Thursday, March 15, 2012

Four guestions to MMTers and some answers

Commenter JJ posted at MMR:
I asked a few MMTers the following questions and got responses from Warren Mosler, Bill Mitchell, Dan Kervick, Tom Hickey and Mitch Green.

1. Do you think that MMT might be compatible with small government and low taxes, or is it inherently biased towards big government and high taxes? (I’m assuming that MMT would always involve some form of the ELR/JG if it were to be fully implemented).

2. Does MMT require a degree of nationalisation (i.e. of banks/ corporations) and strict regulation, or is it compatible with no nationalisation and a hands-off approach to regulation?

3. Would you say that MMT economists have different political and ideological positions, or are you all more or less the same?

4. Do the main MMT economists have different understandings of what MMT is or of how it could be implemented?

You can read the responses (some short, some longer) here:

Warren Mosler/ Bill Mitchell
Dan Kervick/ Tom Hickey/ Mitch Green


netbacker said...

The second link leads to a blank document. Can you please post the correct link.

Anonymous said...

Who is Mitch Green, sorry don't know him.

Also, should have asked Scott Fullwiler & R.Wray probably.

Tom Hickey said...

Second link fixed now.

Anonymous said...

I asked Randall Wray but he didn't respond.

Anonymous said...

Mitch Green is a PhD at UMKC.

Kristjan said...

Cullen Roche wrote: "I am just pointing out that his article is written in a specific way so as to alleviate certain fears pertaining to govt, socialism, etc. Which it achieves by not focusing on those facts. The truth us, the Mugabe govt was a socialist regime that seized the primary means of production and then implemented them very poorly. And he did so in a brutal and authoritarian way. That was the primary cause of the hyperinflation and it’s what every hater of big govt fears. But I have no idea why I am still wasting time explaining anything to MMTers since you guys are clearly pre-programmed to believe anything any MMT founder ever wrote…."

There is no point of arguing with him. Who is political here, Bill or Cullen?

Adam2 said...

Here is something MMTers will love... or not.

At least the first comment is MMT inspired.

JJ said...

It was as a result of that discussion that I asked these simple questions.

Anonymous said...

“Financing U.S. Debt: Is There Enough Money in the World -- and at What Cost?”

Reminds me of the South Park episode in which they steal a whole load of "space cash" from an alien.

Anonymous said...

In other news, MMR (otherwise knows as 'Cullen Roche') continues to be based on ranting on how authoritarian and socialist are MMT'ers rants.

Sad, very sad.

Anonymous said...

I think it's time for detente - friends again with different views. MMR's pretty good when they're doing their own theorising and not just branding MMT in a way that MMTers consider to be unjustified.

Andy said...

Good comments on Measles' Mumps & Rubella but I'm more concerned with NEP. I think they need to get back to the basics .

Bob Roddis said...

Mitch Green wrote:

I don’t think MMT is ultimately compatible with small government. Here’s my argument:

As I understand it, MMT is inseparable from Abba Lerner’s functional finance approach, which emphasizes full employment and price stability as its chief policy goals. The level of deficit spending is secondary to that primary goal. But here’s the rub: There’s a tradition in macro theory that sees money using economies as prone to ongoing stagnation, due to excess capacity generated by investment. Those that take growth dynamics seriously recognize the self-defeating nature of investment: investment creates demand, but it also creates capacity, which is likely to go unused. That excess capacity produces insufficient levels of effective demand, and so we have secular unemployment.

In the face of that dynamic, which Harold Vatter and John Walker refer to as the problem of ‘secular stagnation,’ and supposing that we maintain full employment as a chief policy goal, then we need government spending to increase over time. Therefore, MMT is somewhat at odds with small government.

Now, when we think of government expenditures, we typically think of large bureaucracy, stifling freedom, roads to serfdom, and all that. But, this is not necessarily the case. It’s possible to fund, in large volumes, many distributed, local programs that alleviate the stagnating effects of the growth dynamic produced by capitalist development. One example is the job guarantee promoted by MMT theorists, designed and administered at the most local levels.

Clearly, MMT depends upon the alleged truth of the Keynesian assertion that the free market fails and results in stagnation and unemployment. If those assertions are false, MMT makes no sense, right? Because you are trying to cure a problem that does not exist.

I’m not trying here to prove that those Keynesian assertions are false (even though they are). Austrians like me assert that the “truth” of MMT ultimately relies and depends upon the truth of its underlying Keynesian analysis. True?

