Welcome MMT

I can see from my dashboard that the usual MMT suspects continue to send traffic my way. Thanks for that. And to those coming here, welcome.

I am not going to do any more post vs post debates with MMT guys, although I would consider an offer formally to debate the topic, because I think I might be able to get focused on substantive issues in that format.

Just quickly to repeat and condense a couple points I have already raised, I see two prominent weaknesses with MMT:

First, it adopts an unconventional and quirky definition of “savings”, as financial asset accumulation in the private sector, and then criticizers others for making perfectly valid statements about what drives “savings” as conventionally defined.  If Larry Summers seemed to be listening to Warren Mosler on this issue and then appeared not to have, it is because he was yessing Mosler and not because he is too stupid to understand accounting identities. * 😉

And second, it asserts bizarrely that government spending can be divorced from taxation and that the purpose of the latter is solely to prevent excessive inflation.  In fact, running taxation significantly and durably below spending in the context of an MMT policy framework would predictably lead to inflation. The inflation merely signals that the attempt to divorce taxation from spending is untenable and that the public sector budget constraint cannot be evaded with semantics. Another way to put this is that taxes will ultimately hug spending, even in an MMT framework, if the Fed has an inflation target.

I would expect a retort that MMT does not really believe this stuff and that I am mischaracterizing them. If so, good. We can call that progress.

Others may say I am not addressing the broader intellectual tradition in which MMT is nested. Ok, that is fair: I am commenting here only on the bits that seem importantly wrong.

Separately, I do think the MMT guys are on the side of the angels, practically, regarding the silliness of the fiscal austerity after the Crisis. It is just that MMT baggage was not needed to get to MMT’s sensible policy recommendations.  Countries that issue their own currency and are not pegged are less susceptible to self-fulfilling crises or adverse reflexivity around fiscal worries. On the other hand, FWIW, I would credit MMT for having been particularly adamant about that.  It is a pretty important thing to have been right about. Well done, IMV.

Returning briefly to what MMT guys really mean, I would suggest visitors here go read Warren Mosler’s book for a general audience, The Seven Deadly Frauds of Economic Policy, or go over to Bill Mitchell’s blog and see for yourself if they make the claims I attribute to them.  Read the stuff they write before criticisms like my own are raised.  What they say when critics aren’t looking is what they really mean. I best move on because this is starting faintly to remind me of the difference between original intent and original understanding.

In the meantime, please let me direct you to what I have written on this subject.

This presents my first attempt at a case against MMT.

This addresses some criticism of — or commentary on — that case.

And this goes over how an attack on MMT need not incorporate all the baggage of what is sometimes called “bastard” Keynesianism.

I hope these posts are of some use to you. And again, thanks for coming. Incidentally, I don’t mean to leave an impression that understanding MMT is of some pressing importance.  Maybe I am right about this. And maybe I am wrong. I don’t see implications of either anytime soon.  Sometimes, I just like to argue about stuff.

* See page 41 for Mosler’s totally fair and scholarly discussion of his interaction one day with Larry Summers. For context, keep in mind that when Summers says “savings” he means “savings”, and (probably) that he has not committed to memory the mechanics of reserves accounting because he believes they are a veil. We can allow Summers to know what he believes is worth knowing.

So, how am I uniquely qualified to be promoting these proposals?  My confidence comes from 40 years’ experience in the financial and economic realm. I would venture that I’m perhaps the only per who can answer the question: How are you going to pay for it?” My book takes on this issue and encourages a return of economics study to the operational realities of our monetary system.  (p. 12)