An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, July 4, 2014
Randy Wray — BATTLING THE MASTER BAITERS: In the Trenches for MMT. Troll Friday
Randy comments on comments on debt-free money, most of which have nothing to do with debt-free money but repeat standard criticisms of MMT.
Wray threads are guaranteed to get hundreds of responses over at NC. He's certainly right that most of the responses on said thread had nothing to do with what he wrote. It looks as if most used the thread to vent their displeasure with MMT, and went on various tangents in so doing. Not really an unusual phenomena in the interwebs, however. Many of the better MMT critics have left NC over the years, so I wasn't surprised to see how the thread devolved.
MMT obviously touches a nerve with many on the left (myself included, but only with mosquito bite intensity). It also bugs my my brother a bit more than me. He posts over there occasionally (although he didn't on that thread).
Regarding my own sentiments, I don't really care one way or the other what most proponents or opponents of MMT pen. Still I do have an occasional interest in reading what the UMKC crowd and other prominent MMT'ers write, along with several MMT critics pen, such as Cullen Roche, Hugh over at NC, and especially Dan Kervick.
Still, for the most part, I just can't get too worked up about pedantic economic theory, no matter where it originates from. There is no threat to the prevailing order from MMT's descriptive parts, and little more from it's prescriptive suggestions, which in a divided polity have little chance of being enacted. That's not meant as a criticism of MMT wonks, it's merely that I don't think there is an MMT groundswell among the masses (or the oligarchs), and thus as it stands right now I don't see any possibility that MMT will change the prevailing order one iota. If that changes going forward then maybe I will become one of those Wray labeled "trolls" over at NC.
People have and will die for the broad economic philosophies of communism, socialism, and capitalism, and MMT's prescriptive parts are a synthesis of each school to a greater or lesser degree. Nevertheless, I doubt one person will ever die in support or opposition of MMT (whether for the prescriptive or descriptive angles it explores). At worst they'll develop severe calluses on their finger tips.
Mr Ghost-- You and Mr Kervick continually criticize MMT for not being what you want it to be politically. Economically and monetarily, however, it's the clearest description of how our system works. Or is there another framework that you prefer?
I have seen nothing from Kervick or Roche in the way of descriptive economics that is anywhere near as good as MMT. Roche asserts that MMT advocates are too political, and Kervick asserts that MMTers are not political enough.
The job guarantee is fair game as a political proposal. If you don't like that, that's fine. But that is not the whole of MMT, and MMT does not claim that the job guarantee is the whole of what can and should be done.
In other words, please take to heart your own words about useless keystrokes. If you've got specific criticisms or some great ideas as to how to change the world, please share them...
I just read the Wray post, and see that he is making the same argument as I, only with wonderful humor (in my opinion). The commenters seem to want a school of economics that will galvanize the masses and overturn the social order...
You and Mr Kervick continually criticize MMT for not being what you want it to be politically.
My main criticisms of MMT are economic. I have made them on this blog, among other places, many times. My view is that MMT:
(i) has an inadequate theory of the causes of involuntary unemployment.
(ii) has an inadequate theory of the determinants of prices, and thus provides little insight into the conduct of monetary policy.
(iii) has an inadequate view of the causes of stagnant wages and economic inequality.
(iv) is a qualitative account of the economy that lacks a needed quantitative dimension, which makes it very difficult to extract any specific guidance from MMT on the conduct of budget and monetary policy.
I think there are a lot of good things about MMT too, as you know. The main strengths are in its knowledge of the operational details of the monetary system.
I have also criticized MMT in a broader sense, not as economic thoery but as a social phenomenon. I believe that as a social phenomenon it tends toward closed-mindedness, paranoia, messianism and cultishness. As someone who used to write on MMT blogs and interact a lot with the MMT community, this is something I saw a lot of up close.
What's your view of Post Keynesian and Institutionalist economics on i, ii, iii, and iv?
I ask because we basically go along with them on those points, and we do come from those schools, teach their material, publish/referee for their journals. UMKC teaches their grad students MMT, PKE, and institutionalism, and every MMT economist will tell you we are a subset of those two.
Anyway, as you know, we are, like, 7 economists total, or something like that. I'm sorry we don't have a theory of everything for you. But PKE and Institutionalism have done loads of work on all those fronts. No need for us 7 to reinvent the wheel given limited resources and obvious limitations on what 7 people can do. What we add to PKE and Inst'l is money, employment policy, etc..
So, it's the other way around--if you don't think PKE and Inst'l have dealt with your 4 points, then that's something to complain about for sure. I don't know why you'd expect us to do it, though, at least before there's maybe 20 of us. :)
Your remarks about MMT are patronising, low grade, ill-informed drivel. Had MMTers been in charge, the recession would have ended much earlier. There’d have been far fewer house re-possessions and suicides resulting from the recession. In common with the thick headed elite that governs the US and several other countries that clearly doesn’t concern you.
Dean Baker said that “in elite Washington circles, ignorance is a credential”. He’s right.
