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MMT and the MMT Project – Part 2

One of my presentations at the January Sustainability Conference in Adelaide focused on the basics of Modern Monetary Theory (MMT). I was asked by the organisers to provide some clarity on the basics of MMT and to demarcate where MMT starts and finishes. I started the first of two talks I gave at that conference by stating that MMT was macroeconomics. It is within that discipline. It is not within the discipline of law, sociology, psychology, cultural and media studies etc. Macro is macro. I subsequently received a lot of correspondence about this and have had subsequent follow-up conversations with some MMT activists about the meaning of the ‘categories’ I introduced. I thought it would be useful to write an extended account of what I was thinking when I said those things. It will help clarify what I see as the difference between MMT and the MMT Project. You can see exactly what I said if you want to watch the video of the presentation. But, of course, that doesn’t necessarily mean you will ‘know’ what I meant. So this blog post seeks to clarify some of those comments so that everyone explicitly understands what I was talking about. This is Part 2 of a two-part series where I discuss what I call the MMT Project and other issues that seem to cause confusion and/or concern.

The MMT Project

The other point I want to make is that while I consider MMT to be a body of work that belongs in the macroeconomics discipline, there is a lot of work going on in a related way which I refer to (for want of a better descriptor) as the MMT project.

The MMT Project encompasses valuable scholarly work from other social science disciplines and humanities that draw on the core technical macroeconomics of MMT to advance knowledge in those disciplines and, in some cases, add wider perspectives to the core MMT knowledge.

The MMT project is thus much broader than the technical work in macroeconomics that I call MMT.

As an example, you might like to read or re-read this article from 2017 – A Memo From MMT’s Legal Department – which I think succinctly encapsulates the value of cross-discipline interaction.

What is interesting in this respect is that progressive social scientists have struggled to glean anything useful from mainstream economics, because that body of work has been largely hostile to progressive ambitions.

Mainstream economics is biased towards supporting neoliberal aspirations despite what some economists working in that tradition will tell you.

It also abstracts from a range of important issues – such as the work on human decision-making that psychologists, sociologists and cultural anthropologists do as their core discipline subject matter – which then leads to sterile deductive models and resulting erroneous conclusions.

I am thinking here of the way in which mainstream economics characterises humanity as rational, maximising units who pursue individual self-interest as their sole goal. Those assumptions are foreign to the way the other social sciences construct human decision-making.

The thing about MMT – as a body of macroeconomics – is that it liberates our understanding of the capacities of the currency issuer from the harsh mainstream logic that the government is financially constrained and all the baggage that flows from that myth, which reduces the fiscal space available.

In that sense, MMT opens up new possibilities across all the realms of human endeavour, which other academic disciplines specialise in.

The MMT Project reflects the fact that these other disciplines have opened up a dialogue with the core MMT academics (that is, the macroeconomists) which can generate two-way enrichment as part of our ambition to be ‘well read’.

So when I say that MMT is macro, that doesn’t mean I eschew the insights that these other disciplines who are now part of the MMT Project have provided.

Speaking personally, they have enriched my intellectual life.

But there is only 24 hours in a day and the harsh reality of life is that specialisation in academic life is inevitable.

Which is why I largely concentrate on the technical macroeconomics that is MMT and rarely comment on the other valuable work that is being performed within the MMT project.

But I have been known to deviate from that narrow path and my work with Louisa Connors on Framing and Language is an example of that.

We have brought together the cognitive linguistic research and the MMT macroeconomics to provide knowledge on communication strategies for progressive activists engaged in political action.

In this way, the core MMT macro is taken to a different level of dialogue.

See, for example:

1. Framing Modern Monetary Theory (December 5, 2013).

2. The role of literary fiction in perpetuating neo-liberal economic myths – Part 1 (September 11, 2017).

3. The role of literary fiction in perpetuating neo-liberal economic myths – Part 2 (September 12, 2017).

I also regularly draw on other social science disciplines to elaborate an understanding of why neoliberalism is flawed.

And once we get into the realm of policy, then discipline intersection is crucial.

For example, I am currently building a coalition to outline a transformative agenda for Australia and beyond. We need the assistance of expert climatologists, sociologists, engineers and all sort of other skills to work within the same project.

As another example, when I was writing – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – it soon became apparent that I had to draw on the international law literature to build a case for a nation unilaterally withdrawing from the Economic and Monetary Union.

The legal principle of Lex Monetae provides the basis on which a nation is fully empowered to redenominate its assets and liabilities in whatever currency it chooses, including a newly introduced currency.

