I'm referring to is one of mine refuting the idea that MMT economists think that “deficits don't matter”. And I'll also take the liberty of quoting a comment on that post by one “Hugh”.

”Krugman is a soldier of kleptocracy. He is that oxymoron the Establishment liberal, that is it is his job is to feed the line of the kleptocratic elites to liberal rubes. Krugman gets career, privileges, awards, and money for not understanding economics, for giving cover to the Democratic wing of the corporatist party in Washington, and for glossing over the enormous class divide in this country and the class war that perpetuates it.

I do not identify myself as an MMTer but I accept many of its ideas and think those ideas are fairly straightforward. So it isn't that Krugman can't understand the basic principles of MMT. Nor is it like he hasn't been exposed to them. He is invested in not understanding them. He is an Upton Sinclair man.”

In any event, the charge that MMTers think that deficits don't matter is false. Here are two other links contradicting it from Randy Wray and Scott Fullwiler.

What MMT economists do say is that our deficits, national debt, and debt-to-GDP ratios have no effect on solvency and cannot cause us to “run out of money.” They also say that deficits are bad and surpluses are good narrative is a false narrative, and that fiscal policy should not be managed with reference to these abstract indicators; but, instead, should be planned and evaluated based on its consequences for unemployment, price stability, poverty, crime, health, community integration, crime, environmental quality, and other consequences that are components of the public purpose. For MMT, fiscal policy is about Government spending and its impact on using real resources and producing real outcomes, not about green eyeshade measures of fiscal prudence!

In short, MMT economics and its position that we should manage spending according to anticipated and real outcomes has everything to do with the kind of society we should be building, because it tells us to not be concerned about the eyeshade criteria, and instead to be focused on results that will solve our pressing national problems. MMT tells us that, if that's what we want, there are no barriers to making Roosevelt's second bill of rights a reality through a Second New Deal. And that tells those of us who want that very badly to ignore deficit dove and hawk fears about hyper-inflation and get on with the job that Roosevelt could not complete because he died too soon.

“Seventh, the same can be said about a Jobs for All program. The one MMTers have proposed is really a stopgap to address current high unemployment, but wages under such a program from all I have seen would be low. They would almost certainly not constitute a living wage. So again not a societal goal.”

The MMT Job Guarantee proposal is meant to provide full-time jobs to people who the private sector won't hire. It's purpose is to provide a living wage that would provide an economic floor for wages, along with full Medicare, and other fringe benefits. Its purpose is to create a buffer stock of employed people to replace the current buffer stock of unemployed people. The JG job is viewed as a “stopgap” because the program, which would provide for training as part of the work day, is seen as a way of keeping people in the active labor pool so that they will be attractive to the private sector when growing demand persuades business that more people should be hired.

Now, having said that, one very important issue that arises with the Job Guarantee Proposal is what the wage rate for the program should be. Warren Mosler proposes an $8.00 per hour rate, and this is the rate I've seen quoted by other MMT economists, as well. I would like to see the rate higher. First, I think there should be cost of living variations in the rate across geographic areas such as counties or SMSAs. In addition, I'd like to see the minimum figure set at $12.00 per hour. The key to the issue of the rate is the impact it would have on the economy and society. Some believe that the $12.00 rate would be too disruptive for business. They also point out that $8.00 per hour plus full fringe benefits will already force private sector compensation to rise considerably from where it is now, and they worry that a rise to $12 might have an immediate negative effect of costing jobs by forcing marginal businesses to fail.

They reason that it is better to start at $8.00, wait for the increased demand in the economy to boost sales and profits and cause businesses to want to start hiring. After that “we” can gradually raise the JG wage over time, I presume until there's no question that a living wage has been reached all over the country. I think that this incrementalist approach to the JG wage looks pragmatic and claims to be more practical than my alternative, but I think that, like the public option was in health care, it is a pre-compromise, basically us negotiating with ourselves.

I think that a JG program with an $8.00 wage and no cost of living variations isn't a living wage and won't be popular enough to generate continuing support for the program among those in it, their relatives and their friends. So, you'll have a solution where business will be intensely opposed, but where people won't be intensely supportive of the program, even if they benefit somewhat from it. I think we need a program that gives people a living wage and forces business, by setting a high floor, to pay more than this living wage to employees if they want to continue to fill their need for labor. It seems to me that the higher wages will come back to business in the form of consumption anyway, and will lead to a major boom in which businesses will be able to pay higher wages. Maybe things won't work this way. But at a minimum we need some studies projecting likely impacts before we resolve the JG wage question.