"What's your view of Post Keynesian and Institutionalist economics on i, ii, iii, and iv? "
Exactly.
I'm really surprised that anybody who has looked at MMT doesn't realise that the clue is in the title.
It is a Theory of Money - how the circulation works.
And it sits as a slight tangent to the broader theory of Post Keynesian economics which covers the other areas.
The problem with the PK crowd is that, other than Steve Keen, they are pretty invisible.
And similarly they won't articulate clearly what the problem with MMT is other than it doesn't fit with some of their preferred political ideas - like Basic Income, debt relief and Fixed Exchange Rates (I think - they won't say clearly).
I'm hoping Steve will change that once he gets the helm at Kingston.
"The job guarantee is fair game as a political proposal."
No more than fiscal policy over monetary policy.
The Job Guarantee is a vital part of MMT since that is what stabilises the system.
Ensuring that there are always more jobs than people that want them fundamentally changes the dynamics of the economic system.
It ensures that people can say no to job proposals, which means that those job proposals have to get better, or the labour has to be eliminated from the process before you can profit.
Which drives the capital development of the economy forward - requiring business investment to achieve some goal and preventing the degradation of capital that is happening right now (swapping of capital for labour, or augmenting old capital with labour).
Lighten up, spare me your sanctimony, and wake me when the muddled masses here in the US embrace MMT's prescriptive remedies. Hint: don't hold your breath waiting for that day to come.
ps, Go to Unz.com and read some of Steven Sailer's none PC musings as to why we have such a divided electorate.
Scott, I appreciate the fact that the economists who have worked on MMT are a tiny subset of humanity and can't be expected to have a theory of everything; not even a theory of everything in economics.
But Warren Mosler has offered some very strong views about the causes of unemployment and the determinants of prices. Quoting him:
1) Unemployment equates to the Federal budget deficit being too small
2) The value of a currency is determined by the prices paid by that government.
Maybe I'm wrong, but I don't believe it is accurate to say that all post-Keynesians or institutionalist exonomists all agree with these two claims. These are specifically MMT doctrines. Basically, Warren is giving a monetary (or net financial assets) acount of unemployment and a government-as-currency-monopolist account of the price level. And these are the main claims that I am skeptical about. I think they are both far too reductive, and thus lead to overly simplified views about economic policy.
However, I am not arguing that there is some other school of post-Keynesian or heterodox economics that has it right. I don't know enough about all of the different sub-schools of PKE to answer that question.
I'm glad that Scott (STF) showed up to clarify. Thanks for all the 7 of you (approx) have done!
The job guarantee is untested. I like the idea, but it's a difficult sell politically, and we won't know for sure how it works until we test it. But, the job guarantee is a great idea, in my opinion, and it pushes the discussion in the right direction, even if it is a bit idealistic.
Dan K -- Thanks for listing where you disagree with MMT. Without more specifics, however, I still don't know why you disagree and what your preferred alternatives are. I've read a lot of your stuff and, from what I've seen, I'll stick with MMT with regard to the basic economics.
With regard to MMT as a social phenomenon, I guess we'll also have to agree to disagree. I like the MMT economists and most of their followers, including you. As you noted with regard to commenters at Naked Capitalism, sometimes we (the left leaning economic commentariat) are a bit impractical. MMT is a bit edgy in that regard -- too close to the status quo for some, too far away from the mainstream for others. For me, it's just right -- like baby bear's porridge...
I agree with you regarding the quoted Mosler statements being over-simplifications, and not representative of the Post Keynesianism (or MMT even) in general. I don't take him too seriously when he says stuff like this. There's a kernel of truth in there, but things are much more complicated, in my opinion...
1) Unemployment equates to the Federal budget deficit being too small
2) The value of a currency is determined by the prices paid by that government.
I take these to be general rules similar to the general rules of conventional economics about price discovery in free market through the natural operation of supply and demand, and the assumption of general equilibrium in the long run. These general rules and assumptions are not meant as developed price theories or macroeconomic explanations. The theories are explications of these general rules in terms of highly developed econometric models. That is not necessarily an advantage in explanation, as Keynes observed, since to make the math tractable the assumptions are often not realistic and so the functions don't capture causation very well, and the models often fail at representation.
Let's look at rule 2 first. According to Warren, a currency sovereign is a monopolist controlling price with respect to setting the own rate of its currency and the prices it pays for real resources in markets. It can choose to exercise this monopoly in different ways or to delegate it.
Take the example of setting the own rate. In the US the fed funds rate and the discount rate (which could be the same and Warren would set both to zero). The fed funds rate is the base rate from which yields farther out on the curve are set by extrapolating expectation of changes to the base rate in the future.
These then become the benchmark rates for private lenders, which controls the cost of borrowing ("price of money") throughout the economy exogenously (in theory at any rate). This is hardly a controversial notion in finance and economics. Of course, interest rates are a central focus in finance, since there is money on the line, and the theory is rather well developed, as Warren would know having been a fixed rate fund manager. We know that Warren has a way of summarizing a huge amount of information aphoristically. He has also shown that he knows how to unpack it with precision when called upon to do so. So I think that criticizing his aphorisms that encapsulate general rules as being not well worked out is off the mark. Warren has written only a couple of papers and an introductory book, but his explanations informally are abundant, in presentations, question and answer, and in the profuse comments at this blog before comments were closed.