So if we were actually implementing a unilateral exit blueprint to restore currency sovereignty, the team would have MMT economists and lawyers who understood MMT, among other professional input.

I discussed this international legal principle in these blog posts (among others):

1. Options for Europe – Part 79 (May 6, 2014).

2. Options for Europe – Part 80 (May 7, 2014).

The other point to make is that while I can be somewhat definitive about what constitutes MMT – as a body of macroeconomic thought – given that I was one of the original development team, I have no legitimate role in ‘controlling’ what endeavours become part of the ‘MMT Project’.

Warren Mosler and I have discussed this point in detail over the last few years as the popularity of MMT increased and all sorts of wider applications to other disciplines started to spring up.

And while much of the work within the ‘MMT Project’ is being done by those with a progressive bent, there is nothing to stop someone from cognate disciplines who has, say, a Right-leaning perspective, embracing the core MMT insights to advance their particular view of the world.

Finally, I am fully aware that once we start with these demarcation exercises, the fuzzy edges can start to become the story.

Sometimes it is easier to demarcate what something isn’t rather than what it is.

The MMT Project is also different to what I have referred to as ‘Post MMT’ (see below).

The Lens thing

As our ideas were becoming more well-known, people increasingly would write or state that ‘when we have MMT things will improve’ or we need ‘MMT policies to replace the neoliberal regime’.

While the motivation was sound – to improve policy to make it advance well-being – the construction was flawed.

So I came up with the statements that:

1. MMT is a not a ‘regime’ that we can ‘go to’.

2. There is no sense in saying “MMT policies are …”

3. MMT is a lens and enhances understanding of the capacity of the currency-issuing government.

4. It is not something you ‘do’ but something that is!

5. An MMT understanding enhances the quality of our democracy because politicians can no longer lie about not having enough money to do something the population deems desirable.

6. Policy requires us to overlay our value judgements on this understanding.

Some people take exception to this set of propositions, particularly, because they appear to separate perception from values.

I know the argument.

I studied Philosophy 101 where we had deep discussions about value, objectivity, subjectivity, the meaning of life, do I exist?, and all the rest of it.

I know there is no such thing as a value-free statement.

Every element in that 6 point list is value-laden.

So why did I choose to represent the issue in that way?

Simply because it quickly disabuses people of the conclusion that our work is intrinsically Left or progressive in the political or values sense.

I wanted it to be apparent that a person with Right-wing tendencies could still reach the same understanding of the monetary system and the capacities of the currency-issuing government as I have.

I didn’t want to get into a deep and go-nowhere debate about the meaning of life.

As a progressive, if I can get a conservative to understand that the government is not financially constrained in a logical sense, then I have the basis of a conversation.

If I start off on a values contest then there is no conversation.

So I chose to abstract from obvious deep subjective elements that underpin the whole concept of money and all the rest of the building blocks of MMT.

I find that is a constructive way to go.

But I know that ultimately everything can be reduced to the subjective … and at that stage there is no where else we can go in the conversation.

We are then back in a post modernist relativity void.

Please read my blog post – The erroneous ‘lets have a little, some or no MMT’ narrative (February 20, 2019) – for more discussion on this point.

The Theory part

There are still people who claim that MMT is just a description of reality and the use of accounting is a basis of MMT.

Neither conclusion is accurate.

Accounting is clearly important to MMT as we aim to be stock-flow consistent.

But if that is all MMT was then we don’t get far.

For example, the question is how do those financial balances adjust when one or more changes to ensure that accounting identity is maintained.

The answer requires us to theorise about economic (and human) behaviour. That is, have conjectures or hypotheses about the way humans behave and what that behaviour means within the institutional framework for economic behaviour.

The robustness of the theorising is determined by how congruent the statements we make are with the empirical world. MMT has proven to be highly congruent in this respect.

Behavioural theories are required to answer those questions and they are important parts of the body of work that we now refer to as MMT.

I have dealt with that issue in this blog post – Understanding what the T in MMT involves (September 20, 2018).

Post MMT

I wrote about this issue in the two part blog series:

1. Reflections on the 2nd International MMT Conference – Part 1 (October 3, 2018).

2. Reflections on the 2nd International MMT Conference – Part 2 (October 4, 2018).

The widespread discussions about the idea of an employment guarantee that occur these days is an interesting case of what I think is ‘Post MMT’.

As I have written previously, from the perspective of MMT, there is one concept of a Job Guarantee – which requires the currency-issuing government to maintain an unconditional job offer to anyone who wants to work at a socially-inclusive minimum wage.