In any event, the most important point here is that the JG is a great idea, that I think all of us ought to get behind. We can work out what the right level of the JG by assessing the likely effect of different levels of the JG wage on the economy.

“Eighth, what is MMT's take on capitalism given kleptocracy, the meltdown, and the bailouts?”

Representative pieces with links to others:

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

http://neweconomicperspectives.blogspot....

“Ninth, we have been telling MMTers pretty much from the start that they do themselves and MMT no favors by being unnecessarily defensive, elitist, and obfuscatory. As far as I can tell this has had no effect upon them whatsoever. Their two reactions are either to be dismissive or to say, yes, we already do that. Letsgetitdone said above that any of names in MMT could have written what I wrote about the kind of society we want and the goals we should set for it. But the important point is that they haven't. More disturbing is the thought that they may think that they have.”

Hugh, it's easy to call people names like “defensive,” “elitist,” and “obfuscatory”; but it's much harder to define these labels in a way that is objective enough to make the case by fitting their actions to the definition. Sure, the MMT people defend MMT and themselves when criticized. Is this “defensiveness”?

How does one distinguish 'defensiveness” from simply attempting to register disagreement with a criticism or position taken by someone else? When criticizing Krugman's ridiculous criticisms of MMT based in non-existent scholarship, were MMT economists being “defensive?” How does one decide that MMT communications are “elitist?” How does one measure whether or not they are “obfuscatory”? You haven't said. You just call the names and expect everyone to agree! Fat chance, unless you're already preaching to the choir!

The reply of yours that has sparked my lengthy replies was a supposed answer to my question: “Hugh, what makes you think that what you stated above isn't the MMT view?” And then after quoting you I listed MMT economists who I thought might have written the paragraphs I quoted.

You then replied with your nine points of false criticism of MMT, which really doesn't answer my question by pointing out anything you said in the paragraph I quoted that MMT economists would not agree with. Now, I think this is just about the ultimate in defensiveness and obfuscation, since you make no contact at all with my claim about what you, yourself, said and how it relates to MMT. Why not just answer the question by saying what in the quote I highlighted you think MMT writers disagree with, and then link to the disagreement?

Finally, you've claimed that MMT economists haven't written anything like the paragraph I quoted. Perhaps not exactly like it, but here are some quotes from Pavlina Tcherneva (MMT Ph.D. and Assistant professor of Economics at Franklin and Marshall College) that seem to me to be closely aligned with the perspectives expressed in that quote. Here:

“Mr. Krugman, you have also made this claim, namely that the government will eventually run into difficulty meeting its long-term obligations. My question is, if the Fed can clear any tax cut check that we get in the mail today, it can certainly clear the social security checks we will get in the future. If the government faced no technical limits to buying toxic financial assets, it clearly can pay for grandma’s social security today and mine in the future. More than that, the government can buy the labor of the unemployed today and put them to work on useful projects. The important question is what can we buy with these checks? MMT has always argued that we have to get past the illusion of financial constraints to start asking the meaningful questions of what the real resource constraints of our economy are and how to employ the idle resources to overcome these constraints in order to provide for the young, poor, unemployed and elderly and to increase the standard of living for all”.

And Here:

“Just because the government pays by issuing liabilities, does not mean that it can spend willy-nilly on whatever it chooses! Absolutely not! The constraint to government spending is inflation (not the ability to ‘pay’), which is why you always have to fix government spending to something of value. When government spending injects bank reserves into the private sector it must do so by producing something for society.

Mad obsession with debt- and deficit-to-GDP ratios, divorced from any consideration to what is happening to the real economy, boggles the mind. Remember government deficits always create non-government surpluses--to the penny. When the government spends more than it collects, the private sector earns more than it pays in taxes to the government. That is, the private sector accumulates these government liabilities, again, in the form of electronic dollar reserves. The government does not run out of ‘electronic reserves’. These deficits go somewhere! They create income and profits for someone. The real question is “for whom?” and did those earners produce anything of value to society in exchange for getting this money? This is not a matter of financially bankrupting the nation. It’s a matter of bankrupting the economy in real terms. It’s about filling the coffers of a financial sector which has hired 7% of total U.S. employees in increasingly dubious services and who take almost 40% of total corporate profits (half of which are rents and serve no economic purpose). It’s about starving grandma, leaving our kids without world- class education, allowing the sick to get sicker, and the unemployed to become unemployable. And all because we refuse to build the real resources which we all need in order to maintain a decent standard of living. Now I would prefer not just a decent standard of living, but an excellent one—one to boast about, one that the richest country in the world can offer its citizens. Stop confusing solvency with sustainability. Start measuring sustainability in terms of the real goods, services, and jobs government spending creates for the public purpose. To paraphrase and old adage, how sustainable the future of a society is can be measured by the way it treats its most vulnerable members—its children, elderly, poor and unemployed.”