JJ said...

Randall Wray places MMT within the category of Post-Keynesian economics. Warren Mosler says he wrote 'Soft Currency Economics' without having ever read anything by Keynes other than a few quotes. A lot of what is asserted by Austrian economists is considered to be incorrect within MMT.

(p.s.Mitch Green is a PhD student at UMKC. I assume his views are close to those of the MMT economists there but they are still his own views btw).

Tom Hickey said...

BTW, the question about "big government v. small government" is not defined in terms of economics. It is a political slogan of the right, which has has established the farming. To properly pose the question for an answer in terms of economics, it needs to be restated and made much more specific in economic terms. Otherwise, it is a political question as it stands, and a loaded one at that.

Ryan Harris said...

The heavy criticism lately has produced some great articles and blog posts on MMT. To encourage more great posts we ought to help the inept attackers understand the weak points where we are susceptible to damage rather than where they imagine problems should be.

It all starts with a few observations about freely floating fiat currencies with government as monopoly issuers and the direct consequences of the observations.

As a set of observations, strategically the best way to attack MMT is to refute the observations. Most attackers try to attack theories that underpin the MMT, but those attacks always fail because the MMT didn't arise out of a theoretical framework. The most failed line of attack to date has been the strawman, where someone claims MMT stands for something they find objectionable like "Keynesian assertion that the free market fails" then they try to attack that but MMT never made that observation or assertion. The second most common attack usually employed by neo-claisscals is ad-hominem, "pre-programmed", "hysterical MMTers" etc. The ad-hominem is usually followed by a claim that they are just too busy to debate claims made by crazies.

The basis of MMT is only a handful of observations, go for it, attack them. If you prove them wrong, the whole ship keels over and falls apart. Good Luck.

Anonymous said...

We know most of the accusations CR throws at MMT aren't correct, and that responding to his accusations is usually a pointless endeavour, so maybe it's best to just leave him to it.

JJ said...

"It is a political slogan of the right, which has has established the farming"

which farming?

Tom Hickey said...

MMT is never going to be conservative enough for conservatives. Neither is it going to appeal to liberals and progressive who are fearful of straying from the establishment framing, afraid that they won't be considered Very Serious People.

Therefore, two chief factions will object to MMT in terms of their framing. First, there are the conservatives and they will gravitate to MMR as a more conservative position that is based on a similar understanding with key differences. Secondly, there are the liberals and progressives that have bought into the conservative frame for one reason or another. They will argue for liberal and progressive approaches and insist on the need for higher taxes to get the revenue.

So speak the truth as you see it, and keep on truckn'.

All the [Green Bay Packer] players knew that at the first team meeting, the legendary coach [Vince Lombardi] would waste no time getting straight to the point. Many of the men, half Lombardi’s age and twice his size, were openly fearful, dreading the encounter.
The coach did not disappoint them, and, in fact, delivered his message in one of the great one-liners of all time.
Football in hand, the great coach walked to the front of the room, took several seconds to look over the assemblage in silence, held out the pigskin in front of him, and said, “Gentlemen, this is a football.”
In only five words, Lombardi communicated his point: We’re going to start with the basics and make sure we’re executing all the fundamentals. . . .”

— Bob Kimbrell, PhD, The Book on Management, ch. 2., p. 7.

Bob Roddis said...

We’re going to start with the basics and make sure we’re executing all the fundamentals. . . .

So, when trying to understand how human beings interact with scarce resources, we're going to ignore both the human beings and the scarce resources and pretend they don't exist.

I finally get MMT! Thanks!

JJ said...

But MMT doesn't pretend that humans or scare resources don't exist.

Kristjan said...

To Bob Roddis: I don't think there ever was "free market". that's why this Austrian free market talk is little out of touch for me. If you point out to Austrians that regulations were lacking and see what happened, the say the government overregulated, and if It wasn't for the government everything would have been ok.

The free market system has never existed anywhere that we know of. Somalia has been without government for a while but I am sure some local criminal gangs have been making the rules at least to some extent, and those rules are coercive. Americans haven't seen governments come and go, I have. When the system collapses there is new government but It is very weak in the beginning. Organized crime taxes the business owners, pribes the police etc. Free market didn't form the strong police and couldn't fight the crime, didn't keep the schools running etc (Estonia) May be Austrian theory doesn't work in every part of the world.
I met a guy in America who was from Uzbekistan. I asked him if he had been writing to home while living in America. He said no, after the soviets left, there was no mail service, streets didn't have names at that time anymore. Free market didn't take care of that.

