MMT And Fiscal Policy: Radical Or Not? — Brian Romanchuk

Most public debate around Modern Monetary Theory (MMT) revolves around fiscal policy. This is not too surprising, as this is largely where political economy concerns crop up when discussing MMT. However, the emphasis on fiscal policy makes discussions of the MMT debates quite awkward. There is a large divide between the debate in modern economic theory, and the debate in popular discourse.

If we look at economic theory, there are no credible challenges to the MMT story at present; at most, one can debate terminology. Since many economists are keen to present economics as a highly mathematical, scientific discipline, getting into long-winded, arcane debates about linguistic issues does not fit the narrative. However, there are plenty of reasons for there to be a strong debate in popular discourse: not everyone agrees on the proper role of government in the economy. However, we cannot appeal to any formal theory to adjudicate the popular debates....

Bond Economics
MMT And Fiscal Policy: Radical Or Not?
Brian Romanchuk

Bill Mitchell — The adult unemployment benefit in Australia should be immediately increased by $A200 per week

At present, the Australian Parliament is debating whether the unemployment benefit (called Newstart) should be increased. The conservative government is refusing to budge claiming it prefers to create jobs and get people of benefits – arguing that it will generate 1.25 million jobs over the next 5 years. The Opposition Labor Party are attacking them for being mean but are just rehearsing the massive hypocrisy that has defined that party since it became a voice for the ‘neoliberal lite’ path. Every time the Labor Party spokespersons criticise the Government for not bringing unemployment benefits above the poverty line, Australians should remember that when they were in office the Labor Ministers ran the same line – they wanted to move people into jobs and would not compromise their obsessive pursuit of a fiscal surplus. Same logic. Disgusting and dishonest then. As it is now.…

Same old trickle down. Neoliberals will be neoliberals, regardless of party.

Bill Mitchell – billy blog
The adult unemployment benefit in Australia should be immediately increased by $A200 per weekBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

J. W. Mason — A Baker’s Dozen of Reasons Not to Worry about Government Debt

Good summary of the main points regarding public debt.

J. W. Mason's Blog
A Baker’s Dozen of Reasons Not to Worry about Government Debt
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

Bill Mitchell — Talking of elephants–plain old, garden variety fiscal policy

If there were two lessons that can be taken from the GFC among others then we should know, once and for all, that, first, monetary policy (in all its glorious forms these days) is not a very effective tool for influencing the level of economic activity nor the price level, and, second, that fiscal policy is very effective in manipulating total spending and activity. Of course, those lessons provided the evidence that turned macroeconomics on its head because for several decades, as the Monetarist surge morphed into all manner of variants, tried to eulogise the primacy of monetary policy and rejected the use of fiscal policy. There were all sorts of justifications – time invariance, lags, politicians cannot be trusted, etc – but at the heart of the shift towards supposedly independent central banks was the political desire to neuter the capacity of governments to use their currency capacity to advance the well-being of the many, while at the same time, using that same capacity to advance the interests and real income shares of the few. Depoliticisation worked a treat for the top-end-of-town. The problem is that the lessons have not been learned and all manner of commentators still think that monetary policy is the king. Eventually, we will move beyond that but the pain of holding on to the myth is damaging for people, especially those who are without work, are underemployed or have been forced into early retirement by the poor economic performance in this austerity-biased era.…

Bill Mitchell – billy blog
Talking of elephants – plain old, garden variety fiscal policy
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Operationalising core MMT principles – Part 2

This is the second and final part of this cameo set, which aims to clear up a few major blind spots in peoples’ embrace with Modern Monetary Theory (MMT). This is all repetition. I don’t apologise for that and it does not reflect a slack or bad editorial approach from yours truly as some critics have claimed. Repetition is how we learn. Reinforcing things in different ways (aka repetition) helps people come to terms with concepts and ideas that give them dissonance.

