Wednesday, February 13, 2019

Paul Mason — Alexandria Ocasio-Cortez’s Green New Deal is radical but it needs to be credible too

The backers of Ocasio-Cortez’s bill released and then withdrew an FAQwhich seemed to suggest the investment would be paid for using the methods advocated by Modern Monetary Theory (MMT). MMT rightly argues, as against free-market economics, that a state with a sovereign currency cannot go bust. The state can create growth, and thus the means to pay back money borrowed; and it can create money, via the central bank, which can be used to lend to government.
For many people on the radical left, MMT has become a new panacea - a get-out-of-jail free card for Keynesian economics in a world of highly indebted and stagnant capitalism. Unfortunately, it is not.
While it’s true there is a lot more tax and spend capacity in a modern economy than the free-marketeers admit, it is not infinite. Nor is it possible to infinitely expand the money supply without collapsing the value of money towards zero. MMT gives no account of where economic growth or profit comes from other than within the monetary system itself. Unlike Marxists, who believe value is created in the production process, the MMT crowd believe it can be created by the interplay of fiscal and monetary policy. (For a longer takedown, see this from the left economist Michael Roberts.)
If MMT is wrong, there are two negative outcomes for the Green New Deal project.
That "MMT gives no account of where economic growth or profit comes from other than within the monetary system itself" is flat out wrong. Paul Mason claims to have read all of the MMT literature. Well then, if he has, he doesn't seem to be been an attentive reader, or lacks reading comprehension.

MMT is in agreement with most economists that economic is about the allocation of scare real resources, non-scarce resources having no market value, i. e. are "free goods." What conventional economics misses is how finance and economics are joined at the hip in a monetary production economy, and that this joint is structured in terms of double-entry accounting, which implies stock-flow consistent modeling using a unit of account. This brings in the the institutional arrangement and operations of finance, both public and private. 

Finance makes economics understood as the production, distribution and consumption of real good possible in a monetary production economy through price rationing in markets. Failure to understand this and its implications results in economic under-performance and inefficiency in the use of real resources, and also leads to financial excess (inflation) and deficiency (deflation). 

This was a major point made by Keynes that MMT economists agree with: Investment causes saving. It is not the case that saving causes investment. In a market-based capitalist society, production is chiefly the outcome of investment, with government acting in the background to provide a fertile field on which to plant, so to speak.

Full employment is the outcome of optimal economic performance. In a monetary production economy, proper understanding of the relationship of finance and economics is needed to maintain optimal economic performance and real full employment (not defined-down unemployment) while also maintaining price stability. 

This may seem to be the same as the neoclassical assumption of general equilibrium in the long run, but it is not. According Keynes, whom the MMT economists follow in this respect, there is no tendency to long-run equilibrium. Optimal performance with minimal waste of real resources has to be achieved and maintained. The task that MMT undertakes to make possible by providing the needed understanding that is now missing.

Optimal efficiency arising from natural spontaneous order in perfectly symmetrical markets exists only in formal models and not in the real world, where social, political and economics asymmetries predominate. The question is what to do about this. 

The answer of economic liberalism is bend the real world toward the ideal. That is a chimera given culture and institutions that impose social, political and economic conditions that work against it. It is as utopian as the pure communism that economic liberals criticize.

MMT is about dealing with reality, such as it is, and doing what is possible to make it better for all.

This is not to say that Paul Mason has nothing constructive to say. There is plenty to say about the Green New Deal and what it implies financially and economically as well as socially and politically. This is a huge challenge and instead of sniping at each other, we need to exert concerted effort to develop the design solution that has the best chance of success, with no guarantees that it will actually succeed. And it has to pass muster globally, where a myriad of competitive interests are in play.

New Statesman
Alexandria Ocasio-Cortez’s Green New Deal is radical but it needs to be credible too
Paul Mason

6 comments:

Ralph Musgrave said...

"MMT gives no account of where economic growth or profit comes from...". Er - the fact that an economic philosophy or set of economics related ideas does not answer EVERY SINGLE economic problem is not a brilliant criticism of the set of ideas.

The fact that someone designing a racing car, let's say Warren Mosler, does not also design the engine and leaves that to engine designers is not a good criticism of the person designing the car.

Paul Mason needs to brush up on his logic.

AXEC / E.K-H said...

The half-truths and half-falsehoods of MMT
Comment on Tom Hickey on ‘Paul Mason ― Alexandria Ocasio-Cortez’s Green New Deal is radical but it needs to be credible too’*

The mission of economics as a science is to figure out how the economy works. Nothing more, nothing less. The mission of economics is NOT to push a political agenda. The point to grasp is that there is the scientific sphere and the political sphere and both have to be kept apart. Why? Because politics corrupts science.#1 This happened also to economics. Economics is a failed/fake science.

The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong. MMT is no exception.

MMTers characterize themselves as Progressives. Generally speaking, Progressives claim to care for the welfare of their fellow citizens (local, national, global; present and future) and the environment (local, national, global). On the scale from individualism to globalism, MMTers argue for the primacy of national welfare.

From the standpoint of science, these political claims are not an issue for the economist. Political goals and means have to be discussed in the political sphere and ultimately decided by the Legitimate Sovereign. The economist as a scientist is alone concerned with the question of how the actual economy works.#2 The Legitimate Sovereign is free to use scientific knowledge for the implementation of policy. The bleak reality is, though, that economists have always been fully occupied with agenda pushing and have to this day no scientifically valid idea about how the economy works. Economic policy guidance NEVER had sound scientific foundations.