Government also influences prices of real resources by the prices it pays in markets. Some argue there is no direct correlation, since government typically pays a negotiated price that is quite a bit under the "market price" that most others pay because it is the volume buyer. But this is also a benchmark for negotiating price. For example, Medicare pays rock bottom price, and large insurers are next in line, then smaller institutions, and finally individual buyers that pay the "market price."
Without understanding now benchmarks work in markets, it's not possible to understand how government actually affects market prices in a significant way. This becomes clear, however, when government is forced to enter markets directly, as in wartime, when it effectively sets the price by paying "what it takes," driving up prices and eventually other buyers out of the market. In WWII, automakers could not buy steel for auto production and the factories themselves were commandeered for tank production. One could not purchase a new vehicle at any price during the war, since there weren't any made. Sugar, butters, meat, etc. were available at controlled prices through rationing.
You should realize by now that Warren's thing is always about finding the simplest possible metaphor or soundbite to get his point across on virtually everything. He likes to break things down into a fairly simplistic economy as the starting point.
If you want a detailed explanation, then you'll have to look elsewhere into the MMT literature. There are generally no contradictions aside from some minor differences in policy views (e.g., Bill Mitchell being well to the left of Warren, who's more centrist) in the work of Warren and the others, but it seems rather obvious that Warren's book, for example, isn't the place to look for the sorts of nuanced distinctions you're after.
I don't really understand your exclusive use of Warren to speak for MMT, anymore than I would understand someone using only Randy, Bill M., Stephanie, Pavlina, or (heaven forbid--very bad idea) me as the exclusive spokesperson. All of us have contributed quite a bit, each in his/her own specific format and particular expertise.
Finally, you misinterpreted my comment a bit. Of course PKE's and institutionalists don't all agree with all of MMT. Far from it. And we don't agree with all of them, either. And PKEs and Institutionalists don't already agree with each other.
But your points i through iv are generally covered in those schools rather thoroughly. We take that work as given and not something to reinvent--most of what we would say has already been done there, in other words, and perfectly complementary to what we've done in MMT. Just as a New Keynesian may not agree with every theory proposed in that school of thought and still consider issues he/she hasn't covered to be something to take as given. And one can still be an NK economist without agreeing with all of NK--the span of NK goes from Krugman and Stiglitz all the way to Taylor and Mankiw. Frankly there's lots more agreement among PKE, Institutionalism, and MMT than even within NK, which is for the most part the mainstream of neoclassical macro.
I know I said finally above, but one last thing--regarding math. Lots of math work done in MMT, and a lot more on the way. Some examples follow. Bill Mitchell's published probably 50 or more econometric studies, most of it on labor markets, unemployment, and inflation. He's got a number of grad students that have added to this work and has pioneered using spatial econometrics for understanding labor markets, unemployment, and business cycles. The Newcastle MMTers are mathematicians, by the way. I've published multiple econometric simulations of JG and am working on others. Eric did a system dynamics model of Minsky, and has built quantitative indexes for predicting financial fragility. Some UMKC students are working on social network analysis models of financial instability. UMKC grad students and Newcastle grad students are (separately) about to publish econometric work on Reinhart/Rogoff. Another Newcastle grad is publishing a paper using a large Godley/Lavoie model incorporating the JG with further application to the Eurozone. In other words, just because you haven't seen MMT quant work doesn't mean it isn't or hasn't been there.
I'll look forward to reading a lot more of that econometric research from MMT, and a lot less of the framing, propaganda, ridicule, paranoia and oversimplifying.
I think you might want to clarify some of your points for the fan club, because my impression is that they are all under the impression that everything Warren Mosler says is absolutely authoritative as far as defining the doctrines of MMT goes.
As for me, I should move on. I've done my best to avoid discussion of MMT-related topics on my blog for a couple of months now and that's the way I like it. I'm just not that interested, and hate the melodram. There are lots of other topics worthy of attention.
"hate the melodram. There are lots of other topics worthy of attention."
Completely agree, Dan. Got a second career going; it's nice to have something to move to where the energy's always positive and there aren't constant heated discussions. Macroeconomics is a big part of my career and always will be, but it's always going to be highly charged politically and otherwise; I can only take so much at a time.
Actually, I find the melodrama encouraging. It's a sign that all the work the MMT economists have been doing is having an impact on ordinary people and firing many up to get active politically when they discover the truth of the matter.
They are incensed, on one hand, and on the other, inspired by the possibilities.
I see it as a landmark on the last mile.
Politics is messy as long as no one controls the process. In a democracy that's a good thing.
Many of the activists may have a superficial knowledge of MMT. That's the price of attaining celebrity. :o
Nobody likes the melodrama. Here's the thing, as soon as you step outside the tiny little sphere of people familiar with MMT you run into "we can't afford it" at every turn. As framing goes, it's a straitjacket no matter what topic you try to move on to.