MMT is certainly about dissonance as the current level of hostility towards our work is demonstrating. It is also challenging existing ‘fiefdoms’ in the academy and beyond, which also creates aggression and retaliation. The problem is that most of the current criticism merely rehearses the same tired lines of inquiry. A stack of mainstream (New Keynesian) economists now regularly claim they ‘knew it all along’. The short and truthful response is – ‘no they didn’t. The standard mainstream macroeconomic theory cannot accommodate MMT principles unless it jettisons its core propositions and becomes something else. 

At any rate, as noted in – Operationalising core MMT principles – Part 1 – I am happy to help clarify quandaries that newcomers have with MMT if they are genuinely trying to work out what it is all about. I have no desire to interact with ‘critics’ who are just defending mainstream macroeconomics in its death throes and have no genuine interest in really understanding MMT beyond the superficial and no penchant for reading the now lengthy body of work we have generated in the academic literature. Yesterday, I considered a typical inquiry about an important operational detail of implementing a Job Guarantee.

Today, I consider a related topic. If a government is facing a situation where it needs to shift workers to the Job Guarantee pool to stabilise inflation, how does it do that? The ‘critics’ often claim we only advocate tax increases to fight inflation and because they are politically tricky to engineer MMT essentially fails to have an effective price anchor.

Today, I bring together many past blog posts to summarise the MMT position on counter-stabilising fiscal policy for those that might be struggling to put it all together.…

[Paragraphing added.]

Bill Mitchell – billy blog
Operationalising core MMT principles – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Tcherneva, Sawicky and Kaboub on MMT and policy

Pavlina Tcherneva:

There is nothing more crippling to a bold policy agenda than the myth that the government can run out of money. This myth is behind every But how will you pay for it? objection to proposals such as a Green New Deal and Medicare for All. New House Majority Leader Nancy Pelosi (D-Calif.) has even proposed instituting self-defeating PAYGO (pay as you go) rules, which would require all new government spending to be matched with increased revenue, wrongly prioritizing the balancing of the budget over the well-being of the public.

Dispelling this myth is at the heart of an economic approach that is rapidly gaining a global following, known as modern monetary theory (MMT). MMT stresses that, in the modern world, where government-backed currencies are no longer backed by gold or other commodities, federal governments can’t run out of financial resources. Unlike states and municipalities (which have hard constraints on spending), for the federal government, all funding shortages are artificially created. Understanding this changes everything—from the economic possibilities before us to what the public can demand from our government.

In These Times

PAYGO Is Based on a Fallacy
Pavlina R. Tcherneva | program director and associate professor of economics at Bard College and research associate at the Levy Economics Institute

Max Sawicky:

Pavlina asserts that an ideology of fiscal rectitude, embodied in the How will we pay for it? mantra, places impossible barriers before progressive public spending initiatives. For a number of reasons, however, this isn’t quite right.… 

There are a bunch of ways to justify additional public spending without recourse to MMT....

In These Times
The Best Way To Argue Against PAYGO
Max B. Sawicky | independent economist and writer based in Virginia, formerly at the Economic Policy Institute in Washington, D.C.

 Fadhel Kaboub:

The rising popularity of modern monetary theory (MMT) has inevitably brought misconceptions. Critics across the political spectrum often claim that MMTers want sovereign governments to “just print money” with no concern for the national debt or, as Max B. Sawicky suggests, inflation. Some, especially on the Right, point to Venezuela and Zimbabwe as classic cases of hyperinflation.

But MMT points to a different primary cause of inflation in developing countries: not domestic spending, but foreign debt and a resulting lack of “monetary sovereignty.”...

In These Times

Why Government Spending Can’t Turn the U.S. Into Venezuela—When poor countries fall prey to inflation, it’s not because they’re “too socialist.”
Fadhel Kaboub | associate professor of economics at Denison University, and president of the Global Institute for Sustainable Prosperity

Robin McAlpine — Why the debate about MMT in the indy movement is exactly what we need right now

Common Weal director Robin McAlpine finds that the debate around Modern Monetary Theory can help the independence movement develop an economic case for independence far better than a redacted version of the Growth Commission [UK].