The job offer is flexible in hours at the choice of the worker.

The wage would be adjusted over time as national productivity increased.

The fixed wage offer at any point in time though, is a crucial part of the framework and is what distinguishes the MMT approach from other ‘job creation’ approaches that might be suggested.

It is the fixed wage offer at the bottom of the existing wage structure that provides the inflation anchor for the economy by allowing the government to use aggregate demand management to redistribute workers from an inflating sector to the fixed price sector if deemed appropriate.

It is obvious that that structure can be made more complicated with, for example, tiered wage offers and more. But once that sort of option is considered we are moving beyond the MMT approach into something that I have, for want of a better terminology, called ‘Post MMT’.

So there is one MMT Job Guarantee and any number of ‘jobs guarantees’ in the Post MMT world.

I only advocate the MMT version for obvious reasons.

MMT and other things

The discussion about the ‘MMT Project’ also raises another interesting point, dilemma, call it what you will.

And this is a fairly sticky wicket to be batting on!

There is usually a well-defined and informed logic to the relationship between the core MMT macroeconomics and work being done in other disciplines as part of the ‘MMT Project’.

So, for example, a sociologist concerned with urban poverty and a lack of employment opportunities in the case area they study, will be empowered by MMT because it dispenses with the myths that the currency-issuing government cannot afford to make extra jobs available that are inclusive to the most disadvantaged workers in any geographic area.

Immediately, their policy options increase and the questions the sociologist, for example, will then start asking and the solutions they explore will widen and differ. Instead of, for example, being locked into the neoliberal ‘training’ box (where unemployment is constructed as the individual’s lack of skills or motivation) and devising all sorts of redundant and ineffective training approaches, whole new work on designing and implementing job creation programs becomes imperative.

But, there is also a tendency I have observed for every issue that liberals might think important to be called an essential part of the MMT project. I disagree with these types of associations.

I have seen on social media claims that ‘MMT’ encompasses positions on a whole range of other interesting issues, such as population policy (free movement or otherwise), European union membership or otherwise, gender issues, ethnicity, sexuality and the like.

As I explained above, none of those claims have merit I am sorry to say.

The link between MMT and the work within the MMT Project has to have some congruence. It has to be, for example, that the insights that MMT provides, directly reinforce or inform work being done in the broader MMT Project.

So, to use one example, there is nothing logical that can be derived from MMT to justify claims that to have an MMT understanding one must support complete freedom of movement of people (open borders).

Those who display an MMT understanding may express views, one way or another on these issues, many of which come under the heading of ‘identity’, but that is not the same thing as saying that these issues belong in the core body of work that we have developed.

They do not.

Conclusion

I hope that this two-part series has helped clarify my thoughts on these issues.

I also reiterate that I adopted a stylistic approach in this two-part series and understanding that fuzzy edges on some of these concepts may be important.

But in general the points are:

1. MMT is macroeconomics.

2. The MMT Project is about work in other academic disciplines which uses MMT insights or broadens the context in which we place the macroeconomic insights.

3. There are many ideas that do not fit into the MMT-MMT Project nexus – and I used the example of open borders which has become a sort of ‘darling’ issue among some areas within the Left.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

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    This Post Has 13 Comments
    1. Have read both posts several times now and I still have difficulty with the concept. Obviously one hopes those with a relevant academic background and experience will be enthused and encouraged – but for mere mortals, you need a different frequency and a translator. When I submit articles, editors usually ask for a synopsis no longer than one sentence, even for complex issues. How would you summarise MMT in less than 50 words?

    2. I like this opening statement by Stephanie.

      ” MMT is about recognizing that the monetary regime under which a country operates matters. So countries like the U.S. – those that float their own sovereign currencies, that don’t borrow in a foreign currency – can never run out of money and they can never be forced to default on their debt.

      So what that means is that a country like the U.S. doesn’t need to tax or borrow in order to get the currency in order to spend. So it’s never about whether you can afford a program in financial terms. You always can. It’s about whether spending to fund your program will cause an inflation problem.

      That can happen if you’re trying to do big ambitious stuff and the economy doesn’t have the people and the machines, the factories or the concrete and the steel to absorb that spending. Then you could trigger an inflation problem and MMT recognizes that it’s our real resources and skills that are constrained not our financial resources. We should concentrate on balancing the economy not the budget ”

      I like that framing as an opening statement and when people then ask, what do you mean when you say the U.S. doesn’t need to tax or borrow in order to get the currency in order to spend for example.

      You can then delve deeper into that part of the statement and answer the question by explaining it.

