Marxists should not dismiss MMT

I'm not saying that Marxists should become MMT enthusiasts. Adam Booth is at least partly correct: MMT scholars are mostly not Marxists or socialists, and MMT by itself will not usher in a socialist utopia.

By definition, a truly "communist" society doesn't need anything remotely resembling money: the opportunity cost of producing and consuming the ordinary social product — food, shelter, clothing, communication, entertainment, etc. — is negligible and there is no need to carefully account for its use or ration its consumption.

But any kind of "socialist" society will need something that looks very much like money. By definition, a "socialist" society must manage scarce resources, which means that society must carefully account for the opportunity cost of producing and consuming the social product to ensure that we produce what we want the most, and ration the consumption of the social product. Essentially, anything that does the job of accounting for and rationing the social product is money*.

 *It's pointless to quibble over definitions, a task I have spent far too much time on. We could define the label money as including something unique to capitalism, and then, of course, socialists wouldn't use money. But there still would what we use to account for and ration of social product, which we'll arbitrarily label as gnippa. Then the rest of this article is about gnippa.

People in a socialist society will have very different relations to money than people in a capitalist society. Socialists will use and think about money differently than capitalists use and think about money, but whatever those relations, so long as they account for and ration the social product, they will have some relations to money.

There are two reasons I think Marxists should pay attention to MMT. The first is that at least initially, a socialists society must actually manage money. I can't imagine any benefit for a socialist society to not account for the social product, and try to ration access without using numbers. Once we start slapping numbers on the social product and use those numbers to ration access to the social product, we have what is essentially money. And if we're using money, we need theories about how it works.

And just as capitalist scientists can come up with good theories about how electrons, viruses, cows, and ecosystems work, capitalist economists can come up with good theories about how money works, and how to manage the accounting and rationing of the social product.

As an economist in a capitalist society, I understand that most of my colleagues spend most of their time just providing academic support for capitalist ideology, a task I don't really endorse, but there is a little truth, mostly independent of ideology, in there. And I think that MMT has some of that mostly ideology-independent truth.

The second reason that I think Marxists should pay attention to MMT is that MMT explicitly challenges a critical capitalist myth: the myth that money itself is a scarce resource, and that to get what they want, the masses must get money from those who already have it. 

If the capitalist class had all of the iron in storage, protected by armed guards, then regardless of our social structure, if we wanted to build stuff using iron, we would need to get the iron from those who had it, by persuasion or force. And because iron is really useful in making weapons, control over iron would give the capitalist class an enormous advantage in the exercise of force.

The capitalist class rules because it has control over money. So long as we buy the myth that money itself is a scarce resource, capitalists' control over money gives them as much or more power as they would have if they controlled all the iron. Even if 99% of the people wanted socialism, if the people believed that capitalists controlled a scarce resource they needed, then the capitalists can block socialism.

This myth has real bite. Margaret Thatcher supported her eleven-year rule with little more than the slogan, "The trouble with Socialism is that eventually you run out of other people's money."But if money is not a scarce resource, then we cannot run out of anyone's money. 

The Democratic party in the United States cannot implement even a hint of a progressive, much less a socialist, agenda just because they cannot imagine how they could pry the money out of rich people's hands. Worse, the Democratic electorate, as much as they might want a progressive agenda, falls for the myth that they need rich people's money, and they too cannot imagine how to get at that money, so they don't demand that the party attempt the impossible.

MMT proponents directly challenge the myth of the scarcity of money. Whether or not they realize it, they are fundamentally subverting a fundamental myth of capitalism, really in the same sense that Christian scholars who challenge the historicity of the resurrection fundamentally subvert a fundamental myth of Christianity. 

Capitalism dominates today not just because capitalists successfully argue that capitalism is better, but because capitalism is true, that any sacrifices or privation the people must suffer under capitalism are imposed not by the capitalist system, but by nature: there is only so much money to go around, and if there isn't enough money, we can't get what we want, regardless of the availability of other resources.

So no, MMT is not itself socialist, and a simple restructuring of the Treasury and Fed around MMT theories will not by itself bring about a socialist society. However, MMT subverts a fundamental myth that supports capitalism, and it behooves all anti-capitalists to endorse that subversion.

Opinion: Detroit accountant shows that opinions built on ignorance come crashing down

Richard Drumb disapproves of Modern Monetary Theory. He pretty much trots out every moronic anti-MMT trope. 

Drumb compares the federal government to the city of Detroit, but Detroit cannot create money, and the federal government does nothing but create the money it spends.

No one lends money to the federal government. Why would the government need to borrow money, which it creates? The government does not borrow; instead, it generously offers to pay people interest to take money out of circulation.

