For the record.
My view on this is that it fails to correctly present the MMT position (again).
MMT is a macroeconomic theory based on institutional analysis rather than being either an axiomatic system like conventional economics or a socio-economic and political analysis like Marxian economics. That is to say, MMT is framed in terms of the existing world system. It is an alternative to "neoliberalism," in so far as it is in the Paleo-Keynesian tradition (versus the New Keynesian or Samuelson New Synthesis). That is to say, as a macroeconomic theory it does not deal directly with social and political issues that go beyond the field of economics as it is currently practiced.
However, MMT also has implications for political economy and policy, although as an economic theory it doesn't venture into these domains. For example, the adoption of the MMT JG is not a policy choice. It is an economic requirement for optimizing use of available real resource to reduce or eliminate waste as a form of inefficiency.
Individual MMT economists also take policy stances based on potential that MMT shows but independently of MMT as an economic theory. This can be obscured by their appealing to MMT in many cases to justify their views. But there is nothing in principle preventing different political approaches using the knowledge generated by MMT.
The arguments and rationale criticizing MMT presented here are generally social and political rather than concerned with economic economic theory. That is they involved economic understanding applied to policy.
The economic issue here is at bottom economic rent, rent-seeking, and rent extraction based on asymmetry and leading to greater asymmetry. Almost MMT economists and MMT allies like Michael Hudson, James K. Galbraith, and Steve Keen address such issues, as well as other social and political issues. Their views of these matters is diverse.
Warren Mosler comes in for specific criticism, but the record in incorrect. I have discussed this with him and his position is rathe to preempt economic rent, rent-seeking, and rent extraction to address inequality and its social, political and economic effects before clawing back the residual using taxation. Using taxation as the first tool is not the most efficient or most effective way to go.
Bill Mitchell addresses the totalitarian effects of neoliberalism and the necessity for national sovereignty including currency sovereignty to address this scourge that threatens the world system socially, politically and economically. Of course, Michael Hudson reputation in this regard is well-known.
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V. Ramanan
24 comments:
For example, the adoption of the MMT JG is not a policy choice. It is an economic requirement for optimizing use of available real resource to reduce or eliminate waste as a form of inefficiency. Tom Hickey
Except paying people to waste their time is inherently wasteful as well as a poison pill to whatever good (e.g. a Citizen's Dividend) MMT might be used for.
Sure you want MMT to die on that hill? Needlessly because of an inane attachment to the Protestant Work Ethic by people who hardly know one end of the Bible from the other?
Hi Tom,
It's true that some like Bill Mitchell write about but at the same time deny that these things bring constraints on policy, especially fiscal policy itself.
I have discussed this with him and his position is rathe to preempt economic rent, rent-seeking, and rent extraction to address inequality Tom Hickey
Baloney since Mosler would INCREASE privileges for the banks and thereby INCREASE their ability to steal for themselves and for the rich, the most so-called "credit worthy".
As for Mosler's permanent ZIRP, even that is flawed since banks and other large fiat users or hoarders should PAY (i.e. negative interest) for those privileges.
Hi Ramanan,
Thanks for commenting.
I remember the go-arounds on MMT and BoP at billyblog with you, JKH, and others participating. It would be interesting to see a paper arguing this that might provoke a debate.
While MMT economists generally say that inflation (price stability) is the only financial constraint, IIRC Randy mentioned exchange rate (current stability, volatility) as another potential financial constraint.
In think the economic assertions of MMT need to be distinguished from interpretations of MMT as political economy. It can function as both, although under the current thinking that is dominant, either there is no such policy science as political economy. I would like to see that change. Presently, this study is relegated to economic sociology and political theory, although it is implicit in economics, and economic theories can be categorized based on how their advocates line up politically.
For example, neoliberalism is really a political theory with social, political and economic agenda that is promoted by conventional economics that assumes free markets, free trade, and free capital flows and assumes away economic rent. It is farfetched to think this is leading to corporate totalitarianism by accident.
MMT economists tend to shy away from this aspect, or relegate it to individual choice regarding policy, with MMT being represented as policy neutral.
I don't think any social science including economics is free from ideology including values, and such assumption, implicit or explicit, have implication for policy since that social, political and economic aspects of a social system cannot be disentangled.
Bill Mitchell has laid his cards on the table in this regard as a "socialist," and Stephanie Kelton is top advisor to US "progressive" Democrats.
Actually, Warren Mosler has offered some pretty specific policy proposals as well. But he is often viewed by some as progressive and by others as conservative, although looking at his output as a whole, it seems pretty clear that he is considerably more left that right. He uses a systems approach as the basis of his mental model, and his thinking doesn't fit into any particular sharp-edged category.
