Monday, July 15, 2019

MMT Link Roundup

Fiscal policy to the rescue in the Eurozone

Over the past few years, the economic literature and prominent scholars have paved the way for expansionist fiscal policy. In the US, Modern Monetary Theory proposes to finance a Green New Deal and full employment by increasing the deficit and using the central bank to pay off debt by printing more money. MMT is attracting more and more attention in Europe, including among populist parties, but also beyond, and will certainly be part of the conversation in upcoming elections.

When stock markets fall on good jobs data and easy money is the norm, we are in the midst of a Mad Hatter’s tea party

There’s always Keynesian-style fiscal stimulus to fall back upon, of course, if economic recession strikes. Nowadays, it has a new name, modern monetary theory, which argues that governments can spend their way out of trouble and never default on debt as long as it’s denominated in their own currency.

This puts Asia’s biggest economies including China and Japan in a relatively good position, as by far the bulk of their government debt is denominated respectively in renminbi and yen. But unless one assumes a massive public-sector bailout of private-sector obligations, this is scant comfort.

Will AOC Be the Next Fed Chair if the Dems Win in 2020? (Not really: it's a joke.)

How to Pay for Major Progressive Programs: Add New Money to the System

In Japan, it is a hot topic; and in China, it is evidently taken for granted: the government can generate the money it needs simply by creating it on the books of its own banks. Leaders in China and Japan recognize that stimulating the economy is not a zero-sum game in which funds are just shuffled from one pot to another. To grow the economy and increase GDP, demand (money) must go up along with supply. New money needs to be added to the system; and that is what China and Japan have been doing, very successfully.


Defend Fed independence. You might need it someday.

Both supply-siders and MMT adherents justify [rejection of central bank independence] by arguing that monetary policy is a tool of public policy that should not be controlled by a technocratic committee of economists any more than foreign policy should be controlled by generals. . . .

The Fed was set up this way so that it could take a long-term view without being influenced by the next election or the whims of the party in power. . . .

[Central bank independence] also removes a powerful tool that governments have for making policy. . . . I am willing to swallow this bitter pill because the same institutional structure that prevents supply-side economics from being fully implemented also constrains MMT.

MMT is risky because it overlooks the long-term costs of increased government spending. . . .

If a Democratic president embraces MMT, it will be crucial for an independent Fed to make sure that the potential costs of those policies are transparent, not papered over and left for future generations.

However, Smith says, "MMT waves away concerns about inflation." No, no, no, a thousand times, no! Get this right! MMT waves away concerns about sovereign default. MMT scholars consider inflation to the primary downside risk to fiscal policy.

The Stupid! It Burns!

America is insolvent, broke, deep into the red

More Talk About MMT

The second way [besides taxes] is much more appealing, to some: Simply print as much money as the program calls for, and then spend it.

That's the basic idea behind MMT. Remember, everything's made up, and the money doesn't matter.You see, advocates of MMT insist that because fiat currency is ultimately a creation of the state, governments can and should print as much of it as needed to fund massive public works, guarantee government jobs for the unemployed and much more. And since a government can never run out of money, the theory says, it can never default on its debts. Deficits are meaningless.

Anyone who's studied macroeconomics knows that unfettered money printing on this scale is a recipe for runaway hyperinflation. Look at Weimar Germany in the 1920s, or Zimbabwe a decade ago. Today, Venezuela is facing a head-spinning inflation rate of 10 million per cent, according to the International Monetary Fund (IMF).

Trump Mocks ‘Young Bartender’ AOC, Green New Deal

The Green New Deal
— which would cost taxpayers untold trillions of dollars — has a few rather extreme ways to combat climate change, like rebuilding or upgrading every single building in the U.S. to be more energy efficient, building trains across the oceans to eliminate air travel and banning nuclear energy within 10 years, just to name a few crazy key points.

Tuesday, July 09, 2019

Leftist fascism

the stupid! it burns! And the New York Times makes it, in good company with the Guardian and the Atlantic: Robespierre's America*

*Originally published in the New York Times

The data* confirm what one hears and experiences anecdotally all the time: In the proverbial land of the free, people live in mortal fear of a moral faux pas. Opinions that were considered reasonable and normal a few years ago** are increasingly delivered in whispers. Professors fear their students.*** Publishers drop books at the slightest whiff of social-media controversy.**** Twitter and other similar platforms have delivered the tools of reputational annihilation***** (without means of petition or redress) into the hands of millions, so that no comment except the most private is entirely safe from the possibility of instantaneous mass denunciation.

*What data?
**i.e. egregious racism and sexism
***No, we don't.
****Like The Bell Curve? Oh, still in print. Or Jordan Peterson's work? Nah, still in print. The Turner Diaries? Available on Amazon.
*****No, they haven't.

h/t to Eschaton

Sunday, June 16, 2019

Heterodox economics is heterodox

Is the British Labour Party's Fiscal Credibility Rule [pdf] (FCR) neoliberal? I dunno: what's a "neoliberal"?

The FCR might or might not be politically advantageous, but I'm not a politician or political advisor — nor am I a member of the British Labour party — so I have nothing to say about the politics. I do, however, have something to say as an economist: the FCR isn't all bad — it's better than a poke in the eye with a sharp stick austerity — but it doesn't seem very good.

Simon Wren-Lewis put up an unconvincing defense of the FCR against MMT critics of the rule.

Wren-Lewis first undermines his credibility by not linking to the criticism he's rebutting. Presumably, he's referring to Bill Mitchell's extensive criticism of the FCR. Briefly, Mitchell asserts that the FCR "reinforces the narrative that deficits and public debt are in some way ‘bad’", and this narrative "will not turn out well."

The first part is undoubtedly true. The FCR states, "Labour will close the deficit on day-to-day spending over five years. Labour make sure government debt is falling at the end of five years. Labour will borrow only to invest. [emphasis added]" The substantive question, then is how this narrative will turn out.

Instead, Wren-Lewis's chief complaint is that MMT scholars have a gasp! horror! political agenda: "MMT is also a political movement of the left." The political agendas of many economists are irrelevant: they ask questions about politically-independent reality. But macroeconomics, at least the kind of macroeconomics that seeks to inform public policy, must have a political agenda. Value judgements are bound up in the very fabric of macro. We talk about employment and unemployment, for example, precisely because we value employment. According to Wren-Lewis, MMT scholars "are therefore naturally indignant that a Corbyn led government has adopted a rule that is derived from mainstream economics rather than adopting MMT." Yes, and? MMT scholars believe that the rule itself — a rule that derives from mainstream economics — is bad, and that a policy derived from MMT would be better. That's the whole point of disagreeing with mainstream economics.

Wren-Lewis offers only the most tepid defense of the FCR:
Why the need for a fiscal rule at all? . . . The answer is provided by something called deficit bias. . . . In the 30 years before this crisis, the ratio of OECD government debt to GDP almost doubled for no justifiable reason.

Deficit bias happens because politicians like cutting taxes or raising spending through borrowing, because it puts off any obvious economic pain. . . . But if deficit bias does substantially raise the debt to GDP ratio, as it did before the GFC, then more debt requires paying more interest which in turn requires higher taxes or lower spending. Deficit bias does not avoid the downside of cutting taxes or increasing spending, it just puts it off until a later date.

But Wren-Lewis simply begs the question here. MMT scholars do not argue that a fiscal rule is not the correct way to limit deficit spending. They argue that deficit spending is the generally correct way to implement government policy. (They do not argue that deficit spending is good by definition: any tool can be used poorly. But the problem is not in the tool itself but the application.)

I do not see "neoliberal" as an insult: Brad DeLong classifies himself as a (left-)neoliberal, I would classify Keynes as a left-neoliberal, and I would classify Wren-Lewis as a left-neoliberal. Neoliberalism is just an philosophy in political economy that holds that private market solutions are almost always preferable to government policy, i.e. provisioning public goods as well as using non-market activity to achieve efficient social allocation of resources. And government policy is inferior precisely because the government is not budget constrained: if the government is not actually budget constrained, it must pretend it has a budget constraint.

In contrast to right-neoliberals, left-neoliberals usually agree that government must rescue markets when they face the danger of collapse. (Most left-neoliberals also advocate greater prudential economic regulation, in agreement with MMT, but that's not the issue here.)

In this sense, the FCR is clearly neoliberal. The message is clear: When not at the zero lower bound, government should sharply restrict its economic impact, especially use of deficits. The FCR treats deficits like dynamiting houses during an out-of-control fire, a desperate measure justified only when used to avert total catastrophe.

MMT scholars and I myself hold almost the opposite opinion: Deficits by themselves are just no big deal. In just the same sense, a tyrant can make any number of horribly oppressive laws, but the idea of law itself is not the problem. The government must act economically, and it must act beyond just the necessity to fix the inevitable periodic catastrophic failures of the market system. And when it is expedient to print money to do so, then print the damn money without worrying about the effect on the capitalist class.

Additionally, the FCR calls for closing the deficit and lowering public debt over five years. MMT is clear on the implications of this policy: lowering net private wealth.* Again, if net private wealth decreases, I would be shocked! shocked, I say! to find that the decline came not from rentiers' but workers' wealth.

