Tuesday, August 12, 2014

Bill Mitchell — MMT is not conservative thought


Update from Bill:
Last night I sent the final manuscript of my Euro book to the publisher and felt somewhat downcast – that always happens after an intensive piece of work is finished. But this morning, I woke up free of that and focusing on the next task in the list. The list is always bubbling away and one juggles multiple projects at the same time, with more or less intensity. Curiosity demands that. But at some point more effort goes into one to complete it and the others wait in the queue for their turn. 
My next major deadline is an Modern Monetary Theory (MMT) compilation commissioned by my publisher Edward Elgar. The compilation will be my version of the roots of MMT and the development of its major ideas and influences. I have to write an overview piece explaining why I selected the literature and how it fits into the intellectual MMT tradition. It will obviously be an eclectic exercise and there is no certainty that my other original developers of what is now more broadly known as MMT will agree with my compilation or emphasis. I plan to start with Theories of Surplus Value – for reasons I explained in this blog – We need to read Karl Marx. I also do not plan to eulogise John Maynard Keynes, even though many of my colleagues think he is the most important link in the chain. It is here that I have to walk the fine line between technical detail and a broader reflection on how values intersect with what we might call the facts.
Bill Mitchell – billy blog
MMT is not conservative thoughtBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Karl Marx was a culmination of classical economics as classical (economic) liberalism in economics based on social liberalism, along with English utilitarian (greatest good for the greatest number) thinkers like Jeremy Bentham and John Stuart Mill. Classical economics and economic liberalism became a dominant influence on the right, with Marxian economics and social liberalism became a dominant influence on the left.

All are developments of the liberalism of the Enlightenment as a reaction, for example, to Hobbes's advocacy of the necessity for a social contract in which individuals give up "natural" freedom and authorize authoritarian government (Leviathan) to provide the law and order necessary to escape the "natural" law of the jungle. For Hobbes, there is no alternative. Liberals of all stripes, economics and social, disagreed — Marx more than the English since he was a Continental living in exile in England with a price on his head by an authoritarian government.

In a way, Marx can be compared to the DFHs and social activists of the Sixties conducting a countercultural revolution, for example. In this he was quite unlike the English classical economists. He was also similar to the American rebels who had the temerity to take on the mighty British crown and its empire. He was not writing in England by choice but fleeing from the long arm of the law of a repressive government he was opposing. But Marx was much more like the DHFs in being from a respectable background without need to stand up for rights, unlike the American rebels who had a strong economic interest in standing up to the King of England.

Marx was a political radical, a social activist, a person of conscience, and a philosopher by training. He was working out the assumption that philosophy deals with fundamental questions about the whole and the sciences are subset of that inquiry, using a somewhat different method in that the sciences harness the rigor of mathematics and empirical testing of falsifiable hypotheses. The prominent classical economists were English, whereas Marx was a Continental.

Like most Germans working in the aftermath of G. W. F. Hegel, who was an intellectual giant that dominated German thinking at the time, Marx was writing not only in the shadow of Hegel, but also in reaction to him. For example. Marx's thought was shaped by Hegel's influence not only methodologically in his adaptation of Hegel's dialectic, but also in terms of overarching issues with which Hegel had dealt in his comprehensive approach to thought in the tradition of the ancient Greeks. Marx had a PhD in philosophy and his dissertation was on Greek philosophy. It is not possible to understand Marx without understand the Continental influences on his thinking and his 19th century German style of writing.

As a philosopher, Marx understood that ontological, epistemological and ethical issues are paramount in that they are foundational. He also understood that sociology is a subset of ethics, and that economics is a subset of sociology since societies are inherently normative as well as culturally and institutionally determined, i.e., normatively value-laden.  Property law is inherently different under capitalism than under feudalism in that law is based on values and establishes institutional norms that are enforceable. Economic infrastructure is determinative and economic infrastructure is institutional, where the chief institutions are defined legally.

Adam Smith was chiefly a moral philosopher and Jeremy Bentham and John Stuart Mill are considered philosophers, too, even though they made contributions to economics. The fundamental principle of utilitarianism, the greatest good for the greatest number is a moral principle rather than a naturalistic one, being grounded in apprehension (Adam Smith's "moral sentiment") of the universality of human nature rather than animal instinct.

Doing economics without consideration of values is to ignore foundational issues and indeed causal factors. As Keynes noted, economics is a "moral science and not a natural science. That is to say, it employs introspection and judgments of value." (Letter to Roy Harrod, July 4, 1938)

Moreover, as a sociologist, Marx realized that power is determinative culturally and institutionally, and that power is determined by the social, political and economic infrastructure of a society, e.g., based on allocation of wealth through property law. He also understood the liberal principle of the Enlightenment regarding equality based on the universality of human nature (KM called it "species nature"), which is the basis for the rule of law rather than that of men, equality before the law, and the absence of "natural" privilege as a person.

Of course, Marx did not think that people were equal as individuals, but rather as human persons. Individual uniqueness implies natural inequality in certain respects — dispositional, temperamental, attitudinal, aptitudinal, etc. He would have recognized that half a population are below average, which many contemporary thinkers seem to overlook in assuming methodological individualism that presumes ontological individualism.

