Monday, April 8, 2019
Pavlina Tcherneva — MMT, Models, Multidisciplinarity
I was hoping that Pavlina would bury Noah's criticism of her paper, and she greatly exceeded my expectations.
MUST-READ. This is much more than a smackdown. Lotsa links, too.
New Economic Perspectives
MMT, Models, Multidisciplinarity
Pavlina Tcherneva | Assistant Professor of Economics at Bard College, Research Scholar at The Levy Economics Institute, and Senior Research Associate at the Center for Full Employment and Price Stability
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8 comments:
A universal understanding of MMT could potentially change the world.
Sadly, people like Pavlina R. Tcherneva focus on debatable items like the “jobs guarantee,” and the “taxes drive money” mantra. These are side topics.
It’s like we live in a village whose water source is a bottomless well. Those who control the well make the villagers grovel for every drop of water. Instead of telling the villagers that the well is inexhaustible, we focus on debating whether square buckets are better than round buckets for carrying water.
I quite agree with Konrad that the “taxes drive money” point is a side issue. In fact I’d go further: most of Tcherneva and Noah Smith’s material is a waste of ink and paper.
It’s pretty obvious that a very crude JG system can bring full employment (at least in a crude sense of the word “employment”): just tell the unemployed that their unemployment benefits are conditional on doing a simple job like walking up and down their street keeping it free of litter. Call that “employment”. And anyone who refuses that work has turned down work, ergo they are not unemployed. Hey presto: unemployment vanishes.
That’s easy. The difficult part comes when trying to make those jobs productive, and working out whether such jobs expand GDP. After all, if the pay is ultra-generous (double the existing minimum wage in the Levy version), that’s a big disincentive to seek regular jobs. I.e. JG in that form would cut aggregate labour supply, which could very easily cut GDP.
Quantifying the effect on GDP is totally impossible without some vastly better empirical evidence than is available at present on the various effects of JG of which the above “cutting aggregate labour supply” is just one effect.
Links on Pavlina Tcherneva’s ‘MMT, Models, Multidisciplinarity’
Pavlina Tcherneva’s model is NOT false because of some behavioral assumptions but because her macroeconomics is provably false. The model is built upon this defective accounting identity G+I=T+S. For details see
MMT vs Mainstream: examining proto-scientific garbage in detail
https://axecorg.blogspot.com/2019/04/mmt-vs-mainstream-examining-proto.html
MMT and the canonical macroeconomic model
https://axecorg.blogspot.com/2019/04/mmt-and-canonical-macroeconomic-model.html
Egmont Kakarot-Handtke
Konrad,
To understand finance or economics, you need first to understand what currency is (a tax credit). It is a prerequisite. You can't move one step without it. Or else it will be like trying to understand chemistry without knowing what a molecule is. "Tax drive money" is an essence, a pillar of MMT. MMT exists only because someone had this insight.
The job guarantee is probably the most valuable policy proposal brought by MMT (although another is that the EMU should be dissolved, and yet another is that central banks and fiscal authorities should not be independent), and not a "side topic".
Of course, there are other analysis you could do with MMT, but I believe those are very relevant.
@ André:
Thank you for your comment. I avoided debating the “taxes drive money” mantra, but since you brought it up, I note that if US federal taxes were lowered to zero, and everything else remained intact (federal laws, etc) then people would still want and use dollars, just as people used dollars before the USA had income taxes. Simply repeating something (“taxes drive money”) does not necessarily make it true.
I do not agree with your assertion that currency is a tax credit. I say that a dollar is a “full faith and credit”—credit. That is, a dollar is worth a dollar because society says it is, with or without taxes. If you have a dollar, then society honors (i.e. credits) your claim to have one dollar’s worth of goods and services.
“’Taxes drive money’ is an essence, a pillar of MMT. MMT exists only because someone had this insight.”
Again I disagree. The “taxes drive money” mantra is a pillar of some people’s personal interpretation of MMT. This is separate from the basics of MMT, such as the fact that money is not physical.
As for the so-called “job guarantee,” this is unworkable and unnecessary. If we want the federal government to create jobs, then the government can do so, like the government did during the 1930s depression. Organizations like the WPA created jobs without any “job guarantee.”
Therefore I continue to maintain that the “job guarantee” is a peripheral topic. The world would potentially change if everyone understood the basic of MMT, with or without any “job guarantee.”
Thank you again for your comment.
Konrad,
Well, I don't know if I got it right, but if you don't believe in "taxes drive money", then you necessarily don't believe in MMT. Maybe you believe in some of MMT's proposal through another theory that, coincidentally, arrives at similar conclusion to some extent. What would that be? I'm interested because I know that there are many heterodox theories out there, and I know just a few.
"I note that if US federal taxes were lowered to zero, and everything else remained intact (federal laws, etc) then people would still want and use dollars"
Why do you believe that? I dispute that claim. I claim that if taxes were lowered to zero, the dollar would lose value fast, and eventually people would replace it with something else (a foreign currency?) or face hyperinflation. I believe that there is enough evidence to support my claim, although it is not comparable to the evidence that supports the "earth is round" theory, which is much more avaliable and solid. But "taxes drive money" is solid nonetheless.
Observation: there are local taxes too. If federal taxes were lowered to zero, maybe local taxes would replace them, maybe not. State taxes have the same effect of federal taxes, so I don't know why you separate between them. But I guess that you would claim that if all those taxes were set to zero the dollar would continue, so I'm assuming that federal vs local is not the issue you are proposing.
"That is, a dollar is worth a dollar because society says it is, with or without taxes. If you have a dollar, then society honors (i.e. credits) your claim to have one dollar’s worth of goods and services"
And who decides the value of the dollar? And who makes it stable? And who makes it uniform accross differents formats? (coins, notes, reserves) And, most importantly, where is the evidence?
"Again I disagree. The “taxes drive money” mantra is a pillar of some people’s personal interpretation of MMT. This is separate from the basics of MMT, such as the fact that money is not physical."
No, it is not, and that I'm sure of that, because I have read from all of MMT founders. Send an email to any of them (Bill Mitchell, Warren Mosler, Randall Wray, Stephanie Kelton, Scot Fullwiler, etc) and they will tell that "taxes drive money" is the pillar and integral part of MMT. Also, everything you read in MMT is a direct or indirect consequence of "taxes drive money", as everything in classical mechanics is a direct or indirect consequence of the conservation of energy and momentum.
I agree with you that the Job Guarantee should be considerrd just one in many possible policy proposals that are made clear by MMT, but many founders claim that the JG is an integral and core part of MMT.
André
You say: “To understand finance or economics, you need first to understand what currency is (a tax credit). It is a prerequisite. You can’t move one step without it.” and “Send an email to any of them (Bill Mitchell, Warren Mosler, Randall Wray, Stephanie Kelton, Scot Fullwiler, etc) and they will tell that ‘taxes drive money’ is the pillar and integral part of MMT. Also, everything you read in MMT is a direct or indirect consequence of ‘taxes drive money’,
Take notice that the assertion that taxes drive money is false and has been refuted.
MMT: fundamentally false
https://axecorg.blogspot.com/2019/03/mmt-fundamentally-false.html
The Third Way: Towards the happy Zero-Tax Economy
https://axecorg.blogspot.com/2018/06/the-third-way-towards-happy-zero-tax.html
MMT and the canonical macroeconomic model
https://axecorg.blogspot.com/2019/04/mmt-and-canonical-macroeconomic-model.html
Egmont Kakarot-Handtke
Take notice that the assertion that Egmont knows what he’s talking about is false.
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