We have a lot of economic problems, and the federal government is doing a lot of harmful things. But a violating a non-existent budget constraint is not one of those problems.

Sayings

 Curiosity killed the cat... but satisfaction brought it back.

Blood is thicker than water. The blood of the covenant is thicker than the water of the womb.

Jack of all trades, master of none... but better than a master of one.

Great minds think alike... but fools rarely differ.

Birds of a feather flock together... until the cat comes.

The early bird catches the worm... but the second mouse gets the cheese.

It's not the automation

 Kind of a cute premise by Frisco Uplink.

Step 1, invoke Star Trek, the Next Generation episode, "The Measure of a Man" (S02E09), where Picard argues that Data should be considered sentient, because holding him non-sentient risks creating a permanent underclass of disposable exploitable labor.

Step 2, argue that non-sentient supervisory software a la Uber goes the other direction: the supervisory software allows us to treat gig workers such as Uber drivers as disposable exploitable labor. According to the author, "Gig workers are precarious not only because they lack benefits, but also because the everyday bedrock of their work is determined by a black box algorithm designed to extract maximum profit for a distant corporation. . . . Software perfectly shields the humans profiting from this one-sided equation from confronting the personal toll it takes" on their disposable workers.

The author puts too much weight on the means, and the inversion fails. Indeed, TNG gets it exactly right. The decision to classify some beings as non-sentient is the critical act. Once we have decided that some beings are non-sentient, we'll find some means or another — lords of the manor, colonial administrators, overseers, supervisors, software — to efficiently exploit them. 

The bosses have always shielded themselves from the human consequences of their exploitation, and this alienation long preceded capitalism, although capitalism has refined alienation to its purest state (at least so far).

#WorkersLivesMatter

Standing on one foot, the government acts in the workers' interests, that is the entirety of socialism, and the rest is its interpretation.

Why the workers' interests? Why not humanity's interests? Everyone's interests?

In part, the reasoning is, I think, along the same lines as #BlackLivesMatter. The intent of this slogan is not that only Black lives matter. Instead, everyone already agrees that White lives matter, but no small few seem to believe that Black lives do not matter. White people do not need a political movement to protect their lives because their lives are already protected. Black people do need a political movement because their lives are presently not protected by law and custom.

Similarly with socialism, at least in part: all humanity does matter, but billionaires and their supporters and enablers do not need a political movement to get the government to act in their interests. The government already acts in interests of the billionaires, but acts against workers' interests.

But in part, socialism is dissimilar to BLM. I hold as an article of faith that white people's interests are not fundamentally opposed to black people's interests, however presently entrenched the opposition. In contrast, billionaires' interests are fundamentally opposed to workers' interests. The government cannot act in workers' interests without acting against billionaires' interests. The only final resolution to the conflict is to eliminate the billionaires.

Happily, it is at least theoretically possible to eliminate the billionaires without killing anyone: we need only take away their money, not their lives. The billionaires might fight to the death to preserve their power and privilege, but that's their choice, not ours.

A note on capitalization: I use the capitalized terms White and Black to denote socially constructed racialization. In this sense, White interests are fundamentally opposed to Black interests. I use the uncapitalized terms white and black to denote the physical characteristics that we usually use to socially construct race. I personally am white, but I do not see myself (or I do my best to not see myself) as White. Also, the social construction is not symmetric: Whiteness is intrinsically racist, but Blackness is not, because Blackness is a response to White racism.

Breakup sex?

In Breakup sex, Steve Randy Waldman makes a curious argument with a colorful metaphor. Progressives' and socialists' "current relationship with the Democratic Party is intolerable." But what choice do we have? Vote for a presumably intolerable Joe Biden, or allow Trump to win. Waldman thinks he as a way out of this terrible dilemma. His answer: vote for Biden and hope things someday improve.

Waldman's first idea is instead of individually deciding whether or not to vote for a Democratic party candidate, we create a social democratic political party which could collectively make the decision to support or withhold votes from a Democratic candidate.

Well, duh. The problem is that we already have several of these organizations, including the Democratic Socialists of America, the Green party, and the Working Families party. These alternative parties are not working now, and there's no reason to believe they will have any effect on the Democratic party in the future.

Of course a big element is that if progressives were to make a collective decision to withhold votes from a Democratic party candidate, Joe Biden is pretty near the top of the list. (Bloomberg might take the number one spot, but not even the Democratic party elite could stand him.) And the Democratic candidates just keep getting worse. Still, even collectively, the argument against dividing the anti-fascist vote still holds. Either the DSA/GP/WFP etc. endorse fascist-lite Biden, or they allow full-on fascist Trump to win. And why will the argument be any different in four or eight years?

