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.

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