Tuesday, May 28, 2019

Martin Wolf — States create useful money, but abuse it

Useful critique of MMT. Martin Wolf at least took the time to read Randy Wary's Modern Money Theory. His areas of agreement with MMT are mostly factual, whereas his criticisms appear to be mostly opinion. In addition, he is unaware of what some of the other MMT economists have written about his areas of concern.

Most seriously, his solution is more technocracy, which ignores the agency problem.

But worth a read.

Financial Times
States create useful money, but abuse it
Martin Wolf


André said...

The article starts with "To the extent modern monetary theory is true, it is unoriginal; to the extent it is original, it is false", which is the common "MMT is not modern" or "we already knew it" criticism, already dismissed many times by MMTers like Bill Mitchell. This itself is a big red flag.

Then, paradoxically, Wolf supports new ideas brought by MMT that are heavily denied by mainstream economics, like "governments do not need to issue bonds in order to fund themselves". So there is a big contradiction here, which is another red flag

Then Wolf supports the idea that we should lie to everyone and to every politician because "if politicians think they do not need to worry about the possibility of default, only about inflation, their tendency may be to assume output can be driven far higher, and unemployment far lower, than is possible without triggering an upsurge in inflation". Yet another red flag.

Then he goes to the old independence bullshit, that we should hand over the central bank to the "independent" control of Wall Street instead of making it accountable to an elected democratic government: "The solution, nearly all of the time, is to delegate the needed discretion to independent central banks and financial regulators".

Well, let's face it: Wolf seems to have learned a lot that he surely didn't know and never supported before, acknowledging that MMT is right in many things, yet at the same time claiming that MMT is not new. But no matter what he learned, he still supports those old stablishment narratives.

Calgacus said...

Well, Abba Lerner thanks Martin Wolf in his last book. Think it's the same Wolf. So he has more reason than most to say MMT is not new. Didn't read the article though; of course I disagree about falsity and the independent central bank nonsense.

Ralph Musgrave said...

The sub heading of Wolf’s article (as pointed out by Andre above) says “To the extent modern monetary theory is true, it is unoriginal; to the extent it is original, it is false.” There’s a big weakness in that accusation which Mosler, Mitchell etc have not pointed out, far as I know. It’s thus.

Economists, being what they are, have made an astronomic number of different suggestions. For example, you want an economist who claims the Earth is flat? I’ll find you one. That means that ALMOST ANY statement or claim in economics will not be entirely original.

And in fact that “not original” accusation against MMT is valid in that MMT is largely Keynes writ large. But the really important point is whether orthodox economists when the crisis hit in 2007/8 realized that Keynes/MMT was the solution. Clearly many of them had not: in fact there’s an article by Skidelsky which names the incompetents at the top of the economics profession (which included Kenneth Rogoff, needless to say.)


To be exact, the latter incompetents around ten years ago clearly thought that government debt was like a household debt and had to be repaid at some stage. In contrast, the view of Keynes and MMT is that government debt does not matter because government and central bank can always print money to pay off the debt, and the latter is the correct course of action, as long as it does not result in excess inflation.

To summarise, MMT is not original in that it is Keynes writ large, but it certainly is original in that around ten years ago MMT got it right, whereas a significant proportion of the world’s leading orthodox economists got it wrong.

André said...

"Well, Abba Lerner thanks Martin Wolf in his last book. Think it's the same Wolf"

If that is true, I'm really surprised. Martin Wolf has been repeating consistently most (all?) neoliberal nonsense for years now.

Joe said...

So basically the only "critique" of MMT is that good governance is very difficult.
But that critique applies to any economic body of thought, it's nothing unique to mmt.

I guess technocracy is an attempt to deal with that, but the European's experience has been disastrous. A good technocracy is an authoritarians dream.

Calgacus said...

Well, Wolf sometimes doesn't repeat the nonsense, though this column seems to have a lot. Lerner also thanks Alice Rivlin (became Vice Chair of the Fed, Director Office of Management & Budget & Congressional Budget Office) who then completely fell for the government budget constraint garbage, the moronic zombie idea that Lerner had been pounding stakes into since the 30s. Became an archetype of the balanced budget austerian "liberal" Democrat.

Just shows the strength of academic fashion, however idiotic, on people who incompletely absorb ideas, however close they had come. That was the fate of the Keynes Lerner Kalecki Institutionalist Marxist revolution of the midcentury last. But IMHO MMT is the sufficiently completely digested version, the kind of stuff that Einstein & Feynman can explain to the man in the street, or the kid who needs homework help. Once you philosophize that well, there is no turning back. People simply cannot figure out how to think otherwise.