Between the deficit doves and the deficit hawks it's like a Hitchcock movie out there as flocks of them descend no matter what the topic is.
So if someone has a secret sauce for sidestepping that problem and avoiding the whole deficit discussion, please feel free to share.
geerussell -- I agree with your point. MMT addresses a key critical economic misconception of the electorate. I hate to see Dan K characterizing this is as printing magic money to magically fix all our problems. He shouldn't throw such bullshit if he wants to avoid melodrama...
A correct understanding shows that a currency sovereign's only limitations are real and not nominal. Given resource availability and externalities, anything possible is affordable. Of course, increased spending may involve raising taxes at some point, but that's just taxing back what the government has injected as inflation control.
So while it is true that the sky's not the limit, it's also true that affordability is not the limitation either. It's resource availability, and physical resources are finite and externalities have an impact, too.
What this shows is that the issues are not financial but rather are matters of engineering and finite resource allocation, in that a currency sovereign has unlimited financial capital at its disposal at no cost.
Then the question becomes one of allocating that capital effectively and efficiently.
Capital markets are relatively effective and efficient, but given the failure rate of enterprise the level of efficiency is not all that great. The effectiveness is also questionable in that a great deal of what gets produced fills artificially manufactured wants instead of real needs.
The record of public investment has not been as bad as depicted by opponents. Most of it goes to meeting real needs of voters, who are quite vigilant about government spending.
Charges of waste, fraud and abuse are overblown, although admittedly there is graft and "bridges to nowhere." Probably the biggest waste is a bloated military, but that seems to be what the public has preferred, albeit due to much fear-mongering.
Goes with the territory. If you want to claim territory, which MMT seeks to from conventional economics, then if it has political implications, which macro does regarding policy, there are going to be "issues" arising.
I am more appalled at the infighting within the economics profession than on the blogs by amateurs, where this is to be expected since it is hardly limited to MMT issues.
But that happens in other fields too, like evolutionary theory, where some pretty acrimonious debates have been raging.
"they have courted and surrounded themselves with a fan club of cultish enthusiasts who think the government's ability to issue 'fiat' money is the pain-free cure to every economic ill under the sun, including recession, depression, financial crisis, involuntary unemployment, and maybe even social injustice and inequality"
you're asking for melodrama. But it's not all bad. It resulted in interesting discussions of Mosler's style and also on how MMT economists deal with economic issues which are not their bread butter.
Naked Capitalism is a free for all, in that it's a widely read economic site that is not dominated by any one economic school. Dan K seemed to identify NC posters with MMT, whereas Randy Wray was equally dismayed by the comments there...
I agree with your observations about the debate, Tom. It's what you expect on Internet blogs, given the political nature of macroeconomics. That doesn't mean that everybody is wasting their time. Serious discussions do take place, minds are changed, etc.
After a few years of looking around, most people tend to settle into one camp or another, and pursue their interests with like-minded people.
There's not much use debating with others with dramatically different world views, unless each side is willing to take the time to listen to where the other is coming from in considerable detail. That's rare because people of time constraints and distrust of those with opposing fundamental beliefs.
Anyway, kudos to Tom and all for keeping the conversation here productive...
Again, you're missing my point guys. I'm talking about the behavior of the MMTers themselves, among themselves, not just the nature of their arguments with arguments with various opponents.
"Again, you're missing my point guys. I'm talking about the behavior of the MMTers themselves, among themselves, not just the nature of their arguments with arguments with various opponents." [Dan K]
Sorry for missing the point. I think you make a good point, but perhaps it was not clearly stated. I agree that MMTers can profitably be more circumspect, but that does not say anything with regard to the validity of the arguments of MMT advocates. So what, if anything, do you disagree with in terms of the MMT perspective? As far as I can tell, you've got nothing...
Dan I'm not going to go in circles. I already listed my main points of disagreement with MTT above.
Now Scott says MMT doesn't really say the things I thought it says, and the things I have rejected are only some crude oversimplifications offered by Warren Mosler.
I tend to doubt this, since those claims are actually the centerpieces of the Mosler writings from which I drew them. But whatever. I'll leave it to the MMTers to hash all that stuff out among themselves. If they can agree on something definite, then I can critique it when it's done. Perhaps when the Wray-Mitchell textbook is out there will be a more precise account to work from.
Wray threads are guaranteed to get hundreds of responses over at NC. He's certainly right that most of the responses on said thread had nothing to do with what he wrote. It looks as if most used the thread to vent their displeasure with MMT, and went on various tangents in so doing. Not really an unusual phenomena in the interwebs, however. Many of the better MMT critics have left NC over the years, so I wasn't surprised to see how the thread devolved.
ReplyDeleteMMT obviously touches a nerve with many on the left (myself included, but only with mosquito bite intensity). It also bugs my my brother a bit more than me. He posts over there occasionally (although he didn't on that thread).
