The MMT JG-ELR is part and parcel of a macro theory that claims to reconcile the major issues in macroeconomics: production, employment and price level. No other theory reconciles them in a way that promises to deliver full employment and optimal output (most efficient use of resources) along with price stability.
The initial challenge in addressing MMT is not the practical feasibility of the JG. Granting the assumption that it is feasible at the micro level, does the theory hold water, is it inherently flawed as a theory, or can the reconciliation of the big three be accomplished in a more optimal way from the macro perspective? Then questions of micro and political feasibility arise wrt to application of the theory as a policy instrument.
If it is granted that the theory holds water and offers the best available promise wrt macro, then the micro questions arise, such as the feasibility of the JG-ElR. These are not the only feasibility questions.
There are also questions about the feasibility of functional finance. Even Abba Lerner later had questions about this, and developed MAP (Market Anti-Inflation Plan) with David Colander as a fourth part of functional finance that would be more market-based. Questions have also been raised as to whether sectoral balances can be anticipated in order to design fiscal policy wrt changing saving desire, as well as issues about MMT wrt external matters like fx and the effects of the current and capital accounts.
Suggesting that JG is the weak link in MMT and if it were removed everything else is fine is just not the case. There are a lot of questions about MMT to be resolved by economists when they get around to taking it seriously, such as whether MMT as a coherent and comprehensive macro theory, whether it is superior to monetarism, and whether it is politically feasible as a policy tool.
MMT economists have written pretty extensively in defense of MMT both theoretically and practically. Have they resolved all questions? Perhaps not. But an examination of MMT requires framing issues clearly and addressing them with specific reference to the literature. Generally, that depth of analysis requires more than a blog post or two to do justice to the matter. So far few economists have taken up the challenge professionally, but instead have been rather dismissive, acting like MMT is not worthy of serious consideration by serious people. So while some suggestions have been raised my critics recently as MMT gets more notice, there have been few serious attempts to address it professionally at the level at which it has been presented.
Even Paul Krugman started shouting Zimbabwe and Weimar instead of approaching the matter in the spirit was offered. Similarly, the JG elicits howls of derision. What has been offered is in blog entries that are superficial and undocumented ven when it is claimed that sources have been consulted. MMT economists are still awaiting a professionally mounted response in a forum in which serious and knowledgeable people interact.
(Initially posted as a comment at Pragmatic Capitalism, slightly edited here)
Cullen Roche responds...
This statement is simply not proven in any way:Pragmatic Capitalism 01/05/2012 at 9:12 PM
“promises to deliver full employment and optimal output (most efficient use of resources) along with price stability.”
You have NO empirical evidence proving that an employment buffer will deliver “optimal output”. NONE! This sort of unfounded comment discredits MMT as a theory since there is no proof behind such an astoundingly bold comment. I have no problem with people continuing to beat the drum on MMT and the JG being central to it (even though Warren clearly said otherwise), but I think we need to be more careful making statements like this that cannot be proven at all!
Tom Hickey answers....
Cullen, “promises” does not say proves. It is impossible to prove a scientific theory or any of the hypotheses since theories are sets of affirmative general propositions. Positive results of experimentation add confirmatory evidence but not proof. However, one can disprove affirmative general propositions with negative particular propositions. Hypotheses can be disproved by data that disconfirms them, even when they acquire the status of scientific “law.” Theories make claims. No theory even in the hardest of science can be proved correct, no matter how much evidence confirms them. All theories stand or fall on negative counter-instances. However, a single negative counter-instance does not call an entire theory into question. It just calls for an ad hoc adjustment of the theory to newly discovered facts. This happens in the science all the time. A theory is not overthrown until a new and more promising theory is offered, which then gets tested by the same procedure. MMT is a macro theory that “promises” full employment along with price stability. This is the thrust of Randy’s Understanding Modern Money: The Key to Full Employment and Price Stability (1998). It is bolstered by subsequent MMT publications. None of the major hypotheses that constitute the theory have been disproved for the simple reason that there is no professional debate concerning MMT as yet, hence, no serious objections professionally stated that MMT economists have not been able to overcome. Perhaps 2012 will see the beginning of a serious professional debate now that MMT is becoming more widely known.