Sunday, August 31, 2014

Peter Martin — MMT – Economics for the Political Right?

MMT is becoming to be generally well regarded on the political left. Part of that acceptance is due to MMT’s insistence that unemployment isn’t an insoluble problem and that deficits don’t matter, or at least not in the way the neoliberals claim they do. There’s an obvious way for the left to find their spending money to fund their social programs and at the same time fix the unemployment problem which plagues nearly all western economies. 
That may not have quite the same appeal to the right, but nevertheless, there is something in MMT for them too. MMT in itself isn’t a prescription for what Governments should do, but rather an economic theory which explains how real economies function and therefore how they react to applied fiscal and monetary policies. So, if MMT is right, and the evidence is very much in its favour, it would make sense to look at how it would help all shades of the political spectrum. 
One of the major questions to answer , from all political viewpoints, is ‘how big should the State be’? Hardly anyone is saying 0% of GDP. Hardly anyone is saying 100%. So there is really no correct answer. Everyone has their own opinion. I’d be happy with a State sector which was about 40% of GDP. Others, on the left, may prefer, 50% or more. On the right they may prefer 25% or less.

So, using MMT how should anyone argue for a State sector of only 25%? …
Modern Monetary Theory: Real Economics
MMT – Economics for the Political Right?
Peter Martin

14 comments:

Dan Lynch said...

The author does not discuss the JG and instead seems to treat MMT as synonymous with Abba Lerner's Functional Finance. To my knowledge Lerner never endorsed MMT, and Lerner was a socialist who advocated, among other things, a particular form of BIG.

That said, let me explain why I view MMT as a relatively conservative policy position that, like Keynes, attempts to save capitalism from itself, not replace capitalism with something different.

MMT's JG defers to capitalism by offering to maintain a pool of desperate low-wage workers for the benefit of capitalists (who else benefits from a pool of desperate low-wage workers?).

A government that can create a minimum wage job out of thin air could also create a middle class job out of thin air. A government that can create a "transition" job could also create a long term job. So there are certainly alternatives to a minimum wage "transition" JG within the MMT theoretical framework, yet MMT pretends that "There Is No Alternative" to a minimum wage JG.

The MMT community as a whole (with some exceptions) does not advocate taxing the rich or redistributing wealth.

The MMT community as a whole opposes corporate taxes.

The MMT community as a whole supports free trade.

Ask yourself "who benefits?" from these MMT policy positions?

Tom Hickey said...

MMT's JG defers to capitalism by offering to maintain a pool of desperate low-wage workers for the benefit of capitalists (who else benefits from a pool of desperate low-wage workers?).

A government that can create a minimum wage job out of thin air could also create a middle class job out of thin air. A government that can create a "transition" job could also create a long term job. So there are certainly alternatives to a minimum wage "transition" JG within the MMT theoretical framework, yet MMT pretends that "There Is No Alternative" to a minimum wage JG.

The MMT community as a whole (with some exceptions) does not advocate taxing the rich or redistributing wealth.

The MMT community as a whole opposes corporate taxes.

The MMT community as a whole supports free trade.


Put me down as an exception.

1. Capitalism as an economic system that favors money and machines over people and the environment, gets priorities backwards. Capitalism in this sense is the enemy of liberalism and sustainable progress.

2. In order to approach anything like distributional justice and distributed prosperity, it is necessary to tax away economic rents of all types and regulate concentrations of power and privilege that disrupt the democratic political process and also markets and other vital economic institutions.

3. While a rationale can be made for taxing households only and not corporations to avoid double taxation, what this leads to is gimmicks to stimulate "growth" as asset appreciation and capital gains which are taxed lower than ordinary income and other workarounds) instead of actual growth thorough capex that increases production and productivity.

4. "Free trade," along with "free markets" and "free capital flow," is a pillar of neoliberalism, neo-imperialism, and neocolonialism. See Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, for example. This is basically a license to steal legally.

Dan Kervick said...

The main way in which MMT sometimes attracts interest on the right is by way of the mistaken impression that some MMT supporters have promulgated that MMT somehow provides a recipe for a world without taxes - or at least for a world in which government deficits can be much, much larger than existing deficits, thus obviating the need for some substantial portion of taxes. But in fact, MMT provides very little quantitative guidance on tax policy.

mike norman said...

MMT is becoming well regarded? Really? Where?

Calgacus said...

Dan Lynch:To my knowledge Lerner never endorsed MMT The name didn't exist until after his death. Basically, Lerner = FF = MMT.

Lerner was a socialist who advocated, among other things, a particular form of BIG. Where? I doubt it. Lerner would have mocked the magical thinking of a universal BIG.

