Tuesday, September 17, 2019

MMT and hyperinflation

Greg Curtis gives us the third installment of his hysterical and almost completely uninformed condemnation of MMT: A Few Disastrous Examples of Government Overspending.

Curtis employs an all-too-common trope: Look at these bad events! They were really bad! And they were bad — the author asserts without evidencebecause of this thing I don't like. Don't do that thing! (For rhetoric nerds, this is (at best) a cum hoc ergo propter hoc fallacy.)

For example, Hitler and Stalin killed a lot of people! That's bad! They were atheists! Therefore,tThey killed those people because they were atheists! Don't be atheists! Leaving aside whether they really did "wrongly" (whatever that means) kill a lot of people (Hitler probably, I'm not that sure about Stalin) and whether they actually were atheists (Stalin probably, Hitler not so much), how do we know that it was the atheism specifically that caused the killings? They both had mustaches; how do we know that wasn't the cause? Almost all (male) politicians in Murrica (fuck yeah!) are clean-shaven. Coincidence? Wake up, sheeple!

Curtis invokes Venezuela, Argentina, Brazil, Zimbabwe, and Weimar Germany! Look at those bad events! They all had something nebulous in common with MMT!

But should we trust his judgment? Let's look at a couple of specific claims. First,
Consider Venezuela, where staggering overspending by the Chávez regime has led to hyperinflation currently running at 10 million per cent per annum and a failed state.
Really? Chávez died in 2013. All right; we'll consider his successor, Nicolás Maduro Moros part of the "Chávez regime". More importantly, hyperinflation in Venezuela starts in 2012, fourteen years after Chávez took office in 1998 (and just a year or so before his death).

Curtis puts the blame for the Holocaust on MMT: in the Weimar republic,
Colossal money-​printing led, naturally, to hyperinflation: the mark, which had traded at 4.2 to the dollar in 1919, traded at 1 million to the dollar in 1923.

The resultant social instability hollowed out the political middle in the country, and power shifted to the radical extremes: the National Socialists on the right and the Communists on the left. By 1933 the Nazis had won and a few years later Germany launched World War II.

Sixty million people died in that war, including six million Jews, homosexuals and gypsies who were murdered by the Third Reich. When MMT goes bad, as it inevitably does, it goes very bad.

Again, was they hyperinflation the cause of Weimar republic's economic problems or a symptom of something else? It's not like Germany had to pay crushing war reparations or anything. Again more importantly, the Weimar hyperinflation was stabilized in the middle of the 1920s, some years before the Second Imperialist War. Perpaps Curtis is right: clearly there are no other systemic economic crises between the mid-1920s and 1933 </sarcasm>.

It is true that if a government only prints a metric assload of money, and literally does nothing else to manage the currency, then that country will experience hyperinflation. Doctor! It hurts when I do this! Well, don't do that.

Do MMT scholars advise that governments should just print a metric assload of money? No. Do they also advocate governments should do nothing else to manage the currency? Of course not. Curtis knows this, since he does admit that spending can be managed by (ugh!) raising taxes. But Curtis ain't buying: "[T]he notion that a Progressive government would raise taxes on the middle class merely to make up for its own foolishness is outright silly." Because, of course, no progressive government ever has raised taxes on the middle class </sarcasm>.

Look, the world has had a completely fiat global monetary system since 1971. Governments have been creating money since, well, the beginning of recorded history. It can certainly be done poorly: anything can be done poorly with catastrophic consequences. Furnaces catch fire or release carbon monoxide into the house, killing everyone. Airplanes crash. Automobiles crash. But we still heat our houses, fly around the globe, and drive to work. We need more than Curtis's hysterical, incompetent oversimplifications to keep us safe.

Saturday, September 14, 2019

Modern Greek Monetary Theory

the stupid! it burns!Modern monetary theory – deficit thinking by Brenda P. Wenning: This article is by the stupidest condemnation of MMT I've seen. Well, as of today: just when you think conservatives can't sink any lower, they invent a bigger shovel. It starts off bad,
If you think Greece should serve as an economic model for the United States, you’ll love modern monetary theory (MMT).
(Wenning misses the inside joke: the United States is not like Greece because the US has a sovereign currency, but Greece does not) and just goes downhill from there.

