The US-based Eastern Economic Association, which aims to promote “educational and scholarly exchange on economic affairs”, held its annual conference in New York over the weekend just gone. One of the panels focused on “New Views of Money” and I am reliably told turned into a bash MMT session as yet another disaffected economist, feeling a little attention deficit, sought to demolish our work. The technique is becoming rather standardised: construct MMT as something that it is not; refer to hardly any primary sources and only those that can be twisted with word ploys to fit into the argument; use this false construction to accuse MMT authors that are not cited of a range of sins; conclude that MMT is useless – either because the things it has right were known anyway and the novelties are wrong, proceed as normal. In denial. Afraid to admit you are part of a degenerative paradigm that has lost credibility. Bluster your way forward muttering something about optimising transversality conditions that need to be met. Feel happy to be part of the conga line. Well that conga line is heading for oblivion I hope. Where it belongs. On the scrap heap of anti-knowledge.
MMT and Google Trends
Google Trends allows one to track the evolution of a topic on the Internet and map the hot spots worldwide. It is really just a bit of fun but it keeps me amused sometimes.
Here is the monthly time series from January 1, 2004 (when data began) to March 4, 2019 for the search topic – Modern Monetary Theory.
As Google tells us:
Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term. A value of 50 means that the term is half as popular. A score of 0 means there was not enough data for this term.
The first spike began in August 2008 and peaked in October 2008 – the period when Lehmans went broke and everyone was wondering what was going on.
Interest fell after that but to a new higher level.
The next spike started in November 2018 and that is the AOC effect I would guess.
Here is the related map. In the last week, Finland has gone very dark blue, mostly concentrated around Helsinki!
The second graph is for the search topic – New Keynesian Economics.
All the variance is pre-GFC and coincides with a period when the Great Moderation was all the rage.
Please read my blog post – The Great Moderation myth (January 24, 2010)- for more discussion on this point.
After the GFC emerged, the downward trend in interest in this degenerating paradigm in macroeconomics continued.
The map shows that Ethiopia was the current hottest spot.
I’m guessing China is doomed if they keep hiring US-trained economics Phds from orthodox programs – see map.
The rising popularity of MMT is bringing out a lot of people from the woodwork who have ignored our work until now but who, for one reason or another, feel they have to have a stake in the game or look stupid.
And, they mostly end up looking foolish given the quality of their criticisms.
I am not for one moment saying that the body of work we have developed is a theory of everything. In particular, it does not imply that politics is without constraints – real or otherwise.
Policy making is not like that at all.
A lot of artistry is required to implement significant economic interventions. That vulnerability is not confined to MMT.
So to criticise MMT on the grounds that the politics might be complex or thorny is not criticising MMT at all.
It is a reflection of the difficulties that arise when vested interests go head to head to get their pet projects ahead in the queue.
I was told that Thomas Palley was in the audience and was like a stuck record – inflation, inflation, inflation, click, click, click.
It amazes me that Palley is wheeled out by the critics of MMT as providing some definitive closure on the shortcomings of MMT.
His main claim is that MMT ignores “the dilemmas posed by Phillips curve analysis” and has no formal model.
He also joined the chorus that there was nothing new in MMT and what was new was wrong – go figure!
I dealt with his misrepresentations in this blog post – I wonder what the hell I have been writing all these years (February 12, 2013).
He was an early critic.
I discussed the issues of formality in these blog posts (among others):
1. GIGO (October 7, 2009).
2. OECD – GIGO Part 2 (July 27, 2010).
I remind readers of the observation by American (Marxist) economist Paul Sweezy who wrote in the 1972 – Monthly Review Press – article entitled Towards a Critique of Economics that orthodoxy (mainstream) economics:
… remained within the same fundamental limits … of the C19th century free market economist … they had … therefore tended … to yield diminishing returns. It has concerned itself with smaller and decreasingly significant questions … To compensate for this trivialisation of content, it has paid increasing attention to elaborating and refining its techniques. The consequence is that today we often find a truly stupefying gap between the questions posed and the techniques employed to answer them.
