Tuesday, October 29, 2019

Good criticism of MMT

The TD Bank Financial Group, authors of Modern Monetary Theory: A Primer, make some fairly serious mistakes in their criticism of MMT. Still, given the deluge of misinformation about MMT, it looks to be written in the best faith we can hope for. With all good luck, I will devote some attention to a more detailed examination of the report in my copious free time.

Monday, October 14, 2019

Happy (belated) Columbus Day!

Spreading the gospel

Osita Nwanevu has a great article about MMT in The New Republic: Spreading the Gospel of Modern Monetary Theory

I had to sigh a bit reading the closing line, "Those speaking up in defense of the assumptions MMT assails would do well to consider that the hearts and minds of the public are rarely won on technicalities." The author is most certainly correct. Still, the technicalities do matter, at least to me, and the assumptions that MMT assails are actually incorrect and are indefensible not only on political grounds but also on technical grounds.

Sunday, October 13, 2019

Professionals and the PMC

In Professional-Managerial Chasm Gabriel Winant offers a long and very sharp explanation of the professional-managerial class (PMC) and its role in capitalist society. I myself have spent some time studying the PMC, and I agree with pretty much everything Winant has to say about it. But Winant wants to reform the PMC; but the reform of the PMC as a class is impossible. Socialists can certainly appropriate some of the attributes and ethos of the class, and we are definitely taking many of its former members, but the class itself is irredeemable.

Winant correctly notes that the PMC is bleeding members into socialism:
Spend time in the forums of socialists who’ve long been loyal to Sanders and critical of “identity politics”—Jacobin readers, say, or in the listeners of Chapo Trap House—and you’ll see “PMC” everywhere, a sociological designation turned into an epithet and hurled like a missile.

The trouble, of course, would appear to be of the glass-house variety. While the anonymous millions of Sanders supporters do appear to come from lower on the social scale, the ideological cadre driving the Sanders movement features a huge proportion of activists who are credentialed meritocrats in their own right, or descended from them. The famous self-applied moniker of Chapo Trap House’s hosts and listeners, after all, is “failson”—the downwardly mobile, disappointing male offspring of complacent baby boomers. Go to a DSA meeting and see if you can count the grad students on two hands; throw in the coders or the teachers, and hands and feet together won’t be enough. PMC? De te fabula narratur.

But that's not any kind of trouble, any more than Engel's position as a capitalist was "trouble" for Marx's analysis of capitalism. Winant correctly notes later that a class is not the kind of people it's made of, but the role those people take. The phenomenon Winant observes does not seem much different from the proletarianization of the petty-bourgeoisie.

The role of the PMC in the United States (and China, if you take the Chinese Communist Party as an exemplar of PMC control of state power) is to act as an intermediary between the proletariat and the bourgeoisie through the exercise of state power. In China, the Party has much more successfully subordinated the bourgeoisie; in the United States the bourgeoisie has thoroughly subordinated the PMC. (In Russia, the Party tried to eliminate the bourgeoisie, but failed to effectively manage their society. Why? There are a lot of opinions out there, but I don't know, and you don't either.)

The PMC could have, perhaps, eliminated the American bourgeoisie, but they chose not to do so. Instead, they chose to prop up capitalism, to rescue and preserve the bourgeoisie; the capitalist class was rather less than grateful. But today? It's hard to see the American PMC having the will to try again; they merely wish to restore their old position in the 1950s, wielding state power to again rescue and preserve capitalism, whis is, of course, what Elizabeth Warren actually says she wants to do. But if she were to win (which she won't), she would fail.

The most likely danger is the one that Winant actually notes, that Warren will turn out to be just another Obama or Clinton, passive, bewildered captives to a hostile capitalist class. Winant acknowledges the strength of this claim, but argues that "it oddly holds the PMC constant, imagining that it continues to smoothly carry out the function for which it developed a century ago." But why smoothly? How could difficulty somehow rescue the credibility of the PMC? We merely have to imagine that the PMC wants to retake the function of reproducing and managing a capitalist society, with its concomitant exploitation of the working class, in no small part because that's all they know.

