Stephen John Lewis is not an MMTer, but he then goes on to explain why he thinks China uses an MMT type system and why they could outsmart the West with it. He's not saying that MMT doesn't work, but that it's too authoritarian.
Does this mean I am switching my allegiance to supporting MMT? No, it very much does not. Firstly I worry about the concentration of power, second I worry about the ability of any governing authority to pick the necessary interventions well and third it’s noticeable that China is playing the economic game from a very different starting point than western economies. It’s talking about 6% growth rates as “a slowdown”, that sure seems to leave a lot of wiggle-room that other economies don’t have! Plus it has capital controls, has historically been willing to devalue its currency, etc, etc. I do think this means we need an answer to the Chinese economic model though. MMT is politically relevant today because of figures like Sanders and Ocasio-Cortez being ascendant in US politics but China is a much bigger deal than that. As it climbs into undisputed first place in the rankings of world economies, as is clearly inevitable, it’s surely going to be the case that the world will look to them and their economic system for guidance on how to effectively run an economy. That is far more powerful than any individual person, no matter how ascendant they may be in US politics today.
I could, of course, be entirely wrong. I’m not really qualified to say. We should be careful though about dismissing MMT as pseudo-science because although its advocates spout a lot of nonsense there is the whole other issue of the spectre of China’s influence on economic policymaking worldwide. It is going to grow enormously over the next century and if we have no alternative proposals then their system will surely win out.
Stephen John Richmond - How China uses MMT & how MMT is a description of ‘Minsky Socialism’.
20 comments:
MMT with Chinese characteristics. So obvious, that everyone missed it.
Everybody uses MMT because MMT is largely a description of how monetary systems work.
How many more times...
S.J.Richmond is talking nonsense. He claims a significant part of MMT consists of government or the central bank telling commercial banks to lend more to whichever industries govt wants to favour. Where does it say anything about that in MMT literature?
Seems like fair criticism. The idea at the heart of MMT is that government legislatures can either directly time markets or design automatic systems to time markets and adjust regulation/taxation/spending counter cyclically that would respond to credit cycles/labor markets/inflation/real resources scarcity. This enlightened action prevents the govt sector from ultimately swelling to such a large size that it squashes the private sector or reduces value of the currency by leaning too hard on imports or keeps "yanking on a taught string".
In our current debacle where global ports jammed and a real resource is constrained, all the socialists, progressives and central planners in MMT can't figure out how to best share a scarce resource? The one resource on the globe where socialists don't have an opinion? Silence is deafening.
[What I'm digging at is at a macro level you have a Chinese system that understands systems and is blocking ports with dubious excuses to squeeze a US admin that they dislike and US legislature and economist don't seem up to the task of comprehension of how an economy best adapts to that. Most of all progressives that are quick to have ideas on spending when Chinese globalism was plebtiful but now that surpluses are squeezed, no one...has any ideas)
If anyone has watched China, this is what they do when they get angry. They find covid in Salmon. They find a worm in Australian apple imports. A fly in Russian Lumber. They close rare earths because pollution. Now They have to close ports with 400,000 workers, strand 100 ships and 3m containers.. because 3 Indian mates on a ship have covid. Pesticides in French wine.
And no one in MNE MMT that have watched China hit at Au/EU/Nz/JP/Russia/Fr for decades with these tactics blinks an eye. Just take the action at face value. Okay. Right. The response to this article is that MMT is canned: MMT is description of the monetary system, the author is talking non sense? What happened to the thought provoking analysis here? MMT has died as a center of ideas in econ.
1st level reflexivity showing up in MMT enlightened system and anyone? Anyone with any ideas on how reflexivity works in regard to managing an set of MMT systems interacting with one another not only in description but where the people running the syatems understanding their respective powers?
The reason there are no ideas here is fundamental. The central axiom of MMT is that an equilibrium exists where taxes and fiscal policy can always and everywhere offset demand insufficiency or excess. But the appearance of reflexivity by definition means that no stable equilibrium exists. That means that any effort to balance the system and respond with fiscal policy will be anticipated and become less and less effective and more destabilizing. May not be obvious to everyone yet, but increasingly will and you're best to start examining ypur own thinking about how you modify YOUR own belief systems instead of assuming others are simply too stupid. Now MMT has a critical flaw obvious to everyone except MMTers.
Not fatal to the whole MMT exercise but it means you can, with a little effort define explicitly limits within a time frame for the fiscal responses. Obviously if the MMT crew have to admit fault before they can begin to address and solve a problem, So far, no one has shown willingness or competence. Too bad. It would make MMT much more valuable as a policy tool and as a practical matter. Also politically more palatable.
" The idea at the heart of MMT is that government legislatures can either directly time markets or design automatic systems to time markets and adjust regulation/taxation/spending counter cyclically that would respond to credit cycles/labor markets/inflation/real resources scarcity."