A different type of economics

Is a different type of economics the answer? The rest of his work at Independent Australia looks promising.

The case for a guaranteed job

A detailed, favorable overview of Modern Monetary Theory and the Job Guarantee. The case for a guaranteed job by Robert Skidelsky.

Old-fashioned economic religion

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times, once it is debunked, takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency, and one of the functions of old-fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, in every short period of time.

Paul Samuelson, John Maynard Keynes: Life, Ideas, Legacy, dir. Mark Blaug, 1988, Film.

Video clip here

Friday, September 13, 2019

MMT and racial equality

No More Economic Malpractice: African-American Faith Leaders Take on the Establishment
As African-American faith leaders committed to the social justice tradition of the Black Church, we would like to raise our voices to point out that it is not lost on us that Larry Summers and the establishment economists have done immense damage to the communities we serve, as well as to the broader American public, via their influence on economic policymaking. We recognize in the new school of economic thought, called Modern Monetary Theory (MMT), a credible, highly impressive, and genuinely public-spirited alternative to the disastrous economic stewardship offered by the old guard. MMT also offers a powerful theoretical defense of the Federal Job Guarantee, a proposal that was pioneered by America’s first black economist, Sadie Alexander, and a centerpiece of the activism of civil rights icon, Coretta Scott King.

Thursday, September 12, 2019

Modern Monetary Stupidity

the stupid! it burns!Greg Curtis gives us burning stupidity in not just one but two parts! Modern Monetary Madness and A Closer Look at the “Panacea”. From the first article:
When I think about MMT — Modern Monetary Theory — I visualize an odious miscreation squatting in its squalid swamp for decades, waiting only for an opportunity to erupt from the scum and devour the world’s economies.

Okay, maybe I should be taking my meds…
Or perhaps your employer should be taking a look at your (lack of) basic journalistic integrity.

From the second:
And MMT’s main tenets most certainly qualify as magical thinking. We can reach that conclusion by coming at it in two ways.

First, let’s set aside the True Believers in MMT, most of whom are advising the Progressive Democratic candidates. After all, they obviously believe their own hype. Instead, let’s look to serious economists who reside on the political left and who would be inclined to favor the Democratic policies if there were any way to pay for them.

If MMT made any sense at all, these economists would certainly be embracing it. But, to a man and woman, they aren’t. In fact, they mostly ridicule MMT.

Does Curtis understand the difference between reaching a conclusion and justifying a preconceived opinion? Apparently not. Neither does Curtis understand a basic tenet of intellectual honesty and journalistic integrity, that one must read and analyze the proponents of a claim, and not "set aside" the proponents and examining only the opponents.

A dead giveaway that Curtis has abandoned any pretense of journalistic integrity is his inclusion of completely bogus "evidence". From the first article:
Alas, into this sensible economic theorizing strode an obscure fellow named Abba Lerner, who said to himself, “Wait a minute! If high government spending during recessions is a good idea, then even higher government spending all the time must be a great idea!”
Never mind that MMT does not rely on Lerner, and we all understand that Curtis is not literally quoting Lerner, but if one actually reads Functional Finance and the Federal Debt — or even just the Wikipedia entry on functional finance (unlike Curtis, I actually, you know, cite my sources) — they would quickly discover that Lerner does not say, imply, or endorse any such thing. Curtis's assertion is not just an uncharitable interpretation; it's a flat-out lie.

Curtis also invokes the preposterous Chicago Booth survey. (There I go again, citing my sources. It's really not that hard.)
Fortunately for us, the University of Chicago surveyed hundreds of mainstream economists, asking whether they agreed with MMT’s main ideas (i.e., “spending doesn’t matter.”) Not a single economist agreed, not one. There is probably not another statement you could present to that group and not find at least one person to agree with it.
The problem, naturally, is that literally no MMT scholar ever has endorsed the idea that "spending doesn't matter"; more precisely, no MMT scholar would agree with the questions from the actual survey: "Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt," and, "Countries that borrow in their own currency can finance as much real government spending as they want by creating money." Both questions are appallingly stupid; attributing the underlying attitudes to MMT scholars is again not just an uncharitable interpretation but completely dishonest.