All this applies across the board from Adam Smith onward to MMT.

Economically, there are two questions for government spending (i) on what is the money spent (e.g. (ia) administrative-, (ib) military-, (ic) social-, (id) environmental-budget), and (ii) is government spending G less, equal, or greater than taxation T, i.e. (iia) GT? Needless to emphasize that the questions about allocation and financing are constantly confused. The question is further confused by lumping it together with full employment policy.

MMTers claim that the answer to almost all economic/social problems is permanent deficit-spending/money-creation with some caveats with regard to inflation.

With regard to employment policy, for example, this is correct. Public deficit spending helps to reduce unemployment. Whether this is the best policy is another matter.

MMTers are right in pointing out that, as a matter of principle, money as the means of transaction is NOT a limiting factor for the realization of any combination of administrative, military, social, environmental spending on which the Legitimate Sovereign finally settles. However, as a matter of principle, deficit spending is the wrong way to bring money into the economy because of its effect on distribution. Axiomatically correct macroeconomics tells one that Public Deficit = Private Profit.

See part 2

AXEC / E.K-H said...

Part 2

Paul Mason argues: “MMT gives no account of where economic growth or profit comes from other than within the monetary system itself.” This is not quite correct. MMTers deliberately obfuscate where profit comes from.#3, #4

Tom Hickey argues: “What conventional economics misses is how finance and economics are joined at the hip in a monetary production economy, and that this joint is structured in terms of double-entry accounting, which implies stock-flow consistent modeling using a unit of account.” This is a half-truth because MMT, too, gets macroeconomic accounting provably wrong.

Tom Hickey argues: “This was a major point made by Keynes that MMT economists agree with: Investment causes saving. It is not the case that saving causes investment.” This is patently false. Business sector investment I and household sector saving S are causally unrelated. The correct macroeconomic relationship is given by Q=I−S with Q as macroeconomic profit.

MMT policy has one property that makes it disadvantageous for WeThePeople and advantageous for the Oligarchy, i.e. because of the macroeconomic Profit Law it holds Public Deficit = Private Profit. So, no matter how the money is allocated between administrative, military, social, environmental spending, as long as there is deficit-spending/money-creation the Oligarchy makes a profit equal to the deficit.

The result is fabulous financial wealth on the one side and fabulous public debt on the other side of the national balance sheet with all negative effects of MMT policy shoved beyond the time horizon.

MMT is proto-scientific garbage. MMTers are fake Progressives. In the political Circus Maximus, MMTers are agenda pushers, useful idiots, and standup comedians. The Green New Deal is only a new opportunity to sell the old program of deficit-spending/money-creation, i.e. of a permanent free lunch for the Oligarchy.#5

Egmont Kakarot-Handtke

* NewStatesman
https://www.newstatesman.com/politics/economy/2019/02/alexandria-ocasio-cortez-s-green-new-deal-radical-it-needs-be-credible-too

#1 “The first thing a man will do for his ideals is lie.” (Schumpeter)

#2 “Senior, . . . , said indeed that the economist’s conclusions ‘do not authorize him in adding a single syllable of advice.’” (Schumpeter)

#3 Understanding public deficits, money, and profit
https://axecorg.blogspot.com/2019/02/understanding-public-deficits-money-and.html

#4 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
https://axecorg.blogspot.com/2019/01/stephanie-keltons-legendary-plain-sight.html

#5 Fraud comes always in the garb of charity, salvation, or imminent doom
https://axecorg.blogspot.com/2019/02/fraud-comes-always-in-garb-of-charity.html

Bob Roddis said...

Here's your problem:

According Keynes, whom the MMT economists follow in this respect, there is no tendency to long-run equilibrium. Optimal performance with minimal waste of real resources has to be achieved and maintained.

1. "There is no tendency to long-run equilibrium" due to fiat money. The problem faced by mankind is the phony "solution" you people inflict upon society. The cowardly Keynes NEVER addressed this charge despite his friendship with Hayek. Cowardly Keynesians don't either. They know they would lose a fair and serious debate.

2. "Optimal performance with minimal waste of real resources has to be achieved and maintained." Wrong. No one possesses the dispersed knowledge necessary to conduct this authoritarian project. You simply end up with the mass murder, poverty and ecocide of the USSR and Mao's China. Again, there is never ANY fair and serious response to this analysis.

Andrew Anderson said...

"There is no tendency to long-run equilibrium" due to fiat money." Bob Roddis

Since inexpensive fiat is the ONLY ethical money form for government use, you are barking up the wrong tree, Roddis.

Moreover, since expensive fiat precludes its use by the entire population, you are indirectly shilling for banks and their "money from thin-air."

So the problem isn't that fiat is inexpensive but that its use is limited to "the banks" and that the Central Bank may create fiat for the private sector.

Noah Way said...

"You simply end up with the mass murder, poverty and ecocide of the USSR and Mao's China. Again, there is never ANY fair and serious response to this analysis."

As if the US hasn't polluted the entire country, murdered millions around the globe including its own native population, and 1/6th of its population doesn't live in abject poverty.

The real poverty here is Roddis' mental capacity, repeatedly demonstrated by his posts here and his complete inability to defend his idiocy when challenged.