What Marx opposed was institutional (and enforced) inequality, e.g., manifesting in terms of class structure that not only constituted the basis of privilege based on class power, but also inherited privilege and dynastic privilege. Marx traced this to legally enforceable property rights as superior to human rights and civil liberties necessary for human freedom for self-determination, self-expression, and self actualization in a free society. Marx is often caricatured as a statist, when he was anti-statist in an era of authoritarian statism that no longer exists they way it did then, at least for the most part. What Marx realized — as did Aristotle, for example — is that individuals can only be truly free in a free society, since human beings are social animals. The question then is how to actualize this. This is fundamental issue on which Marx focused.

Marx correctly saw that the haute bourgeoisie would seek privileges similar to the hereditary aristocracy they were in the process of replacing (this replacement would not be consolidated until after WWI). He also realized that, given the opportunity, the petite bourgeoisie would imitate them, isolating the laboring class. Of course, the haute bourgeoisie realized this, too, and would create just such an alliance with the "middle class". Which is pretty much what came to pass. (Now that alliance is fraying and some of the haute bourgeoisie are getting nervous about potential political consequences, especially with the rise of populism on both right and left.)

At this time, Continental thinkers, especially German ones in the aftermath of Kant and Hegel, were expected to be comprehensive thinkers to make a mark. And without a comprehensive approach, the result is often disjoined — the parable of blind men or people in the dark attempting to describe an elephant by touch comes to mind. Conventional economics as it is practiced in the English speaking world, at least, falls in this category. Indeed, the universities is infected with isolation of disciplines, and economics seems to be particularly infested with this to the point that dementia has set in, if not rigor mortis.

This is not to eulogize Marx as an epitome, or for being something he could not have been as a man of his period. Of course, there were some things that Marx missed or got wrong — after all he was one of the early founders, or at least forerunner, of what would become the disciplines of sociology and economics. But not only did he get a lot right, but he has been pretty much alone in saying it, other than Marxists and Marxians who are similarly marginalized or demonized.

That needs to change if economics as it is taught is to advance from its sclerotic state. Even heterodox economists are forced to teach the party line both owing to the existing institutional structure and also so that their students will be able to "advance" in a sclerotic profession — which is an contradiction in itself. What a waste of time that could be better spent on things that actually matter.

Marx was an enormously prescient thinker whose thinking was both broad and deep. Moreover, he possessed a conscience and a spine to follow it — into exile. He recognized that the issue that ties everything together was the ancient Greek ideal of positively free individuals living a good life in a good society — as did utilitarian John Stuart Mill and pragmatist John Dewey, for example, from different angles.

Marx was a social libertarian who was opposed to the repressive authoritarian governments on the Continent at the time. He was favorably impressed with the realization of the liberal dream in the founding documents of the US, something not yet realized in Europe at the time, even though he was appalled by African slavery. See Marx's letter to Abraham Lincoln and Lincoln on labor and capital.

Neoclassical economics can be viewed as a reaction to Marx as Marx had been a reaction to classical economics, although he agreed with the emphasis of classical economists on economic rent. Neoclassical economists dismissed economic rent, it seems in reaction to Marx, and in particular to Henry George. See Michael Hudson, The Social Economics of Thorstein Veblen. Veblen and other institutionalists deserve mention as the flip side of Marx, so to speak. That is, there was already an alternative to Marx's socialism without turning to marginalism as if it were the only alternative, or the best one available.

Economics without economic rent and the application of power than underlies it is barren. The analysis of Marx is still germane to this, in that "surplus" value allocated to capitalist profit is by definition economic rent in that it is not socially necessary for production, nor is it economically necessary not being a cost of production. Capitalist profit is surplus in excess of costs of producing and distributing goods. It is form of tribute to those powerful enough to extract justified by what might be called "the John Galt effect" as an incentive and just deserts merited by contributions to organization and innovation — irrespective of endowments and institutional structures that enable it.

Because this is pretty much otherwise submerged in conventional approaches to economics, I would agree with Bill that study of Marx and incorporation of key insights that are still highly relevant in that they have been under-utilized is a sine qua non for a realistic approach to economics based on taking into account all relevant causal factors, especially determinative ones like power, especially institutionalized class power.

In presenting a summary of MMT, I would also call attention to the work of MMT economists on previous economists and schools of economics that are generally considered to fall outside the pale of MMT, such as Randy Wray's work on Hyman Minsky and Kenneth Boulding, and Mathew Forstater's work on Abba Lerner, Adolf Lowe, and Bill Vickrey.

This may be ancillary, but it seems to me to be significant enough to mention in a summary of MMT rather than folding MMT into Post Keynesianism, where it now seems to sit in the minds of many people. MMT is much larger than that. As Scott Fullwiler has observed, institutionalism is as much an influence on MMT as Keynes and Post Keynesianism.

MMT economists are original thinkers that stand on many shoulders and are positioned uniquely, beyond any previous school of economics. I don't think that this is as recognized as it needs to be. Of course, major insights came from the stock-flow consistent macro approach developed by Wynne Godley and Abba Lerner's functional finance. But to present MMT mostly on that basis would not be completely adequate.

Finally, the founding insight of what became MMT should be credited to Warren Mosler's realization that a currency sovereign exercises a monopoly over the currency it issues. Everything really follows from that since the operational type of monetary system defines available policy space. Within this policy space, stock-flow consistent accounting determines operational boundary conditions showing what is possible and what is not.

The failure of economists to appreciate this gets many of them a failing grade in their discipline when they confuse the existing monetary system characterized by floating rates with a fixed rate system like the previous one, or confuse currency issuers with currency users, or violate stock-flow consistency in their models, or think that a currency sovereign in a floating rate system that doesn't borrow in a foreign currency or run a currency board is constrained with respect to operations involving its currency when the actual constraint is availability of real resources, hence inflation.