I think that link between economics, policy science (political economy) and economic sociology is most fruitfully pursued through economic rent – monopoly-monopsony rent, land and natural resource rent, and financial rent. Rent extraction from labor can be viewed in terms of monopoly-monopsony rent. This needs to be studied systemically rather than piecemeal. It a parasite on the system (MH -Killing the Host) and a rot from the core.
I would like to see MMT economists placing more emphasis on this. I assume they don't because discussion of economic rent has been thoroughly propagandized as "red." But it is the lynchpin, as Marx recognized. So far it remains the elephant in the room.
I would also like to see a lot more attention payed to the world system. MMT economics tend to focus on national systems. But all national systems are subsystems of the interconnected global system in which they are embedded. For example, it is the highest priority of the US elite to control this system for their own benefit. Hard to do credible economics, sociology, or political science while ignoring these realities and the issues they create.
I would like to see MMT economists placing more emphasis on this. [rent] Tom Hickey
You won't since the JG is (short shortsightedly) meant to pacify the victims of injustice.
Ironically too since neither an ethical finance system nor land reform should damage real, sustainable economic growth potential.
Tom,
Thanks for the comments.
Not easy to respond to everything: but anyway we keep chatting online.
I was thinking of this critique of MMT by John Quiggin, especially of a Stephanie Kelton article on Bloomberg:
https://independentaustralia.net/politics/politics-display/mmt-radical-innovation-or-trap-for-the-left,14178
Forget the fact that Quiggin doesn't get a lot of things ... that shouldn't be an excuse to address the issue. Keltion specifically says:
'To escape higher taxes, they must embrace deficits.'
They, as in the billionaires.
What sort of political economy ideology is this.
I of course understand that she was in Bernie Sanders' team but that shouldn't be equated to her having all the views Bernie Sanders has. As someone pointed out Bernie Sanders never said "MMT".
@ Ramanan
Although I am not an economist, my understanding of economics on one hand and MMT on the other makes me skeptical of John Quiggin's economic assertions, as well as his understanding of MMT on its own merits and not through his own lens. ONe has to take seriously the MMT claim that it provides a different lens. I don't think that Quiggin is looking through that lens, if he is even trying to do so. So I will leave his economics aside.
The rest of the piece is political. Fair enough, since Stephanie Kelton is openly political. They it comes down to a matter of strategy. I think that at least some of the US MMT economists have decided on a strategy, and that is what I think John Quiggin is criticizing.
The fact is that now the MMT economists are in a position politically that they do have to adopt a strategy, since one has to focus on the battles at hand. One can argue with the choice of strategy and tactics but that is much more politics than economics.
Others think that Bill and Randy are too "in your face." That is a matter of style.
Warren is accuses of being a hedge fund manager that made a lot of money and is therefore so "interested" as to be marginal to the left. I don't see the history that way at all. Warren has probably done more than anyone to promote MMT as an alternative in a way that doesn't much benefit him. And as a successful fixed-income hedge fund manager and former bank owner, he understands more about finance and its relationship with economic than academic ever will.
John Quiggin writes: "The standard Keynesian analysis implies that, if the current demand for a renewal of radical reform is to be achieved it will be necessary to increase the resources taken from the private sector through consumption, with those on higher incomes making the largest contribution. As already mentioned, it is precisely this conclusion that "movement" MMT tries to avoid."
MMT emphasizes that government uses its fiscal power to transfer real resources available in market to public use. So government is competing with the private sector in this regard. No argument.
In addition, MMT economists admits that at capacity, taxes will have to rise to accommodate greater government spending in order to avoid inflation. Again, no argument.
IN addition, to reduce inequality, taxes seemingly need to raised on wealth, which US economists tend to avoid talking about. Warren's solutions is pre-emption rather than taxation. Critics are on firmer ground on this, e.g., MMT economists did not go along publicly with Bernie's call for higher progressive taxation.
The MMT economists' strategy seems to be instead to go first for the lower hanging fruit. Taxes are generally a non-starter in the US. They seem to see the starting point as the JG, which would attack rent extraction from labor head on, which no other US progressives get in the same way.
Raising taxes, instituting a JG, universal health care, etc. are tough sells politically in the US. I think that MMT economists have concluded that the best strategy for achieving success political is an incremental approach beginning with a JG.