Common Space
Robin McAlpine: Why the debate about MMT in the indy movement is exactly what we need right now

Bill Mitchell — Greek austerity – a denial of basic human rights, penalty should be imprisonment

I have just finished reading a report published by the Transnational Institute(TNI), which is an “international research and advocacy institute committed to building a just, democratic and sustainable world”. The Report (published November 19, 2018) – Democracy Not For Sale – is harrowing, to say the least. We learn that in an advanced European nation with a glorious tradition and history an increasing number of people are being denial access to basic nutrition solely as a result of economic policy changes that have been imposed on it by outside agencies (European Commission, European Central Bank and the IMF). The Report shows how the food supply has been negatively impacted by the austerity programs; how food prices have been forced up at the same time as incomes have been forced down, and how collective and cooperative arrangements have been destroyed by privatisation and deregulation impositions. The Report concludes that the Greek State and the Eurozone Member States violated the Greek people’s right to food as a result of the austerity measures required by three Memorandums of Understanding (2010, 2012 and 2015). In other words, the austerity packages imposed on Greece contravened international human rights law. Not one person has gone to prison as a result of this deliberate and calculated violation of human rights. 

Bill Mitchell – billy blog
Greek austerity – a denial of basic human rights, penalty should be imprisonment
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Arjun Jayadev and J. W. Mason — Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?

Abstract

An increasingly visible school of heterodox macroeconomics, Modern Monetary Theory (MMT), makes the case for functional finance – the view that governments should set their fiscal position at whatever level is consistent with price stability and full employment, regardless of current debt or deficits. Functional finance is widely understood, by both supporters and opponents, as a departure from orthodox macroeconomics. We argue that this perception is mistaken: While MMT’s policy proposals are unorthodox, the analysis underlying them is entirely orthodox. A central bank able to control domestic interest rates is a sufficient condition to allow a government to freely pursue countercyclical fiscal policy with no danger of a runaway increase in the debt ratio. The difference between MMT and orthodox policy can be thought of as a different assignment of the two instruments of fiscal position and interest rate to the two targets of price stability and debt stability. As such, the debate between them hinges not on any fundamental difference of analysis, but rather on different practical judgements – in particular what kinds of errors are most likely from policymakers.

Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?

Arjun Jayadev and J. W. Mason

August 22, 2018

John Jay College - CUNY 

Department of Economics Working Paper 2018-8

Also available at INET

Frank Li — John Maynard Keynes: The Best Economist Since 1899?

In a previous post (Milton Friedman: A Man of the Past?), I concluded that Milton Friedman, an extreme advocator of "free market" and individualism, is mostly an economist of the past.

In this post, I will highlight John Maynard Keynes, a balanced advocator of both "free market" and "managed market", as the best economist since 1899....

Frank Li is a Chinese ex-pat now a businessman in the US, has a BE, ME, and PdD in electrical engineering. So cut him some space on the economics. He is not in paradigm with MMT, but rather somewhat of

an old Keynesian, which is a lot closer than most.

On the other hand, his view as a Chinese ex-pat become successful in the US and also as a highly education and experience lay-person looking in at economics is valuable.

economicintesect.com
John Maynard Keynes: The Best Economist Since 1899?
Frank Li | Chinese ex-pat, Founder and President of W.E.I. (West-East International), a Chicago-based import & export company, B.E. from Zhejiang University (China) in 1982, M.E. from the University of Tokyo in 1985, and Ph.D. from Vanderbilt University in 1988, all in Electrical Engineering

Charles Adams — Fiscal policy is a matter of life and death

MMT.

And he also talks about rent extraction!

"So why are UK politicians obsessed with balancing the books rather than helping their citizens to lead healthier lives? The answer seems to be that the many UK politicians are strongly influenced by the desires of a powerful financial sector. While a finance sector is important, it is also predominantly a rent extraction industry. It mainly acquires wealth either on the backs of other people’s labour or their debts (interest).

Progressive Pulse (UK)
Fiscal policy is a matter of life and death

Charles Adams | Professor of Physics at the University of Durham

ht Ralph Musgrave

Charles Adams also teachers econophysics.

Brian Romanchuk — Why Is A Positive Inflation Rate A Good Thing?