Waldman's better idea is to get rid of plurality voting. No shit, Sherlock. Of course, the only reason the Democratic party wins any elections at all is precisely because plurality voting forces progressives to vote for shitty Democrats instead of even shittier Republicans. I don't think the Democratic party or any of its elected representatives will put plurality voting on the table.

We can't escape the death spiral anymore; just voting is not going to change that. We're either going to end up with a fascist state or complete collapse. Both are scary.

Oh, and literal breakup sex is almost always a Bad Idea.

Blame the Democrats

In There Is No Plan (For You), Hamilton Nolan gets the antecedent right: The U.S. federal government at best just doesn't care about the economic suffering the working class (an a fair fraction of the middle class) is experiencing now and will only get worse as the initial responses expire. At worst, the government, firmly in the control of the billionaire class, sees this suffering as beneficial, increasing the power of the billionaire class and eliminating the power of the working class to resist its descent into near-slavery.

But he misses the conclusion. Nolan claims we should blame the Republican party. Yes, we should blame the Republicans, but only in the trivial sense that the shark does indeed deserve blame for eating swimmers. The Republican party since the 1980s has been fairly upfront that it serves the interests of the billionaire class, and why shouldn't they? The billionaire class pays their salaries.

The real blame should go to the Democratic party, for failing to protect the country, and the working class, from the openly predatory Republicans. In just the same sense, the real villain in Jaws (1975) is not the shark, who is just acting according to its nature, but Mayor Vaughn (Murray Hamilton) who not only fails but actively interferes with the effort to protect the citizens of Amity.

The Pandemic and the Democratic Party

The Democratic party should be screaming at the TOP OF THEIR LUNGS against Trump's and Republican governors' mismanagement of the pandemic response. They should be proposing bills, even if the Republican legislators block them and executives veto them. They should be filing lawsuits in every available court. They should be aggressively organizing whatever protests can be safely conducted during the pandemic. They should be in the news media EVERY DAY with op-eds and articles saying that this or that must be done and must be done right fucking NOW to control the pandemic.

And, as a major political party, they should have the organizational ability to do all of the above.

The Democratic Party should do all of the above because it is their patriotic duty to do so. I'm not a big fan of patriotism, but if anyone has a patriotic obligation, a major political party that (supposedly) wants to govern is at the top of the list.

More importantly, the Democratic Party should do all of the above because it would be incredibly politically successful. They could, if they chose, completely destroy the Republican Party, and secure decades of Democratic Party governance. Machiavelli is spinning in his grave at the Democrats' basic political ineffectuality.

(All of the above applies also to the mounting protests against egregious police violence.)

It's not like I'm some great political genius, and it's not like the Democratic Party employs only exceptionally stupid people to enact its political agenda. This is not rocket science or brain surgery.

Instead, the Democratic party has decided to just let Trump and the Republicans do their thing and kibbutz from the sidelines, letting the Republicans twist in the wind. Unfortunately, it leaves hundreds of millions of Americans twisting in the wind.

This strategy might just win them the Presidency in 2020, even with all of Biden's handicaps. But it won't win them a veto- or filibuster-proof majority in the Senate, and it won't destroy the Republican party. Instead, it will leave the Republicans strong enough to resist the Democratic party agenda in the 20s.

It might be that the Democratic party really is that incompetent or stupid: Hanlon's razor, n'est ce pas? Or it might be that part of the Democratic party's goals is the preservation of the Republican party, because the Democrats' ideology and policy considerably overlaps the Republicans: the Democrats cannot destroy the Republican party without abandoning the overlap. Either way, stupidity or malice, the Democratic party refuses to aggressively further the interests of the majority of the American people.

But I think it is malice: the Democratic and Republican parties both actively endorse the power of the billionaires.

The billionaires at best do not care about — and at worst approve of — the deaths of millions of working Americans and the permanent damage tens of millions more have and will suffer.

Therefore, the Democratic party does not care about these deaths and suffering, except that they make Trump look bad.

If Biden wins, he will at best have a narrow majority in the Senate. The pandemic will still be raging in the U.S., and the economic effects will start spiraling out of control.

I predict that the Biden administration will undertake a few token and largely ineffectual measures to address both the health and economic effects of the pandemic, not out of any real concern for American workers, but to establish a trivial differentiation from the Republican regime. Otherwise, the Biden administration — like the Obama administration — will continue to transfer wealth and political power to the billionaires. A continuing pandemic helps that effort, so the Biden administration will not take effective measures against it.