43 comments:

Anonymous said...

The proof is in the pudding, I would say. More policy detail, more constructive contribution to ongoing policy debates, more focus on the status and deficiencies of the real economy of goods and services, production and distribution, would be an improvement all around I think, from MMT as well as from all of the other various tribes of macroeconomists.

In any case, I think at least 90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues, which tend to throw a blurring screen of opaque and secondary instrumentalities over the fundamental phenomena.

Greg said...

Agreed Dan

Its always seemed odd to me that those neoclassicals who want to remove money from their models are always talking about money in their policy prescriptions.

Matt Franko said...

Dan I dont know if all technocratic issues can be as easily dismissed as "secondary instrumentalities" ...

We may want a lot of things but if the technological systems dont exist for implementation of a new policy, then what use is there to discussing them?

This is probably an age old re-hash of the relative importance of technocratic issues vs. the philosophical... probably we need both..

The technocratic aspects of MMT are important to grasp for any erstwhile policymaker... how do they know what kind/magnitudes of policy they can establish if they are not adequately informed wrt the current monetary systems?

Look at the govt organizational structure, we have finance and budget committees broken out separately from the authorizations because we know that financial aspects are important on their own, and have to be analyzed by a separate group of technocratic specialists... these finance/monetary specialists have to be trained and qualified correctly or we can end up where we are today... QE? ZIRP? Balanced Budget Amendments? Intergenerational Accounting?

I think you are at least bordering on being too dismissive of what are key technocratic (vice philosophical) issues...

And I dont see really any deficiencies with current goods and services or production and distribution systems... they are working fine... what big problems do you see? We are drowning in "stuff", food, entertainment, energy, medicine, IT, unnecessary "work", etc...?

rsp,

Brian Romanchuk said...

Dan,

I would agree that a lot of the "important and urgent economic issues" revolve around things like regulations and laws, which help determine the quality of life and distribution of income. These are non-monetary issues.

But if we turn to economic policy, "money" does show up, at least indirectly. Fiscal policy discussion is hamstrung by the mainstream interpretation of the governmental budget constraint. The mainstream also generally rallied around the view that monetary policy is the solution to stabilise the economy. There has only been a nod towards fiscal policy as a result of the accident of hitting the zero bound.

Matt Franko said...

"accident of hitting the zero bound"

right Brian and now if you look into this "secular stagnation" stuff they are coming up with, they are trying to blame it on "we cant go to a negative rate" type of thing and then they conclude "so we're just stuck... sorry nothing we can do about it...its a liquidity trap... its a balance sheet recession.... sorry we just have to suck it up while it lasts" type of thing...

These people are just not trained/qualified enough in quantitative systems to be allowed to be working in this area of economics... I'm sorry but they are failed technocrats at this point imo... back to school for them or perhaps retirement... rsp,

Unknown said...

Brian,

"The mainstream also generally rallied around the view that monetary policy is the solution to stabilise the economy. There has only been a nod towards fiscal policy as a result of the accident of hitting the zero bound."

Have you written anything about this on your blog?

Brian Romanchuk said...

y,

I wrote about this view indirectly, but I did not cover it in a lot of detail. The shift towards monetary policy-centric stance started around the late 1980s, I believe. Since it was a general shift of opinion, it is harder to define (you cannot just cite one paper).

The recent shift as a result of hitting the zero bound is better defined; there were the articles by people like Krugman and Woodford. Since those articles are somewhat stale, I have not covered them in detail (yet).

But to quickly summarise what the view was, monetary policy was defined as a rule that keeps the economy along the "optimal trajectory" (although it is hit by random shocks). Since the economy is already at an "optimal" point, fiscal policy changes will be cancelled out by monetary policy. But with rates at the zero bound, this is no longer possible, and so fiscal policy can actually have an impact on the economy.

This view makes it impossible to discuss the usefulness of fiscal policy, and correspondingly, it is difficult to see the usefulness of something like a Job Guarantee.

Brian Romanchuk said...

I want to return to the original article thesis. To be honest, I know very little about Marx's thought, so I cannot comment on his contribution to MMT. But I think it would be hard to reduce the importance of Keynes, especially if you consider Minsky to be in the direct roots of MMT. Minsky closely followed on Keynes' views, although I believe that he thought he was cleaning up some of the weaker points of Keynes' theories.

I think Bill's point is less about the economic theory, rather the political and philosophical motivations behind the theory. I think this is somewhat murky. You can cast the Job Guarantee as being Progressive, as it is helping raise the wage share of income at the expense of Capitalists. But you could easily interpret it as being Conservative, as it a means of making modern states more stable, and less vulnerable to a revolution.

Anonymous said...

Matt, I don't think the technocratic issues can be ignored. But most of them do not have to do primarily with money.

Consider a nation's retirement support policies. Suppose a group of technocrats is charged with the task of overhauling the nation's policies in this area. They need to a come up with a proposed architecture for a new system of retirement support that includes projections as to how the new system will be functioning 20 years from now, 30 years from now, etc. What questions will they have to consider? Mainly questions such as these:

What will the average rate of retirement be?

What will be the total size of the retired population?

What will be the total size of the working age population?

What will be the total size of the pre-working age population?

What percentage of the nation's output is to be consumed by the retired?