      When I was interviewed on the BBC they told me in advance what the interview was going to be about. Within 15 secs they took that completely off the table. Then took a different approach to try and put me off balance and on a number of occasions tried to put words in my mouth over the next 20 minutes.It was my first ever interview I had ever done in my life. It was not easy far from it trying to explain what is MMT.

      It is very difficult when MMT is such a large subject to answer the question what is MMT. Especially when most interviewers are coming at it from a completely mainstream view point. It must be by far easier when the interviewer has at least some MMT knowledge and background. This then gives you the chance to put your answers in a logical order and watching when this happens the interview flows better. Bloomberg interviews are a great example of this.

      I used right wing and left wing examples. Tax cuts and government spending purely for the audience as you do not want to isolate anybody. How much can you really explain in 20 minutes on such a large body of work ? Not much because most of the time you end up slaying mainstream myths rather than explaining what MMT is.

      The real genius is in what Bill, Warren and Stephanie do when interviewed. They can explain what MMT is and slay the myths at the same time and it flows beautifully. That takes skill, real skill and huge amounts of knowledge and talent.

      I still believe one of the most effective ways to get Our points across is to wait on a macro viewpoint to be published. For example in my case the Scottish growth commission etc..

      Then republish the whole thing exchanging phrases with the other side of the balance sheet. Replacing deficits with the surpluses that occur for example. Just to show how inept the mainstream is. They use the liability side of the arguement we use the asset side to complete the story. The liability side narrative will sound absurd.

      MMT activists should publish them one after another every time one of the mainstream macro viewpoints are published in their own country. It would take quite a bit of work but there are enough of us worldwide to do it if we organised ourselves.

      The new SNP white paper that is getting written as we speak. Will be ripe for this kind of excercise after they publish it. Any takers ?

      Republish everything in this way that gets published by our own governments. Republish their nonsense right back at them. Sending it to every MP in the country.

    3. Warrens article.

      Interview with the chairman

      Changed by activists in their own country to represent their own country and sent to every MP and Journalist in the land would work wonders.

    4. What you refer to as the MMT Project, I refer to as Applied MMT

      I have begun to say Neoliberalism is MMT practised from the political Right – all the myths and stuff from a neoliberal POV are deliberately implanted. This shows MMT (Macro) is neither left nor right.

      It is macro and not a political theory as some like to claim. It can be applied to a political theory though. Peter Cooper at Heteconomist has some interesting thoughts on the subject.

      I find many people misunderstand the inflation part as if we do everything all at once. No. We have to look at the resources, the bottlenecks and potential bottlenecks, and hope we don’t have any unexpected bottlenecks in the resources (say excessive administration) to achieve whatever our goal may be – and our goal is set by our values.

    5. “As a progressive, if I can get a conservative to understand that the government is not financially constrained in a logical sense, then I have the basis of a conversation. If I start off on a values contest then there is no conversation.” The possibility of beginning to build bridges across the political divide would seem to open in these two short sentences–unless financial constraint is at the very heart of the conservative position. What if the foundation of conservative thought is precisely the scarcity of money that MMT calls into question? What if conservative policies could not be otherwise justified? And even if they could be, how many principled small government advocates are out there these days to talk to? Perhaps the only way to find out is to keep trying to have the “lens conversation” that Bill suggests.

    6. “What if the foundation of conservative thought is precisely the scarcity of money that MMT calls into question?”

      From what I can gather it isn’t. The foundation is the belief that there is a one-to-one relationship between money and stuff. The MMT understanding of money shows that isn’t the case.

      However it is very difficult to get across the fundamental problem – that a modern monetary system tends to create excess monetary savings which depresses the economy – to a set of people who believe it cannot exist. Funnily enough you have a similar problem with climate change where “how can such a small amount of gas cause so many problems” is repeated regularly. If you’re a person who can’t get their head around a feedback loop from CO2 you’re going to struggle with the idea that government spending causes a feedback loop that generates taxation that matches the initial spend to the penny.

      The impedance mismatch between the thought styles leads to misunderstanding. A conservative will say “how will you pay for it” and then start talking in terms of money. What you have to do is understand that they have a one-to-one relationship with stuff model in their mind they are operating to, and translate from that.

      What they are actually saying in our terms (Keynesian terms if you like) is “how are you going to make your demand effective?”.

      If you head off trying to explain the concept of excess savings to them, then you may as well be speaking Japanese to a Korean.