Regardless of who wins, the next four years are going to be a real shitshow.

Quiggen on MMT

John Quiggen is awesome. His book, Economics in One Two Lessons should, I think, be required reading for everyone (and I assign it for extra credit in my Principles of Macroeconomics classes). But his recent post, The General Theory and the Special Theories, shows that he doesn't quite get Modern Monetary Theory. Or, at least, he doesn't get it in the same way I do.

I am not any kind of "official" spokesbeing for MMT. I don't have a PhD and I don't publish. I'm not affiliated with the Levy Institute or UMKC. I've never met or corresponded with Kelton, Mitchell, Mosler, Tcherneva, Wray, etc.

I have, however, read a lot of the MMT literature, both peer-reviewed and popular. And I have a Master's degree in economics, and I teach undergraduate economics, so I'm not entirely illiterate in economics. The best I can do is put my interpretation of MMT alongside Quiggen's.

Quiggen claims that "Modern Monetary Theory (MMT) is, in essence, based on the assumption that the economy is always in what Keynes called a 'liquidity trap'"; in other words, it applies only under special circumstances, when the "natural" rate of interest is below the zero lower bound.

I disagree. Modern Monetary Theory is, in essence, based on the observation that a sovereign-currency issuing government creates currency, the foundation of the social permission to allocate real resources. Therefore, the government is not required to obtain currency (or money) from those who already have it to get the social permission to allocate resources. The government's social permission both to allocate resources and to manage the money system comes from its political legitimacy.

More technically, MMT scholars conclude (not assume) that monetary policy is never an effective method to employ unused resources. Mainstream Keynesian economists generally believe that monetary policy is ineffective only in a "liquidity trap" (where the real interest rate "wants" to be negative), so this confusion is perhaps understandable. But Quiggen's assertion and the actual MMT position are different.

Quiggen complains that "The problem with this special theory is that a successful application implies destroying the conditions under which it works. Once the economy reaches full employment, any increase in public expenditure requires a corresponding reduction in private expenditure." Well, yes, and MMT advocates always add this proviso literally in the same (or next) breath as the assertion that well-targeted fiscal policy can reach full employment.

Quiggen nitpicks that "MMT advocates, like Stephanie Kelton kind-of admit" that progressive taxation is necessary to reduce private expenditure, "but continuously seek to dodge the point." Maybe Quiggen kind-of has a point, and maybe MMT advocates should emphasize that really big infrastructure projects such as the Green New Deal will require increased taxes to distribute the necessary reduction in real private consumption. I honestly don't know what specific policy positions MMT advocates should emphasize; I'm not at all a specialist in public policy debate. However, the right mix of tools to manage private consumption versus inflation seems to me more like implementation details than deep theoretical issues.

Quiggen states that:

MMT advocates Nersiyan and Wray* suggest that the Green New Deal can be financed without “taxing the rich” . . . relying instead on “well-targeted taxes, wage and price controls, rationing, and voluntary saving”

But this interpretation misses a key theoretical point about MMT. MMT advocates argue that large public works programs such as Green New Deal will necessarily be financed the way all government spending is financed: by creating the currency. Financing, i.e. getting the money, isn't ever a problem for the government; the problem is fairly distributing the opportunity cost of using money creation to divert real resources, with inflation (perhaps) the most problematic way of distributing opportunity cost.

Quiggen does not include a link; presumably he's referring to How to Pay for the Green New Deal.

And I honestly don't know whether households in top decile or percentile even use as many resources as a huge public spending program such as the Green New Deal would require, even if we reduce their consumption to the 20th percentile. I'm pretty sure we cannot provide universal health care just by reducing the real consumption of the ultra rich; we cannot return all the purchasing power middle-income households already forego by paying private insurance companies.

Other than quibbles about the gory details about optimal tax policy, I really don't understand why Quiggen seems to dislike MMT at a theoretical level.

The fundamental problem with MMT

Robert P. Murphy has a mostly negative review of Stephanie Kelton's The Deficit Myth. Murphy appears to be a member of the Mises Institute, so I assume he believes that the government cannot do anything good, other than to protect the property of the wealthy. Even before reading, I was pretty sure he would disapprove in principle of the whole MMT project of making it easier for the government provide for social welfare. Still, Murphy avoids the OMG! hyperinflation hysteria so common to vulgar critics of MMT, and ideological bias is no guarantee of error, so I want to look at his criticism in more detail.

Murphy presents a laundry list of mostly unconnected objections to MMT, so I'll just present a corresponding list of rebuttals over at least a couple of posts, perhaps more.