Regarding my own sentiments, I don't really care one way or the other what most proponents or opponents of MMT pen. Still I do have an occasional interest in reading what the UMKC crowd and other prominent MMT'ers write, along with several MMT critics pen, such as Cullen Roche, Hugh over at NC, and especially Dan Kervick.
Still, for the most part, I just can't get too worked up about pedantic economic theory, no matter where it originates from. There is no threat to the prevailing order from MMT's descriptive parts, and little more from it's prescriptive suggestions, which in a divided polity have little chance of being enacted. That's not meant as a criticism of MMT wonks, it's merely that I don't think there is an MMT groundswell among the masses (or the oligarchs), and thus as it stands right now I don't see any possibility that MMT will change the prevailing order one iota. If that changes going forward then maybe I will become one of those Wray labeled "trolls" over at NC.
People have and will die for the broad economic philosophies of communism, socialism, and capitalism, and MMT's prescriptive parts are a synthesis of each school to a greater or lesser degree. Nevertheless, I doubt one person will ever die in support or opposition of MMT (whether for the prescriptive or descriptive angles it explores). At worst they'll develop severe calluses on their finger tips.
Mr Ghost-- You and Mr Kervick continually criticize MMT for not being what you want it to be politically. Economically and monetarily, however, it's the clearest description of how our system works. Or is there another framework that you prefer?
ReplyDeleteI have seen nothing from Kervick or Roche in the way of descriptive economics that is anywhere near as good as MMT. Roche asserts that MMT advocates are too political, and Kervick asserts that MMTers are not political enough.
The job guarantee is fair game as a political proposal. If you don't like that, that's fine. But that is not the whole of MMT, and MMT does not claim that the job guarantee is the whole of what can and should be done.
In other words, please take to heart your own words about useless keystrokes. If you've got specific criticisms or some great ideas as to how to change the world, please share them...
I just read the Wray post, and see that he is making the same argument as I, only with wonderful humor (in my opinion). The commenters seem to want a school of economics that will galvanize the masses and overturn the social order...
ReplyDeleteDD,
ReplyDeleteI have an interest in MMT, as far as it goes. I just don't think MMT is earth shattering. That's all.
As for Dan Kervick? I think he's a very astute observer regarding MMT. When he or Tom Hickey speak, I listen.
That's reasonable. I'm with you...
ReplyDeleteYou and Mr Kervick continually criticize MMT for not being what you want it to be politically.
ReplyDeleteMy main criticisms of MMT are economic. I have made them on this blog, among other places, many times. My view is that MMT:
(i) has an inadequate theory of the causes of involuntary unemployment.
(ii) has an inadequate theory of the determinants of prices, and thus provides little insight into the conduct of monetary policy.
(iii) has an inadequate view of the causes of stagnant wages and economic inequality.
(iv) is a qualitative account of the economy that lacks a needed quantitative dimension, which makes it very difficult to extract any specific guidance from MMT on the conduct of budget and monetary policy.
I think there are a lot of good things about MMT too, as you know. The main strengths are in its knowledge of the operational details of the monetary system.
I have also criticized MMT in a broader sense, not as economic thoery but as a social phenomenon. I believe that as a social phenomenon it tends toward closed-mindedness, paranoia, messianism and cultishness. As someone who used to write on MMT blogs and interact a lot with the MMT community, this is something I saw a lot of up close.
Dan,
ReplyDeleteSo you think the mainstream has an 'adequate' theory of these same subject areas?
If so, what are they?
RSP,
Dan K
ReplyDeleteWhat's your view of Post Keynesian and Institutionalist economics on i, ii, iii, and iv?
I ask because we basically go along with them on those points, and we do come from those schools, teach their material, publish/referee for their journals. UMKC teaches their grad students MMT, PKE, and institutionalism, and every MMT economist will tell you we are a subset of those two.
Anyway, as you know, we are, like, 7 economists total, or something like that. I'm sorry we don't have a theory of everything for you. But PKE and Institutionalism have done loads of work on all those fronts. No need for us 7 to reinvent the wheel given limited resources and obvious limitations on what 7 people can do. What we add to PKE and Inst'l is money, employment policy, etc..
So, it's the other way around--if you don't think PKE and Inst'l have dealt with your 4 points, then that's something to complain about for sure. I don't know why you'd expect us to do it, though, at least before there's maybe 20 of us. :)
Malmo’s Ghost,
ReplyDeleteYour remarks about MMT are patronising, low grade, ill-informed drivel. Had MMTers been in charge, the recession would have ended much earlier. There’d have been far fewer house re-possessions and suicides resulting from the recession. In common with the thick headed elite that governs the US and several other countries that clearly doesn’t concern you.
Dean Baker said that “in elite Washington circles, ignorance is a credential”. He’s right.
"What's your view of Post Keynesian and Institutionalist economics on i, ii, iii, and iv? "
ReplyDeleteExactly.
I'm really surprised that anybody who has looked at MMT doesn't realise that the clue is in the title.
It is a Theory of Money - how the circulation works.
And it sits as a slight tangent to the broader theory of Post Keynesian economics which covers the other areas.