One of the questions that often comes up in economic discussions is: why is a positive inflation rate seen as a good thing? There are a few angles to this question, which makes it somewhat more complex. I am somewhat ambivalent on the subject, but I believe the best answer lies in the area of political economy, not economic theory.…

Bond Economics
Why Is A Positive Inflation Rate A Good Thing?Brian Romanchuk

Bill Black — How Democratic Party Mendacity about Deficits and Banksters Lifted Trump

Stephanie Kelton and I have been trying hard to keep Democrats from, again, rushing into the trap of denouncing Republicans for running federal deficits. Yes, Republicans are hypocrites about debt and deficits. That does not mean that Democrats should repeat Clinton and Obama’s embrace of the Republican’s economically illiterate, harmful, and fake hysteria about debt and deficits....

In general, good government is good politics. The Democrats should focus on adopting and supporting superior policies that are humane and supported by good science....

New Economic Perspectives
How Democratic Party Mendacity about Deficits and Banksters Lifted TrumpWilliam K. Black | Associate Professor of Economics and Law, UMKC

Brian Romanchuk — Understanding Why Governments Cannot Use Stock Prices As A Policy Tool

Professor Roger E. Farmer proposed in his book Prosperity for All (link to my review) that governments should set up a body to control equity prices as a means to smooth the economic cycle. In this article, I explain why a government could not hope to control the level of stock prices in a meaningful sense....

Bond Economics
Understanding Why Governments Cannot Use Stock Prices As A Policy Tool
Brian Romanchuk

Bill Mitchell — Timor – challenges for the new government — Part 1-3 of 3

This is Part 3 (and final) of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. In Part 2, I discussed the progress of the Strategic Development Plan and the challenges ahead in terms of poverty, unemployment, and other indicators relating to the development process. In Part 2, I focused more on the currency debate – documenting how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. I made the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In this final discussion I consider specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1.

Bill Mitchell – billy blog
Timor – challenges for the new government – Part 1

Timor – challenges for the new government – Part 2

Timor-Leste – challenges for the new government – Part 3Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Dean Baker — More Thoughts on a Job Guarantee: What Is At Issue?

Let's be clear. What is really at issue is whether a buffer stock of employed is sociao-economically superior to a buffer stock of unemployed

Efficiency

A buffer stock of employed is far more efficient in that it employs available resources that would otherwise be idle (wasted). In addition, the funds that go toward supporting the out of work ignore the productive capacity of the unemployed. As the right is so find of pointing out, this incentivized unemployment.

Effectiveness

A buffer stock of employed is more effective on many levels:

• economically by increasing production and therefore increasing resources available for use 
• socially by recognizing human dignity and the right to a job
• politically by contributing to public purpose, which includes the common good and general welfare of society as a whole.

Issues versus means

The issue that dominates macroeconomic debate with respect to policy is whether growth, full employment and relative price stability can be achieved simultaneously. 

• Conventional economics says not with out defining full employment down to include a buffer stock of unemployed. 
• MMT says it is possible to achieve the "holy grail" of macroeconomics using job guarantee (Hyman Minsky) to create a buffer stock of employed to mop up residual unemployment after applying functional finance (Abba Lerner) based on stock-flow consistent modeling (Wynne Godley) in the context the fiscal space that the present floating rate monetary system provides.

Policy formulation

The "issues" that Baker (and Bernstein) put forward are not issues in the same sense as the core issues above, but rather they are challenges to be met in policy design.

Policy design always involves tradeoffs. What we need are some actual proposals of bills to debate. Otherwise, a lot of what passes for debate is just gassing.

JG vs basic income

It should be obvious from the examination of issues above that adoption of a job guarantee is unrelated to the adoption of some form of basic income or citizens dividend, or other forms of welfare. These do not impact the issue of achieving actual full employment defined as a everyone that is willing and able to work has a satisfactory job offer if willing to accept it. It's a choice.

Some form of basic income or citizens dividend could also be provided, but this is a welfare issue that is irrelevant to addressing the issue of full employment. They should be neither confused nor conflated in the economic and policy debates, as they presently are, muddying the waters.