The Fundamental Problem of MMT

Murphy begins his objections by stating MMT's "fundamental problem":

regardless of what happens to the "price level," monetary inflation transfers real resources away from the private sector and into the hands of political officials. If a government project is deemed unaffordable according to conventional accounting, then it should also be denied funding via the printing press.

I'm still really struggling to understand this objection. Clearly, Murphy thinks that monetary inflation is something different from a general increase in the price level, the usual definition of inflation. But I don't know what that is. (Murphy kind of expands on the point below.) Presumably, because MMT is all about the government creating currency as needed, I think Murphy considers the creation of additional currency by itself to constitute monetary inflation.

Now it is definitely true that when the government creates money to purchase goods and services from the population, it is transferring real resources from the private sector to the government. That's pretty much the whole point of a government, and what governments have been doing for about 7,000 years. I get it, Libertarians are completely against governments except to protect their own privilege, but this objection seems misplaced and has nothing to do with MMT per se.

Murphy continues with another opaque objection: "If a government project is deemed unaffordable according to conventional accounting, then it should also be denied funding via the printing press." But what does Murphy mean by "unaffordable" and by "conventional accounting"? Affordability precedes accounting: spending is affordable if a firm or household can get the money; once it has the money, firms and households account for how they spend it. But where does the money that firms and households need to get ultimately come from? Well, in every large economy since 1971, the government creates the money*. All government spending is "funded" by created money. Although MMT scholars are exceptional in that they don't try to pretend that governments don't create money, this objection has nothing to do with MMT. Libertarians might pine for a return to the gold standard, but the world abandoned the gold standard because it just doesn't work. Go back 50 years and argue with Richard Nixon, not Stephanie Kelton.

*The Eurozone is a Hot Mess and has suffered several financial crises precisely because the European Central Bank is not part of any national government.

I will concede one point to Murphy: if the government wants to appropriate real resources away from private production, it should ensure that the citizens believe that benefit of the government spending exceeds the benefit of alternative private employment of those resources: to avoid price inflation, the government should collect enough taxes (after, of course, it spends the money) to reduce private demand by as much as it reduced private production. But every MMT scholar agrees with this concession. The whole point of MMT is about how to employ unused resources, i.e. available labor not employed by the private sector.

Murphy expands a bit, presumably on "monetary inflation". Government spending to employ real resources increases the price level. If the price level would have otherwised decreased, so that spending keeps the price level stable, then those with financial assets are poorer than they would have been had the government permitted deflation.

The easiest rebuttal is simply: yes, but so what? That's how the money system works. Instead of permitting deflation, investors increase their real wealth by collecting interest, which requires increasing the money supply. We might have chosen to keep the money supply constant and let price levels decline instead, but we didn't; which method is correct is beyond the scope of this post. Regardless, investors can't have it both ways: investors cannot be both entitled to interest, increasing their real wealth holding the price level constant, and entitled them a decrease in the price level, increasing their real wealth holding the money supply constant.

But it also matters why the price level decreases. There are two ways the price level can decrease. The price level will decrease if real production increases holding the money supply constant. That's the trade-off above: presently, the government increases the money supply, supplying all holders of financial assets with interest. However, the price level can decrease when real output decreases. In this case, an increase in real wealth for holders of financial assets is at best illusory. If financial asset holders were to increase their consumption, that spending would simply drive prices back up. Even worse, if the decrease in real production were to become permanent (as equipment rusts and workers forget their skills), then an attempt to convert financial assets to consumption will increase the price level above its original point, causing a decrease in asset holders' real wealth.

Murphy argues directly against employing unused resources at all. Murphy cites Mises' malinvestment argument: unused capacity is the result of earlier bad investments; employing that unused capacity will just perpetuate the bad investments. If, for example, we have a thousand factories and a million workers making Pet Rocks that nobody wants anymore, it's a pointless waste of real resources for the government to print the money to keep the Pet Rock factories operating and employing those workers. MMT theorist agree that the Pet Rock factories should not operate (and investors would lose financial claims to their revenue), but what about the workers?

Even taking the malinvestment theory at face value, what do we do with the million workers? We have four choices: pay them to continue to make Pet Rocks, let them starve and die, pay them while they're not working, or pay them to do something else useful. In theory, the private sector should be able to pay them to do something else useful, probably building more factories for products that people do want. Not that Libertarians care much about evidence, but the evidence shows that's not what happens in real life. Instead, if we abandon too many bad investments at once, those workers are not reaborbed into the workforce. Even worse, the workers that provided the newly unemployed workers with consumer goods also leave the private labor force. We end up losing useful productivity for years and sometimes decades.

Murphy continues with some more MMT-specific objections. I'll cover those in a later post.