MMT's JG defers to capitalism by offering to maintain a pool of desperate low-wage workers for the benefit of capitalists MMT doesn't propose anything like this. The JG defers to a world where things don't happen merely by wishing for them, not to capitalism.

The capitalists aren't stupid. They are OK with BIGs, because they know they're a joke, a tool to degrade the poor. But they oppose the JG above all, because they have always known it is a stake through their hearts.

A government that can create a minimum wage job out of thin air could also create a middle class job out of thin air. That is what JG jobs are - "middle class jobs", living wage jobs. That the JG wage is the minimum wage is a logical truth, a tautology, true by definition. Similarly Lake Woebegone, where everybody is above average is supposed to be a joke - because it is impossible by definition, in the same way as a non-minimum-wage JG.

A government that can create a "transition" job could also create a long term job. I agree with you wholeheartedly here. Warren Mosler's "transition" adjective is horribly misleading and just wrong. I wish he would stop using it. The whole point of the JG is permanence. It should be as transitional as the fact that you need money to buy stuff. People holding a JG job for their whole working life deserve respect and thanks, not an implicit pejorative.

In a sanely run society, an MMT / FF - guided society, free trade is obviously beneficial to society and basically every individual, and of course Lerner (or Keynes or MMT) was/is very much pro-free trade in such circumstances. The other two "as a whole"s are not really true; there is some disagreement.

Dan Lynch said...

Tom Hickey, as always I acknowledge and appreciate that you are more independent and thoughtful than most MMTer's. That is why I emphasized "the MMT community as a whole."

Calgacus, since MMT did not exist until after Lerner's death, obviously Lerner could not have endorsed MMT. It is my position that if Lerner were to come back from the grave he would resent people equating MMT with Functional Finance. If MMT really = FF then why don't we drop "MMT" and just call it FF?

Calgacus, I did not specify that Lerner advocated a UNIVERSAL BIG as opposed to a means-tested BIG, but since you raised the issue, it so happens that Lerner did advocate a particular type of universal BIG, the "social dividend." https://en.wikipedia.org/wiki/Social_dividend

The majority of Americans oppose free trade. Free trade creates a "race to the bottom" and exports middle class jobs. But the 1% love free trade, and no prominent MMTer (I'm referring to Warren and the professors and leaving out "hobby" economists like Tom Hickey) has ever said "we oppose free trade until such time as we have FF and full employment."

Calgacus, do you want to work at a JG picking up litter for $10/hour? I've yet to meet a JG proponent who actually wants to work at a dead end JG for minimum wage.

I try to follow the golden rule by advocating programs that I would be willing to participate in.

Dan Lynch said...

More on Lerner's BIG:

There would then be a surplus available which I later (in my economics of Control) called a "social dividend" to be distributed equally among the whole population as the simplest and most efficient way of alleviating poverty or increasing equality. We did not anticipate the growth that has taken place in government spending on armaments and on much more complicated and much less efficient ways of helping the poor and various other groups disguised as deserving poor. ... More recently it has received much publicity as Milton Friedman‘s "negative income tax."

Note that Uncle Milt's NIT was a type of means-tested BIG while Lerner's proposal would have been a UBI.

http://econc10.bu.edu/economic_systems/Theory/NonMarx_Socialism/Soc_Contraversy/abba_lerner_lg.htm

NeilW said...

"The whole point of the JG is permanence. "

The JG is not a job. It is a permanent job *offer* at the living wage available to all who want it.

The idea being that you are not forced to take it, nor are you prevented from taking it. You are free to consider that offer alongside all the other offers on the table.

But its existence changes the entire dynamic of the labour market because it means that 'no deal' is on offer.

That then means that private companies have to offer training opportunities or invest in productive capital to get any labour and therefore any profit.

Their threat not to produce is hollow because the labour is being paid on the Job Guarantee and can take over the production on a social basis if required.

So the JG helps eliminate two legs of the capital threat mechanism - no jobs and no production.

Income guarantees are idealistic and like 'free markets' only work in a 'robots on Mars' scenario. They cannot work in a human society because humans need to see more quid pro quo than "I spend the money I'm given".

That is why student grants have been eliminated and loans instituted (despite students giving up several years of potential earnings to increase the capital stock). That is why the retirement age for state pensions continues to rise. That is why universal Child benefit gets cut 'for the rich'. That is why contributions based unemployment schemes rapidly cease to provide a living wage - despite still paying contributions.

You do wonder how much more evidence of failure is required before the pipe dream is abandoned.

