The epithets being used as put-downs for Modern Monetary Theory (MMT) are growing. But some of the good old terms – that one might actually apply to mainstream macroeconomics – are also in currency. An article in Project Syndicate (May 27, 2019) – Japan Then, China Now – declared MMT to be “the latest strain of voodoo economics” that is “alluring for the Trump administration”. The article by a Yale University lecturing staff member (and former investment banker) really just reminds us why students should avoid studying economics at that university. The voodoo, I am afraid is actually on the other foot! There are some fundamental errors in the logic in the article that highlight why MMT is a superior paradigm for understanding how the monetary system actually operates in comparison to the mainstream logic that the author uses against it.
Last week’s (July 5, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – June 2019 – reveals a steady labour market with month-to-month volatility. The US labour market is still adding jobs, albeit at a slower pace than last year. The unemployment rate remains low (at 3.67 per cent) and the participation rate has moved up a tick, which is a good sign. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.
Some years ago, I was a panel speaker at an event in Sydney covering the topic of wage developments. I shared the podium with a young woman who was something like NSW Youth of the Year. It was at a time that employer groups were lobbying the conservative government to abandon penalty rates for workers in low-wage industries (hospitality, tourism, etc) and strip powers from trade unions. I spoke about how that agenda was designed to advance their class interests and fitted squarely with the neoliberal intent to redistribute real income away from workers towards profits. The young woman followed and announced that class was dead and that there was no such thing as a worker anymore – she said “we are all entrepreneurs now!”. Prior to that, as our national government was privatising our public companies such as Qantas and Telstra, our prime minister announced “we are all capitalists now” referring to the idiocy of people buying shares in the companies that we collectively ‘owned’ anyway while they were in public hands. The more recent manifestation of this delusion that class is dead and we are all entrepreneurs is the so-called ‘gig economy’. It seems that we now have millions of people (first young but increasingly older) who think that entrepreneurship is about buying a cheap scooter and tearing around streets delivering pizzas in all weather to earn a few dollars while the companies that ’employ’ them (or rather contract them) walk away with millions. These workers, sorry, entrepreneurs, face a bleak future. When there are no pizzas being ordered they have no shifts. When they are sick they have no pay. When they go on holidays they have no pay. And when they get old they will have no superannuation. Sounds like a plan to make someone rich.
I am in London today (Monday) and have two events. First, I am doing a ‘Train the Trainers’ workshop for – The Gower Initiative for Modern Monetary Studies – where we will work through some techniques and concepts to help activists educate others about Modern Monetary Theory (MMT). Second, I am meeting with some Labour Party Members of Parliament who are keen to learn more about MMT and incorporate its insights into their political work. Get the drift? People wanting to learn and setting up pathways where that learning can occur. Which means they take advantage of access to one of the founders of MMT to find out what it is about, rather than adopt a superficial version of our work, which they might have heard about when Joe told Aalia, who had picked it up from Eddie, who had been having a conversation with Robyn about something that Abdul had told Amelia, who had read it in some Tweet that was reporting an article written by Kenneth ‘Mr False Spreadsheet’ Rogoff criticising MMT. That is the way to learn.
The way in which Modern Monetary Theory (MMT) has become politicised and misrepresented is quite something. The critics have all fallen into the same pattern. They rehearse a few statements that they claim represents what MMT is about, and, which they know will shock people who read and/or listen to them, into concluding that the proponents of MMT understandings are crazy. A whole host of wannabees are now jumping on the bandwagon. And last week, 5 Republican Senators in the US Congress tabled a bill which claims it is “the duty of the Senate to condemn Modern Monetary Theory and recognizing that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation”. For a start, these goons haven’t even cottoned on to the fact that one cannot implement Modern Monetary Theory (MMT) – they are surrounded by it, every day of their lives. But then if they had got that far, they would have also realised that the rest of their arguments in the draft legislation is equally ridiculous. We are making progress though – and the more they come out of the woodwork the better. So far not a blow has stuck.