Winant mistakes the class for the people, observing, "The PMC is not the ruling class, it merely serves it, deliberately or inadvertently." Fair enough, but goes on to conclude that therefore, "professionals do share something with the working class, . . . the lack of ultimate control over their conditions of labor." The reasoning here does not work: just because someone is a "professional" does not mean they are a part of the PMC as a class. Winant observes the proletarianization of a lot of lower-level professionals, which by itself does not make a basis for compromise or alliance between the PMC and the working class; it just means the working class is getting people with more college degrees. Yes, the PMC as a class does serve the capitalist ruling class, but by choice, not force, and the members of the PMC as a class do have "ultimate control over their conditions of labor."

I do agree that the historical "failure" of the PMC to ally itself with the proletariat "did not invalidate the concept" of such an alliance. But this failure definitely does seriously undermine their credibility, and I would prefer an argument stronger than that it's not completely impossible for the PMC as a class to turn itself around.

Winant again observes correctly that there is a lot of hostility among professionals toward the PMC, noting that
Those who wield the epithet 'PMC,' then, do so not against strangers, but against the most familiar enemies: the ones who made it, for whom good luck or preexisting advantages paid off, and who maintained their ultimate loyalty to the existing order.
But Winant argues that this hostility misses the point, which is "not to abandon the PMC, but to turn it against its masters." I can certainly see turning low level proletarianized professionals against their capitalist masters; I don't see how the class as it sees itself is so easily reformed.

The question is partly whether Warren is a part of the PMC just because of her education and profession. She's not just a professional, she's a law professor, and a highly successful one at that. I can be fairly confident that she has not experienced any "lack of ultimate control over [her] conditions of labor." But a more important question is how she sees her role in the capitalist system. Does she see herself as someone there to challenge the power of the capitalist class, or to simply help the capitalist class use its power more effectively? Again, the PMC sees its role as the latter, not the former, as confirmed by the most successful representatives of the PMC such as Barack Obama and Hillary Clinton (not to mention most of my colleagues, who are professors of economics).

Saturday, October 12, 2019

We don't need the rich

Rich people have a gazillion dollars hidden away in offshore bank accounts. "Alas!" the progressives wail, "Think of all the good we could do if we could get just the taxes on that money!"

Hold up. We don't have to get the taxes. If there a 10% of a gazillion dollars worth of things that we think are worth doing, we can just "print" that money. If something is worth doing, it's worth printing the money to get it done: people will, you know, do stuff if you give them money to do so.

"But if we print the money, we will cause inflation! Inflation is Really Bad, right?"

Inflation is not the worst thing in the world, but just printing and spending money by itself will not cause inflation. The proximate cause of inflation is not too much money, it's too much money in circulation (and too much money in circulation in the wrong places). As long as the gazillion dollars just sit quietly hidden in these offshore accounts, we can print exactly as much as we would have collected as taxes, and we will have exactly as much or as little inflation as we would if we didn't print it but instead took it from taxes levied on this money. The rich cannot hold the government hostage by hoarding money; money is useful only when it's spent.

"Ah, but if we print the money, and then rich people spend their money, we will have inflation!"

Excellent, grasshopper! Now you're thinking with portals!

The key, then, is to not to find and levy taxes on the hidden money before, but make it so that it won't cause inflation unless the rich reveal the money. It's the difference between trying to break into the bank or just posting a guard outside the door catch withdrawals. The second is a hell of a lot easier than the first.

I mean, if they want to (snicker) act in the public interest (chortle) and voluntarily (snort) repatriate their money... sorry, I can't stop laughing long enough to complete the sentence.

I'm not an expert in tax law, but it seems like it's a lot easier to force the rich to keep hiding their money than it is to find it and tax it.

MMT Misconceptions part 3b

Continuing with Doug Henwood's essay, Modern Monetary Theory Isn’t Helping, and his treatment of taxes and government revenue.