Some of the great economic thinkers – Marx, Keynes, and many others did not use the sort of trivial formality that pervades neo-classical approaches and Palley’s hydraulic Keynesian framework.
And, if you get hold of our new textbook – Macroeconomics – you will see mathematical formality when it helps to simplify the argument and advance the understanding.
Otherwise, words more than suffice.
Evidently, another MMT critic at the conference was J.W. Mason, who apparently claimed that MMT was unsettled theory – I dealt with his misrepresentations in the three-part series:
1. The divide between mainstream macro and MMT is irreconcilable – Part 1 (September 10, 2018).
2. The divide between mainstream macro and MMT is irreconcilable – Part 2 (September 11, 2018).
3. The divide between mainstream macro and MMT is irreconcilable – Part 3 (September 12, 2018).
And there are more than enough words there to demonstrate my disagreement.
Evidently, Mason didn’t take any of the points on board and proceeded along his merry way to continue the same, deeply flawed misrepresentations of our work.
Enough said on that.
I was also sent a paper by one Gerald Epstein who is at UMass at Amherst and definitely not in the mainstream New Keynesian tradition. Rather he is part of the Political Economy Research Institute at that university and heterodox in outlook.
It was reported to me that during the EEA Panel he was very animated (shouting was the word) about MMT ignoring that taxes would have to rise to ‘pay for’ a Green New Deal.
Quite animated was what I was led to believe.
Well, whether his public performance was comment-worthy or not is not the point.
His paper – The Institutional, Empirical and Policy Limits of ‘Modern Money Theory – is pretty poor.
It is representative of the quality of the push back that we are receiving from those on both sides of the ideological divide – heterodox and mainstream right.
I cannot link to his paper – I received a copy via E-mail.
His overall conclusion is that:
… even though MMT might have made some valuable theoretical and doctrinal contributions, its major policy suggestions are of little practical relevance today.
It is a paper that insults people who are attracted to MMT and see it as a way out of the failures of mainstream economics (and I should add the lack of attention to core macroeconomic issues among heterodox economics).
Apparently, people are being lured into “simplistic policy solutions” as part of the “MMT ‘brand'” – which is similar to the other attacks along the lines that we have created a ‘cult’ and lured idiots who are desperate for answers with our hokey pokey.
I think that is insulting – not to me (I couldn’t care less) but to those who are attracted to our work and are non-economists.
Epstein writes that the “recent appeal of MMT is understandable” given the massive failure of mainstream macroeconomics” but that:
MMT theorists were not the first or only economists to criticize neo-liberal austerity economics.
He lists a series of papers including many of his own that in one way or another are alleged to provide such criticism.
Which then begs the question: Why haven’t these other “Keynesian and heterodox economists” broken through in the public debate?
If the failure of mainstream macroeconomics is so profound, and these economists have been offering viable critiques, why is it that only MMT ideas are providing people with plausible answers they seek?
The answer Epstein wants his readers to believe is that our approach is “simplistic” and people are stupid.
They have been told, apparently, that “government spending NEVER has to be paid for and can be implemented with a mere stroke of the monetary pen”.
The reality is that the other analyses he cites have little appeal – they are not part of a coherent, internally-consistent body of macroeconomic thought, and, in many cases, (for example, Palley) just default back to a mainstream macroeconomic framework anyway.
A problem with Epstein’s representation of MMT is that he deals in half truths – leaving out the context, making words serve two meanings, etc.
A classic ploy in fact.
An examination of his reference list shows he has cited just 7 articles by MMT authors out of 97 articles cited in total.
All of the MMT authors cited are US-based and largely write about US-centric issues.
Most of the MMT literature (of which I have personally contributed a significant amount) about small, open economies; development economies; capital flows and constraints; exchange rates and trade is ignored by him – and that is convenient to his purpose.
Because then he can say these 7 articles – which he equates are the MMT story – miss key issues. Which he does.