Ryan Harris said...

As a description of how the monetary system works, MMT is not a complete economic theory that describes resource scarcity, human behavior, politics and various other areas, except as they impact money: Inflation, Unemployment, Savings Desires etc. There are plenty of micro and macro theories that describe resources and distribution and attempt to unravel humans.

Anonymous said...

Depends how you define free market I guess.

Anonymous said...

It's called Modern Monetary Theory.

Tom Hickey said...

In my comment March 15, 2012 5:23 PM, in "It is a political slogan of the right, which has has established the farming," "farming" should be "framing."

JJ said...

yeah I got that...

JJ said...

"Andy said...I'm more concerned with NEP. I think they need to get back to the basics."

What do you mean?

James said...

Bill Mitchell made a good point in one of his blogs about the size of government argument,

"I can tell you that there is no analytical result that you can derive from mainstream economic theory – even within their own logic – that determines an optimal size of the public sector. The body of theory is silent on that question. Mainstream economists who are honest will concur with that conclusion.

However while analytically the models are silent, that doesn’t stop mainstream from inferring that small government is better and leaving you with the impression their models have proven that result. The reality is otherwise and when the IMF or any other mainstream economics organisation makes any statement about the “size” of the public sector then you can conclude – immediately – that those sort of statements are at the deep end of their religion – their ideology.

Second, there is nothing in the body of mainstream economics that can show you that a definition of a “credible fiscal strategy” can be related analytically to the size of government. I can easily write out a “neo-classical” model (which would satisfy all the assumptions they make about the economy) which would have the public sector at 90 per cent of the total output and running a balanced budget with full utilisation of resources satisfying all neo-classical efficiency principles. I could also write a similar model where the public sector was only 10 per cent of the total output.

The point is that while neither model would make any sense in helping us understand the world we live in, both would be consistent with a rigorous application of mainstream modelling principles. In other words, it is a lie to say that small government is the only way to attain what the mainstream economists (erroneously) would consider to be a “credible fiscal strategy”.

Personally I don't care how big or small a government is as long as it's doing the things which a government is supposed to do, but I would include providing universal healthcare as one of those things.

dave said...

randy wray has recently wrote articles about how big a government can or should be. it was at new economic perspectives

dave said...

the "evil big government"doesnt need taxes to spend anyway. it is supposed to serve the public, which it currently does a very shitty job of, i might add. the person asking the four questions must not have read much of mmt.

Dan Kervick said...

As a description of how the monetary system works, MMT is not a complete economic theory that describes resource scarcity, human behavior, politics and various other areas, except as they impact money: Inflation, Unemployment, Savings Desires etc.

That's exactly right. But it's also true that most of the people who developed MMT are professional economists, who naturally have opinions on those other issues drawn from the various economists and schools of thought they admire. Sometimes they express those views. So casual readers can have difficulty determining where a given writer's MMT positions end and where more independent thinking begins.

MMT isn't a church. It's a bunch of different people who have all found common cause in closely agreeing on a core of very important things that are still either rejected or misunderstood in mainstream economics.

Jonf said...

I especially liked Bill's answer on the JG. I was skeptical about it, since I thought it was merely an add on, an after thought. One needs to have an answer to the twin evils. The JG provides the policy solution. We have tried the NAIRU approach and it is not working. Time to go the other policy route.

Senexx said...

I actually don't understand Mitch's argument about government size, on one hand he says big spending is big government and then on the other he says that is not necessarily the case.

The argument is inconsistent. I did enjoy Bill and Warren's though.

Senexx said...

This is just a thank you to Bob Roddis for answering my fallacy question in the other post.

One more question: Do you accept Warren's fallacy of composition of if a few ppl stand up in a sports stadium its ok but if everyone does it nearly everyone has a lousy view?

Or words to that affect.

JJ said...

Randall Wray responds to the 4 questions:

Septeus7 said...

Quote: "So, when trying to understand how human beings interact with scarce resources, we're going to ignore both the human beings and the scarce resources and pretend they don't exist.

I finally get MMT! Thanks!"