Misconception: Taxation transfers resources

[O]ur public sector is starved for resources. Taxing takes those resources out of private hands and puts them into public ones.

Well, no. It's not anything like that; it can't possibly be anything like that. Henwood is not getting MMT wrong here; he's getting basic logic wrong. Henwood is at best speaking imprecisely; we could just attribute this imprecision to a desire for concision, but speaking carefully would completely undermine his point.

Generally, the word resource refers to something real: labor, raw materials, capital equipment, intermediate goods, etc. But of course it's nonsensical to suppose — and I don't think Henwood believes any such thing — that rich people have vast warehouses full of machines, equipment, parts, and raw materials, and dormitories full of people they are withholding from the labor force.

Taxes take money away from people who have it. Money is not a resource; it is the social permission to access society's resources. This isn't the 11th century; the government does not impose a tax by taking the food I grow. When I pay my taxes, I am not giving any resources to the government; the government is taking away some of my social permission to access society's resources.

Absent theft and robbery, ordinary people, households and firms, must get money by persuading someone else who already has money to give it to them, eventually in return for real resources. That's just how money works, n'est ce pas? But governments are just not at all like that.

Money is a social system, and someone, some collection of institutions (spoiler alert: the government), has to create and manage money. The government has to create the money, ensure that people want to use it as a medium of exchange and store of value. The government must ensure there's enough money overall to grant the social permission to access all of society's resources, but not so much that people think they have the social permission to access resources that we cannot produce.

No other institution except the government* can manage the money system. We can't just leave money to "the market". Even if you grant that markets have some value, they suck at delivering the kind of rigidly broad uniformity we want from money; governments are terrific at being rigidly uniform. Government does not have to get social permission to access society's resources. Government has this social permission just by virtue of being the government.

*I suppose e could go back to the gold standard, but almost a century ago, Keynes realized the gold standard was a Bad Terrible Idea, and we abandoned its last vestige in 1971.

This is what I meant previously by looking at the control system; it's important to understand how the control system works so we can effectively use it.

This is how money actually works: The government creates money and puts in the hands of the private sector by buying things like airports and bridges, loaning it to banks to manage the payment system, or buying real or financial assets with it. So that people will actually accept and use the government's money, the government imposes taxes that must be paid in the money it just issued, that could not have been be paid unless the government had first issued the money. Because the government wants some of this money to stay in circulation for private transactions, they collect in taxes less money than they issued.

The government takes these taxes and "burns" them. The government does not need your tax dollars; the government imposes taxes in part so that we need them.

Once the money economy gets rolling, the government continually creates money and puts it into the private economy; it collects taxes to destroy excess money.

The government does not borrow money; they offer people interest to take money out of circulation and "store" it in a government "bond". The government does not offer people real resources in return for the "bond", and the government has no need to give anyone real resources to get the money they promise to repay. They not just can but they have not choice but to print the money when the "bond" matures.

I don't care at all how you or anyone else, left, right or center; capitalist, socialist, or anarchist, feels about the above. That's how money actually works. Again, this is not MMT; this is fundamental monetary economics.

Capitalists fucking hate that money works this way. They would much prefer the gold standard, which gives the rich total control of the money system. The only reason they tolerate the fiat money system — and they have no choice but to tolerate it — is that the last time the bourgeoisie tried the gold standard, the peasants started gathering torches and pitchforks.

The bourgeoisie and their loyal ally? unwitting stooge? useful idiot? Doug Henwood absolutely do not want the unwashed masses to understand how the money system actually works. They want you to believe that the rich have the resources we need to run our society, and that the citizenry must either humbly beg them for these necessary resources or fight a long and vicious battle to take those resources away from them.