I'll skip commenting on your remark about collective groans at Naked Capitalism, since I have no idea how you could possibly be in a position to divine such a reaction. But I do want to finish up by commenting on the following:

“Most people don't understand money. This is especially true after 35 years of corporatism, neoliberal indoctrination, and kleptocratic propagandizing. Most people do have a sense about the society they live in and the society they want. They can grasp the idea of resources where money would live them cold. If you talk about wealth redistribution the reflexes that have been inculcated in them by kleptocratic propaganda will make them fearful of it, but talk about a redistribution of resources and I think they can be persuaded and see the fairness and common sense in it. And that's OK because resources, physical and intellectual, precede money anyway.”

Flat out, I just don't agree with this argument. There is all kinds of polling data out there saying that Americans now favor higher taxes for the rich and removing the cap from the payroll taxes. They're also opposed to the new reduction in the estate tax. Their favorability to some redistribution in financial wealth is occurring without any major political effort to educate them about the trends in wealth distribution over the past 40 years and any narrative tying this to neoliberalism and the political influence of the corporates and the very rich. Also, it seems to me that people normally think of redistribution in terms of money, which they use as a proxy for resources and that they naturally think about fairness and redistribution in terms of financial rather than other kinds of resources.

Submitted by lambert on

From the perspective of my understand of political economy, I'm with Hugh completely on wealth inequality, kleptocracy, etc.

However, the nine points remind me of the reviewer who gave a book about penguins the big thumbs down because the author didn't write about sea gulls.

beowulf's picture
Submitted by beowulf on

1. Eliminate cost of net interest (per CBO, $5 trillion over next decade) by locking short-term interest rate at 0 permanently (or as RSJ pointed out in a brilliant post, you'd get the same fiscal benefits of a 0 interest rates with floating interest rates w/ a bank asset tax levied at Fed's chosen policy rate).
http://windyanabasis.wordpress.com/2011/...

2. Broaden base of payroll tax (uncap SS above $106k, expand new unearned income Medicare tax to full 15.3% FICA, perhaps adding unrealized capital gains to tax base), would raise another $500 to $600 billion a year.

3. Reallocate net interest (CBO has already built that $5 trillion into its deficit scoring) and add new FICA revenue to Medicare Part A trust fund... hmm what could we do with all that extra revenue?

4. Medicare for All! Eliminating the now redundant deduction for employer insurance premiums would bring in an additional $200 billion as it shifts to taxable wage or capital income, allocate revenue to Medicare or welfare reform (see below).

5. Payroll tax holiday with a floating rate tied inversely to U3 unemployment rate. Depending on multiplier used (say, 10), U3 x 10 would mean every month as BLS releases new U3 rate, IRS updates withholding tables, 9.1% U3 this month means payroll taxes reduced 91%. The carrot and stick for the GOP is, if they play along, everyone (even millionaires) gets the tax holiday, if they fight it, , the FICA cap is flipped-- everyone below cap of, say, $1 million gets the tax holiday while everyone above it pays full 15.3% in wage and capital income.

6. Bonus step A, revenue-neutral Pigovian tax shifts. Tax carbon, imports, financial transactions or (as Robert H. Frank suggested), consumption by those earning over $1 million and use revenue to cut taxes (or better yet, provide refundable tax credits) for the working and middle class. Give an employer tax credit to subsidize a big jump in minimum wage, say, $3 to 5/hr and then index it.