If I had the resources of the University of Chicago, and if I had completely abandoned any academic or ethical standards (but I repeat myself), I could just as well poll a hundred academic economists, asking if they agree that "Governments should never interfere in a market economy, because markets are always correctly self-regulating." Almost all (even the conservative economists, well, at least the three left who cling to a shred of intellectual honesty) would disagree. Wow! I proved that economists think capitalism is ridiculous!

Curtis is doubly lying here. Krugman, Summers, etc. agree with MMT proponents on the very point Curtis wants to rebut, that the government can and should spend more than it receives in taxes when the private economy is not at full employment. I know: I actually teach Principles of Macro from Krugman's textbook. "Left wing" (ha!) economists disagree with MMT theorists primarily on the effectiveness of monetary policy (central bank management of the banking system) on the real economy: MMT proponents consider monetary policy rather ineffective in aligning output and capacity (except at intentionally causing recessions); mainstream economists consider it more effective. We should, of course, settle this dispute by appealing to the data, not to the opinions of "experts".

Don't get me wrong: I'm not mad at Greg Curtis's shenanigans. I find it encouraging that the only critiques of MMT I can find anywhere — in both the popular and academic literature — have to rely on the most transparent of lies and bullshit.

Wednesday, September 11, 2019

A Marxist "critique" of MMT

I'm both a Marxist and a professional economist, and I very much like MMT. I think there are good Marxist arguments to be made against it, but in Marxism vs Modern Monetary Theory (MMT), Adam Booth does not offer one. Instead, Booth just repeats every American Enterprise Institute canard against MMT. It's no surprise that neoliberals and reactionaries just offer lies and bullshit to "critique" Modern Monetary Theory, but I expect a lot more — more perspicacious analysis and especially more basic intellectual honesty — from people who call themselves Marxists. Sadly, this expectation is honored yet again in the breach than the observance.

Headline MMT scholars (Kelton, Tcherneva, Wray, Mosler, Mitchell, etc.) are capitalists, not Marxists; of course they're not going to take a completely Marxist line. But Marxism, at least to me, is not about the "correct" ideological line; it's about a ruthless critique of everything existing. And MMT scholars are at least ruthlessly critiquing a central element of 21st century capitalist ideology, the private ownership of the financial system; they argue that we should socialize not just the losses but the gains from this central element. Does the MMT critique go far enough? Of course not. Does it go in the direction a good Marxist would think it should go? I say it does.

Booth uncritically reproduces the neoliberal critique of MMT, which relies almost entirely on outright lies about what MMT scholars actually say. The theme of this critique is that if we do not subject the production of money to market discipline, which requires private ownership of the production of money, then the economy will crash and burn. To reproduce and approve of the neoliberal critique first relies on outright falsehood. All truth is in favor of communism, or so I've been told; even if a lie seems convenient to the Marxist agenda, we should not use it. But the neoliberal critique is not even convenient to the Marxist agenda: if socializing the production of money is a Bad Idea, then why whould more socialization be a Better Idea?

Marx wrote on economics in the middle of the 19th century, when the gold standard was close to absolute canon in capitalist economics. It took repeated financial crises and the near-complete collapse of the Western international economy, but capitalists were finally forced by circumstances to abandon the gold standard partially with Bretton Woods and completely when Nixon ended convertibility in 1971. The core features of capitalism — exploitation, alienation, the falling rate of profit — are still there, but important technical details of how these features work today is almost, but not completely, unlike how they worked in the 1860s, when Marx was writing Capital. Marx understands the gold standard, but it is too much to expect even a person of his genius to anticipate how money would work a century after his death.

One of the persistent tropes of modern Marxist scholars is that because the gold standard was central to capitalism in Marx's era, it therefore must be an ineluctable essence of capitalism. Because we still do have a capitalist international economy, therefore there must be a gold standard lurking under there somewhere. I completely disagree with this trope. Money has a radically different character in 2019 than it did in 1867.