It's hard enough getting activity accepted as 'worth the candle', never mind inactivity. There are probably some societies that are so immature that they could never instigate a Job Guarantee - because people would refuse to accept that the activities undertake were sufficient 'quid pro quo' and then agitate to remove the provision.


Dan Lynch said...

Niel Wilson, if the idea to to guarantee the right to a job, there is more than one way to do that, and there is no logical reason that the job should be limited to minimum wage -- which is not a living wage, by the way.

For example, we could offer a job guarantee that paid 90% of the prevailing wage for a each person's qualified occupation (based on his experience and/or training). If a person is a machinist and the going rate for machinists is $20/hour, the JG could pay $18/hour and this would not be inflationary. If the person is a semiconductor engineer and the going rate for semiconductor engineers is $50/hour, then the JG could pay $45/hour and this would not be inflationary.

The New Deal WPA program paid different wages for different skills and different locations. The WPA worked and was popular, so it was not a "pipe dream."

The tough part, and MMT has never explained this, is what in the hell are those machinists and semiconductor engineers supposed to do in a JG? A machinist requires expensive tools and materials. A semiconductor engineer requires a multi-billion dollar semiconductor fab. The reality is that you can't pull skilled jobs out of thin air. More likely the creation of skilled jobs would require investments in infrastructure or nationalization of some industries, as Keynes advocated.

MMT has never had any realistic plan to create meaningful, appropriate jobs for every person. The "take them as they are, create jobs that match their skills" claim was always an ivory tower PIPE DREAM.

Another way to guarantee full employment is by the proposed 1945 Full Employment Act, which would have mandated that the government use functional finance budgeting to keep the economy running at full capacity.

As for political viability, prove to me that an MMT JG paying a living wage is politically viable by passing it into law! In the meantime you are blowing smoke.

Brazil has implemented a BIG and it has cut poverty and inequality dramatically. Someone forgot to tell Brazil that BIGs are not politically viable.

I would also point out that MMT guru Warren Mosler has proposed a type of BIG, his health care proposal that would give every adult $5000/year plus free Medicare (worth approximately $5000/year). So MMT is perfectly OK with a Warren Mosler BIG worth $10,000/year, but MMT is opposed to anyone else's BIG. No one in the MMT community has criticized the Mosler BIG for being a "pipe dream" or for being inflationary.

IMHO, neither a full employment program of any sort nor a strong safety net are politically viable while the 1% control both the government and the media, as they do now.

It may take a revolution to implement any meaningful changes. In order to lead a successful revolution, you will have to offer people something worth fighting for -- and I don't know too many people willing to risk their lives for a minimum wage grunt job.

Now if you want to redesign the JG to accommodate various skilled occupations (with actually plans to create those jobs rather than vague ivory tower promises), and pay a competitive wage, then I'd be willing to consider supporting your proposal.

Tom Hickey said...

Maybe the issue is simpler than this and consists in the condition that in a modern monetary economy in which technology increases productivity, all workers will not be employed by the private sector even in the best of times and government employment must therefore increase permanently to offset the shortfall in jobs, although this might expand and contract with the business cycle.

The difficulty seems to arise from the neoliberal idea that government employment necessarily crowds out private employment, just as it is assumed that government borrowing crowds out firms borrowing to invest. Both of these assumptions are wrong.

Once it is admitted that private sector employment is insufficient to sustain true full employment (no measuring gimmicks) in spite of how low real wages drop, then we can have an informed discussion on how the government can best address the issue either by subsidizing private hiring (right wing solution), or by increasing government employment or subsidizing people not to work (left wing solution)

Calgacus said...

Dan Lynch: On Lerner & BIGs Calgacus, I did not specify that Lerner advocated a UNIVERSAL BIG as opposed to a means-tested BIG, but since you raised the issue, it so happens that Lerner did advocate a particular type of universal BIG, the "social dividend." OK, and thanks for the URL. I stand partially corrected. Lerner appears to support some kind of "welfare" spending, not meant to be a living income for everyone - he says "alleviating poverty", not eradicating it. George W. Bush gave a rebate to all taxpayers - that didn't make him a supporter of the silly Van Parijs BIG. All the MMT academics & Mosler as you note, are for some kind of "BIG" if it is taken widely. People who like a BIG act as if the MMTers oppose them & their proposals. Not so.

What MMT or any reasonable economics says is that a big universal (Van Parijs) BIG, which is the original and most popular meaning of "BIG" - (recent blog usage is different and calls it a UBI )- is a joke. This is obvious to a 10 year old. If ivory tower academics can't see this, fine, wouldn't be the first time. It is BIGgers who seem to dislike, belittle and vehemently oppose the JG. And concoct absurd objections to it - which just happen to be the same ones that plutocrats have been making to it for centuries.