7. Bonus step B, push for a Job Guarantee by harnessing Nixon's patented brand of benevolent Orwellianism, he called it Workfare (though Workfair is catchier). Market it as welfare reform, replace welfare payments for able-bodied workers with a job (and day care) for anyone who shows up at city hall or designated job site by 9am. There's no reason for eligibility restrictions (excepting, as with volunteers now, a background check to work around children) , anyone who shows up on time willing to work will have a job to do. There's a lot of govt and nonprofit agencies who could use the help. Hands On Atlanta's website gives an idea of what a Job Guaran--- oops, Workfair could pay people to do.
http://www.handsonatlanta.org/HOC__Volun...

letsgetitdone's picture
Submitted by letsgetitdone on

That's a very, very interesting MMT-consistent program. You're refuting Hugh all by yourself. -:) -:) -:)

Submitted by Hugh on

The defensiveness of the MMT response aside, the question becomes what is MMT? If I critique it, the response is well, there are many different practitioners of it, which just makes me wonder if there are any unifying principles to it. Or if I say it is just a monetary theory and such theories have inherent limitations, I am told no, there is much more that the apparently now unified MMTers agree upon. So if I ask well, how does this "more" proceed from the theory, I am not given an answer. I am told to go do my homework. And when I ask how MMT relates to actual policy, I am told it has no duty to do so. At the same time, I am told that its monetary explanations are what's important, not relating them to any particular policy. So we end up coming full circle, back to MMT as monetary theory, ready for another cycle through the arguments. It is an illustration of one of the criticisms of MMT that it is a moving target. There is no there there because the there keeps changing.

I even get a reference to Bill Black. I have never heard Black identify himself as an MMTer. Black has written a lot about a criminogenic environment but that is not the same as kleptocracy. In the one, there can be crime, even a lot of crime, in the system. In the other, the system itself has been criminalized. There is an important difference between the two. The first can be reformed. The second can only be replaced. As Black continues to write about what Obama should do, he is still in the reformist camp.

Returning to the defensiveness for a moment, I agree with certain aspects of MMT but if this is the reaction that I get, just think of what a turnoff it is to those who are unfamiliar with MMT or less sympathetic to it. This gets back to another saying I and others have about MMTers, that they are their own worst enemies and marginalize themselves.

Submitted by lambert on

You were told to do your homework because you didn't do it. Je repete:

Finally, I'm going to excerpt the part of the quote that I find, quite frankly, outrageous:

Fourth, I don't see them relating .... high unemployment....

I can't say that this statement is complete falsehood or fabrication because of the qualifier "I don't see." I will say that it demonstrates a failure to do homework so gross as to vitiate the remainder of the critique; if you "don't see," you're either blind or not looking. I'm not even going to dignify this statement by responding with linky goodness; a moment's work with the search engine of your choice will provide the material necessary for you to issue a retraction.

There is one, and exactly one, school of economics that has consistently advocated a Jobs Guarantee that would give a government job to everyone who wants one, like an expanded, and permanent CCC/WPA. The MMT school advocates this for two reasons: First, as individuals, on the grounds of humanity. It's immoral to regulate the economy through the process of DISemployment. Second, as economists, the lost productivity is staggering.

Since you have no direct response, I can only assume that you agree with what I wrote. Retraction, please.

Submitted by lambert on

Hugh writes:

I even [?] get a reference to Bill Black. I have never heard Black identify himself as an MMTer.

For good reason, which is that he hasn't. Of course, I never claimed that he did:

I will say, however, that MMT is as well-placed to address this issue as any school. Surely, Hugh, you are aware that William Black, like many other MMTers, is on the faculty at UMKC? Then again, a more constructive approach, as ever, is to do for one's self the work that one recommends that others do....

Hugh goes on:

Black has written a lot about a criminogenic environment but that is not the same as kleptocracy. In the one, there can be crime, even a lot of crime, in the system. In the other, the system itself has been criminalized

Once again, failure to do homework, which is rather amazing, since Black's been quoted constantly both here and at Yves's place for well over a year. A representative quote picked almost at random:

While Greenspan and other failed regulators have claimed that no one warned of the coming crisis; that was truer of the S&L debacle than the current crisis. I’ve shown that there were strong, early warnings of endemic fraud and predictions that it would cause a crisis. Nonprime loans, as I’ve explained, had a consistently bad track record and their problems were sufficiently recent that they should have been well known to both private and public sector leaders. The Enron-era control frauds and New York Attorney General Spitzer’s investigations were fresh in Americans’ minds. Those frauds made clear that:

-The most elite corporations engaged in fraud

-Those frauds were led from the top

-Accounting fraud produced exceptional deception - firms such as Enron that were grossly insolvent and unprofitable purported to be immensely profitable

-The large frauds were able to get “clear opinions from top tier audit firms

-Executive compensation was a major driver of the frauds

-Banks funded the accounting control frauds rather than exerting effective “private market discipline” against them

-Effective regulation was essential to limit such frauds

That sounds like a criminal system to me. Sure, Black doesn't pronounce the magic word, "kleptocracy" (cf. Judges 12:6) but so what?