*Alternatively, increasing net private wealth with reduced public debt would require a huge current account surplus (increased net exports), which is probably worse.

So is the FCR neoliberal? I dunno. I don't really care. Is it bad macro? By orthodox macro, it's fine; MMT macro, it's dumb. It would be nice if Wren-Lewis and other economists, all of whom are way smarter than me, would actually address the issues instead of slinging around insults and butthurt, but I'm not holding my breath.

Tuesday, May 07, 2019

the condescending tone

Ed Burmila observes
the condescending tone natural to the mediocre white guy who doesn’t know what he’s talking about but is certain of its accuracy
in the vacuous invocation that the US is a republic, not a democracy, but I've seen it in so many other contexts. Not always white, not always a guy, but usually.

Sunday, May 05, 2019

Historical materialism and the calculation problem

Over at A Trivial Knot, the socialism dicussion has turned to the calculation problem and the problem of incentives. I think looking too closely at mechanisms and analytic optimality is at best a red herring.

The economic calculation problem is intractable. Given a sufficiently complex economy, it is not possible in real time to determine even approximately the optimal production, distribution, and consumption of tradable goods and services. Worse yet, even if we have a well-defined and universally agreed-upon objective function, we can tell which of two outcomes is better or worse, but we cannot tell which of two outcomes is "closer to" or "farther away from" the optimum — it is not necessarily the case that the better outcome is closer to the optimum. As any student of calculus knows, a local maximum might be far away from the global maximum.

The calculation problem is intractable even given an objective function; the calculation problem becomes completely irrelevant if we do not have such an objective function, when, as Hayek asserts, "society cannot agree on its most basic ends."

But chasing such an intractable, ill-defined optimum is a fool's errand. People and societies do not actually agree upon some ideal outcome and then define, calculate, and then implement the means to achieve that outcome. What we really do is resolve immediate, concrete conflicts in specific contingent, historical, material contexts. Individuals do this, societies do this, and both an individual and a society is just the accumulated outcomes of all the conflicts thus resolved. It might be fun to speculate on some theoretical ideal and invent castles in the air to exemplify that ideal, and there's no harm and perhaps some value to doing so. But actual social change over time necessarily becomes dominated by the resolution of real conflicts.

The fundamental problem with capitalism is not its mechanisms — money, the price system, the profit motive, income and wealth inequality — and the solution is not some alternative mechanisms — social credit, central planning, the altruistic motive, enforced equality. Solving the fundamental problems will certainly entail new sets of mechanisms, but the specific mechanisms are not the real issue.

We get closer to the fundamental problem of capitalism by observing that rich people make all the important decisions, influenced only slightly if at all by the general welfare. Naturally, their first priority is always that they retain decision-making power.

Closer still, rich people took over decision-making power because 18th and 19th century industrialization favored rich people making decisions. The wealthy capitalists were able to resolve conflicts that the feudal/monarchical ruling class of that era was unable to resolve.

We know from empirical evidence, e.g. the Great Depression and the Global Financial Crisis, that the capitalist class is unable to resolve certain conflicts within capitalism. The professional-managerial class (PMC) temporarily took over decision-making power because the economic conditions of mid-20th century financial capitalism favored them making decisions. The PMC was able to resolve conflicts that the capitalist class was unable to resolve. The PMC did not, however, decisively resolve those conflicts in the same way the capitalists were able to decisively resolve the conflicts of feudalism, and their own inability to resolve conflicts led to a capitalist resurgence.

Now we face a new set of conflicts, conflicts that neither the PMC nor the capitalist class seem able to address, including but not limited to global warming, wealth and income inequality, the precarious economic state of the working and lower professional classes which seems destined to descend into outright immiseration.

Assuming humanity does not simply become extinct, we will resolve these conflicts, because we must. The specific way we resolve these conflicts, the institutions we adapt or create to systematize these resolutions, and the historically contingent path we take to a systematic resolution, will be our future society.

I want to emphasize that we (should) resist capitalism not because we do not want capitalist resolutions to these conflicts, but because capitalists cannot resolve these conflicts and still remain capitalists. (And if the capitalists can resolve these conflicts, they had better get busy, because their time is running out.)

The issue is not what we might do a 1000 years from now in a communist utopia. The question is what we do today to solve the conflicts of today. Theory is useful, but only insofar as it informs our resolutions of today's conflicts, and how we use the resolutions to advance the cause of human liberty.

Some specific advice, seems warranted. Modern Monetary Theory is interesting not because it is some groundbreaking revolution in economic thought (it's not, but that's OK; even Marx was just a "third-rate Ricardian"), but because it brings front and center a truth economists push to the background and that capitalists must fight with every fiber of their beings to deny, that money is a creation of the people, it belongs to the people, and it is a tool for the people — not the capitalists — to get what they want. Nobody can have everything, and very little is obtainable without effort, but there is a vast difference between "we cannot have this or that," and "with sufficient effort, we can have it."

We can, for more concrete examples, have the Green New Deal, Medicare for All, zero involuntary unemployment etc. We will have to work for it, just like we have to work for everything. Indeed, the idea that we can have these things for "free" is not only untrue, but undermines these programs. Hence the assertion that these are "free" comes from opponents, not supporters. All supporters say is that they are possible, which they are. As Stephanie Kelton says, "If it's technically feasible, it's financially feasible."

Money is just the social permission to act. When opponents complain that we cannot afford this or that, they are saying that those who presently have the money forbid us from working for it. And our response must be, "Fuck you. We don't need your permission." The only question is when we will develop the will and power to take what we need; eventually we must, if only out of desperate immiseration.

Saturday, May 04, 2019

The exploitation of labor

Siggy at A Trivial Knot has started a discussion about economics, starting with labor exploitation. Hop on over and join the conversation. Siggy is a seriously intelligent person (waaaay smarter than I am) and a good moderator.

Thursday, May 02, 2019

A ringing anti-endorsement

I like it when stupid people come out against something I like!

Trump Fed Pick Stephen Moore Calls MMT Among ‘Stupidest’ Ideas He’s Heard

Brad DeLong thinks Stephen Moore might not be the sharpest tool in the shed.

Following some links from DeLong, we can add Yael T. Abouhalkah, Jonathan Chait, Kevin Drum, Craig Harrington, and Deron Lee to the list of people who have... concerns about Moore's qualifications.

Of course, just because someone dumb is against something doesn't make that thing good. But I would be more worried if an ignoramus like Moore actually liked MMT.

Wednesday, May 01, 2019

MMT link roundup


Bank on the People Instead of Wall Street Parasites

According to Marriner Eccles, chairman of the Federal Reserve from 1934 to 1948, the prohibition against allowing the government to borrow from its own central bank was written into the Banking Act of 1935 at the behest of the securities dealers. A historical review on the website of the New York Federal Reserve quotes Eccles as stating, “I think the real reasons for writing the prohibition into the [Banking Act] … can be traced to certain Government bond dealers who quite naturally had their eyes on business that might be lost to them if direct purchasing were permitted.”

It’s Time to Look More Carefully at “Monetary Policy 3 (MP3)” and “Modern Monetary Theory (MMT)” (via Bloomberg)

[M]oney and credit created can be better targeted to fund the desired uses than the process of having the central bank buy financial assets from those who have financial assets and use the money they get from the central bank to buy the financial assets they want to buy.


Entering A World Of (Hyper)Inflation
Add Carl Icahn to the List Opposing MMT (Good. I don't want Ichahn on my side.)
Modern Monetary Theory Is Supply Side Economics—but for the Left
The ostrich approach to our debt
There’s a bill collector at the door!

Monday, April 29, 2019

A technocratic apolitical presentation (not!)

MMT: new wine in old bottles or ‘voodoo economics’? by Russell Jones and John Llewellyn

Much likeearly-1980s Laffer Curve ‘supply-siders’, MMT’s disciples are often near-messianic in tone, while somewhat vague in exposition. They are prone to presenting their ideas as a pathbreaking, revolutionary, approach to economic analysis and management, that can free policymakers from the shackles of fiscal and monetary orthodoxy.

First, cite your fucking sources. Second, this is a pure ad hominem argument. Third, this is how every critic describes every advocate: how creationists describe evolutionary biologists, religious people describe atheists, capitalists describe socialists, anti-vaxxers describe medical professionals, etc. ad nauseam.

[I]n this piece we seek to present, in a technocratic, apolitical way, a guide to the analytic content of MMT, and the conditions under which it could, or could not, be usefully applied in policymaking.

I would take this disclaimer a little more seriously if you hadn't just shat in the well two paragraphs previously. But whatever, let's push on.

The essential elements of MMT can be summarised as follows:
  • A government that creates its own money generally need not, and will not, default on debt denominated in its own currency.
  • A government deficit is necessarily mirrored by an equivalent private sector surplus.
  • Monetary policy is relatively ineffective in a slump: fiscal policy is more powerful.
  • A government can buy goods and services without the need to collect taxes or issue debt.
  • Through money creation, interest costs can be constrained. Indeed, a substantial and persistent budget deficit can be financed at low, if not near-zero, cost.
  • Government spending and money creation need be limited only to the extent that employment becomes ‘over-full’ and encourages inflation.
  • Inflation, should it arise, can readily be controlled by higher taxation and bond issuance to remove excess liquidity.