Last Friday (April 26, 2019), the US Bureau of Economic Analysis published their latest national accounts data (advance estimate) – Gross Domestic Product, First Quarter 2019 (Advance Estimate) – which tells us that the annualised real GDP growth rate of 3.2 per cent surprised most commentators (for its strength). As this is only the “Advance estimate” (based on incomplete data) there is every likelihood that the figure will be revised when the “second estimate” is published on May 30, 2019. Underlying the strong headline figure, however, are shifting expenditure patterns in the US. Household consumption growth is declining and the contribution to growth was down from 1.7 points in December 2018 to 0.82 points. The personal saving rate rose from 6.8 per cent of disposable income to 7 per cent as households tightened up in the face of record levels of debt and sluggish wages growth. The investment rose and Gross private domestic investment also contributed 0.92 points to growth, up from 0.66 points. However, that contribution was driven mostly by a rise in inventories, which can signal two things – either unsold goods due to firms overestimating domestic demand or stock-building in expectation of stronger future spending. I suspect it is the first of these explanations. Further, net exports were a strong contributor (1.03 points) after undermining growth in the December-quarter 2018. Real disposable personal income increased 2.4 per cent (down from 4.3 per cent in December). Overall, and notwithstanding the strong growth, the problems for the US growth prospects are two-fold: (a) What will be the contraction in consumption expenditure growth with slow wages growth and elevated personal debt levels? Most of the consumption growth is coming because more people are getting jobs even though wages growth is flat. (b) Can net exports growth defy Trump’s trade policy? We will wait and see.
Wednesday today and a short blog. I also have to travel a lot today. But some brief comments on an interesting article from French commentator Michel Lepetit – Nourrir le débat sur une annulation partielle (370 mds€) de la dette publique (April 15, 2019) – which means more or less “Promoting the debate on a partial cancellation (€370 billion) of public debt”. The article proposes that the Banque de France cancels its holding of French government debt (the €370 billion), which could also lead other national central banks in the Eurosystem following suit with respect to their own government debt holdings. He argues that the cancellation (write off) would have no negative social impacts and could help Eurozone governments fund the transition to a low-carbon future. Above all, it reflects an understanding of Modern Monetary Theory (MMT). Michel Lepetit argues that the QE implemented by central banks, especially since the GFC demonstrates the patent failure of the foundations of monetarist dogma (“l’échec patent des fondements du dogme monétariste”).
Last week’s (April 5, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – March 2019 – is still being affected by the variability in the sampling and benchmarking changes made by the BLS. However, working through those impacts, one concludes that the US labour market is still adding jobs, albeit at a slower pace than last year. The unemployment rate remains low (at 3.81 per cent) and the participation rate has come off a bit, indicating a slowdown in underway, although month-to-month variability should not be taken as a trend. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.
I am travelling all day today and I will resurface, in blog terms, on Monday. A quiz will pop up tomorrow as usual. For now a brief excursion into the Dutch press, which has decided to join the wannabees attacking Modern Monetary Theory (MMT). The scenario outlined in the article I read earlier today takes the criticisms to a new level. We are no longer worried about hyperinflation, crowding out, sky high interest rates. No, things are likely to get much worse than that. If any government takes on MMT (noting it is not a regime that can be taken on) to operationalise a Green New Deal then tax rates will have to rise to around 100 per cent, households and firms will stop working and producing, and a massive famine in possible where millions die. Sort of Project Fear stuff that has marked the Remain position in the Brexit debate!
Last week’s (March 8, 2019) release by the US Bureau of Labor Statistics (BLS) of their latest labour market data – Employment Situation Summary – February 2019 – is a little hard to believe and shows the sampling variability involved in survey work. In January, the BLS estimates that total non-farm payroll employment rose by 311,000 (revised up from 304,000). This month the estimate was only 20,000. So either the US economy is crashing (given employment is a lagging indicator) or some one-off factors (bad weather, shutdown, you name it) were present or the results are too variable to be believed. The most likely explanation is that employment growth is fading and the strength in the US labour market coming into 2019 is gone. Taking the Household Survey results, we saw employment rise by 255 thousand and the official unemployment rate fell by 0.2 points to 3.8 per cent on the back of a steady participation rate. Even with all this volatility in the estimates, the best guess is that the US labour market has probably weakened somewhat from where it was at the end of 2018. It is also clear that there is still a substantial jobs deficit remaining and considerable scope for increased participation.