That isn't the idea at the heart of MMT. That's at the heart of Old Keynesianism.
The critical fault is everybody critiquing MMT doesn't actually understand what the Job Guarantee does - it puts the currency on the labour hours standard. Which is superior to the Gold Standard because labour hours cannot be hoarded and are involved in all forms of production.
We know automatic stabilisers work, we know there is no equilibrium just a circling of the drain and we know that human beings are very poor at anticipating anything.
The Job Guarantee is the system stabiliser - replacing the failed interest rate targeting mechanism. Pretty much everything else is just looking at what is unemployed and deploying it. And if what is required isn't unemployed, then you tax to make it unemployed so you can deploy it. Budgeting by function, not finance.
Question: Can we see the PBC balance sheet? And do we see all the Feds numbers, even those national security related?
Yup, Neil. It's remarkable how ignorant MMTers are of their own "central axioms". But doesn't that give them an excuse for not seeing the "flaws" in these "central axioms" which uhh don't actually get MMT quite right. :-)
Ryan's quoted description is not so bad. You could call the JG the automatic market timing system. The defect of that description is that it puts the cart before the horse, always fantasizing that markets come first. That is not the way it happens logically or historically. As you say, misses the labor standard.
It's similar to the degeneration of Keynesianism. The old Keynesians (especially when it was new) were often practical MMTers, better than that idea. But it deteriorated into that and worse.
That sort of thing happens in mathematics and the sciences and philosophy all the time. After a few centuries it usually gets set right. And is published and forgotten once more. :-) But then the revolution one or two back from that one- is then finally solidified and remembered, is taught in primary or secondary school.
“Obviously if the MMT crew have to admit fault before they can begin to address and solve a problem,”
They are not trained that way… they are not problem solvers that is what STEM people do…
They are not STEM people.,,
They are trained to stick to their Theory and dogmatically advocate for it…
They are not trying to solve a problem they are trying to advance their Theory….
“ and we know that human beings are very poor at anticipating anything. ”
We do it ALL THE TIME…
Ever take a trip on an aircraft? Drive over a bridge? Post a comment on a blog? Get a fastball right down the middle on a 3-0 count? Buy color matched paint at a paint store?
We can anticipate that if on Tuesday, the Fed would just cancel their current $1.1T RRP facility the whole system would crash… lock it…
So what can we learn from China's job guarantee?
Their 2 rations of dog brain soup per day acts as a price anchor?
The way you deal with the reflexive system is by ruling out refusing to allow "extreme" solutions that you don't like. Setting a gold standard or labor standard to hold fx constant or labor JG standard comes with enormous and provably unacceptable costs, micromanaging never worth the costs. Most often the result is opposite of intended with more supply and demand volatility and booms and busts in correlated markets. It's intuitive even, order has to be more expensive than disorder. Simply reducing destruction at extremes pays off, we do it in every facet of lire, finance and econ. You can mathematically show that it increases resilience and trend growth rates higher than without intervention. Not surprisingly, this is how China has been managing their fx, rate, labor and commodity markets in recent decades. The extremes where they will act are guarded as national security secrets even though it's become pretty clear where and when --They usually notify everyone through state media when they won't allow further "destructive speculation" and they go into correlated markets and stop the excesses. Seems instructive to study how they've avoided extremes and maintained higher trends than rest of world.
What comes first or second in creation logically matters in a system if subsequently it provides absolute control over the system. That's not generally true in a complex system where attempting to constrict one dimension leads to "spikes" in other dimensions. In econ, obvious, Labor is available externally for use, it can also cross borders, it can move, it can telecommute. Assuming a market exists for labor sound. If you segment the market and regulate it, can it be arbitraged? Yes, again. So No cart - horse relationship as implied.
Setting a gold standard or labor standard to hold fx constant or labor JG standard comes with enormous and provably unacceptable costs, micromanaging never worth the costs.
Yes about gold, often. And especially in modern economies. No about a JG. Not having a JG is what comes with enormous costs. But the costs are borne by the deplorables, not the deciders, to whom it is a benefit, a whip in their hands.
A JG is not micromanagement. More like the opposite. It's not entirely clear what you mean by "reducing destruction at extremes" but that is perhaps one way of describing the job guarantee. The offer is universal, the actual decision is micromanaged by each individual, just like everyone micromanages most things about their own life. Only a a marginal fraction of the people will take the offer most of the time. You seem to be speaking of something like a Phillips curve, which is inapplicable. There is no logical proof and no empirical basis for the false beliefs you assert.
All of this is exhaustively dealt with in basic MMT. Unfortunately the basics of anything are always the hardest part, but always in danger of being skipped or only partly, superficially understood. So they often don't take. Prior misconceptions are not dispelled and eventually become the basis of bad arguments driving out good ones. It usually takes several tries for the Truth to take hold, for individuals and for the whole world. Something, as I said, seen in all fields over time.
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