There is a bit of confusion in the post, however.
The presentation is worth watching in full, not least because it contains a fairly straightforward explanation of MMT, and because, in a brief aside, Kaboub takes issue with the term Modern Monetary Theory, because, as he rightly points out, it is not a theory but a description of how money creation actually occurs in countries that enjoy full financial (monetary) sovereignty (e.g. US, UK, Japan, Australia, China, etc). Thus, a far more accurate term would be something like (my suggestion) Actual Monetary Practice (AMP), or, as Kaboub notes, a term that acknowledges that what is being referred to is a system (Actual Monetary System, perhaps?).
Of course, the issue of MMT being a misnomer has been raised by Peter May before on this blog and is a serious one in the sense that use of ‘theory’ means MMT is a “loaded” term. By that I mean that most people (and I know this from many years teaching undergrads and postgrads) take theory to mean we are talking about a supposition or set of ideas that may – and that’s the key word here, may, not does or can – explain a situation, action, or phenomenon. Use of ‘theory’ therefore instantly undermines the accuracy and descriptive power of the MMT approach.…The reality is that there are three major aspects of MMT. The first is a description of monetary systems, with emphasis on the presently operative floating rate system that replaced the fixed rate system under the gold standard. This is chiefly institutional analysis based on accounting principles and practice, and stock-flow consistent models. It is chiefly descriptive. This is set forth, for example, on Eric Tymoigne's book on money and banking.
The second aspect is a macroeconomic theory. This is set forth, for example, in Bill Mitchell and Randy Wray's textbook on macroeconomics. It is theory since it involves causal explanation.
The third aspect is economic policy based on understanding of the prior two aspects of MMT. This is normative, since policy objectives are based on values.
Progressive Pulse
Job guarantee programmes: back to the future?
Ivan Horrocks
4 comments:
Re Peter May, he doesn’t publish comments on his articles which fundamentally disagree with those articles. I’m not much impressed by people who are not up for debating claims they make.
Re the decent grasp of matters monetary that MMTers have, one way that is nicely illustrated is the IMF’s constant wittering on about “fiscal space” and MMTers’ demolition of the fiscal space idea. Bill Mitchell demolished the idea on his blog, and so did I on my blog. See respectively:
http://bilbo.economicoutlook.net/blog/?p=31093
https://ralphanomics.blogspot.com/2012/04/fiscal-space-is-hogwash.html
Bill Mitchell has recently expressed concern about inadvertent misrepresentation of MMT in social media by well intentioned activists. But IMO some of these confusions are not the fault of the activists but a result of differences (or apparent differences) in the messaging coming from the very top of the MMT hierarchy. The positions of the leading MMTers is understandably not identical, and it is hard to see how activists can be expected to take a consistent line on points that the leading MMTers themselves do not.
For instance, Bill in a recent post referred to taxes as necessary to drive the currency whereas Randy has viewed taxes as a sufficient though not necessary condition while nonetheless recognizing that historically taxes have driven currencies. Now these two positions can possibly be reconciled with each other. It could be argued that on purely logical grounds, taxes are sufficient but not necessary, but that historically taxes have played this role and so may well be a historical necessity. But personally I cannot blame a social activist for being confused on this point.
As another example, Bill recently had a post that MMT is heterodox and cannot be reconciled with the current mainstream theory whereas Warren recently tweeted along the lines that MMT is just orthodoxy with an understanding of monetary operations added in. Irrespective of which view an activist adopts, s/he will be contradicting one one of MMT's leading developers on this question.
The MMT-is-or-is-not-a-theory question is another example where IMO there is mixed messaging coming from the very top. FWIW I am very much in the camp that regards MMT as a theory. And Tom's post demonstrates that it is possible to reconcile apparently (but not necessarily) contradictory statements from the top on this question. But it should probably not be surprising if activists send mixed messages on this question when some leading MMTers do say that MMT is not a theory and others insist that it is.
Even the appropriateness of the name MMT is frequently questioned by some but not by others. My own opinion is that the name is actually quite effective, not least because it is very difficult for enemies of the approach to demonize or ridicule it in an effective way. Back in my student days, neoliberalism in Australia was often referred to (intended by the left to be ironic and derogatory) as "economic rationalism". Upon referring to it in this way my right-wing friend laughed and said, "Well, what do you support - economic irrationalism?" :) "Rational expectations" and "sound finance" are other examples where the right has named their ideas with greater strategic effectiveness than the left. I actually think MMT is an example of a strategically effective name.
Actually, scrap the bit about Warren's (supposed) tweet re orthodoxy. I can't actually find it, so might have been a figment of my imagination. :)
peterc
MMT is three things: theory, policy, activism.
The theory is provably false. Because of this, MMT policy proposals have no sound scientific foundations. This, though, does not matter much for the MMT activists because these folks present themselves as the can-do good guys, the real Progressives, the benefactors of WeThePeople who care for the unemployed, the vulnerable, the poor pensioners, the indebted students, and the environment. The activists use MMT as a grab bag of arguments without any concern about consistency, truth, or scientific validity.
MMT activists, like all political agenda pushers, give a shit on theory/science/truth but on occasion put on the cloak of science in order to enhance respectability/credibility/ authority. Academic MMTers are not different from the rest of economists who claim to do science since Adam Smith/Karl Marx but only push a political agenda and deceive the general public with a fake Nobel.
In sum, MMT is bad theory, MMT is bad policy, MMTers are bad people. MMT is not much different from Walrasianism, Keynesianism, Marxianism, and Austrianism.
Egmont Kakarot-Handtke
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