How will the retired be distributed geographically?

And of course there will be more detailed questions to be answered; for example, questions about the median age of the retired population as opposed to the mea age, the spectrum of needs of different groups of retired at different ages, anticipated changes in productivity and relative costs in the areas of medical treatments and foodstuffs.

None of these vital questions is a monetary question. Monetary questions will play a role, though, since they comprise one part of this larger question:

By what mechanisms will that portion of the nation's output that is consumed by the non-working retired be transfered into their hands?

Unknown said...

Dan,

I thought MMT's position was that the important questions are about real things - real resources, etc, and that financial/monetary matters were secondary. That being said, you need to understand money properly to get this point.

Anonymous said...

Brian, I have no doubt that monetary theory and system issues do show up in many places, in connection with all sorts of policy questions. My concern is the undue emphasis they receive, and the feeling many seem to have that if only the monetary system is uderstood properly, then the answer to all sorts of fundamental social and economic policy questions immediately falls out of that understanding. But that is not really true.

The case against the mainstream interpretation of the long-term budget constraint would be stronger if there were a more coherent and carefully formulated non-mainstream formulation of the long-term budget constraint on the table.

Anonymous said...

"I thought MMT's position was that the important questions are about real things - real resources, etc, and that financial/monetary matters were secondary."

Yes, y, they make that statement repeatedly, but then they rarely go on to discuss those important questions about the non-monetary dimensions of economies and economic policies in any detailed terms.

If you go to any of the places where people are discussing health care policy in detailed terms - or energy policy; or the production and distribution of commodities; or the structure of corporate ownership and governance; or the organization of the education sector; or policies on transportation and the organization of cities; or food and water policy; or housing policy; or retirement policy; or labor policy - you will find that MMT economists are making no contribution of note.

Tom Hickey said...

1. Following Keynes, MMT assumes a monetary production economy.

1a. MMT assumes that an economy is defined by real resource availability, and that production, distribution, and consumption are functions of monetary investment, market exchange based on money, and demand based on income.

2. The sole constraint on a currency issuer that is sovereign in its currency is availability of real resources, implying an inflation constraint financially.

2a. Affordability is never a constraint with respect to economic policy for a currency sovereign that floats rates and doesn't borrow in a currency it doesn't issue.

3. The type of monetary system defines fundamental characteristics of an economy and also the available policy space.

4. The operational boundaries within the available economic and policy space are bounded by SFC accounting, e.g., all sectors cannot be in surplus simultaneously by accounting identity.

5. Economic policy is best conducted using fiscal means iaw functional finance in order to run a full employment budget while otherwise accomplishing public purpose through political choices made democratically.

Tom Hickey said...

The case against the mainstream interpretation of the long-term budget constraint would be stronger if there were a more coherent and carefully formulated non-mainstream formulation of the long-term budget constraint on the table.

Scott Fullwiler, Interest Rates and Fiscal Sustainability available herealong with other relevant Fullwiler papers.

Roger Erickson said...

Until economics fuses with sociology, anthropology & biology ... it'll remain a tool of class warfare. That's my view.

Matt Franko said...

Roger I dont know if I would say they have to "fuse" with those disciplines but I for sure think that the academe of economics should impose the same rigorous training in quantitative systems that those disciplines impose and many other non-economics disciplines btw...

The economic systems specialists just are not getting the level of training and qualification that other disciplines are getting and it shows... ie bridges dont fall down but the economy often does....

I think perhaps what is happening is that the economics students are not getting into it early enough in the bacculareate programs and therefore they are not getting the necessary years of rigorous quantitative analysis which results in the necessary "mathematical maturity" or at least the necessary level of 'aptitude' to competently deal with these dynamic quantitative systems...

There is a pretty severe mathematical deficiency I detect with most who often end up in the field of macroeconomics...

rsp,

Detroit Dan said...

If you go to any of the places where people are discussing health care policy in detailed terms - or energy policy; or the production and distribution of commodities; or the structure of corporate ownership and governance; or the organization of the education sector; or policies on transportation and the organization of cities; or food and water policy; or housing policy; or retirement policy; or labor policy - you will find that MMT economists are making no contribution of note. [Dan Kervick]

This is just another in a long series of ad hominem attacks by Dan Kervick on MMT. Please stop.

How would you like it if someone wrote,

If you go to any of the places where people are discussing health care policy in detailed terms - or energy policy; or the production and distribution of commodities; or the structure of corporate ownership and governance; or the organization of the education sector; or policies on transportation and the organization of cities; or food and water policy; or housing policy; or retirement policy; or labor policy - you will find that Dan Kervick is making no contribution of note.

?

Don't be such an ass...

Brian Romanchuk said...

In response to Dan Kervick
"The case against the mainstream interpretation of the long-term budget constraint would be stronger if there were a more coherent and carefully formulated non-mainstream formulation of the long-term budget constraint on the table."

In addition to the Fulwiler article Tom referenced, there was an article by Godley and Lavoie that covered sustainability. This is in the context of a mathematical Stock-Flow Consistent model, which is fully formalised, and so the mainstream cannot complain about a lack of mathematics.

Otherwise, in the "short term", all that matters is the Functional Finance principles of Lerner. If inflation is not a problem, fiscal policy is "sustainable".

In the "long term", all you can say is that government debt cannot grow faster than GDP forever. But if you look at stock-flow relationships, that is essentially a tautology, and tells us very little about policy.

Anonymous said...