The problem with the PK crowd is that, other than Steve Keen, they are pretty invisible.
And similarly they won't articulate clearly what the problem with MMT is other than it doesn't fit with some of their preferred political ideas - like Basic Income, debt relief and Fixed Exchange Rates (I think - they won't say clearly).
I'm hoping Steve will change that once he gets the helm at Kingston.
"The job guarantee is fair game as a political proposal."
ReplyDeleteNo more than fiscal policy over monetary policy.
The Job Guarantee is a vital part of MMT since that is what stabilises the system.
Ensuring that there are always more jobs than people that want them fundamentally changes the dynamics of the economic system.
It ensures that people can say no to job proposals, which means that those job proposals have to get better, or the labour has to be eliminated from the process before you can profit.
Which drives the capital development of the economy forward - requiring business investment to achieve some goal and preventing the degradation of capital that is happening right now (swapping of capital for labour, or augmenting old capital with labour).
Ralph,,
ReplyDeleteLighten up, spare me your sanctimony, and wake me when the muddled masses here in the US embrace MMT's prescriptive remedies. Hint: don't hold your breath waiting for that day to come.
ps, Go to Unz.com and read some of Steven Sailer's none PC musings as to why we have such a divided electorate.
Good day!
Scott, I appreciate the fact that the economists who have worked on MMT are a tiny subset of humanity and can't be expected to have a theory of everything; not even a theory of everything in economics.
ReplyDeleteBut Warren Mosler has offered some very strong views about the causes of unemployment and the determinants of prices. Quoting him:
1) Unemployment equates to the Federal budget deficit being too small
2) The value of a currency is determined by the prices paid by that government.
Maybe I'm wrong, but I don't believe it is accurate to say that all post-Keynesians or institutionalist exonomists all agree with these two claims. These are specifically MMT doctrines. Basically, Warren is giving a monetary (or net financial assets) acount of unemployment and a government-as-currency-monopolist account of the price level. And these are the main claims that I am skeptical about. I think they are both far too reductive, and thus lead to overly simplified views about economic policy.
However, I am not arguing that there is some other school of post-Keynesian or heterodox economics that has it right. I don't know enough about all of the different sub-schools of PKE to answer that question.
I'm glad that Scott (STF) showed up to clarify. Thanks for all the 7 of you (approx) have done!
ReplyDeleteThe job guarantee is untested. I like the idea, but it's a difficult sell politically, and we won't know for sure how it works until we test it. But, the job guarantee is a great idea, in my opinion, and it pushes the discussion in the right direction, even if it is a bit idealistic.
Dan K -- Thanks for listing where you disagree with MMT. Without more specifics, however, I still don't know why you disagree and what your preferred alternatives are. I've read a lot of your stuff and, from what I've seen, I'll stick with MMT with regard to the basic economics.
With regard to MMT as a social phenomenon, I guess we'll also have to agree to disagree. I like the MMT economists and most of their followers, including you. As you noted with regard to commenters at Naked Capitalism, sometimes we (the left leaning economic commentariat) are a bit impractical. MMT is a bit edgy in that regard -- too close to the status quo for some, too far away from the mainstream for others. For me, it's just right -- like baby bear's porridge...
Dan K --
ReplyDeleteI agree with you regarding the quoted Mosler statements being over-simplifications, and not representative of the Post Keynesianism (or MMT even) in general. I don't take him too seriously when he says stuff like this. There's a kernel of truth in there, but things are much more complicated, in my opinion...
1) Unemployment equates to the Federal budget deficit being too small
ReplyDelete2) The value of a currency is determined by the prices paid by that government.
I take these to be general rules similar to the general rules of conventional economics about price discovery in free market through the natural operation of supply and demand, and the assumption of general equilibrium in the long run. These general rules and assumptions are not meant as developed price theories or macroeconomic explanations. The theories are explications of these general rules in terms of highly developed econometric models. That is not necessarily an advantage in explanation, as Keynes observed, since to make the math tractable the assumptions are often not realistic and so the functions don't capture causation very well, and the models often fail at representation.
Let's look at rule 2 first. According to Warren, a currency sovereign is a monopolist controlling price with respect to setting the own rate of its currency and the prices it pays for real resources in markets. It can choose to exercise this monopoly in different ways or to delegate it.
Take the example of setting the own rate. In the US the fed funds rate and the discount rate (which could be the same and Warren would set both to zero). The fed funds rate is the base rate from which yields farther out on the curve are set by extrapolating expectation of changes to the base rate in the future.
These then become the benchmark rates for private lenders, which controls the cost of borrowing ("price of money") throughout the economy exogenously (in theory at any rate). This is hardly a controversial notion in finance and economics. Of course, interest rates are a central focus in finance, since there is money on the line, and the theory is rather well developed, as Warren would know having been a fixed rate fund manager. We know that Warren has a way of summarizing a huge amount of information aphoristically. He has also shown that he knows how to unpack it with precision when called upon to do so. So I think that criticizing his aphorisms that encapsulate general rules as being not well worked out is off the mark. Warren has written only a couple of papers and an introductory book, but his explanations informally are abundant, in presentations, question and answer, and in the profuse comments at this blog before comments were closed.