But they are also fully on board with a GND and universal health care, both of which are huge undertakings. My sense is that the thinking is that a JG is possible short terms, whereas the others are longer term projects and putting a JG in place would not only be a simpler place to start but it would lay the necessary ground work for controlling inflation by providing a real (non-financial) anchor to labor time.
I also think that the MMT economists are focusing much more now on behind the scenes personal contacts than through publications and blogging. They are much more active on Twitter now, for another thing.
Warren's solutions is pre-emption rather than taxation. Tom Hickey
If that were true, Mosler would be firmly against ANY government privileges for the banks since those favor the rich, the most so-called "credit worthy".
Instead Warren Mosler is for:
1) unlimited deposit guarantees FOR FREE.
2) unlimited, unsecured loans for banks at ZERO percent interest from the Central Bank.
Also, the MMT School is firmly against allowing all citizens (at least) to use fiat in account form - thus forcing them to use the deposits of one member of a usury cartel or another.
As for taxes to curb price inflation, those MUST fall on the non-rich since the rich don't consume enough in aggregate to matter.
“ or taxes destroy money in order to create the space for reissue of money to finance spending. ”
This is false... USD tax payments are deposited in either the TGA at the Fed or a TTL at the Depositories....
Actually, it depends on your definition of "money" as you often lambaste others, Franko.
So, more precisely, Federal taxation destroys private bank deposits but not fiat itself.
Of course it's a disgrace that citizens may not use fiat itself in account form and not have to use private bank deposits as "money" but that's the way the MMT gang insists on.
Well if you read my comment I don’t use the figure of speech “money”... You can’t define a figure of speech...
Figures of speech are created to represent literal phrases or terms... not the other way around...
I don't believe that "money" is only a figure of speech. It can be defined as the set of sets having the property of being payment instruments, or some such. It is therefore a high-level abstraction, with subsets between the super set and objects. Some of these subjects would be M1, M2, etc. And the story of the meaning being derived from Juno Moneta doesn't automatically make it a figure of speech. "Money" can be a useful shorthand if it is used carefully. Many have not thought this through and don't use the term carefully. So in that case it probably qualifies as a figure of speech for them.
or taxes destroy money in order to create the space for reissue of money to finance spending. ” This is false... USD tax payments are deposited in either the TGA at the Fed or a TTL at the Depositories....
Here is how I understand it. To be precise, taxation results in marking down a deposit account at a commercial bank (M1 decreases), marking down the reserve account of the bank in the cb payments system (monetary base) and marking up a government account, either TGA on the cb spreadsheet or a TT&L account at a commercial bank. If the TGA is credited, the monetary based declines since credits in the TGA are not consider reserves in the cb payments system.
Funds credited to the TT&L accounts in the commercial banking system leave reserves unchanged until they are transferred to the TGA, in which case they no longer count as reserves. This is a way that the cb controls the monetary base to hit its policy rate target using either floor or corridor. The cb also uses OMO to do this when not setting the policy rate directly by paying interest on reserve at a level it chooses.
When the TGA is credited, the money supply, defined by the M's, decreases, so in this sense "money" (money supply) declines. This is not the case with credits to the TT&L's which are deposits at commercial banks and count toward the monetary base. But these funds are no longer available to the private sector, so purchasing power decreases immediately with payment of taxes and a corresponding decline in M1 money supply.
"Create money" and "destroy money" are correct is one understands the technical meaning in terms of operations and institutional arrangements, but most probably don't. As a result use of this manner speaking likely results in more "heat"" than "light" (metaphor where "heat" signifies controversy and "light signifies knowledge).
MMT literature goes through this operations in great detail. Few have spent the time going through this with the result that public, academic and policy debate continue to be largely uniformed.
Moreover, a problem with popularizing MMT or economics in general, as well as most other technical subjects, is that it results in the illusion of knowledge unless one is able to understand the technical meanings.
So that means that one either has to shut up or dumb it down enough to communicate, knowing that the communication's signal to noise ratio leaves much to be desired. But in politics, for example, one has to go with the intelligence of the population one is given, even if low technically.
It's problem with liberal democracy that allows an elite to control the electorate by the way information is presented.
But in politics, for example, one has to go with the intelligence of the population one is given, even if low technically. Tom Hickey
Idiot savants is a much broader category than supposed given that it was the "elites" of their time who crucified the Creator.
Likewise, the "elites" of this age (or any other?) should not suppose much of themselves either relatively speaking since:
He who despises his neighbor lacks sense ... Proverbs 11:12
""Create money" and "destroy money" are correct is one understands the technical meaning"
Well they dont... if they understood it scientifically then we wouldnt be having any of this conversation...