… and the reminder (by way of analogy) that we are not as fortunate as Pinocchio who grew a long nose every time he lied – on the way to becoming human. I ask myself: ‘do human beings really respect each other’? And my answer is - No! It is not a trait evolved in the species to date. The reason why is in a mirror. Everyone is fighting for what they see reflected in the world, to become the uniform (or at least controlling) reality. Hah! No lore has ever overcome that: nor belief …. or discipline.

And you just can’t strait-jacket humanity with regulations or organisations. Or concepts! Think 400,000 years of evolution instead of 200,000. Everything will change.

As Kabir said (way ahead of his time): a human being is a clay pot – an unconscious one at that; forgetting what it contains. I cannot help but concur: until that light shines, mind will go around in circles; ego will be the reality. How can a being that does not know who it is, have a direction? That is what I ask myself. We are like children, playing. The technology has developed, but the human heart remains a mystery.

This is what needs to be understood in my little view of things: - if you want to light up a dark room, so that at least you stop bumping into things and other people, recognise that what the room holds is just ‘stuff’ and that what is precious is already inside of you, what you are looking for is already inside of you - at least one candle needs to be lit in that room. At least one candle. You cannot lose your nature in that room, deny your nature just because of ‘play’. Concepts are just backlit pixels – it is by taking away the filters that the light is revealed; not by adding more and more. I think that learning respect, is far more powerful an influence in human beings, than any ruling elite could ever dream of.

People focus on the symptoms, but not the disease. My efforts are focused on eliminating the disease — which is, fundamentally, people not being in touch with themselves, not knowing who they are. If we don’t take care of the disease, the symptoms will never go away. And we all know what the symptoms look like: greed, war, selfishness, violence, and an increasing loss of trust. Peace is a real thing. Peace resides in the heart of every human being. Peace has to emanate from you. [Prem Rawat]

Detroit Dan said...

I think at least 90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues, which tend to throw a blurring screen of opaque and secondary instrumentalities over the fundamental phenomena. [Dan Kervick]

It seems that Peter Cooper responded to this, either inadvertently or without acknowledging the impetus for his post -- Significance of MMT for Progressives and the Left. Excerpts:

Demands on time in the MMT community include (i) providing “simple as possible” explanations of “basic MMT” for public consumption and (ii) exploring theoretical and policy ideas informed by an understanding of those basics together with insights from related approaches to economics. Although the latter task is perhaps more enticing for those who have by now (mostly) absorbed the basics, and is certainly an area worthy of pursuit, the former task remains politically pressing and so equally deserving of time. It doesn’t matter what progressive policies, institutional reforms or plans can be devised if the public believes they are “unaffordable because the nation is bankrupt” or “impossible because capitalists won’t stand for them”. This brainwashing has occurred over decades and clearly people are not freeing themselves of it easily.

Although confusion over “money” is immense, it seems fairly common on the left to view the topic as superficial compared with study of “real” stuff. I think downplaying the significance of money is a mistake. Downplaying its connection to the real is also a mistake. And imagining the analysis of money is any less threatening to the powers that be than analysis of the real is a bigger mistake....

Modern Monetary Theorists’ careful and, as far as possible, objective institutional description and analysis of monetary and fiscal operations in a sovereign currency system arguably brings to light a radical democratic potential inherent in sovereign money, waiting to be seized upon. It opens the way to managed capitalism or social democracy or socialism or beyond, however far (or not so far) we wish to take it...

In the present economic system, real resources are mobilized only on the say-so of the issuers or possessors of money, and only on their terms... If the production is something that the majority would consider socially beneficial, and is within resource limits, the main obstacle to its going ahead is the electorate’s own failure to understand the options available to it.

Anonymous said...

How would you like it if someone wrote,

If you go to any of the places where people are discussing health care policy in detailed terms - or energy policy; or the production and distribution of commodities; or the structure of corporate ownership and governance; or the organization of the education sector; or policies on transportation and the organization of cities; or food and water policy; or housing policy; or retirement policy; or labor policy - you will find that Dan Kervick is making no contribution of note.

They would be completely right. I have contributed bits and snatches to various online discussions, but I don't there is anyone who does serious work in those areas who would find anything really notable in them.

On the other hand, I haven't attempted to cultivate, or buy, a clique of disciples who treat the stuff I have written as though it were some kind of world-changing gospel.

Detroit Dan said...

I haven't attempted to cultivate, or buy, a clique of disciples who treat the stuff I have written as though it were some kind of world-changing gospel. [Dan Kervick]

"or buy"?

It sounds like you have a specific criticism that keeps getting expressed via a general trashing of MMT. If you've got something specific, fine, let's hear it. Otherwise, you're not being fair, in my opinion...

Detroit Dan said...

I have contributed bits and snatches to various online discussions, but I don't there is anyone who does serious work in those areas who would find anything really notable in them. [Dan Kervick]

Ah -- "serious work". That's trenchant...

Anonymous said...

Tom and Brian,

I am unclear about what kind of notion of sustainability Scott is trying to analyze in the article. Most of the article seems given over to various critiques of the orthodox view, but I couldn't find a clearly enunciated alternative criterion of fiscal sustainability.

The bottom line seemed at one point to be a suggestion that a fiscal policy is sustainable as long as the long term debt/GDP ratio converges to any ratio whatsoever, rather than increasing without bound. But that criterion seems compatible with some very high annual rates of increase in private sector net financial assets. Do people really want to defend the idea that that's all there is to sustainability? That there would be no problem with a government fiscal policy that converged toward a debt/GDP ratio of say 1000%, or where annual government interest payments on its securites were converging to 50% of nominal GDP, so long as those percentages are stable?