Government also influences prices of real resources by the prices it pays in markets. Some argue there is no direct correlation, since government typically pays a negotiated price that is quite a bit under the "market price" that most others pay because it is the volume buyer. But this is also a benchmark for negotiating price. For example, Medicare pays rock bottom price, and large insurers are next in line, then smaller institutions, and finally individual buyers that pay the "market price."
Without understanding now benchmarks work in markets, it's not possible to understand how government actually affects market prices in a significant way. This becomes clear, however, when government is forced to enter markets directly, as in wartime, when it effectively sets the price by paying "what it takes," driving up prices and eventually other buyers out of the market. In WWII, automakers could not buy steel for auto production and the factories themselves were commandeered for tank production. One could not purchase a new vehicle at any price during the war, since there weren't any made. Sugar, butters, meat, etc. were available at controlled prices through rationing.
Dan K
ReplyDeleteYou should realize by now that Warren's thing is always about finding the simplest possible metaphor or soundbite to get his point across on virtually everything. He likes to break things down into a fairly simplistic economy as the starting point.
If you want a detailed explanation, then you'll have to look elsewhere into the MMT literature. There are generally no contradictions aside from some minor differences in policy views (e.g., Bill Mitchell being well to the left of Warren, who's more centrist) in the work of Warren and the others, but it seems rather obvious that Warren's book, for example, isn't the place to look for the sorts of nuanced distinctions you're after.
I don't really understand your exclusive use of Warren to speak for MMT, anymore than I would understand someone using only Randy, Bill M., Stephanie, Pavlina, or (heaven forbid--very bad idea) me as the exclusive spokesperson. All of us have contributed quite a bit, each in his/her own specific format and particular expertise.
Finally, you misinterpreted my comment a bit. Of course PKE's and institutionalists don't all agree with all of MMT. Far from it. And we don't agree with all of them, either. And PKEs and Institutionalists don't already agree with each other.
But your points i through iv are generally covered in those schools rather thoroughly. We take that work as given and not something to reinvent--most of what we would say has already been done there, in other words, and perfectly complementary to what we've done in MMT. Just as a New Keynesian may not agree with every theory proposed in that school of thought and still consider issues he/she hasn't covered to be something to take as given. And one can still be an NK economist without agreeing with all of NK--the span of NK goes from Krugman and Stiglitz all the way to Taylor and Mankiw. Frankly there's lots more agreement among PKE, Institutionalism, and MMT than even within NK, which is for the most part the mainstream of neoclassical macro.
I know I said finally above, but one last thing--regarding math. Lots of math work done in MMT, and a lot more on the way. Some examples follow. Bill Mitchell's published probably 50 or more econometric studies, most of it on labor markets, unemployment, and inflation. He's got a number of grad students that have added to this work and has pioneered using spatial econometrics for understanding labor markets, unemployment, and business cycles. The Newcastle MMTers are mathematicians, by the way. I've published multiple econometric simulations of JG and am working on others. Eric did a system dynamics model of Minsky, and has built quantitative indexes for predicting financial fragility. Some UMKC students are working on social network analysis models of financial instability. UMKC grad students and Newcastle grad students are (separately) about to publish econometric work on Reinhart/Rogoff. Another Newcastle grad is publishing a paper using a large Godley/Lavoie model incorporating the JG with further application to the Eurozone. In other words, just because you haven't seen MMT quant work doesn't mean it isn't or hasn't been there.
Thanks Scott,
ReplyDeleteI'll look forward to reading a lot more of that econometric research from MMT, and a lot less of the framing, propaganda, ridicule, paranoia and oversimplifying.
I think you might want to clarify some of your points for the fan club, because my impression is that they are all under the impression that everything Warren Mosler says is absolutely authoritative as far as defining the doctrines of MMT goes.
As for me, I should move on. I've done my best to avoid discussion of MMT-related topics on my blog for a couple of months now and that's the way I like it. I'm just not that interested, and hate the melodram. There are lots of other topics worthy of attention.
"hate the melodram. There are lots of other topics worthy of attention."
ReplyDeleteCompletely agree, Dan. Got a second career going; it's nice to have something to move to where the energy's always positive and there aren't constant heated discussions. Macroeconomics is a big part of my career and always will be, but it's always going to be highly charged politically and otherwise; I can only take so much at a time.
"hate the melodrama"
ReplyDeleteActually, I find the melodrama encouraging. It's a sign that all the work the MMT economists have been doing is having an impact on ordinary people and firing many up to get active politically when they discover the truth of the matter.
They are incensed, on one hand, and on the other, inspired by the possibilities.
I see it as a landmark on the last mile.
Politics is messy as long as no one controls the process. In a democracy that's a good thing.
Many of the activists may have a superficial knowledge of MMT. That's the price of attaining celebrity. :o
Nobody likes the melodrama. Here's the thing, as soon as you step outside the tiny little sphere of people familiar with MMT you run into "we can't afford it" at every turn. As framing goes, it's a straitjacket no matter what topic you try to move on to.