I might tweak this a little, but it's not too bad a description. But again, cite your sources, please.

Thus, the core inference and contention of MMT is that the budget deficit and public sector indebtedness should be allowed to adjust to the level necessary to secure full employment. In turn it is suggested that this goal should be achieved through a government-sponsored blanket jobs guarantee, which would act as an utomatic stabiliser. When private sector jobs were plentiful, government spending on the guarantee would be lower, and vice versa. Alternatively, full employment could be achieved by large-scale spending on infrastructure, climate change, and the environment, such as via a ‘Green New Deal’–all financed, if necessary, by the central bank.

The jobs guarantee and large-scale government spending here are not alternatives. MMT advocates argue for both. Other than that, a fair summary.

The truth about MMT is more complicated and less trailblazing than its supporters suggest.

Not a criticism, just another lazy ad hominem. Let's push on to Jones and Llewellyn's actual criticism.

Indeed, it looks very much like the ‘Functional Finance(FF)’gospel preached by Abba Lernerin the late 1930s and 1940s.

What?! MMT Scholars, who have PhDs in economics, have, gasp! read Abba Lerner?! Say it ain't so!

For example (since I actually will cite sources), Here's L. Randall Wray in MMT Responds to Brad DeLong’s Challenge:
What [MMT scholars] really like was Lerner’s application of Functional Finance to the budgeting process. The budget should be functional, not sound. That is, to achieve a functional purpose rather than to balance taxes and spending.

Or just search for Lerner on NEP.

Furthermore, Lerner isn't the first. He has predecessors.

Back to Jones and Llewellyn.

[Keynes] considered that Lerner lacked practical judgement and intuition, and paid insufficient heed to what he described as the public’s ‘allergy to extremes’.

Yet another ad hominem. Is this how you do technocratic apolitical examination? I think I was doing it wrong all those years in college and grad school studying economics.

[T]he policy inferences of MMT need to be considered seriously. At the very least, they do not compare unfavourably with calls for fiscal and monetary rectitude that are grounded either in narrow accounting logic or myopic adherence to the quantity theory of money.

I concur! Given that "calls for fiscal and monetary rectitude" have dominated the conversation over government spending since I've been alive, MMT sound pretty trailblazing just on that point alone.

MMT, like FF (and in common wit hmuch US-led analysis) is based implicitly on a closed-economy model. It makes no allowance for the possibility of monetary expansion causing the exchange rate to fall rapidly.

No it isn't and yes it does. See MMP #34 Functional Finance and Exchange Rate Regimes: The Twin Deficits Debate. Y'all have heard of Google, right?

Also, for a large country such as the US, exchange rate problems are relatively trivial. MMT scholars have given a lot of thought to the applications of MMT for smaller, outside-debt constrained countries.

Jones and Llewellyn:

MMT overlooks the potential for monetary expansion and an extended period of low interest rates to create the conditions for domestic financial instability, excess, and perhaps disaster.

Surprisingly, MMT scholars have heard of Hyman Minsky. Google is your friend.

MMT’s disciples pay little attention to the structural component of unemployment, which is unlikely to prove responsive to stimulus of demand and, more likely, raise inflation.

What. The. Fuck. The whole point of the Jobs Guarantee is that ordinary stimulus will not cure structural unemployment. Seriously, guys, you have to at least read the textbook, or you'll fail the class.

For example, from the MMT Primer:

OK, explain to me how pumping up the demand for higher skilled and educated workers—setting off a bidding war for them—will cause jobs to trickle down to the less skilled and less educated workers WITHOUT causing wages and prices to rise.

Jones and Llewellyn:

They say little about the effects on wealth distribution of a reliance on monetary finance.

Why should they? They talk about the salutatory effects on wealth distribution of fiscal policy, i.e. taxing the shit out of the rich because, you know, fuck those guys.

They ignore the vexed issue of moral hazard. The disruption of the connection between government decisions on the size of its budget deficit and the willingness of the private sector to fund that deficit at interest rates that it deems reasonable destroys at a stroke one of the most important disciplines the market imposes on politicians.

This statement requires a little more depth of response. First of all, no economist ever just ignores moral hazard; however, we might have different opinions on where and how much there is. And we already know Jones and Llewellyn have not read the textbook, so we have little confidence that they have read comprehensively enough to find out what isn't there.

I can't nail down a specific quotation, but the whole point of MMT, at least as I read it, is that MMT scholars don't want the "private sector" (i.e. the billionaires) to discipline the government, they want the government to discipline the billionaires.

Where's the real moral hazard? In elected politicians who have to maintain legitimacy and popular support to gain reelection? Or in a bunch of rich people who will do anything to retain their power?

Finally,it is inescapable that debt accumulation cannot go on indefinitely

This is just flat-out not true. Or, more precisely, debt accumulation can go on as long as economic growth goes on or until we move away from a money-based economic system entirely, in which case debt becomes meaningless.

Saturday, April 27, 2019

Free speech and academia, yet again

I will say this yet again, because it's important.

Academia is (among other things) a place where we separate good ideas from bad. This function requires that academics openly discuss questionable subjects and ideas with a as much dispassion and "objectivity" as we can manage.

However, at some point, academics should and actually do make some decisions: we find some ideas to be legitimately good, and promote those ideas, and we find some ideas legitimately bad, and we deprecate those ideas. And if you want to discuss a bad idea on a college campus, the burden of proof is on the claimant to show that there's something so novel and compelling about the idea that the previous judgement should be suspended.

The idea that women are in any way inherently inferior to or even very different from men (other than reproductive biology and trivial aspects of athletics and heavy manual labor) is one such legitimately Bad Idea. The idea that people of some races are inherently inferior to other races is another such Bad Idea. The idea that people with atypical sexual or gender orientation are in any way inferior to those with typical orientation is yet another. This list is not exhaustive: There are any number of completely discredited ideas that have no place in a university.

With apologies to Monty Python, sexism, racism, etc. are not pining for more critical investigation. They are dead. They've passed on. These ideas are no more. They have ceased to be. They've expired and gone to meet their maker. They are bereft of life, they rest in peace. If racists hadn't nailed these ideas to the perch they'd be pushing up the daisies. They're metabolic processes are now history. They're off the twig. Kicked the bucket, shuffled off their mortal coil, run down the curtain and joined the bleedin' choir invisible. They are ex-ideas.

Do I make myself clear?

No one gives a fuck if some dumbass student writes a stupid sexist paper in Comp I or if some mossbacked tenured professor publishes reactionary racist drivel in an obscure journal. De minimus non curat lex.

But it's an intolerable affront not just to the sensibilities of minority students but also to those who take seriously the academic pursuit of truth for an actual university to invite a dumbfuck racist like Charles Murray or a narcissistic poseur like Milo Yiannopoulos to speak, as if these morons could breathe any sort of intellectual life into long dead ideas. The only possible reason to invite people like this is that the university wishes to promote racism, sexism, or some other long-discredited idea.

The history of the most brutal violence to control and oppress women, people of color, etc. ad nauseam means that universities must take bullying and hostility with the utmost seriousness. A campus is not 8chan; it is a professional environment. It should require literally zero thought to hold that the right of Black students to fully participate in academia squashes the right of some Aryan Brotherhood frat-boy jerk to yell "n****r" in the quad.

Good fucking grief. Why is this still an issue?

MMT link roundup


U.S. professor: Japan shatters notion of deficit boogeyman
2020 Democrats have embraced seemingly every big left-wing economic idea — except this one (WaPo)


Five myths about federal debt (WaPo) (People have to actually believe something for it to be a myth)

the stupid! it burns!Stupid

MMT: The Latest Liberal Economic Fantasy
The Huge Fallacy Of The Modern Monetary Theory: Money Is Not Free
Dire warnings for entitlement program viability

Wednesday, April 24, 2019


Modern Monetary Theory continues to gain traction in the US

MMT asks that instead of worrying about their balance sheets, governments start looking at ways to use the resources at their disposal in the most efficient way possible. According to the theory, generating full employment, creating a more equal society and fortifying our education systems are all possible without causing rampant inflation. It is not a question of being able to afford it – it is a question of political will.

Tuesday, April 23, 2019

Where will we get the cash?

In Need Money? Hey, Just Print It, Charlotte Hays says that the "only way to raise the cash for Medicare for All, full employment, and vast infrastructure work" is to "just print more money."

Well, it's not the only way to raise the cash, but it is a way, perhaps the best way. If the only thing we need is cash, then yes, we can indeed just print more money. The government needs neither to coerce, cajole, nor appease the people who have money in order to obtain money to implement its goals. The government can indeed just print it.

But of course we need more than just cash. We need to allocate labor and capital away from other uses and towards the vast infrastructure work that needs to be done. The question to ask is not where to get the money, but what do we have to give up to get Medicare for All, full employment, and the Green New Deal. And, of course, what do we give up if we don't get them?

Medicare for All is a no-brainer. We give up a bloated insurance bureaucracy that spends obscene amounts of labor to deny people health care. We give up monopolistic hospitals squeezing patients for every dime they have for routine treatment. Maybe a lot of physicians will no longer be extremely wealthy. I'm happy to let those assholes pay the cost of Medicare for All.