Oh, and Black's a ref-o-r-r-r-m-e-r. Now I get it. Because Black's a reformer, Hugh doesn't have to do homework or get the facts right. OK.

Some would say, "defensive." Others would say "trying to shovel the bullshit out faster than it comes in." Chacun a son gout.

okanogen's picture
Submitted by okanogen on

And counting myself among them, I think that like most theories, proponents have a range of opinion about policies to enact using it or indicated by it. That doesn't make it right to misrepresent individuals positions, but it does make it more difficult to understand how to fit that framework into the one you currently work within.
The more powerful argument that Hugh has to contend with is not what individual is advocating what policy, it's that like evolution describes the world more accurately than creation.ism MNGS more accurately describes the current world than other economic models.
My thinking is that just accurately understanding how money and taxation and spending really work is going to cause a sea change in how people in the US and around the world view things.

That alone will be an accomplishment.

Submitted by lambert on

When I adopt an air of injured innocence, I try to do so only after having won the arguments on the thread.

So far, I'm waiting for a retraction on your comments on MMT and unemployment -- or, heck, even a request for some links and I'm now also waiting for some clarification on why you believe that, in operational terms, endemic control fraud and kleptocracy are not identical. (As I said in a NOTE above, I agree with your focus on kleptocracy, and I don't think MMT handles it. That's why Black's work has been so crucial; he's been disentangling the frauds and getting them on the record.)

letsgetitdone's picture
Submitted by letsgetitdone on

I even get a reference to Bill Black. I have never heard Black identify himself as an MMTer. Black has written a lot about a criminogenic environment but that is not the same as kleptocracy. In the one, there can be crime, even a lot of crime, in the system. In the other, the system itself has been criminalized. There is an important difference between the two. The first can be reformed. The second can only be replaced. As Black continues to write about what Obama should do, he is still in the reformist camp.

In an e-mail Scott Fullwiler comments:

I don't know what one would consider the "threshold" for being an MMT'er. It would seem that MMT'ers would be the ones to set that, not, say, Hugh. Bill is definitely an MMT'er--his expertise is not the monetary system, so he doesn't write on it (just as I don't write much on criminology). But if someone were to ask him in an interview about the national debt, etc., he would give an MMT answer. But Bill's approach is absolutely built into MMT--note that Randy in particular sounds more and more like Bill when he writes about financial regulation. Further, all the new MMT Ph.D's coming out of UMKC take Bill's classes, too. Shortly after Lehman, I spent three days in KC in a room with Bill, Jan, Randy, Rob, and Eric Tymoigne discussing a Minskyan/Black approach to re-regulating the financial system--the two approaches fit together rather seamlessly, which, again, one can see in how easily Randy has adopted Bill's approach.

That is to say Bill is developing the MMT approach to regulation which combines his own views and the Minskyan views of the MMT scholars. As Scott says Randy sounds more and more like Bill when he writes about the financial system. But, in addition, Randy and Bill Black are co-authors. See some of the links I gave previously. The bottom line is that Bill's camp and the MMT camp are one and the same.

On your distinction between reforming the kleptocracy or replacing it. Bill Black and Randy Wray clearly want to bring all the kleptocrats in the present system to justice and also enact legislation making it impossible for kleptocracy to emerge again. I'd say that's a pretty good program for replacing kleptocracy with something else. The question is why do you consider this "reform"?

letsgetitdone's picture
Submitted by letsgetitdone on

Selise points out in an e-mail that Bill Black has defined kleptocracy here as a "public control fraud." See also the wikipedia entry on kleptocracy. Bill, of course, is "Mr. Control Fraud," the person most closely with that term. Again there is absolutely no indication in his writings that he is reforming the kleptocracy, rather than restoring democracy with enough safeguards that kleptocracy can never emerge again.

Submitted by lambert on

At times, I leave comments unresponded to, but when I do, I tend not to accuse others of defensiveness, at least in the same thread. That's because in that case I would have so much to be defensive about, personally. Just saying.

I'll be waiting for that retraction on MMT and the Jobs Guarantee. It really is a matter of fact that needs to be fixed.