Brian says that "if inflation is not a problem, then fiscal policy is sustainable." Well .... yeah. That's the point. The claim I have made several times is that there is no serious MMT model of prices, just a grab bag of half-baked claims and suggestions, and that until such a model exists, and serious theoretical and empirical substantiation is marshalled in its support, then there exists no guidance for the long-term management of fiscal policy, and all of these claims about the wonders of fiat money and the supposed non-existence of financial and budget constraints will remain unconvincing.

Tom Hickey said...

Scott Fullwiler, Functional Finance and the Debt Ratio—Part I-V

Anonymous said...

Tom, read the Conclusion section in Part V of that post by Scott and then tell me how MMT fills in the blank in the following schema:

The government's fiscal policy is sustainable if and only if ______ .

Leave the issue of interest rates aside, if you want. Assume, for the sake of argument, that interest rates on government securities are a pure policy choice, that the government can set this rate arbitrarily close to 0% at will, and so there is no functional difference between issuing interest-bearing securities and non-interest-bearing currency. Given those assumptions, under what conditions is a fiscal policy sustainable?

Detroit Dan said...

Dan K,

If you are interested in "serious" discussion, why don't you formulate your own theory of price, or point to someone else's theory that you accept? If MMT doesn't have all the answers as far as you are concerned, that does not mean that MMT is not serious. I'm sure there is more work to be done and that MMT can be improved upon.

My understanding of MMT is that automatic fiscal stabilizers are advocated as the best means of controlling inflation.

Since you have changed your tune and now are a constant critic of MMT, and advocate participation in "serious discussions", I assume you are moving forward with your career and looking forward to a paying position discussing economics. That's fine and I wish you well, as you have written some of the best stuff I have read about economics. Just because MMT doesn't tie everything up with neat little bows doesn't mean you need to constantly criticize it. Point us in the direction of greater clarity if possible, while being respectful of the work MMT economists have done...

Tom Hickey said...

"Leave the issue of interest rates aside, if you want. Assume, for the sake of argument, that interest rates on government securities are a pure policy choice, that the government can set this rate arbitrarily close to 0% at will, and so there is no functional difference between issuing interest-bearing securities and non-interest-bearing currency. Given those assumptions, under what conditions is a fiscal policy sustainable?"

Hey, I am not even an economist, let alone an MMT economist. Ask one of then. Or maybe Peter Cooper will weigh in on it.

Jan said...

It´s not a very upsetting fact that John Maynard Keynes was never a especally politial radical person,he was a English Liberal Party member. Bill Mitchell is more inspired by Michal Kalecki,i will rembember,that was a democratic socialist that came to similar conclusions as Keynes by reading Marx ,Rosa Luxemburg, and Mikhail Ivanovich Tugan-Baranovsky and Knut Wiksell.Kalecki also,wich is not so known went to Sweden before he settled in the U.K there he was mentored by Gunnar Myrdal another democratic socialist.Kalecki and Myrdal advocated more radical policies then Keynes and so did Abba Lerner and many others that where forerunners to MMT.It seem that Mitchell want to stress the relationship with that more radical tradition.

Brian Romanchuk said...

"The bottom line seemed at one point to be a suggestion that a fiscal policy is sustainable as long as the long term debt/GDP ratio converges to any ratio whatsoever, rather than increasing without bound...That there would be no problem with a government fiscal policy that converged toward a debt/GDP ratio of say 1000%, or where annual government interest payments on its securites were converging to 50% of nominal GDP, so long as those percentages are stable?"

That sort of outcome is pretty much precluded by the stock-flow norms used in Stock-Flow Consistent modelling. The interest income would drive up nominal GDP, and the debt-GDP ratio would stabilise at a level that is reasonable from the point of view of debt holders. MMT "inherits" that analysis from SFC models.

There is an implication that there would be inflation if you had high debt growth rates, as it is unlikely that real GDP growth would keep up.

"Brian says that "if inflation is not a problem, then fiscal policy is sustainable." Well .... yeah. That's the point. The claim I have made several times is that there is no serious MMT model of prices, just a grab bag of half-baked claims..."

The MMT stance on inflation is less distinctive, and it fits in with other heterodox (and possibly mainstream) theories. It is no weaker than any other body of thought on the subject of inflation. (If there was a good model for inflation, it would be well known amongst inflation traders by now.)

I have summarised in a couple of recent articles (on my blog) Misky's thoughts about inflation, and how it is driven by the divergence between the "high pressure" high skill workforce, and the "low pressure" less skilled workforce. This is a hard model to fit to data (but there is a theoretical model Minsky took from Baumol), but it probably gives the most insight of any inflation model for modern welfare states. I would have to read some of Bill Mitchell's works again, but I think his views are close to that framework.

The Job Guarantee is structured in a fashion to avoid stimulating inflation, on the basis of that model. Conversely, the aggregated labour markets used in mainstream analysis caused those models to miss the inflationary impact of Military Keynesianism.

Anonymous said...

Dan, I don't "constantly criticize" MMT. I go for long periods without anything to say about MMT whatsoever. I have a Facebook and Twitter feed which you can examine, and I think you will find MMT-related comments are few and far between. Most of my comments at this site are short reactions to random topics that are not directly related to MMT. My initial comment on this post was, in my view, completely constructive. If you disagree, fine. But that's the nature of critical intellectual exchange.