What do we give up to get full employment? By definition, nothing. If we give a person a job, we give up that person sitting at home doing nothing, when they do not want to sit at home doing nothing. The individual gains, and society gains by getting additional productive labor. (If a person is incapable of doing nothing sufficiently productive to justify their life, then that person is disabled, and we have a moral obligation to support them, unless you want to advocate for euthanasia for "undesirables".)

Which leaves the "vast infrastructure work". First, what do we give up by not undertaking the work, however vast, of reducing carbon and other greenhouse gas emissions? Everything, or nearly everything. We might at worst render the surface of the Earth uninhabitable and unfit for any kind of advanced civilization. A few nomadic hunter-gatherers might survive with stone-age technology, but nothing of civilization will remain. So if we have to give up anything less than civilization itself to fix global warming, the cost will be worth it.

But what do we really have to give up? I don't rightly know. It could be a lot. It could be that the industrialized nations have to give up a considerable standard of living. We might have to consume a lot less. Not the greatest, but better than drowning in our own shit. But it could be very little or even nothing. If vast infrastructure spending promotes long-run economic growth, it very well could pay for itself in increased productivity. Presently, long-run economic growth is extremely poor, and the returns to what little economic growth we have is primarily going to the ultra-rich. If infrastructure spending does nothing else but transfer wealth and income from the 1% and 0.1% to workers, I would count that a gain, not a cost.

Whether or not the government should take money away from ultra-rich people is a different question? I think so, yes. But the government should take money away from them not because we need that money to do something else, but because it is not in the public interest for the ultra-rich to have too much economic power.

Sunday, April 21, 2019

Palley on MMT part 1

I'm going to go through Thomas Palley's What’s Wrong With Modern Money Theory (MMT): A Critical Primer page by page and examine Palley's arguments. I won't bother commenting on his descriptions and background material, which seem unobjectionable. All references are to the above unless specifically noted.

Recently, MMT proponents have begun walking-back the idea that functional finance is central to MMT. The purpose of the walk-back appears to be to deny that taxes are needed at full employment to neutralize inflationary excess demand caused by excessive government spending. Three points follow. First, it is fundamentally dishonest to deny the long-standing central role of functional finance in MMT’s argument (see for instance, Kelton, 1999). Second, removing taxes means MMT has now shifted to the arguing that inflation control should be conducted via rationing, price controls, and other administrative measures (Wray, comments at Eastern Economic Association, March 2019). Third, it illustrates the difficulty of understanding and debating MMT as its proponents constantly change their positions. (footnote 2, p. 4)

This is unwarranted well-poisoning. If Pally wants to ascribe a purpose or motive to a body of writing, he should offer an argument in addition to citing the evidence. If he wants to accuse proponents of dishonesty, he should cite their dishonesty. Do MMT proponents really argue that "inflation control should be conducted via rationing, price controls, and other administrative measures"? If so, a written reference, not a reference to an oral presentation seems required.

MMT’s main macroeconomic claim to fame rests on its declaration regarding government’s ability to finance spending without recourse to taxation by issuing money. In fact, government’s ability to create money to finance spending has long been widely recognized by all economists, who have also long recognized that ability gives government considerable extra financial and policy space. (p. 5)

Damned if you do, damned if you don't. How is it a criticism that MMT scholars advocate a position that is "widely recognized by all economists"? And why should I believe Palley that this apparently obvious proposition is MMT's "main macroeconomic claim to fame"? Again, Palley offers no citation to show that MMT scholars believe they themselves have discovered governments' ability to create money.

As regards injecting state money to pay taxes, MMT is strictly wrong with its claim that the public cannot pay taxes until government has first spent. In fact, the central bank is the source of such money. (p. 6)

The Federal Reserve Bank is part of the government. I do not know of a central bank in any industrialized democracy that does not have authority granted by the legislature.

Palley offers as "evidence" a quotation from Wray:
In principle, then, the government first spends fiat money....Once the government has spent, then the fiat money is available to be transferred to the government to meet tax liabilities. As a matter of logic, the public cannot pay fiat money to the government to meet tax liabilities until the government has paid out fiat money to the public. (qtd. footnote 5, p. 6)
But Wray explicitly makes an in principle argument. It is merely a "terminological objection" (see below) to argue about which organ of the government, the legislature directly through spending or the central bank autonomously exercising spending power granted by the legislature, creates the money.

Palley also asserts that Jo Michell "claims MMT does not say government spending is needed to pay taxes" (footnote 6, p. 7). The cited post does not appear to support this assertion. Michell says, "[G]overnment spending comes before taxation . . . is sort of true but also not particularly interesting." What Michell argues is not part of MMT is that "without [government deficits] the means to make settlement would not exist in our economy."

MMT focuses on accounting and stock-flow relations. . . . [T]hose accounting and stock-flow relations have long been understood by Keynesian and neo-Keynesian economists. (p. 7)

Again, it should not be a criticism that MMT scholars agree with orthodox economists.

MMT objects to [the government budget constraint] being called a constraint as if government were a household. However, that is a terminological objection. (p. 7)

Not all terminological objections are created equal. Terminology should clarify, not obfuscate. Palley's terminological objection above obfuscates that the Fed is a part of the government; MMT's terminological objection clarifies: If government is not actually constrained by a budget, it's disingenuous at best to say the government has a budget constraint.

MMT sees the effects of increasing government financial obligations as entirely benign, and policymakers can use the financial space to costlessly boost demand and push the economy to full employment. There are no negative consequences from increasing government financial obligations; no conflicts with other policy objectives; and no policy implementation problems. (p. 7-8)

[citation needed]

As shown below, MMT’s macroeconomic policy assertions follow from its oversimplified and incomplete Keynesian analysis. The lack of a dynamic economic model with behavioral content is a glaring professional failure. (p. 8)

I don't know about this one. My general training in advanced macro is woefully inadequate. Still, the orthodox dynamic macroeconomic models (DSGE models) seems to attract their share of criticism.

Unfortunately, instead of addressing that failure, MMT proponents have responded by claiming critics either do not understand it or have misrepresented it. (p. 8)

Or it could be that critics don't actually understand MMT and are actually misrepresenting it.

The difficulty of confronting MMT about those failings is compounded by its practice of walking back its positions and adopting those of its critics without acknowledgment. (p. 8)

What? MMT scholars might clarify their positions, correct mistakes, or even, gasp! change their minds?!

[M]oney financed budget deficits drive the economy to full employment by increasing wealth and AD. That makes it critical there be institutional arrangements for closing the deficit once full employment is reached to avoid inflationary excess. However, MMT relies on a highly simplified and implausible political economy in its attempt to address that problem. Thus, it assumes taxes can be abruptly and precisely raised at full employment to contain excess demand, when the reality is taxes are politically contested and difficult to raise. Long ago, Friedman (1961) argued that fiscal policy was impractical for “fine-tuning” stabilization policy owing to inside (decision) and outside (implementation) lags. Those lags mean policy implementation is likely to be poorly timed, so much so that it could amplify the business cycle rather than dampen it. (p. 9)

These criticisms are kinda true, especially the latter concerning lags. However, they really amount to the unobjectionable claim that regardless of one's models, managing a large economy is a Hard Problem. Friedman et al. argued against any kind of fine-tuning, not just via fiscal policy but monetary policy as well.

But yes. MMT does need good models concerning how to raise taxes effectively to address inflation. Maybe they have them. I am not at all confident that Palley has made an exhaustive search of the literature to find them.

Absent budget discipline, spending and deficits would tend to ratchet upward owing to the political attraction of money financed deficit spending and the political aversion to higher taxes. (p. 10)

Maybe, maybe not. I'm not at all convinced that the above political attractions and aversions are anything more than artifacts of our dysfunctional political system exacerbated by inequality. And I'm not at all convinced that an artificial budget discipline, denying truths that have "long been widely recognized by all economists, who have also long recognized that ability gives government considerable extra financial and policy space" (p. 5) is the only alternative.

Regardless, part of economics is not just what is feasible in the immediate present but also what is theoretically possible. Taken in that spirit, yes, MMT needs to come up with institutional mechanisms that can use taxes effectively to control inflation, which does not sound like an impossible task.

Another political economy critique (Lavoie, 2014) is that central banks and fiscal authorities are institutionally separated in most economies, but MMT ignores this and treats them as a unified decision maker. The separation is usually justified on public choice grounds that politicians have an inclination to inflationary monetary populism, and separation of fiscal and monetary powers helps prevent that. (p. 10)

This critique is petty. Institutional separation seems inconsequential, and the Fed and Treasury usually coordinate their actions. Regardless, institutional separation is at best one way of avoiding "inflationary monetary populism", but it's hardly the only possible way.

Palley is making a fundamentally flawed argument, which is at least a step up from the beginning of the paper. Anything can be done poorly — White can lose at chess in two moves — so the argument that X might not work is unintersting. The argument needs to be that X cannot work, or be extraordinarily difficult to make work even under favorable conditions.

And heterodox economics is heterodox. That we currently solve certain problems one way is not an argument that that way is the only way, especially when the current way really seems to be failing badly.