ReplyDeleteBetween the deficit doves and the deficit hawks it's like a Hitchcock movie out there as flocks of them descend no matter what the topic is.
So if someone has a secret sauce for sidestepping that problem and avoiding the whole deficit discussion, please feel free to share.
geerussell -- I agree with your point. MMT addresses a key critical economic misconception of the electorate. I hate to see Dan K characterizing this is as printing magic money to magically fix all our problems. He shouldn't throw such bullshit if he wants to avoid melodrama...
ReplyDeleteA correct understanding shows that a currency sovereign's only limitations are real and not nominal. Given resource availability and externalities, anything possible is affordable. Of course, increased spending may involve raising taxes at some point, but that's just taxing back what the government has injected as inflation control.
ReplyDeleteSo while it is true that the sky's not the limit, it's also true that affordability is not the limitation either. It's resource availability, and physical resources are finite and externalities have an impact, too.
What this shows is that the issues are not financial but rather are matters of engineering and finite resource allocation, in that a currency sovereign has unlimited financial capital at its disposal at no cost.
Then the question becomes one of allocating that capital effectively and efficiently.
Capital markets are relatively effective and efficient, but given the failure rate of enterprise the level of efficiency is not all that great. The effectiveness is also questionable in that a great deal of what gets produced fills artificially manufactured wants instead of real needs.
The record of public investment has not been as bad as depicted by opponents. Most of it goes to meeting real needs of voters, who are quite vigilant about government spending.
Charges of waste, fraud and abuse are overblown, although admittedly there is graft and "bridges to nowhere." Probably the biggest waste is a bloated military, but that seems to be what the public has preferred, albeit due to much fear-mongering.
Well said, Scott!
ReplyDeleteBy "melodrama", I am not talking about debates about economic policy or theory. I am talking about all the high school stuff including:
ReplyDeletein-group/out-group maintenance
banning
ridiculing
shunning
back-biting
paranoia
dogma enforcement
etc.
Goes with the territory. If you want to claim territory, which MMT seeks to from conventional economics, then if it has political implications, which macro does regarding policy, there are going to be "issues" arising.
ReplyDeleteI am more appalled at the infighting within the economics profession than on the blogs by amateurs, where this is to be expected since it is hardly limited to MMT issues.
But that happens in other fields too, like evolutionary theory, where some pretty acrimonious debates have been raging.
If you go to an MMT site and post stuff such as
ReplyDelete"they have courted and surrounded themselves with a fan club of cultish enthusiasts who think the government's ability to issue 'fiat' money is the pain-free cure to every economic ill under the sun, including recession, depression, financial crisis, involuntary unemployment, and maybe even social injustice and inequality"
you're asking for melodrama. But it's not all bad. It resulted in interesting discussions of Mosler's style and also on how MMT economists deal with economic issues which are not their bread butter.
Naked Capitalism is a free for all, in that it's a widely read economic site that is not dominated by any one economic school. Dan K seemed to identify NC posters with MMT, whereas Randy Wray was equally dismayed by the comments there...
I agree with your observations about the debate, Tom. It's what you expect on Internet blogs, given the political nature of macroeconomics. That doesn't mean that everybody is wasting their time. Serious discussions do take place, minds are changed, etc.
ReplyDeleteAfter a few years of looking around, most people tend to settle into one camp or another, and pursue their interests with like-minded people.
There's not much use debating with others with dramatically different world views, unless each side is willing to take the time to listen to where the other is coming from in considerable detail. That's rare because people of time constraints and distrust of those with opposing fundamental beliefs.
Anyway, kudos to Tom and all for keeping the conversation here productive...
Again, you're missing my point guys. I'm talking about the behavior of the MMTers themselves, among themselves, not just the nature of their arguments with arguments with various opponents.
ReplyDelete"Again, you're missing my point guys. I'm talking about the behavior of the MMTers themselves, among themselves, not just the nature of their arguments with arguments with various opponents." [Dan K]
ReplyDeleteSorry for missing the point. I think you make a good point, but perhaps it was not clearly stated. I agree that MMTers can profitably be more circumspect, but that does not say anything with regard to the validity of the arguments of MMT advocates. So what, if anything, do you disagree with in terms of the MMT perspective? As far as I can tell, you've got nothing...
Dan I'm not going to go in circles. I already listed my main points of disagreement with MTT above.
ReplyDeleteNow Scott says MMT doesn't really say the things I thought it says, and the things I have rejected are only some crude oversimplifications offered by Warren Mosler.
I tend to doubt this, since those claims are actually the centerpieces of the Mosler writings from which I drew them. But whatever. I'll leave it to the MMTers to hash all that stuff out among themselves. If they can agree on something definite, then I can critique it when it's done. Perhaps when the Wray-Mitchell textbook is out there will be a more precise account to work from.
Thanks Dan K. And sorry for beating this dead horse to death.
ReplyDeleteI've enjoyed your writings over the years and look forward to more...