I would be delighted to have the opportunity to devote myself to economic policy research, and to the formulation and defense of economic policy. Unfortunately, I have a full-time job that has nothing to do with that stuff, and I barely have time to get a little reading and commentary in edgewise.

Detroit Dan said...

Dan K-- I do not follow your Facebook and Twitter postings, so the only view I get of you is what you post here (since you seem to have dropped out of other fora such as neweconomicperspectives).

Your initial comment here was a cliche -- "the proof is in the pudding". You followed that up with a comment which you now seem to be backing away from ("90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues"). That is constructive?

You can do better than this, IMO. Please respect our time...

Detroit Dan said...

Dan K-- I do not follow your Facebook and Twitter postings, so the only view I get of you is what you post here (since you seem to have dropped out of other fora such as neweconomicperspectives).

Your initial comment here was a cliche -- "the proof is in the pudding". You followed that up with a comment which you now seem to be backing away from ("90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues"). That is constructive?

You can do better than this, IMO. Please respect our time...

Anonymous said...

"The interest income would drive up nominal GDP."

Brian, nominal GDP can be viewed as a function of real GDP + inflation, and simply pumping dollars into the economy via an endless, massive helicopter drop would have the same impact on NGDP. So I think it makes an important difference which component of NGDP we are really talking about. An ongoing super-high rate of inflation might be compatible with a financially sustainable government fiscal program, at least in purely operational terms. And people who hold government bonds and thus collect rent on government operations might be OK with the high inflation rate if their interest payments are inflation protected. But given the fact that prices rarely move in tandem with all other prices, that wages tend to be sticky, and that the larger the rate of inflation the more volatility and spread there is in the size of temporary price gaps, I don't think most people would regard such a state of affairs as "sustainable" in any but the most insignificant operational and accounting sense.

Anonymous said...

Dan, I believe this statement:

"90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues."

is true, and therefore making that statement is constructive. As I said, that statement doesn't entail that monetary issues are irrelevant - just that they are not as relevant as some people believe. I gave one specific example with respect to social security. I could give similar examples in other areas. For example, the main issues in the economics of education concern what percentage of our population should be employed in the production of educational services; how the educational system should be organized; which portions of that system should be public and which portions private; how human resources should be allocated to different possible forms of education; how the labor market for education should be structured and regulated; how educational outcomes should be measured. You can go very, very far into these questions without worrying about the monetary system.

Detroit Dan said...

Dan K,

With regard to your comment in response to Brian, what is your point? Do you want smaller fiscal deficits because the current path is not sustainable?

Detroit Dan said...

Dan K--

I'm going to bed. I appreciate your concern for the economy and for what is best for us all.

Take care...

Roger Erickson said...

Dan K: "90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues."

?? Isn't that the whole message of MMT? To quit obsessing over monetary issues?

As soon as that message is delivered & justified for an adequate threshold of the electorate ... then people WILL be able to focus on the outcomes we all want addressed. Until then, there's nothing wrong with some recursive review of WHY there's policy gridlock.

You seem to be criticizing MMT for working to make your dreams come true.

Maybe stop looking a gift horse in the mouth .. and complaining about it's teeth?

STF said...

The answer to Dan K's question is quite obviously in the same concluding paragraph in which he claims he can't find the answer . . .

"Instead of scaring people with studies that are dead on arrival as a result of faulty assumptions and methodology, CBO and others should focus their attention on potential solutions to growing private healthcare costs and estimating the macroeconomic impacts of specific projected spending plans or proposed budgets (which would require CBO to allocate resources to undertake the highly useful task of developing a detailed, empirically-based macroeconomic model incorporating desired net private saving, capacity utilization, the labor force, inflation, and so forth)."

This should be obvious to anyone who is familiar with MMT--it's about the macroecnomic consequences of the spending on inflation, etc., not the affordability or the bond vigilantes. I've even said in that paragraph precisely what CBO should be doing in order to enable policymakers and others to really understand whether or not a deficit path is "sustainable" or not. I'll repeat it here since it obviously isn't obvious at all to some people:

"CBO . . . should focus [its] attention on potential solutions to growing private healthcare costs and estimating the macroeconomic impacts of specific projected spending plans or proposed budgets (which would require CBO to allocate resources to undertake the highly useful task of developing a detailed, empirically-based macroeconomic model incorporating desired net private saving, capacity utilization, the labor force, inflation, and so forth)."

In other words, fiscal policy is "sustainable" if its macroeconomic impacts (e.g., inflation, employment, inequality, etc.) are desirable. This is a huge paradigm shift from the received view of sustainability based on default, bond vigilantes, and so forth. True, I haven't completely defined "desirable macroeconomic impacts" per se--though "low, stable inflation" and "full employment" are certainly quite high on the list--but that's by design/ necessity (can't solve all the world's problems in one paer). The point of the paper was the shift to a new paradigm--when that happens, there will be debates about the other details (though Pavlina's doing a lot of work on that right now as it is).

And this is consistent with Brian's point about developing a useful model of inflation--imagine if CBO put its brainpower to that useful activity rather than the 100s of pages of garbage it puts out to scare people into supporting austerity.