Only a third of the way through, and I'm throughly unimpressed with Palley's critique.

The Job Guarantee

Many Modern Monetary Theory scholars* advocate a Job Guarantee (JG). I like this idea.

*I am not a scholar of MMT. Any errors are my own.

As I understand it, the JG means that the government is the employer of last resort. Any adult citizen (or resident) can walk into the government job office and have a job by the next day. The job will pay a reasonable minimum wage and entail no long term commitment from the job seeker. The job might be matched to the seeker's skills, and common-skilled jobs would be available to anyone. These would still be jobs, and one must actually show up and do the work to get paid. The government pays the JG wages, creating money as needed (taxing it back out later if necessary).

The idea behind the JG is first that if non-disabled working age residents have an obligation to contribute to the social product, there is a corresponding social obligation to provide them a reasonable opportunity to do so.

Second, the JG acts as an automatic stabilizer. Automatic stabilizers avoid the lags inherent in more deliberate government stimulus. When there's a recession, people laid off will immediately seek JG jobs to pay their bills, automatically generating stimulus spending. When the economy recovers, people will eventually leave JG jobs for private-sector jobs, lowering government spending.

I don't think we need to choose between a) the Job Guarantee, b) organized, deliberate stimulus requiring permanent skilled employment, and c) a Universal Basic Income. Why not have all three as needed?

I don't think JG jobs need to be "make-work". They will probably be relatively low-quality jobs, since some (most?) JG jobs have to be available to people with only common skills. But the private sector has no small few shitty jobs, made worse by the fact that employers have little democratic oversight.

We could offer job training jobs: if we are low on welders, it is government money well spent to teach more people how to weld. It might even be a good idea to send some people to college as JG jobs. At the very least, there's always something that needs to be cleaned up, washed, or painted. There's no shortage of useful work to be done, even if it's not profitable.

Although there will probably be some people who can or want to contribute only the simplest, most common-skilled labor, we want to make sure that we don't have a permanent underclass of people fit only for JG jobs. We also want to ensure that JG workers are not oppressed or taken advantage of: by definition, JG workers would be people with relatively few outside options.

These requirements could be fulfilled mostly by prudent and transparent administration. Additionally, we can establish a JG union, so that JG workers can bargain collectively at least over working conditions. We can allow non-profit organizations to employ JG workers, with workers' wages paid for by the government. Non-profits would be required to be non-discriminatory, and we might restrict them to requiring only common skills. Allowing a range of non-profits would give JG workers some choices.

Friday, April 19, 2019

MMT and political economy

One criticism of Modern Monetary Theory* is that raising taxes to control inflation is politically difficult. I think this criticism is correct in a sense, but it's incorrect in a more important sense.

*I am not an academic scholar of MMT. Any mistakes in descriptions and analyses here are my own and should not be attributed to scholars in the discipline.

Politics is a legitimate topic of study by economists, and it's correct to say that raising taxes is difficult given current political institutions. It follows that more abstract, technocratic, and less openly partisan monetary policy is probably a less bad choice today to control inflation. Indeed, I don't think MMT is a particularly valuable economic theory given current political institutions. Of course, I think our current political institutions are terrible. And that's where MMT has real value in my opinion: even if you don't like socialism, MMT is, I think, a better theoretical framework for a much more progressive agenda, an agenda that will require substantial change — a revolution if you like — in our political institutions.

One important aspect of MMT is that it subverts the notion that our capitalist democratic republics are built on apolitical, ahistorical economic truths. They are not. To no small extent, economics is just describes how our political economy in a particular historical social context actually works. A different political economy would work differently.

Simply adopting MMT and changing nothing else would have at best no effect and at worst fuck things up royally. We can't fight fascism with economic theories. We have to rethink and re-implement our whole political economy at a fundamental level. That's not going to be an easy fight, and it won't be economists who do the bulk of the fighting. However, I think having a set of valid progressive economic theories has substantial value, and MMT shows a lot of promise of delivering that value.

Wednesday, April 17, 2019

Taxes and government production

There is a paradox in how we talk about "paying for" what the government produces. Yes, taxes do pay for government production. And no, taxes do not pay for government production. Wait, what?

As best I can tell, Modern Monetary Theory scholars* stress the idea that taxes do not pay for government produces in a "financial" sense: unlike a household or a firm, government does not collect taxes to obtain money to spend on government production. A household or a firm must obtain money, via revenue, borrowing, or theft, before it can spend it. A government need not do so; to the extent that the government says it does need to collect money before it spends it, the government is at best disingenuous and at worst deceptive. Financially — and this qualifier is crucial — the government spends whatever it chooses to spend, regardless of ex ante taxation or borrowing. A household or firm cannot choose to spend money it has not already obtained; a government might choose to spend only the money it has previously obtained, but it can choose not to.

*I will repeat my usual disclaimer: I am not a scholar of MMT; any mistakes in my present description of MMT ideas are my own.

I suspect that MMT scholars stress this financial freedom precisely because not only governments but orthodox economists, while they formally acknowledge government's financial freedom, either don't understand this freedom — a lot of economic theory depends on a financial budget constraint to make any kind of sense — or they don't want people to intuitively grasp the government's financial power. What is to become of the captains of industry, the titans of finance, if their years of hard work accumulating money can be duplicated or undone in seconds by some faceless downclass bureaucrat in a cheap suit? Worse yet, what if the unwashed masses catch on and start, gasp! voting on that basis? No, such nonsense simply will not do.

But of course even that the government has financial freedom, i.e. it can spend as much or as little money as it pleases, the government does not have "real" freedom: it cannot choose to escape opportunity costs. Especially when the economy is at full employment, anything the government creates money to produce means using that money to reallocate real labor and capital away from other production. At full employment, government spending on one thing, regardless of the source of the spending, means giving up something else.

Governments usually produce public goods, and the opportunity costs of public goods are harder to distribute than are the opportunity costs of private goods. Suppose a firm produces a private good, a new and improved widget with extra frobulousness. The firm improves society if and only if individual consumers individually choose to buy its widgets instead of now unfashionable and obsolete doodads and gewgaws. Ideally, the private firm merely poses the option: the individual consumer decides whether the new option is worth the opportunity cost, and what the opportunity cost actually is in real terms. And we know when the firm produces the optimal quantity of new and improved widgets precisely when the marginal consumer is indifferent between the new widget and the next best choice. With apologies to Landseer and à Kempis, the firm proposes, the consumer disposes.

Public goods simply do not work that way, as economists orthodox and heterodox all know: the math is clear and unequivocal. Individual consumers cannot individually choose how much of a public good they receive: all consumers receive benefit from all production of a public good, regardless of their individual preferences. If the government produces clean air, I cannot help but breathe it.

Thus, the government must distribute the opportunity costs. They can do so in two ways: increase or keep constant the supply of money and let everyone's money purchase less stuff per dollar, i.e. no taxation and some inflation, or decrease the supply and let everyone's money retain its purchasing power, i.e. some taxation and no inflation, i.e. price stability.* So in the sense of the distribution of opportunity costs, taxes do in a sense "pay for" government production.

*Strictly speaking, there is a continuum between zero taxation and zero inflation.

On the one hand, government has financial freedom; on the other hand, the government has real constraints. On the gripping hand, there are some circumstances where government spending neither requires taxation nor generates inflation (or at least not nearly as much as it might otherwise do). When government spending promotes short run or long run real economic growth, the economic growth itself "pays for" government spending in both the financial and real sense. In the short run, when real economic output is below potential — i.e. under recessionary conditions of less than full employment, especially when the recession has been caused or exacerbated by collapse of the money supply as during the Great Depression — government spending causes an increase in both financial and real economic activity. The injected money just keeps flowing; it does not (all) need to be leaked back out by taxation, and the increase in real economic activity absorbs the extra spending without causing (too much) inflation.

Similarly too with long run economic growth. Government spending in research and development, especially for the military, initiates much (if not almost all) of the growth of inventive technology. (See e.g. Doing Capitalism in the Innovation Economy by William H. Janeway.) Again, the spending is "paid for" by the increase in real economic activity.

Many critics of MMT argue that the above exposition is just warmed-over bog-standard Keynesian macro. Perhaps. If so, the profession of economics has been trying to at best downplay and at worst obfuscate its importance and relevance not just to the general public but to undergraduate students of economics. I know: I just finished an undergraduate and graduate economics education, and I found the claims of MMT were both shocking and obvious in retrospect.

Even the Holy Bearded One says in his own Macroeconomics textbook that the government should run a balanced budget on average (my copy is in my office; citation to follow). But this cannot be so. In an ideal world where we always have zero inflation and no short-term fluctuations, to preserve perfect price stability, the amount of money flowing through the economy* must increase as long-run potential output increases. Since money cannot flow arbitrarily quickly, the overall supply must increase, so either the banks create it or the government has to create new money.

*Technically the money supply times the velocity of money.

We could, I suppose, allow the private banking system complete control over the flow of money. When unconstrained by government regulation, complete private control of money generally has not worked worked all that well. Seriously. It's a Bad Idea. If we want to make the foundation of economy the government's power to collect taxes, then the government must run a deficit on average.

