Tuesday, May 22, 2012

J. D. Alt — The (Semantic) Problem with MMT: An Exercise in Framing

This is really good, and timely, too, in light of recent discussion in the comments here.

The problem with framing is the key issues involving framing are moral (normative, prescriptive) rather than factual (empirical, descriptive), as George Lakoff never ceases emphasizing. So much so that a presentation that focuses on fact may for that reason alone lose the argument before it is even mounted, due to poor framing of the issue.

Read it at New Economic Perspectives
The (Semantic) Problem with MMT: An Exercise in Framing
by J. D. Alt

A problem here is that most people presume incorrectly that the currency issuer must fund itself, which is a contradiction. The illogic is based on false metaphor of government as big household or firm. This leads to the wrong notion that one's taxes are funding specific spending, even though taxes go into a general fund and it is not possible to establish precisely where one's taxes go anyway. But let's just assume that people can look up the percentage distribution of the budget and figure how their taxes were spent overall.

The truth is that taxes do not fund the currency issuer, but rather they make currency issuance possible by creating demand for the government's currency, and there by allow government to provision itself with real resources through spending of the currency it issues, as well as to fund through transfers in which there is no exchange.

The question then becomes what metaphor to use to replace the erroneous currency issuer is like a currency user metaphor that is current and has moral appeal by leading to the question, "Am I getting my money's worth from the taxes I am paying in terms how the government is disbursing it."

The obvious way to think about this is in terms of taxes paying for specific programs by funding them, using the analogy of personal spending and household and firm budgets and accounting.

The reality is that taxes do pay for all programs by making them possible, even though the taxes are not used specifically for funding in the way people falsely believe. Is there an appropriate metaphor for this that can be substituted for the wrong thinking that solves the framing problem by resolving the moral issue?


Matt Franko said...

Reminded me of Mike's story along this line:



Dan Lynch said...

Agree with the importance of framing, question the phrase "fiscal space."

I prefer the car analogy: Government spending is the accelerator, taxes are the brakes.

paul meli said...

"I prefer the car analogy: Government spending is the accelerator, taxes are the brakes."

Automatic (brakes) stabilizers are the prescription when the driver is deemed incompetent.

Trixie said...

Ouch, tough break on the date Mike. Although I would say religion or politics are much safer plays than MMT. There's nothing new with either of those subjects. But try dropping the "taxes and bonds don't fund anything" bomb, and people get downright angry. I think we've all experienced that. Which is why the JG is uneventful (not something I would lead with), once you can get beyond the "funding" issue. Easier said than done.

Shaun Hingston said...

It is an interesting post. I also question "fiscal space". Semantically it is true, however in order for newcomers to learn higher concepts they would need to perform a 'semantic transition' into taxes regulate, etc. At the same time such an approach may have less resistance.

Hopefully it invokes some broader discussion about the dissemination of MMT.

BTW I would argue that "All money is printed". Where the word 'printed' really means some creation process. Argue that point first and move on.....

paul meli said...

"BTW I would argue that "All money is printed"

I use that one regularly.

I never get a reaction so I'm not sure how it's parsed but at least they don't get violent.

Anonymous said...

this article quite beautifully illustrates the old saying, "truth is stranger than fiction!"

as in the story the author gave of his wife, most people just cannot believe the true function of taxes, partially because, to most, it just seems like out-and-out highway robbery and most people can't come to accept that.

so, as i see it, this is one of the main sticking-points for proponents of MMT. it's a whole lot easier believing the "fiction" than facing the truth.

Detroit Dan said...

it's a whole lot easier believing the "fiction" than facing the truth. [Anonymous]

Note the similarity between economic and religious conventional wisdom...

Ken said...

Trouble is getting people to (mostly) play by the rules and pay their taxes if you drop the illusion that they are "funding gov't". Regulate someone else's aggregate demand, thank you very much! I'll regulate my own!

So is this a necessary illusion?

paul meli said...

Tax rents not income.

That is all.

paul meli said...

Actually, that isn't all.

Here's some helpful information on the best way to sell stuff…

"Speaking of Apple and retina displays, Dan Ackerman:

For example, today I could easily tell someone shopping for a laptop that a good sweet spot to look for in a premium 13-inch laptop is a screen resolution of 1600 × 900 pixels. In the future, would I have to suggest 1600 × 900 if a laptop is from one list of PC makers with one type of DPI technology, and a second set of recommended resolutions for brands that use different DPI settings? Good luck fitting all that on the shelf tag at a brick-and-mortar retailer.

I can’t tell if this is a joke, parodying the antiquated specs-driven process of buying a Wintel PC, or if Ackerman really has zero clue about how Apple works, and why people buy Apple products.

Here’s how Apple will sell retina display MacBooks: by telling us and showing us that they’re jaw-droppingly beautiful. That’s it.

I can come out of left field with the best of 'em.

Anonymous said...

Here is a comment when asked by this article by CR in website, PR:

"I’ll have to get back to you later, but my discomfort with many MMT concepts is increasing. MMT is like the movie Inception. The deeper the levels you get into the crazier the dream appears…..I got to the money monopolist level and recognized a catatrophic error. Now I’m awake…."

I guess he's monetarist friends with his novel concepts (super-neutrality, sounds like super-symmetric particles yet to be found) are making more sense to him... We are still waiting for all this revolutionary (semantic) concepts coming from MMR and his challenging of the status quo (because voting for Romney must be that challenging socialist and JG dangers in USA).

Good grief.

Tom Hickey said...

Comes back to "show and teil." People are used to that. It begins in kindergarten and continues through advertising.

Think metaphors, metaphors, metaphors.

beowulf said...

"Is there an appropriate metaphor for this that can be substituted for the wrong thinking that solves the framing problem by resolving the moral issue?"

Metaphor? No.

"I propose the replacement of our current system of individual and corporate income, sales, excise, capital gains, import and export duties, gift and estate taxes with a single comprehensive “revenue neutral” Automated Payment Transaction (APT) tax. The APT tax consists of a flat rate tax levied on all voluntary transactions. The total volume of transactions represents the broadest conceivable tax base and therefore requires the lowest conceivable marginal tax rate."

mike norman said...

This blog was mentioned in the article. Nice work everyone!

Anonymous said...

ken (@ 5/22/12, 4:26 pm),

you took the words right out of my mouth--that's exactly what i was driving at (@ 5/22/12, 2:18 pm).

anyhow, the problem with MMT is, not that it's untrue, but that most people are quite uncomfortable with the truthfulness of it.

what's really behind the taxpayer-pays-for-government-spending "meme" is a deep-seated fear most people have that MMT brings to light (by MMT, i just mean an accurate explanation of the monetary system).

that being, that we are all just economic pawns of the government in its quest to "provision" itself. and most of us are totally dependent on its whims for our survival. and the game of survival that we play day-in, day-out is based on some crazy idea that somebody came up with eons ago.

and none of our "governors" seems to be interested in considering alternatives and we, the pawns, don't seem to have any say-so in how our lives are "governed."