MMT people i guess probably understand it scientifically but no one else over there does...
"funds credited to the TT&L accounts in the commercial banking system leave reserves unchanged"
yo but they dont leave DEPOSITS unchanged... Deposit Liability balances are regulated too...
Regulators require Depositories to maintain a minimum ratio of Tier1 Assets to Deposit Liabilities..
So if the Deposit balances in the TTLs suddenly surge (eg fiscal surplus), it makes the Depositories insolvent...
This cannot be understood if you go all around the place all the time saying stupid shit like "taxes destroy money! taxes destroy money!..."
Matt, what percentage of the electorate could possibly understand this? "Taxes destroy money" is meme aimed at them.
And I doubt that most people outside finance (and likely most people in finance, too) get the implications of bank regulation. May be the people in finance and some economists could get it, but even Larry Summers, supposedly the brightest guy in the room, told Warren that he did not understand reserves accounting. That's the way Warren reported it, IIRC.
And I doubt that most people outside finance (and likely most people in finance, too) get the implications of bank regulation. Tom Hickey
Otoh, an ethical finance system would have separate risk-free and at-risk payment systems and be MUCH, MUCH simpler conceptually and would require only MINIMAL, easily understood regulation of the at-risk system since its failure would not be a catastrophe.
But an ethical finance system does not allow the strong to systematically loot the weak and we can't have that, eh Tom?
Are you really looking forward to explaining to God your support of a money system that is nearly incomprehensible as well as inherently crooked?
"Taxes destroy money" is not a figure of speech or a meme or a simplification for popular consumption, but something absolutely true and essential to monetary economics. The consolidated government perspective Treasury + CB is the one that actually confronts the rest of the economy and world.
Internal bookkeeping between them is just a pointless game, whose only function is to disguise obvious truths like "taxes destroy money". The disguise succeeds because incomplete education leads one to think - "if it's simple and obvious and understandable by everyone, it can't be true."
That such games may be concocted to reflect something happening in the outside world is besides the point. If you're drunk, you may perceive a balloon animal as a pink elephant. And you may act on that basis. That doesn't mean there is a pink elephant anywhere but in your mind.
Taxes destroy money" is not a figure of speech or a meme or a simplification for popular consumption
I would contest this at leat in the way I see it usually used, e.g., on FB or in comments. How many MMT advocates can explain this coherently beyond Warren's claim (not completely the case) that when taxes are collected in cash, the Fed just destroys the take.
It's an analogy. Understanding it requires more than the literal analogy, and many if not most people don't have the background to do this.
What I see in my travels is MMT advocates repeating this and then being asked, what about.… Then they are confused.
So, while I think the saying is useful and true if understood, it remains just a slogan for many, which means it could become just another meme if not unpacked through accounting and operations.
It like the saying that MMT prescribes raising taxes to meet inflation. True in a sense but again incomplete, therefore potentially misleading.
Taxes delete money.
No, it isn't an analogy, but something absolutely true. It's an instance of Mitchell Innes' basic law of commerce. Debts/credits in opposite directions cancel each other out, destroy each other and then they don't exist anymore except in history, like anything else that is destroyed. One understands and unpacks other things like accounting or operations in terms of that, NOT vice versa. It's only incomplete or misleading in the sense that everything anybody ever says is incomplete or misleading, especially if one insists on interpreting words like Humpty Dumpty.
What "analogy"? Who uses it incorrectly? Never seen it. Critics of the phrase, like Matt above, are uttering falsehoods.
What I see in my travels is MMT advocates repeating this and then being asked, what about.… Then they are confused.
Well, what are the dot, dot, dots? These confused MMT advocates need to stick to their guns and point out that the questioners are the ones confused.
To the extent that one disagrees with "taxes destroy money" - one does not understand MMT and accounting and logic - and is abandoning them in pursuit of complication for its own sake.
@ Calgacus
What I see in my travels is MMT advocates repeating this and then being asked, what about.… Then they are confused.
Well, what are the dot, dot, dots? These confused MMT advocates need to stick to their guns and point out that the questioners are the ones confused.
A few common objection many are are confused about when it is pointed out to them is that the funds from taxation are credited to a Treasury account and are therefore not "destroyed" (canceled in the accounting sense). It's just a transfer from one account to another. They point out that Warren's example is wrong in that if taxes are paid in cash the appropriate entries are made on accounting statements before the cash is shredded. Just about no one is able to meet this objection correctly since they are not that versed in MMT. They are on the level of slogans, which are now called "memes."
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