Sunday, April 14, 2019

MMT, money, and opportunity costs

Often, if we want one thing, there is some other thing we can't have. Economists call this an opportunity cost. We study the things we must choose between, and how people make those choices.

I am an economist. Opportunity costs are my faith, my creed, my dogma, my mantra. I believe. TANSTAAFL!

Money is a socially constructed institution (or collection of institutions) to quantify, manage, and distribute real opportunity costs. But money is not by itself an opportunity cost; to equate money and opportunity costs is to mistake the map for the territory.

I have been reading the "surface" of Modern Monetary Theory — popularizations, blog posts, etc. — for almost all of my career as an economist-in-training. And what I like about MMT is that these theorists make clear the institutional, socially constructed role of money as a mapping of opportunity costs.

Every popularization of MMT that I have read promotes the same message, a message that disturbs my economist's faith not even a little: production is constrained by real resources, i.e. natural resources and human labor; production is not constrained by money by itself.

MMT advocates do say there are things we can have cheap, and in this, yes, they say nothing new, nothing that is not part of bog standard orthodox economics. If there are idle resources, unused factories, unemployed labor, we can put those resources to productive use give up little more than excessive unwanted leisure.

I have never heard any MMT theorist ever say that we can have anything "for free". Never. Not once. Maybe I'm wrong. I will dig into the literature and find out.

But for now, the onus of any critic of MMT, at least if they're trying to convince me personally, is to convince me that MMT advocates really do say that we can have anything for free. As yet, none have done so.

It is a much different thing to say that money by itself should not constrain a society, especially a government. Technically, orthodox economists tepidly agree, but they seem to inexorably conflate money and real opportunity costs. MMT advocates are the only people who absolutely insist on conceptually separating money and opportunity costs. Even if there is nothing else new about MMT, even if all of their economic theories fall short of figuring out precisely how to quantify, and distribute real opportunity costs, MMT is still worthwhile because the orthodox view of money has failed us. We must rethink money.

The neoliberal project to make everything subject to money and markets, even were it undertaken in good faith, has decisively failed. Whatever good it has delivered has come at the cost of economic stagnation, intolerable inequality, nascent fascism, and ecological catastrophe.

Even if MMT has found nothing new, they are at least looking. And we must look, because we cannot keep what we have now.

Saturday, April 13, 2019

Modern Monetary Theory

I don't remember when I first heard about Modern Monetary Theory (MMT). It was either just before or just after I began my academic economics education in 2010. I thought it sounded interesting: mostly standard Keynesian economics, which is good, because Keynes is good. The main reason I like MMT (which should not be confused with what MMT scholars believe to be their most important contributions) is that MMT stands in stark contrast to the balanced budget mania I've been subject to my entire life, before, after, and during my education. I have been told time and again that Government Spending is Very Very Dangerous. Bankruptcy! Default! Runaway Inflation! Bond Vigilantes! Socialism! Cats and Dogs Living Together! The MMT story is completely the opposite: we can't go crazy with it, but government spending by itself is no dig deal if we're reasonably careful about (too much) inflation. On the other hand, nothing about MMT made me want to quit my job, give all my possessions to the poor, and make a holy pilgrimage to Jerusalem UMKC.

Flash back to '99-2000 to around 2005. I started my informal education in philosophy and argument talking about religion on the internet. The nice thing about religion is that they have spent thousands of years developing literally all the shitty fallacious bad-faith arguments for a completely indefensible proposition. I've seen them all, and I can smell bullshit a mile away.

Cut to today. Bernie Sanders hired Dr. Stephanie Kelton, a prominent MMT scholar, as his economic advisor. Alexandria Ocasio-Cortez is rumored* to be hooked up with MMT economists. MMT seems to be gaining prominence on the progressive left.

*relative to my personal knowledge.

In response, I have seen a fair few traditional academic economists, economists that I like and admire, writing polemics against MMT. And with few exceptions, their polemics have reeked of the same sort of bullshit religious arguments I spent the early part of this millennium taking apart. So that makes me curious. Really, it is Krugman, DeLong, and Palley more than Wray and Kelton who have really sparked my interest in MMT.

(So too with Bernie in 2018. Most of the mainstream Democratic party arguments against Bernie and for Clinton also reeked of bullshit. Bernie Bros? Are you fucking kidding me?)

So I'm going to investigate further. I have an MA in economics, so I think I can sort out the primary literature. We'll see how that works out. You can track my progress on my new MMT Page.

There a continuum of possibilities between the extremes of MMT is all that and a bag of chips and MMT is completely full of shit. But even if my evaluation falls toward the latter end of the continuum, I have to ask why MMT opponents are using such lousy arguments. Bad arguments — even against a bad idea — are a sign of either being lazy, ignorant, or stupid or of a hidden agenda.

Of course I suspect a hidden agenda. I maintain that the professional-managerial class, represented by the orthodox Democratic party leadership, are not themselves fascists, but they would prefer fascism to socialism; heck, I think they would prefer fascism to social democracy/welfare capitalism. Even if the technical economics of MMT are bad, I suspect that opponents relatively unconcerned about the technical failings and much more concerned that MMT would legitimize social democracy.

But proving bad intent is very difficult and not really dispositive. So my task for the coming year is to dive into the primary literature, both for and against MMT, come to my own conclusions, and share my analysis and conclusions with you, gentle readers.

Friday, April 12, 2019

Unpleasant Keynsian arithmetic

In "Macroeconomics vs Modern Money Theory: Some unpleasant Keynesian arithmetic," Thomas Palley artfully demolishes a straw man of such egregious flimsiness that it is difficult to avoid concluding bad faith.

Referring to Kelton et al., We Can Pay For A Green New Deal, Palley claims, "Proponents of MMT assert [financing a Green New Deal] is a non-problem and the programs can be financed by “printing” money and without causing higher inflation." However, Kelton et al. add an important condition, arguing that deficit financed programs are not inflationary so long as we are not at full employment. Palley simply repeats Kelton et al. own assertion as if he were correcting their error.

Kelton et al.:
Despite lawmakers’ stated fears, larger public deficits are not inherently inflationary. As long as government spending doesn’t cap out the full productive capacity of the economy ― what economists call “full employment” ― it won’t spin prices out of control. Inflation isn’t triggered by the amount of money the government creates but by the availability of biophysical resources that money tries to go out and buy ― like land, trees, water, minerals and human labor. [emphasis added]

As has long been known by Keynesians(Blinder and Solow, 1973), money financed deficits can be used to finance programs when the economy is away from the full employment -vinflation boundary.vHowever, that space will be temporaryvto the extent deficits increase real financial wealth and automatically drive the economy to full employment, at which stage there will be an inflationary gap. . . . There is a money financed free lunch as long as the economy is below full employment, but the free lunch inevitably disappears.

Palley continues to misrepresent MMT scholars. When calculating his "unpleasant Keynesian arithmetic", he includes Medicare for all and free college tuition. However, he does not cite anything to support the implicit assertion that MMT scholars advocate using deficit spending to finance Medicare for all or free college tuition. It seems blindingly obvious that the best way finance Medicare for all is through taxes to replace insurance payments.

It is a core tenet of MMT that spending precedes taxation, but requires subsequent taxation to prevent inflation at full employment. But this reordering is an entirely different position than the position that MMT critics attribute to MMT proponents, i.e. that MMT says that we can have unlimited government spending without inflation.

Tuesday, March 26, 2019

What, me worry?

Should we worry about "the deficit"? Well, what do you mean by "worry"?

Let me ask a similar question: should you worry about the natural gas forced-air heater in your home?

Could the heater burn down your house or kill everyone inside from carbon monoxide poisoning? Well, yeah? I guess? It does happen, but it happens only when you have a pretty serious malfunction in the heater.

If you run the heater non-stop and keep your house at 90°F (32°C), you're going to run up a hell of a gas bill. Perhaps not the best idea, but that's not a reason to worry about your bill if you maintain a more reasonable temperature.

When I hear scholars of Monetary Monetary Theory* argue that "we shouldn't worry about the deficit," I read their arguments in the same sense that we shouldn't worry that the heater might kill us all. I mean, yeah, we should kinda worry, we should make sure our monetary institutions aren't seriously defective. But they're not seriously defective, at least not in the United States. Most importantly, we have effective tax collection institutions: the IRS, state and local governments, etc. They're perhaps not as efficient as we might like, but they're a long way from the dysfunctional institutions in Austria or Zimbabwe. As long as we can credibly collect taxes, deficits won't kill us all.

*I have not studied MMT academically. Any errors here are my own.

Similarly, yes, I suppose we miiiiight run the deficit so high that it would impose substantial economic hardship. But I read MMT scholars as saying that the present deficit is way too low; it seems misplaced to argue by analogy that it would be too expensive to heat the house to 90°F when it's snowing outside and the temperature inside is in the low 50s and dropping fast.

There may be some legitimate bad faith in mainstream economists' polemics against MMT, that MMT ignores real dangers of deficit spending. However, I think a big part of what's going on is that economists tend to internalize blindness to a fundamental political problem: that the capitalist ruling class will destroy the economy rather than give up power. That's the lesson from Venezuela: the capitalist ruling class — theirs and ours — destroyed the economy rather than let poor children have milk. Chavez's failure was not what what he tried, it was that he failed — perhaps from his own hubris or incompetence, or because success was impossible — to defend Venezuela from the capitalists.

