Wednesday, April 17, 2019

Dylan Matthews — Modern Monetary Theory, explained—A very detailed walkthrough of the big new left economic idea.

Modern Monetary Theory is having a moment.
The theory, in brief, argues that countries that issue their own currencies can never “run out of money” the way people or businesses can. But what was once an obscure “heterodox” branch of economics has now become a major topic of debate among Democrats and economists with astonishing speed.

For that, we can thank Rep. Alexandria Ocasio-Cortez (D-NY), who told Business Insider in January that MMT “absolutely” needs to be “a larger part of our conversation.” That was the most vocal mainstream support MMT had gotten, which for years had been championed by economists like Stephanie Kelton (a former adviser to Bernie Sanders), L. Randall Wray, Bill Mitchell (who coined the name Modern Monetary Theory), and Warren Mosler — as well as a growing number of economists at Wall Street institutions.
With AOC on board, a wave of denunciations from mainstream economists and others followed. Fed Chair Jerome Powell, Bill Gates, former Treasury Secretary Larry Summers, and former IMF chief economist Kenneth Rogoff all attacked the theory.
Or, more accurately, they attacked what they thought the theory to be. MMT is more nuanced than the “governments never have to pay for stuff” caricature it’s earned among other economists, and MMT advocates are famously (and often understandably) ornery when they sense they’re being misrepresented.
At the same, that caricature gets at what may ultimately be the most important effect of MMT as an idea: It could convince some Democrats to break away from the view that spending always has to be “paid for” with tax increases. How many Democrats buy that conclusion, and how far they’re willing to take it, remains to be seen. But some are already moving in that direction: While emphasizing that “debt matters,” Sen. Elizabeth Warren (D-MA) recently noted, “we need to rethink our system in a way that is genuinely about investments that pay off over time.”
The rise of MMT could allow Democrats to embrace the de facto fiscal policy of Republican presidents, who tend to explode the deficit to finance pet initiatives like tax cuts and defense spending, leaving Democrats to clean up afterward. MMT could be Democrats’ way of saying, “We don’t want to be suckers anymore.”

That would be a big deal. Getting comfortable with new deficit-financed programs would help Democrats overcome the single biggest impediment to their agenda: raising taxes to fund their programs. MMT could offer a way to justify passing big priorities like single-payer health care or free college without resorting to major middle-class tax hikes.
And if the idea behind MMT is wrong, that shift could be a false promise, one that offers short-term political benefits at the expense of hard to foresee economic costs.
So let’s dive into the wonky details of MMT. And I do mean wonky — this is a pretty technical article that gets into the nitty-gritty of why MMT is different from mainstream economics. But I think those details are important, and they’re easy for even very smart, very informed people to get wrong....
VOX
Modern Monetary Theory, explained—A very detailed walkthrough of the big new left economic idea.
Dylan Matthews

1 comment:

AXEC / E.K-H said...

MMT: economics for suckers
Comment on Dylan Matthews on ‘Modern Monetary Theory, explained’*

Dylan Matthews frames his contribution as follows: “I’ll explain MMT theories about deficits, inflation, and employment, and what it all means for Democratic Party politics in 2020 and beyond.”

Clearly, Dylan Matthews delivers another example of political blather. He still has not realized that economics in general and MMT, in particular, cannot be taken seriously.#1 And he is obviously not aware that economics is a failed/fake science from Adam Smith onward to MMT.

The general public does not know that there is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Economics consists of four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, and materially/formally inconsistent. What can be observed is the pluralism of provably false theories.

Because MMT, too, is provably false, i.e. materially/formally inconsistent, MMT policy guidance has no sound scientific foundations. MMT does not provide a scientifically valid theory but is political agenda pushing for the Oligarchy in a scientific/social bluff package.#2

Dylan Matthews gives a fair account of the current state of the discussion except for the fact that he does not mention that MMT is refuted on all counts.#3

The failure of MMT is due to the fact that its underlying macroeconomic foundations are false.#4 The lethal blunder of MMT is that it is built upon a provably false sectoral balances equation, i.e. upon (I−S)+(G−T)+(X−M)=0.#5 The axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. Because all variables are measurable with the precision of two decimal places, the issue can be decided by mathematical proof and empirical test. However, NO MMTer has ever answered to the proof of material/formal inconsistency. MMTers are simply too busy with pushing their political agenda. After all, in the political Circus Maximus nobody cares about true/false.

Accordingly, this is Dylan Matthews’ political bottom line: “The rise of MMT could allow Democrats to embrace the de facto fiscal policy of Republican presidents, who tend to explode the deficit to finance pet initiatives like tax cuts and defense spending, leaving Democrats to clean up afterward. MMT could be Democrats’ way of saying, ‘We don’t want to be suckers anymore’.”#6

True, if Republicans can deceive voters so can Democrats. And MMT is as good as any other economic approach for an academic con job.#7

Egmont Kakarot-Handtke

* Vox
https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained

#1 MMT sucks
https://axecorg.blogspot.com/2018/12/mmt-sucks.html

#2 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

#3 Economics, MMT, and the capture of science by the political mob
https://axecorg.blogspot.com/2019/04/economics-mmt-and-capture-of-science-by.html

#4 Macroeconomics ― dead since Keynes
http://axecorg.blogspot.com/2016/12/macroeconomics-dead-since-keynes.html

#5 From Keynes’ fatal blunder to the true economic model
https://axecorg.blogspot.com/2019/04/from-keynes-fatal-blunder-to-true.html

#6 Dear idiots, it is deficit spending that creates the distribution people complain about
https://axecorg.blogspot.com/2019/04/dear-idiots-it-is-deficit-spending-that.html

#7 Economists: “a bevy of camp-following whores”
https://axecorg.blogspot.com/2019/03/economists-bevy-of-camp-following-whores.html