MMT theorists, I think, understand how money actually works today. And if we want to understand capitalism, we have to understand how money actually works, which means, I think, that honest, sincere, and curious Marxists should study MMT, and incorporate it, somehow, into the theoretical basis of action today. Make an honest critique of its truth and applicability. Argue that no matter how we slice and dice it, using money, be it commodity money, or fiat money, whether or not we pretend is a creature entirely of the market, to motivate economic behavior is not and never will be enough to deliver justice and prosperity.

But please, don't use lies intended to undermine the principle of socialism.

Tuesday, September 03, 2019

Thursday, August 22, 2019

Does anyone have the right to sex?

Does anyone have the right to sex? [pdf]

The article raises a lot of what I think are good questions, without offering answers. Sex is weird! Just a snippet:
Yet it would be disingenuous to make nothing of the convergence, however unintentional,between sex positivity and liberalism in their shared reluctance to interrogate the formation of our desires. Third and fourth-wave feminists are right to say, for example, that sex work is work, and can be better work than the menial labour undertaken by most women. And they are right to say that what sex workers need are legal and material protections, safety and security, not rescue or rehabilitation. But to understand what sort of work sex work is – just what physical and psychical acts are being bought and sold, and why it is overwhelmingly women who do it, and overwhelmingly men who pay for it – surely we have to say something about the political formation of male desire. And surely there will be similar things to say about other forms of women’s work: teaching, nursing, caring, mothering. To say that sex work is "just work" is to forget that all work – men’s work, women’s work – is never just work: it is also sexed.

h/t to Crooked Timber

Monday, August 05, 2019

Young men and guns

How about we treat every young man who wants to buy a gun like every woman who wants to get an abortion — mandatory 48-hour waiting period, parental permission, a note from his doctor proving he understands what he's about to do, a video he has to watch about the effects of gun violence, an ultrasound wand up the ass (just because). Let's close down all but one gun shop in every state and make him travel hundreds of miles, take time off work, and stay overnight in a strange town to get a gun. Make him walk through a gauntlet of people holding photos of loved ones who were shot to death, people who call him a murderer and beg him not to buy a gun.

It makes more sense to do this with young men and guns than with women and health care, right? I mean, no woman getting an abortion has killed a room full of people in seconds, right?

— Anonymous

This passage has been incorrectly attributed to Gloria Steinem.

This version
Slightly edited version

Math limericks


Sunday, August 04, 2019

Baker's dozen

A Baker’s Dozen of Reasons Not to Worry about Government Debt

Real-economy arguments for more public borrowing:
  1. The economy generally operates below potential
  2. There are long run forces pushing down demand
  3. Potential output is mismeasured; we are still well below it
  4. Recessions and jobless recoveries have occurred repeatedly in past, will occur again in the future
  5. Monetary policy is not effective at maintaining full employment
  6. It’s hard to ramp up public spending quickly in recession
  7. The costs of getting demand wrong are not symmetrical
  8. Weak demand may have permanent effects on potential output

Financial arguments for more public borrowing:
  1. With low interest rates, debt does not snowball
  2. There is good reason to think interest rates will remain low
  3. With hysteresis, higher public borrowing can pay for itself
  4. Federal debt is an important asset for financial markets
  5. Federal debt is an important asset for the rest of the world

The Fed and inflation

I want to single out a statement in Dean Baker's recent article, The Dangerously Irresponsible Arguments of the “Responsible” Budget Gang: " I have some differences [with MMT]. In particular, I am not willing to give up having the Fed as a check on inflation."

This statement is false in part and true in part. MMT does not ask us to "give up" the Fed's role in checking inflation; instead, MMT scholars present considerable evidence that under ordinary circumstances, the Fed (or any central bank) cannot control inflation. According to MMT (and other theories), bank money is endogenous. The quantity of money in an economy is determined not exogenously by the Fed but endogenously by profit-seeking banks and firms creating loans.

Moreover, firms' investment spending is inelastic with regard to interest rates: if a firm believes they can make a profit by expanding, they will borrow at the prevailing interest rate. As long as banks believe firms can invest productively, they will provide the loans that firms want, and why not? Banks are profit maximizing entities. The Fed has very little choice but to provide the reserves that banks need: the alternative is to allow some banks to simply fail. Having the Fed's thumb on banks' self-destruct buttons is a kind of control, but it is not the same as sitting behind the wheel.

