George Selgin — The Modern New Deal that's Too Good to be True

This morning I responded to leading Modern Monetary Theory (MMT) proponent Stephanie Kelton's Huffington Post op-ed, "How We Can Pay for a Green New Deal," with a tweet observing that

"MMT often boils down to nothing more than an especially naïve sort of Keynesianism: assume an unlimited excess supply of every resource save money balances, and, voila! monetary expansion can costlessly finance all the projects we like!"

My comparison of basic MMT arguments with plain-vanilla Keynesianism is hardly novel: many others have said the same, less succinctly but more compellingly: I recommend, in particular, the writings of Thomas Palley — who is himself a self-described (but not at all naïve) Keynesian — on the topic. As for "especially naïve," that has simply to do with the fact that, unlike the situation in 1936, when Keynes published his General Theory, it is anything but obvious today that there's a vast supply of unemployed resources to be drawn upon.

Unsurprisingly my post met with backlash from several MMT fans, starting with Nathan Tankus, who replied that it appeared that I must not actually have read Professor Kelton's piece, since its point was "precisely that our budgeting process needs to **emphasize** the conditions of the real economy and that the ability to extract dollar revenue tells us nothing about how close we are to full employment." Professor Kelton herself thereupon chimed in, "Incredible, isn't it?," presumably in reference to my clueless interpretation of what she wrote.

Was I in fact so clueless? Well, let us have the truth from the horse's mouth. Here are some relevant passages from Professor Kelton's op-ed, reproduced ad seriatum. I apologize for the number — but then again I might serve my purpose by quoting the entire thing! The italicized words are ones I myself wish to emphasize….

This is not the idle, uniformed or malicious criticism that some may assume it to be, if only based on the author's credentials, which imply that he is anti-Keynesian.

There are real resources constraints and a comprehensive approach to climate change has to consider them, as well as the disruption to society that re-orienting national and global priorities involves. It's not just a national issue. It is local and also international. Funding by national government is essential, but just the beginning in addressing this complex issue that involves both uncertainty and emergence.

Ad hoc approaches and facile solutions won't cut it. This challenge needs to be carefully thought through, modeled, and debated since it is also a social and political problem. It will involve not only institutional change but also culture transformation way from "the consumer society" and conspicuous consumption.

Conservation is the low-hanging fruit, but it is not sufficient. And conservation undercuts the dominant economic paradigm of unlimited growth.

One challenge that those who have working on this for some time point out is the lack of knowledge about key factors and also lack of knowledge about potential solutions to the energy challenge involved in substitution of energy resources. We aren't there yet.

While this design problem is similar to the Great Depression and New Deal response, it is also similar to the challenge that WWII presented and the Manhattan Project as one factor in addressing the existential threat.

That's where humanity finds itself now. This is chiefly an engineering problem. MMT shows how to provide the funding, but the real problem is for scientists and engineers to solve in terms of real resource commitment and deployment.

Alt-M
The Modern New Deal that's Too Good to be True
George Selgin | Director of the Cato Institute's Center for Monetary and Financial Alternatives, editor-in-chief of the Center's blog, Alt-M; Professor Emeritus of economics at the Terry College of Business at the University of Georgia, and an associate editor of Econ Journal Watch.