But that ploy doesn’t allow for a criticism of MMT. It just reflects the obvious fact that he hasn’t bothered reading a sufficient quantity of the published MMT literature. The ‘straw person’ reference comes to mind.
He also cites with authority the likes of Jeffrey Frankel, Paul Krugman the IMF, and a range of other mainstream sources who allegedly, in one way or another, present damming evidence against MMT.
In another context, a heterodox economist wouldn’t give this lot the time of day. But they become trusted ‘authorities’ when it comes to slamming MMT.
Certainly, MMT has brought the capacities of a currency-issuing government into the open.
The fact is that the government which spends the currency into existence does not have any prior intrinsic financial constraints. All semblance of such constraints are creatures of the government itself.
And so it comes down to what we mean by “paid for”.
Epstein would know he is toying with words to make a point that he would not be able to make if he was to spell the whole deal out properly.
He wants the reader to concentrate on the financial aspects of “paid for” and ignore the real resource costs of government spending, which will vary according to the state of the economic cycle.
The correct statement is that government spending has no intrinsic financial constraints but may have real resource constraints which might impact on its ability to pursue its socio-economic mandate.
In that sense, the “paid for” would relate to the real resources utilised by the spending (the ‘true cost’).
His paper builds up to the finale which focuses on:
… the validity of the rhetorical claim that has captivated so many followers on the progressive left: “when we propose progressive programs, MMT demonstrates that we do not have to discuss or worry about how we are going to pay for them”
I will only focus on that point.
The rest of the paper is not compelling and rehearses many of the standard arguments now being raised against MMT – for example, it only applies to the US as the reserve currency-issuer; that foreign exchange markets will crucify a government that tries to run policies that are counter to the interests of the speculators; that we ignore the plight of development economies who cannot export enough to get the foreign exchange necessary to buy necessary imports; that MMT is a “nationalist oriented policy, or ‘America First” and stuff like that.
Some of those points are not covered in the 7 MMT articles he bothered to cite. If he had have read a little more broadly then all of those issues have been covered in one way or another over the last 25 years of work.
Of his final section, Epstein writes:
… discusses some of the political/policy claims of MMT advocates and shows that they are internally contradictory and possibly even dangerous. In particular the MMT advocates’ claim that progressive’s don’t need to discuss how “to pay” for their policies is misleading since, even within the strict confines of MMT theory, progressive policy advocates and politicians cannot avoid trade-offs and assessing priorities of their policies – that is, they cannot avoid discussing the opportunity costs of their projects and yes, even how to “pay for them”.
The short response is: No we cannot avoid discussing the opportunity costs and the fact that once we get to full capacity then trade-offs have to be made.
That is a central proposition in MMT.
We have never avoided, skirted around or ignored that issue.
But those opportunity costs are real not financial.
Epstein wants his readers to be conflate those two cost concepts.
While his misrepresentation is rife throughout the paper it reaches a new scale in the final Section VI.
Among the things he writes about what MMT is asserted to claim:
1. “we do not have to worry about deficits. Better yet, we don’t have to worry about paying for our proposed policies; in fact, we don’t even need to raise taxes.”
A mix of statements – with some partial truths lacking context.
We do need to worry about deficits if they are too large or too small relative to the spending and saving intentions of the non-government sector. That is the correct statement.
We do need to pay for our proposed policies – if by that we mean the real resources costs that will be incurred.
However, that is not the usual English meaning of the words ‘pay for’, which connote financial constraints.
We might need to raise taxes sometimes – depending on what the state of the cycle is and what other policy tools we have in place.
See, how Epstein ignores the nuance. In fact, he is not really talking about MMT at all here but some concocted version which he creates as a rhetorical device. This is becoming the standard methodology in all these recent attacks.
He can then build on that concoction with this:
The need to “pay for” our spending is a destructive diversion based on a dangerous misunderstanding of how our economies operate.
So now we have MMT as a dangerous insurgency into a real politic – luring people who are stupid – into believing that we can have every material desire we want satisfied at all times without issue.