Similarly, as we have seen in Japan since the 1990s and the rest of the developed world since the global financial crisis, central banks can do very little to increase inflation. The Fed can shovel reserves to the banks, but regardless of the amount of banks' reserves, they can't lend if firms don't want to borrow, i.e. if firms believe investment will not be profitable, and banks won't lend if they don't believe investment will be profitable.

The Fed can check inflation. However, the only tool they have is to abruptly raise the Fed Funds rate high enough to choke off investment spending and cause a recession; the resulting unemployment will eventually bring inflation down. But we should find ways other than massive unemployment and suffering to fix systemic economic problems such as inflation. It is not MMT per se but ordinary morality that asks us to give up this tool.

Thursday, August 01, 2019

The "danger" of MMT

The Dangerously Irresponsible Arguments of the “Responsible” Budget Gang According to Dean Baker, deficit hawks
are pushing propaganda, not serious analysis.

I got a taste of this propaganda effort first hand earlier this year when I was asked by an editor at the Washington Post to write a piece on Modern Monetary Theory (MMT). . . . [After several edits,] [t]he editor wanted me to include a needlessly snide remark from a MMT critic and had me referring to the theory as “dangerous.”

That comment left little doubt that they wanted a different column than the one I had written. MMT is dangerous? . . .

Just like the millions who mindlessly pledge allegiance to Donald Trump, [the Post's editors] will push the austerity line they have always pushed regardless of the evidence.

This really undermines the integrity of the mainstream liberal, mainstream Democratic-party economic narrative. When is criticism of MMT honest economic opinion, and when is it at best selection bias and at worst individual dishonesty?

Tuesday, July 23, 2019

MMT Link Roundup


Education about economy critical for coming election

This Economic Theory Could Be Used To Pay For The Green New Deal
"Too often, people get a whiff of MMT, they don't read the literature, and they somehow arrive at the takeaway that MMT is about printing prosperity," Kelton said. "And of course when people hear printing money, they go straight to Zimbabwe or Weimar Germany."

Those are notorious cases of hyperinflation. But Kelton argues that runaway prices are only a danger when demand outstrips the real resources in an economy — the people, machines and raw materials. If there's idle capacity, MMT maintains that additional government spending does not trigger inflation. . . .

[The belief that Japan's high public debt would raise interest rates] "cost both me and my clients or anyone who was stupid enough to follow me money," [bond trader James] Montier recalled. "It was one of the worst trade positions I have ever suggested in my entire life."

He says MMT offers better financial forecasts and helped him understand why interest rates in the U.S. have stayed low, despite growing government deficits.

Taxes for Revenue Are Obsolete (from 1946!)
The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.

The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold. . . .

The public purpose which is served should never be obscured in a tax program under the mask of raising revenue. . . .

[Instead, a government should use taxes:]
  1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
  2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
  3. To express public policy in subsidizing or in penalizing various industries and economic groups;
  4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.


Rethinking fiscal policy: Progressive US politics meets radical economics
The most intuitively attractive part of the MMT message is that if the economy is running below capacity, policy should aim at stimulus, and this should come through fiscal expansion. Put like this, it is not so far from the Keynesian ideas so relevant in the 1930s. Mainstream economists, however, are cautious or even sceptical, informed by the post-World War II periods when politicians proved reluctant to rein in excessive budgets. Nevertheless, MMT’s ‘free-lunch’ message of limitless budget funding will go on attracting advocates of big-ticket expenditure.
Good over, but le sigh: budgets are not limitless: the real economy is always a limit on spending. However, there are no financial limits to deficits.

The Stupid! It Burns!

AOC Chief of Staff: Green New Deal 'Wasn't Originally a Climate Thing at All'
Many activists have dismissed the cost as irrelevant, because climate change poses an existential risk to humanity. This relies on climate predictions that have proven false time and time again, and a myth of scientific consensus on the issue. Liberals [!] attempting to use modern monetary theory to dismiss the cost are also misguided. [embedded links omitted; emphasis added]

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.