      This week’s fun fact is that about 20% of people have no internal narrative in a spoken language. They literally can’t have conversations with themselves without vocalising it. If, like me, you’re one of the 80% that’s a really difficult concept to get your head around. How do they work out what to say? Much of the battle is understanding the thinking style of the person you are trying to persuade.

      I like weeks when I learn something new.

    7. “How much can you really explain in 20 minutes on such a large body of work ?”

      You don’t explain it. In interviews you always bridge to the point you want to get across. Essentially government can deploy the unemployment in the nation and MMT shows the money will look after itself. In financial terms you always pay for it by spending the money.

      I’d then say we need to stop thinking of the country as a business, or an household and start thinking of it more like a military deployment with the people and resources of the nation as our army. Particularly if we want to see ourselves in a war against climate change.

      You want to get off numbers and onto stuff in every exchange. The numbers are there to mask the tough decisions over stuff.

    8. Neil Wilson: 18.42

      You are right Neil to emphasize the decisions over “stuff” in preference to those concerning money. However what is understated in MMT is the extent to which these often political conflicts can lead to enormous upheaval, even in more socialized populations than those of Western “monied” economies .

      Under Capitalism there is almost an ideological acceptance of an exploitive process that produces winners and losers. We have managed to make that regime work by a combination of welfare state and a long-term rise in average prosperity.

      Nevertheless, the hollowing out of middle income society in recent years has brought the principles of MMT into more and more acceptable focus – to the point where even right-wing ideologies are accepting the need to tackle gross inequalities more adequately.

      Bill often contends that co-operation works better than competition, and it may be that we are beginning to see the economic compass move in that direction. In the UK there is a continuing movement in the provision of NHS services and “stuff” in the direction of combining Primary Care with Social Care – competition obviously does not play such a dominant role in resource allocation.

      Whether this diminution of Capitalism produces a standard of living that is accepted as appropriate by voters will be an interesting test of how preferable MMT is compared with mainstream economic ideology.

    9. I told a Bernie supporter during a Los Angeles Bernie rally about currency issuing government unlimited capacity in financial terms.

      He said to be that it is incredibly liberating.

      I recommended 7 deadly innocent frauds to start off.

    10. Someone this week here somewhere said that he sees Neo-liberal economic policies as being — How the right wing *uses* MMT. I’ll elaborate on that.
      1] The mainstream economists may or may not realize that they are using MMT.
      2] The policies include a plan to deny that the US Gov. {as an example} can deficit spend on things that are good for the mass of the people.
      3] The policies include the fact that when necessary deficit spending was\is used to bail out the banks etc. that help the top 1% of income earners. And to cut taxes on the top 1% without ‘paying’ for them with cuts somewhere.
      4] In some ways QE can be seen as *helicopter money* for the rich.
      5] That Trump has done all these things massively.

      However, even Trump’s policies have not gotten the US economy moving like it would have if the same amount of deficit spending had been used to help most voters, instead of just the top 1%.

    11. In the UK there is a continuing movement in the provision of NHS services and “stuff” in the direction of combining Primary Care with Social Care

      It is interesting that Aneurin Bevan, usually regarded as the creator of the NHS, really wanted it to include social care as well. I don’t know the full story, but possibly he could not get that past the Treasury, and instead, Social Care was made the responsibility of the local authorities. Quoting from The Independent:

      Social care was also born in 1948 when the National Assistance Act put a duty on local authorities to provide residential accommodation for people who need it on grounds of age or disability.

      The crucial difference between the legislation that set up the NHS was that social care services would be open to charges. This created an artificial divide that still persists today between a free at the point of use healthcare system and an inequitable social care system.

      It’s a system that is both unfair and random, as people face charges depending on which illness they are unlucky enough to get, and then risk losing everything they have worked for to pay for their care. So the reality is this: if you have cancer you can rely on the care of the NHS; if you get dementia, you may as well be at the mercy of the US healthcare system.

      Unlike the NHS, social care is provided by a workforce which lacks stability and career progression, and is built on a culture of low pay and zero-hours contracts. It means that a young person can often earn more walking a dog, or working behind a bar, than caring for someone’s mum or dad.

      Nye Bevan would probably be turning in his grave if he could witness what has happened to social care, more than 70 years after the establishment of the NHS and the National Assistance Act. It’s true of course that people are living longer, and this is partly a result of the success of the NHS. But the longer we live, the more likely we are to need the intervention of the NHS, and in many cases, of the social care system. He would be pleased that people are living longer, I am sure, but he would be mortified that people working in social care are in such an insecure position.

    12. Neil,

      “….that a modern monetary system tends to create excess monetary savings which depresses the economy…..”

      Can you explain this statement?

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