It's great that Dan K "gets it" as far as the core message of MMT goes, and has moved on to worrying about "where do we go from here now that we are armed with this new perspective on money?" I agree that most of the problems ain't about money--as Dan D. and others pointed out, that's precisely the point of MMT (!), and Peter explains that well.

So, essentially, Dan K has "graduated" from MMT and is now ready for the real world and all of its problems that desperately need fixing. That's great (really--no sarcasm here). I can't help the fact that he doesn't think that MMT's efforts to "graduate" more of the 100 bazillion people that need the same "education" are very worthy, but if he wants to contribute to understanding of some of the issues he mentions, I'll absolutely support him. For our part, we're kind of busy at the moment with those 100 bazillion that need to learn that the deficit hawks and doves are both wrong (as it turns out, building a macro/money paradigm and trying to convey it to both economists and the masses is kind of a time sucker--who knew?).

BTW, superb job, Tom, in your post here. I love it when you bring your expertise in philosophy/philosophy of science into these discussions.

Anonymous said...

Scott, it seems to me that what you are saying is that MMT doesn't offer an alternative analysis of fiscal sustsainability in opposition to the mainstream analysis that you criticize in that paper, but that it instead suggests that people should simply stop thinking about sustainability. Is that right? There is no issue there?

Of course a fiscal policy should be measured by its economic effects. But isn't that what the sustainability debate is all about? People want to know whether the current fiscal stance of government, extended indefinitely, leads to economic disaster, economic health or something in between. If you can't answer that question, then you have no way of saying whether the deficit hawks or deficit doves are right or wrong in their basic stance. You might be able to point why this or that specific argument they offer fails; but if you have no long-term budget and fiscal policy stance to offer in its place, then it's hard to see what basis you have for claiming their stance is mistaken.

Tom Hickey said...

If others cannot prove that problems will eventually arise without resorting to unrealistic assumptions, maybe there is no problem? Why create fictional problems.

If there is an inflationary problem for the US, it is in military spending, which introduces vast sums of $ into the economy w/o increasing production domestic of goods and services. I'd argue that if you are really concerned about inflation, then chop back the military spending and commit it to domestic public investment, e.g., by fixing the crumbling infrastructure that has been left to depreciate since Reagan switched the funding to military expansion.

STF said...

Dan K

I guess you "get it" a lot less than I thought.

In the paper I very carefully dissect the neoclassical view of the IGBC. I show where the key points are in that framework. Then I show where it has gone wrong.

This is the framework used across the world by economists and policymakers to promote austerity. Showing that it is a flawed framework is not trivial for theory and not trivial for people's lives.

As I've tried to explain to you, saying that "sustainability is about macro effects" is also not trivial. This is NOT what neoclassicals are saying. They are saying sustainability is about default and bond vigilantes. They are saying the interest rate on the national debt is set by pvt financial markets. They are saying that there is a loanable funds market out there. They are saying that we need austerity to placate the bond vigilantes in those markets and to avoid "crowding out" private investment. They are NOT talking about macro effects of the deficit--they worry that bond vigilantes determine everything, setting deficits on a totally different path from what policymakers intend. If CBO and others were to worry about macro impacts, it would be a total paradigm shift and game changer, as I again explained to you before.

As Peter explained, if you change the narrative you change the debate and you open up all sorts of possibilities for all the policy areas you've mentioned. But we've got a long way to go before we get there--MMT is committed to this process. It's all encompassing, particularly for a mere 5 to 10 economists that often have less time to do research than their orthodox counterparts since we can't get jobs in the research universities.

As such, I find your criticisms both a bit disingenuous and "the cart before the horse." You seem to think it's simply expected, if not easy, for 5 to 10 people to simultaneously (a) teach a non-research university teaching load, (b) develop an alternative macro/money paradigm, (c) undertake disseminating and defending this paradigm to both laypeople and economists, (d) develop comprehensive policy proposals that are fully researched qualitatively and quantitatively, and (d) develop expertise in various additional areas to the point of being able to affect debate and policy at the highest levels (you specifically mention energy, healthcare, education, transportation)---you might recall Gladwell's observation that it takes 10 years to develop an area of expertise. Hell, you have a Ph.D in Philosophy (I think) and for all your reading of MMT the past several years you still don't understand it fully--as you are demonstrating repeatedly here and in other places lately. And then you see fit to criticize us for not being the polymaths you have also failed to become.

Further, for all your supposed reading of MMT, you pose questions about retirement, etc. that in fact Randy has done quite a bit of publishing on . . . one example http://papers.ssrn.com/sol3/papers.cfm?abstract_id=923845 . And Stephanie wrote a series on healthcare several years ago http://www.cfeps.org/health/index.htm . Did you miss that, too? This is not even to mention that there is a vast network of heterodox economists doing a lot of work on various issues that I believe are complementary to the money/macro framework from MMT (No need for MMT to reinvent the wheel). Instead of criticism, it'd be more useful to highlight these consistencies.

In other words, if you see gaps, you're perfectly welcome to help fill them--we're kinda busy if you haven't noticed, with work that we and a whole lot of other people think is important. If you don't, then so be it; I frankly don't care what you think and I don't know why anyone else would, either.

Detroit Dan said...

Scott, Tom, and Others,

Thanks for all you have taught me. My daughter and son-in-law are politicians. I am hopeful that I can help them understand the economy, and you and all of the MMT team have been a big help in that regard. We are not all privy to all of the "serious discussions", but that doesn't mean that they don't take place in numerous venues and fora in addition to Mike Norman Economics...