Neither is true. The rich have nothing but money, social permission, created by the government. We absolutely should take away most (all?) of that social permission, not because we need it, but because fuck you, that's why; we do not want them to have it. If they want to hide their money, let them. Hidden money is out of circulation and useless. If they want to defend their money — and the government really should be careful and legal about how they take anyone's money — that's fine; the government can just freeze the money while the litigation drags on; again, frozen money is no money at all.

The rich may have something we do not want them to have, but they have nothing we need.

Wednesday, October 09, 2019

MMT Misconceptions part 3a (taxes)

Finally, Doug Henwood's essay, Modern Monetary Theory Isn’t Helping, gets to the crux of the biscuit, taxes and government revenue.

Misconception: Taxation transfers resources
MT’s lack of interest in the relationship between money and the real economy causes adherents to overlook the connection between taxing, spending, and the allocation of resources. We have [all sorts of bad things] because the public sector is starved for resources. Taxing takes those resources out of private hands and puts them into public ones, with at least the potential for them to be spent on more humane pursuits.

Long sigh. This is a complicated and persistent misconception. It's complicated because economics is complicated; it's persistent because the illusion that taxes transfer resources serves the interests of the capitalist class.

Please bear with me as I draw an extended analogy.

Consider an ordinary automobile. One way (certainly not the only way) to think about a car is to divide it conceptually into the physical system, the user interface, and the control system. The physical system consists of the engine, which physically makes the car go, the tires, which physically turn the car, and the brake pads, which make the car slow down and stop. The user interface is what you, the driver, use to control the car: the gas pedal makes the car go, the steering wheel makes the car turn, and the brake pedal makes the car stop. Finally, the control system connects the user interface to the physical system. Pushing the gas pedal down (U) causes a cable to open the throttle in the carburetor, which sucks more gasoline and air into the cylinders, (CS) and the car goes faster.

This is more or less what MMT does (or at least how I read MMT): divide the economy the same way as above. The physical part, the real economy, comprises factories, workers, capital, natural resources, etc. The user interface is money our ordinary experience of money, receiving a paycheck, spending money to buy stuff, paying taxes, etc. The control system is the banking system, including the central bank and the Treasury, which connects our ordinary experience of money to the real economy.

There are a lot of other useful ways to divide the economy, and a lot of other economic topics worth studying; MMT scholars choose to focus mostly on the control system, i.e. the banking system. Moreover, they claim to have discovered (or advanced our understanding of) how the control system works; moreover, they claim the control system does not work the way capitalist economists tell us it works.

(These claims are either true or false. If they are true, they are true even if we don't like that they're true; if they're false, they are false even if we want them to be true. It is instructive that Henwood never analyzes whether or not MMT scholars' claims are true or false, only that they are undesirable, and MMT scholars are ugly and their mothers dress them funny. Of course, I think Henwood is fractally wrong.)

Back to the car analogy. Max Max has a turbocharger on his V8 Interceptor. He has a pull switch installed on the gear shift lever that engages the turbocharger. He pulls the switch and the car goes faster. We would justly consider someone misguided who objected, "Max can't just push a button and make the car magically go faster. Pushing on the gas pedal makes the car go faster." We would consider them willfully ignorant if, when we tried to explain, they retorted, "Don't confuse me with all that 'physics' and 'engineering' bullshit. I know how a car works, and you make it go faster by pushing the gas pedal. If we could just push a button and make the car go faster, then why can't we just put in a button that makes the car go 1,000 miles per hour? Checkmate atheists engineers!"

Henwood makes the same mistake by confusing taxes (user interface) for resource transfers (control system) and exhibits the same willful ignorance by dismissing MMT scholars nerdy wonks talking about boring and mathy topics like accounting and finance. Henwood already knows how the economy works. I mean, he's at least skimmed "Wage Labor and Capital"; what more do we need to know?

In the next installment, I'll dig more deeply into what economists teach undergraduate economics students about macroeconomics (I am an expert in this topic, or at least a professional, because I am paid to do just that) and how Henwood badly mangles even conventional macroeconomics; I will follow with the changes that MMT scholars (as I understand them) propose to conventional macro.