In this concocted narrative, MMT just tells people not to worry – shout your desires – and the ‘printing press’ will take care of the rest.
But having established that, he then warns the stupid people out there:
… this appearance of liberation and power is an illusion. Worse, it is a dangerous illusion.
Dangerous becomes the repetitive theme. It beggars belief that someone would actually spend time in front of a computer playing these sort of rhetorical games.
I wonder if Professor Epstein could actually point to the published (peer-reviewed) MMT literature where any of the core developers have written anything that remotely resembles this depiction?
The whole MMT journey to date has been to caution readers about the actual nature of constraints on government spending rather than the false constraints taught in economics courses around the world and wheeled out continually by self-serving politicians and lobbyists.
By showing there are no intrinsic financial constraints on such spending, MMT, in no way, is advocating a carte blanche.
Every resource that is currently in productive use cannot be used elsewhere – obviously.
Every idle resource has a number of possible uses – obviously.
We understand perfectly that one we get to full employment that there are likely to be “trade-offs and the need to prioritize spending programs cannot be avoided.”
Trying to suggest that this point is ignored by MMT writers is an absurdity.
But where Epstein is really headed here is to hoist MMT on the ‘pay for’ petard.
He uses the Green New Deal as an example.
I wrote about the point he is making in these blog posts:
1. The erroneous ‘lets have a little, some or no MMT’ narrative (February 20, 2019).
2. The Job Guarantee is more than a Green New Deal job creation policy (December 17, 2018).
Basically, the GND would require a major transformation in society with new resource usages coming in and old usages going out.
That means winners and losers.
That means politics.
MMT is not about political theory or praxis.
But Epstein claims, in the context of the massive transformation that the GND would require, that:
The illusion of empowerment that MMT brings is that the coalition of forces that promotes these plans don’t have to discuss who is going to pay for these programs.
We are back to his tricky play on “pay for”.
Epstein is using one construction of “pay for” (financial) to try to refer to another construction of “pay for” (real resources) and pretending, despite acknowledging differently earlier in his paper, that MMT ignores the latter.
The point is what MMT offers here is the knowledge that the tricky political issues surrounding demands on real resources are not ‘financial’ in nature.
That is an important contribution because it lifts the veil of ideology that mainstream macroeconomics introduces to the public debate.
If everyone sees the world through the MMT lens, then they would immediately reject a politician who tried to claim we cannot save the planet because we do not have enough money.
Or on that tried to claim that we have to tolerate mass unemployment because the government cannot afford to create new jobs.
The ‘not enough money’ is the way the mainstream construct ‘pay for’. MMT explicitly rejects that.
But no MMTer would deny the second construction – the real resource ‘pay for’. Except, as noted above, that is not the usual English-language connotation of the term ‘pay for’.
The important point about MMT is that we are absolutely insistent on separating out those two constructions to make sure the public debate focuses only on the second.
Epstein knows that and yet he tries to play ‘smart alec’ because he thinks there is ‘currency’ to be made by lining up with the MMT critics. In part, he is trying to defend his own work which has never got to the nub of these problems.
MMT offers no illusion.
We never hold out that societies can have everything always.
The implementation of a Green New Deal will be an incredibly tricky process and good luck to the government that starts down that track.
There will be significant losers and some of the sectors that will lose out are politically powerful.
Big money will be thrown at lobbying government to not do things that they should do for the sake of the planet. Threats, extortion, all of the standard political gymnastics will be in force.
But that says nothing about the validity of MMT despite Epstein claiming otherwise.
And in the interim, the New Keynesian heavies have been out in force embarrassing themselves – Krugman, ‘Mr Spreadsheet’ Rogoff, Summers and more – all rushing to the join the conga line of critics.
All essentially following the same pattern – little citation, false constructions, idiotic inferences.
We are (hopefully) witnessing what a degenerative paradigm (in the meaning that Imre Lakatos gave to that term) looks like as it declines into oblivion.
What these characters don’t seem to realise is that they are probably helping disseminate our work to a wider audience.
We should thank them for that.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.