Beat the Press
More Thoughts on a Job Guarantee: What Is At Issue?
Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C

See also

This author is apparently unaware of the literature and the state of the debate. Par for the course on the so-called left. OK, she is a addressing one paper, but from what she writes, it doesn't seem that she is up on the field or the economic and policy debates.

OXFAM Blogs — From Poverty to Power
Which is better: a guaranteed job or a guaranteed income?

Eleanor Chowns | Teaching Fellow, Department of Social & Policy Sciences, Bath University

Lars P. Syll — Busting the NAIRU myth

Making policy based on fairy tales.

Lars P. Syll’s Blog
Busting the NAIRU myth
Lars P. Syll | Professor, Malmo University

Chris Dillow — The persistence of fiscal stupidity

Chris Dillow mentions MMT.

Stumbling and Mumbling
The persistence of fiscal stupidity
Chris Dillow | Investors Chronicle

Andrew Lainton — Time for Think Tanks to Work on The Details of Implementing A Land Value Tax

Where thinks tanks are at there best is investigating long terms trends and international best practice, lifting eyes above the day to day crisis management of civil servants.One such area is Land Value Taxation.  In our age of rentier capitalism, poor productivity and a housing crisis our latest policy hero seems to be Henry George, with think tanks across the political spectrum championing it. 

Of course it is far easier to propose a policy reform than to get down to the nitty gritty details of implementing it.  The great mistake for example of of the Centre for Social Justice was to treat the wicked problem of welfare reform to introduce Universal Credit as a simple one. 

Replacing SDLT, council tax and business rates with a new land value tax, even in increments, is a wicked problem.  Beyond perhaps the institutional capacity of the DCLG and treasury to get right.  They need the think tanks help and they need to cooperate to look individually and selectively at many of the issues....

If only most think tanks were not highly ideological. What many put out is not analysis but propaganda fashioned to resemble analysis.

Decisions, Decisions, Decisions
Time for Think Tanks to Work on The Details of Implementing A Land Value Tax
Andrew Lainton

Chris Dillow — How to defend capitalism

Coaching the opposition. That's only relevant when the opposition is hopeless lost in the weeds, is in power, and is running society into the ground.

The problem is that there are two major forms of capitalism, one based on classical liberalism and the other on neoclassical liberalism.

The first is laissez-faire and the second is neoliberalism.

These are greatly different and conflating them leads to confusion.

Perhaps most significantly, as Michael Hudson constantly reiterates, classical liberalism in economics  was about reducing and eliminating economic rent, while neoliberalism based on neoclassical economics is based on rent extraction.

Classical liberalism was about reducing the role of government in the economy so that economic rent would be competed away in efficiently operating free markets, so that profit would be based on productive contribution rather than market asymmetries.

Neoliberalism is based on using institutional arrangements to favor capital "because growth," the assumption being that growth is the higher priority and growth is the outcome of capital formation, so that capital must be favored as a factor over other factors, namely,  labor (people) and land (the environment). So the formula becomes "capitalize gains and socialize losses." And the means is increasing asymmetries institutionally through capture.

People are beginning to get this now, at least inchoately, owing to the poor results they are experiencing, and voters tend to vote their pocketbooks.

The challenge is to debunk the myths based on conflating classical liberalism with neoliberalism, along with educating the public about how economies actually operate in the real world.

These challenges are getting easier to meet meet in that an increasingly large number of people are realizing that they are holding the short end of the stick, and many of them are young people that will be around for a while and voting. It is also leading in a resurrence of interest in Marx among them, since it is increasingly obvious that these issue reduce to class struggle.

There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning. — Warren Buffett, as quoted in "In Class Warfare, Guess Which Class Is Winning" by Ben Stein, in The New York Times (26 November 2006) [Wikiquote]

Dillow's post is worth reading in full. It's import is not limited to UK politics and the UK economy. As usual he provides useful links regarding the points he makes.

This also shows how bound up economics is with politics.

Stumbling and Mumbling
How to defend capitalism
Chris Dillow | Investors Chronicle