The Austrian school denies the existence of human beings with their apriori assumptions about human action which deny the possibility of human creativity which of course is man's most defining characteristic.

The Austrian school also denies the existence of accounting.

Septeus7 said...

Quote: "Clearly, MMT depends upon the alleged truth of the Keynesian assertion that the free market fails and results in stagnation and unemployment"

No. MMT rests on the notion that "Free Markets" can't exist (because it's a non-defined concept) and real markets do fail that results in stagnation and unemployment.

Bob, most of us here are tired of dealing with you theoclassical religious fundamentalist of all kinds. American is being crushed by fundamentalism. You don't know any economics. All you have is a religious belief in a false God called the "Free Market." I have news for you. That God doesn't exists. It never did.

Ryan Harris said...

Tom, I read your comments yesterday about MMT not being conservative or liberal enough. MMT as a description of a monetary system shouldn't be perceived as liberal or conservative, should it? Granted the model is different from ours in several ways, we don't really have a freely floating currency with several of our largest trading partners. We are a reserve currency. Current budgetary rules don't allow spending to be de-linked from taxation or borrowing. The government has allowed others to use its monopoly issuance of currency: foreign governments can effectively print dollars with the swap lines and banks can lend without having reserves first. But these differences from the idealized MMT model aren't partisan even if they were reformed to be like MMT. And the observations about how the monetary system operates otherwise are not partisan. The ideas about how to use the monetary system can help to achieve partisan goals. But those aren't strictly part of MMT, they are simply a demonstration of how the monetary system could or should be used. Its important not to be perceived as partisan because the political parties are so completely associated with corruption.

Tom Hickey said...

Ryan, The operational description is only part of MMT. MMT is a macro theory that takes full employment and price stability as criteria of economic effectiveness, and it rejects the prevailing view of full employment, which is a redefinition of full employment allowing for use of a buffer of unemployed. It also uses a floor wage (MMT JG) as a price anchor for price stability. Some people think that this is a liberal political choice. We just had a big go-around on this.

Ryan Harris said...

Right the vast libertarian conspiracy to empower the individual. Better off sticking to fort knox, strategic petroleum, corn and rice stuffs. Those buffer stocks appeal to demos and repubs constituents

Mitch Green said...

In reply to Senexx:

"I actually don't understand Mitch's argument about government size, on one hand he says big spending is big government and then on the other he says that is not necessarily the case.

The argument is inconsistent. I did enjoy Bill and Warren's though."

Careful, you're putting words in my mouth. Nowhere in my post did I say that big spending is big government. What I said is MMT is not consistent with small government. It does not follow from the statement "MMT is inconsistent with small G" that it must require big government, and therefore big spending. So if that's what you are implying, then you are mistaken.

While it is the case that big government requires big spending, it's entirely possible to have big spending without big government, if we understand that to be associated with all the notes on bloated bureaucracy I mentioned before.

So to recap:

A commitment to small G, necessitates a reduction in government spending. That is inconsistent with MMT. But, if you design it right, you can certainly spend at levels one might typically associate with big government, without the actual administrative apparatus rising to that level. There's nothing inconsistent about that argument.

Mario said...

honestly all Austrians and MMT-ers HAVE TO READ (AND REALLY UNDERSTAND) Henry David Thoreau's essay called "Civil Disobedience." It is an absolute MUST, b/c it addresses the issues of the size of government, the role of the individual in society, and the path to Freedom on earth in the most detailed, direct, and comprehensive manner I think I have ever read in modern literature. He addresses all the issues Austrians and MMT-ers ultimately fight over, which is the role of government in society versus the role of the individual, etc. I re-read this great piece today and I was in awe how much it relates to the philosophical issues MMT-ers and Austrians and Libertarians and America at large today are grappling with and attempting to resolve in good conscience.

It is even more fascinating that it was published in 1849 while Marx's communist manifesto was published in 1848. I do not know if Thoreau knew of or read Marx at the time (though I suspect he would have)...either way the parallels in the ideas are striking indeed. Most people don't realize that Marx was more democratic than socialist, and he looked to the Freedom of America both on paper and in geographic possibility as a model for Europe to follow. But that's really another story for another time.

And to whet Matt Franko's whistle...check out the last couple paragraphs of "CD" where Thoreau talks about the New Testament and what I believe is an allusion to the New Jerusalem in the last line of the entire piece.

Arguably one of the most powerful and potent political and civil documents ever written.