Sunday, March 24, 2019

Who's going to pay for it?

We want nice things, right? Medicaid* for all, green energy and transportation systems, "free" college tuition, etc.

*I mean Medicaid for poor people, not Medicare for old people. I've been on Medicaid, and it's fucking awesome, at least in my home state.

But, of course, we have to pay for the nice things, n'est ce pas?

We run into a conceptual problem, though, because paying for things is really two distinct but related ideas.

The first idea is what economists call opportunity cost: if we pick one thing, there's something else we can't have. Everything takes work, and there are only so many people, who can work only so many hours. If we work to make one thing we can't make other things. If we want to train more doctors, we have to make fewer toasters; more solar power plants means fewer couches.

As far as I know, there isn't a single economist anywhere who says that we can have as much stuff as we want. Many, myself included, say we could have more and better stuff than we have now, but literally zero say there is no limit on the stuff we can have.

The other idea is what economists call a budget constraint: if someone wants to get something, they have to get the actual money together to buy it. If a person spends money on lattes, that's less money they have to spend on yoga lessons. If someone wants to buy a house, they have to convince a bank (or their parents) to lend or give them the money.

If we want Medicaid for all, we have to give actual US dollars to doctors. We might have to train more doctors, which means giving actual US dollars to medical schools and their professors. If we want to build solar power plants, we have to give actual US dollars to the workers who make and install solar panels and hook them up to the grid.

Opportunity costs and budget constraints are related. Budgets give traction to opportunity costs; they make opportunity costs immediate and direct. Budgets also distribute opportunity costs: whoever actually coughs up the cash is the one who incurs the opportunity cost.

For most ordinary stuff, private goods, stuff that individuals buy and consume themselves, the mapping of budgets to opportunity costs works reasonably well (not counting structural income and wealth inequality, which is a topic for another day); for public goods, which benefit everyone, not so much. If we spend real labor to keep the air and water clean, we lose whatever else that labor could have produced. But who gives up what? Should we insist that poor families give up some of their food while rich families have to give up their sixth vacation home?

Even for some private goods, there are problems mapping money budgets directly to opportunity costs It's one thing to say that if you can't afford a Ferrari, well, do without. It's quite another thing, at least in my mind, to demand that if a person can't afford the money to see a doctor, they should just do without.

Now, gentle reader, you might say, well, yes: If you can't afford to see a doctor, do without; if you die, too bad. If you can't afford clean air and clean water, breathe the smog and drink the sewage. I mean, if you feel that way, fuck you, but I'm not talking to you here.

I'm talking to the people who agree that it would be a good thing — the inevitable overhead included — to have Medicaid for all, a Green New Deal, free college tuition, etc. but worry, How are we ever to pay for these?

If you think that Medicaid for all would be good to have, then you're saying that having it is better than having the next best thing we would have had. The social benefit is greater than the social opportunity cost. And that's the only decision we really need to make. Is it worth it? Yes? Then find a way to do it.

I'm indebted for the following analysis to the scholars and analysts of Modern Monetary Theory. I have not studied MMT academically; any errors following are my own.

So how do we pay for it? The government creates the money. Boom. Paid for. Done. Congress authorizes the money and the Treasury Department starts writing checks. The Federal Reserve will honor the checks; if they don't, Congress can amend the Federal Reserve Act and make them do so.

We don't need to tax anyone or borrow from anyone to get the money. I think it would be advantageous to tax the rich, because fuck those guys, but we don't need to tax them or anyone. It might be advantageous to "borrow" from people, i.e. sell them government bonds, but we don't need to borrow anyone's money.

This solution might cause other problems (which I discuss below), all but the most trivial solutions do, but the first problem is easy to solve. It looks "too easy" only because we've been trained to not understand how money works.

There are two possible economic problems: inflation and interest rates.

If the government dumps a bunch of money in the economy for any reason, we should worry about inflation, i.e. a general rise in prices. However, inflation is not a big mystery. Inflation might not be a problem at all if new government money and the associated increase in bank lending creates enough new goods and services to absorb the additional money. If we create the money wisely, we can improve economic efficiency or put idle labor to productive work. Even if increased output doesn't absorb all the new money, it will definitely mitigate inflation.

Inflation by itself distributes the opportunity costs: inflation is really just a tax. If there's a general rise in price levels, people will reduce consumption: they might have to pay more for groceries and gasoline in return for getting, for example, universal access to health care or clean air and water. If we don't expect the government to perpetually flood new money into the economy, the irritating* inflationary spiral of the 1970s shouldn't repeat itself.

*The inflation of the 1970s was just irritating. The "cure" was economically devastating.

If we don't like how inflation distributes opportunity costs, we can increase taxes, which directly adjust people's budgets to impose opportunity costs. We would almost certainly do so for Medicaid for All, but we would just be exchanging premiums for less efficient private insurance for taxes for more efficient single-payer or "socialized" medicine.

The other more technical problem is interest rates. Dumping money into the economy lowers interest rates because of the increase in the money supply. If we don't want all the money swamping bank reserves, we can drain some of the money back by selling the banks government bonds (or just paying interest on reserves).

The technical economic problems of the government spending large amounts of new money are actually fairly well understood. Anything can be done poorly, so we would have to go about any large government spending with professionalism and care. But we would by no means be sailing into uncharted waters.

The political problems, however, are quite severe, perhaps intractable. But more on this later.

Saturday, February 09, 2019

Love among the mantises

I often reflect upon the word “morality,” the most troublesome and confusing word of all. There is no single or supreme morality; there are many, each defining the mode by which a system of entities optimally interacts. The eminent entomologist Fabre, observing a mantis in the act of devouring its mate, exclaimed: “What an abominable custom!” The ordinary man, during a day’s time, may be obliged to act by the terms of a half dozen different moralities. Some of these acts, appropriate at one moment, may the next moment be considered obscene or opprobrious in terms of another morality. The person who, let us say, expects generosity from a bank, efficient flexibility from a government agency, open-mindedness from a religious institution will be disappointed. In each purview the notions represent immorality. The poor fool might as quickly discover love among the mantises.

-- Jack Vance, The Book of Dreams

The economics of a proto-post scarcity society

I've spent enough time discussing how Rick Webb doesn't understand economics, instead retrojecting hollow capitalist tropes on a fictional television show. But it's worthwhile to discuss the economics of "proto-post scarcity economy." However, without the specific historical context, it's impossible to talk about how a hypothetical economy "actually is"; the best I can do is lay out a kind of general framework.

Economics is the science of how we make mutually exclusive choices, usually (but not always) choices about material things. How do we manage scarcity? So the first thing is to think about what is scarce. There are three things that are always scarce: unique things, land, and human time. And even if some resources are not scarce, a society might still want to use them efficiently. Finally, there are things that are still so expensive that not everyone who wants one could have it.

Unique things are scarce. There's only one Mt. Everest, and only so many people can climb it in a year. There are only so many great bass fishing spots, only so many Hawaiian beaches. Only so many people can use pristine natural parks and forests. There's only one Mona Lisa. How does a society get to decide how to use inherently unique things?

Land is scarce. Although we can improve some of the marginal land, there is a finite amount of land on the Earth. We can probably house a lot of people in urban high-rises, but only so many people can have their own castles, McMansions, or even detached ranch houses with big back yards. Only so many people can have their own farms or vineyards. A society cannot make more of this kind of land by building up. Even if the society builds up, penthouse apartments will be scarce. Apartments with a view of something other than the wall of the next building will be scarce. Again, how does a society allocate scarce land?

Human time is scarce in the sense that each person can do only so many things in a day. If something one person wants requires the effort or attention of another person, that effort or attention is scarce. Let me define a "job" in this context as human effort or attention for the benefit of other humans (even if doing that job is somehow beneficial to the "worker"). There will be "good jobs", where there are more people who want to do that job than there is "demand" for that job, and "bad jobs", where there are fewer willing people than demanded. Ideally, we want everything in equilibrium, where all jobs are "neutral": there are exactly as many people who want to do that job as there is demand for that job. How would a society do so?

Finally, a society would want to use even non-scarce resources efficiently. For example, a society might be able to produce as many shoes as people wanted, and if everyone woke up one day and decided they all wanted twice as many shoes, the productive capability would allow that with no other trade-off. Even so, it would make little sense to produce more shoes than people actually wanted. Even if there is no scarcity, a society might have to still track how many and what kind of shoes people want, and produce just those shoes and no more.

The answers to these questions depends in part on production technology. If everyone has a Mr. Fusion, a replicator, and a transporter, most of these problems go away, especially if the replicator can replicate most anything. For example, if a replicator can make the finest cuisine, there is no need for restaurants. If individuals' replicators can make most anything, there is no need to have factories or distribution networks. Similarly with transporters: if I can get in my personal transporter and just go anywhere, there's no need for trains, planes, and automobiles.

But replicators seem quite advanced. It's likely that a planet-bound proto-post scarcity society would instead use mostly automated factories, which are themselves constructed mostly automatically. Even if we can produce as many factories as we want to produce as many goods as we want, we would, I think, still want to be efficient about production, distribution, and expansion.