Calgacus said...

On the JG: Neil Wilson, if the idea to to guarantee the right to a job, there is more than one way to do that, and there is no logical reason that the job should be limited to minimum wage -- which is not a living wage, by the way.
Just as much if not more relevant to me, so:
Yes. There. Is. The current minimum wage is not a living wage, fine. But whatever the JG wage is, it automatically becomes the real minimum wage, even if the legal minimum wage is lower. The lowest offered wage is the only GUARANTEED wage - by meaning of the word "guarantee". There just isn't any other proposal than the a fixed minimum wage JG that is logically possible. The MMT JG proposal is not necessarily for a current minimum wage - it depends on the country, the time. The wage is not a choice for economists, but for society.

Calgacus, do you want to work at a JG picking up litter for $10/hour? I've yet to meet a JG proponent who actually wants to work at a dead end JG for minimum wage. I try to follow the golden rule by advocating programs that I would be willing to participate in.
Yes, of course I would work on a JG job. (I wouldn't for $1). Of course it depends on the JG wage, which could easily be more than $10 in the USA without being inflationary, and I have always proposed the highest such wage. "Picking litter for $10" is an incorrect, biased and tendentious characterization of the JG. And if I had to, and had no other income source, I certainly would pick litter for $10/hr. I've done such jobs in the past and don't think I'm better than people that do them now. You might ask the MMT academics and Mosler too. The JG is not a mere proposal, but a human right in a monetary economy. I have also said many times that anybody in a monetary economy - including one with that oh-so-generous (authoritarian, degrading, illusory) (big universal) BIG - who is not offered a decent, living wage JG job as a right - has a perfect right to "steal" that much from the society that contradictorily declares him part of society and not part of it, imposing logically impossible demands on him.

It is remarkable that perceptions can become so contorted that people can think an egalitarian proposal, a uniform wage is "conservative", while wage inequality is honestly thought to be "socialist" alternative. I am on the (real) left here and am for JG wage equality (more than most MMTers in fact.)

Of course MMTers are for "Keynesian" spending which naturally is going to employ the more educated - probably at more than a JG wage. And they have made imho too-detailed plans and answered your objections. Basically the JG is a modern WPA; wage differentials were imho a bad thing back then too, only politically necessary in a "sound-finance" mad society. The USA would have been a lot better off it had paid Northern wages in the South.

Neil Wilson: They cannot work in a human society because humans need to see more quid pro quo than "I spend the money I'm given". Generally agreed, but this part is wrong. As "Some Guy" I replied to you at billyblog.

Calgacus said...

Dan Lynch: On Free Trade: no prominent MMTer (I'm referring to Warren and the professors and leaving out "hobby" economists like Tom Hickey) has ever said "we oppose free trade until such time as we have FF and full employment." Quite wrong. They all have.

"Hence, in the world we actually inhabit, free trade is not the panacea its proponents claim. If we are to advance the economic interests of the bulk of the citizenry in a decent and humane fashion, we must promote a full employment policy domestically, and couple this with a flexible exchange rate regime internationally. Today’s protestors should rally around a “Jobs First, Trade Second” or “Full Employment before Free Trade” agenda."

Re-establishing the Grounds for Free Trade: The (Forgotton?)
Assumption of Full Employment in Mainstream Theory


When Exports Are a Cost and Imports
Are a Benefit: The Conditions under Which Free Trade Is Beneficial


Keynes : National Self-Sufficiency

Tom Hickey said...

A BIG and the MMT JG are not incompatible, and to the best of my knowledge, only Bill Mitchell favors an MMT JG only that would replace other welfare payments for those out of work for lack of an offer, but who are able to work.

Some US MMT economists have said that they are open to a combination of a means-tested BIG and an MMT JG compensation package as a living minimum wage. I have not heard of any of them advocating for a change in existing unemployment benefits for automatic stabilization, which have been adequately transitionary in previous downturns.

In addition, some pressure would be taken off the job markets by a more intelligent approach to pensions and the cost of higher education, moving pensioners from participation who wish to retire but are unable financially, and deferring some participation through public investment in higher ed, e.g., that will pay off in terms of knowledge work and high skill.

Obviously, the present downturn is exceptional and according to MMT economists is unnecessary if addressed by adequate fiscal policy. In fact, it's persistence is the result of inadequate fiscal policy. So this is not a matter for either automatic stabilization or a JG, but direct fiscal action such as was suggested at the outset by Warren Mosler, e.g., in his proposals for middle-class tax relief and per capita block grants to the states.

As far as I know, too, a UBI is considered unreasonably inflationary by all MMT economists.

As usual, the devil is in the details.