However, the above raises perhaps the most important issue: what does it mean to say that we can produce as many factories as we want to produce as many goods as we want? If some society produces some amount of goods but could relatively easily produce twice as much, why wouldn't people not want twice as much? At what point do we stop wanting more stuff? And, because people's preferences and desires are socially constructed, how do people stop wanting more stuff?

Sunday, February 03, 2019

Money in Star Trek

Rick Webb constructs money in Star Trek. Not "Federation credits", which can be explained simply as a plot device, but honest-to-god money.

Although Webb posits that there's more than enough for everyone, he believes the Federation carefully accounts for every citizen's consumption.
The amount of welfare benefits available to all citizens is in excess of the needs of the citizens. Therefore, money is irrelevant to the lives of the citizenry, whether it exists or not. Resources are still accounted for and allocated in some manner, presumably by the amount of energy required to produce them (say Joules). And they are indeed credited to and debited from each citizen’s “account.” However, the average citizen doesn’t even notice it, though the government does, and again, it is not measured in currency units — definitely not Federation Credits. . . . This massive accounting is done by the Federation government in the background.
But why would the Federation do such a thing? It makes zero sense to account for something that's not scarce. We account for scarce things, like the social product of others, because it's important to use every little bit wisely. But Webb assumes that there are excess welfare benefits: under ordinary circumstances everyone can use as much energy (or whatever) as they want. So why account for it in detail.

Webb continues,
So, behind the scenes there is a massive internal accounting and calculation going on — the economics still happen. They just aren’t based on a currency unit, and people don’t acquire things based upon a currency value. People just acquire things from replicators, from restaurants such as Sisko’s or coffee shops like Cosimo’s, or, presumably, get larger things from dealerships or (more likely) factories. This could still be called “buying,” as a throwback.
This activity is buying. And if you keep accounts, your unit of account is currency by definition, even if that unit represents a physical quantity. Webb sees the contradiction, but doesn't resolve it:
It is tempting to argue here that the massive accounting system uses a unit called the Federation Credit, but i don’t believe that’s the case. If it were, the credit would be too much like money because a) accounting is done in it, b) it is issued by a governing body (like a fiat currency) and c) it is fungible, i.e. you can already buy things with it and if you could buy things with it AND a and b were true, it would pretty much be a currency. This would fly in the face of Roddenberry’s absolute diktat that the Federation has no currency.
It doesn't matter whether we call it Federation Credits, if we're accounting in it, it's money. Even if the money in some sense represents energy, it's still money. Accounting is done in it. It's a fiat unit issued by the government, i.e. each citizen's welfare benefit. Citizens can "buy" things with it: when they use energy, Webb assumes their account is drawn down. Furthermore, Webb assumes that this money is an incentive, that people will do "menial jobs that cannot be done in an automated manner ... [because] there is some small, incremental increase in your hypothetical maximum consumption, thus appealing to the subconscious in some primal way." This is money. Currency. Moolah. Cash.

Whatever we call it, Webb posits something that works exactly like money in a market economy, except for one crucial feature: Webb's money does not ration consumption. Webb thinks the Federation is doing all the work of managing a currency for literally nothing but some sort of subconscious appeal. It makes absolutely no sense. Just accounting for everything doesn't mean the "economics still happen." For the economics to actually happen, there has to be people optimizing the use of scarce resources. The citizens of even a proto-post scarcity society do not, under ordinary circumstances, optimize the use of scarce resources, so there's no economics.

Friday, February 01, 2019

Central planning in Star Trek

In my previous post, I talked about how Rick Webb, in his essay, The Economics of Star Trek: The Proto-Post Scarcity Economy, doesn't understand market economics. In addition, Webb also doesn't understand central planning.

Webb believes that the presence of individual choice decisively disproves central planning. He concludes, "The Federation is clearly not a centrally planned economy"* presumably because "[i]ndividual freedom of choice is very obvious." Webb claims to know that individuals have freedom of choice because "[e]veryone chooses their careers." Well, everyone, that is, who has made it in the glamorous and dangerous world of interstellar exploration. Gene Roddenberry et al. are not going to show us all the people who wanted to be starship captains but didn't get into Starfleet Academy.

*Italics omitted

(One hilarious irony is that in Star Trek, like every other military, even in the most fanatical market economy, the United States, Starfleet is most probably a centrally-planned organization. As far as I know, no one has managed a military organization with market economics: the 1st Infantry Division is not a profit-maximizing economic actor. If Webb can see a market economy in a military, he can see a market in anything.)

We cannot conclude that the Federation lacks elements of central planning. Not just because the Federation is a fictional society and has no underlying economic organization at all, but also because we don't know the the actual contingent problems a proto-post scarcity society would have to solve, and we don't know the historical context, i.e. the existing political and economic power relations, they have to solve them under. Even if we were to assume the present-day United States leads the way to a proto-post scarcity society, we cannot reliably project more than a some few tens of years; we definitely cannot predict what would happen three centuries from now.

Still, it's important to be more definite about what we mean by "central planning". There is at least a grain of truth underneath Webb's idea. It's logically impossible to run a market economy without some households making some choices, and it is logically possible to run a centrally planned economy with households having no choices at all. But just because it's logically possible doesn't mean it's necessary or even desirable to run a centrally planned economy exclusively by pointing guns at people's heads and telling them what to do.

How much economic choice people have is dependent first on the wealth of a society. Until the middle of the 20th century, the vast majority of people in the United States were farmers. A person could choose their occupation, so long as almost all of them chose to be farmers. And if we look at the beginnings of our capitalist market economy, most of these farmers had to be rather violently pushed into selling their labor on the market (see, e.g., The Invention of Capitalism by Michael Perelman.) Not having a lot of choices doesn't mean we're not in a market economy. Similarly with the Soviet Union and mid-20th century China. Both were extremely poor societies — immediately after the revolution, Russia was running its entire productive capacity and railway transportation on firewood — so there were just not a lot of choices to be had, regardless of economic organization.

On the other side, in a very rich society, at least some people will have a lot of choices, regardless of economic organization. And rich or poor, people in high status and high demand jobs will be those who want those jobs. Regardless of organization, it's pointless and stupid to force a person to be a doctor if there are 10 other people, just as intelligent and hard-working who want to be doctors. We really can't tell the form of economic organization just by looking at a few people in a high status jobs.

Just as Webb doesn't understand market economics, he doesn't understand central planning. His ignorance is perhaps more understandable: there have been only two societies — the Soviet Union until 1980 and the People's Republic of China until the 1970s — that have engaged in central planning in a big way, and both of them were not only poor, but fighting cold and proxy wars against the United States, so information about their economies is hard to come by, and propaganda about our "enemies" easy to obtain. Still, a little common sense can go a long way.

There are two basic types of central planning: command economics and state ownership. A society can combine these two types and can combine them with a market economy. Central planning and markets are not logically exclusive.

The first type of central planning is a command economy. In a command economy, the government just tells people what to produce and where to distribute it. The precise form of a command economy depends on the specific technology of production and economic problems to be solved. In a very poor mostly subsistence economy, the government will decide they need more tractors, round up a bunch of farmers, tell them to build and operate more tractor factories, and give the tractors to those who are still farmers. If Ivan or Chen doesn't want to leave his farm and build tractors, well, too bad: do it or go to jail. (Note that most modern "market" economies kicked off industrialization just as coercively. They simply dispossessed a bunch of farmers or expropriated the commons necessary for their subsistence viability, and said, "Hey, if y'all want to get money for food, come build and work at this factory over here." Sure, they had a choice: work or starve.) In a richer country, the commanders have a wider range of options, and their actions will depend on the actual problems to be solved.

A country usually employs a mostly command economy when it is fighting a "big" war. i.e. a war that requires the country to employ almost all of its surplus to fight the war. Every country, Allies and Axis, the capitalist United States and the communist Soviet Union, ran the Second Imperialist War as a command economy. This type of command economy works directly at the firm level: the central planners look at the existing productive capacity of firms, and tell each firm, "You produce this many tanks, you produce this many planes, you produce this many bullets, bombs, and shells, etc." There's no point in the central planners telling each individual where to work: each person works at one of the local factories, or they starve or go to jail. Even though there's usually a severe labor shortage in wartime, workers do not engage in market competition for wages. They take the pay and/or rations set by the government. This kind of economic organization appears very desirable. As I note above, every country — capitalist and communist — in a "big" war has employed command economics to a significant degree.

Modern corporations and military organizations have an internal command economy. Although corporations compete with each other in a market economy, internally, almost every corporation in every country is a centrally planned command economy. The employees do what the central planners, i.e. the board of directors and the senior management, tells them to do, and they use the resources the central planners give them to do it. Again, a corporation that tries to structure its internal organization along market lines risks failing as spectacularly as Sears. There are employee- and employee/customer-owned corporations, but that just means the employees (and customers) choose the commanders: these corporations are still internally centrally planned command economies.

The second form of central planning is one where the state owns and operates firms and/or controls a substantial amount of financial capital. One example is Norway, with both state ownership of significant firms and a large sovereign wealth fund.