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US Congress to consider a vote on condemning MMT – signals progress

On March 25, 2021, a member of the US House of Represenatives “introduced a resolution in the House of Representatives this week condemning Modern Monetary Theory, recognizing that its implementation would lead to higher deficits and inflation”, while a “companion bill” was introduced into the US Senate (Source). The full text of the proposed legislation is available – HERE. The Bill is full of factual errors. But I thought the most significant aspect is the ‘authorities’ they call upon for justification. A parade of mainstream economists and progressive economists are quoted to give support for the Bill. And I haven’t seen one disclaimer from those mentioned disassociating themselves from some of the wild inferences that the Bill makes. They have allowed themselves to be co-opted by their silence in this rather tawdry and dishonest exercise. That is not surprising at all.

Some Background

The Bill was introduced by one – Kevin Hern – who is a Republican representative who has no educational background in economics. His business background is in running McDonald’s franchise.

He is a vocal critic of fiscal deficits but in 2020 his company received up to $US2 million in federal fiscal support and regularly lobbied for increasing federal support for his franchises.

He also supported a court attempt to challenge the most recent general election results on behalf of the Trump campaign.

The Senate version was promoted by one – Mike Braun – who is also a US businessman and Republican representative.

He is the classic anti public health provision, anti same-sex marriage, anti abortion and ‘building the wall’. Like Hern, he seems to take contradictory positions.

He is a ‘free trade’ advocate but supported Trump’s protection policies against China.

He also supported “Trump’s attempt to overturn the election results”.

His campaign accepted funds connected to an “indicted money launderer”.

He has voted against emergency fiscal support to alleviate impacts of “hurricanes, floods and fires” calling the support “runaway spending on unrelated projects”

Given these credentials, I laughed when I read the text of the bill, which, in part, draws on the views of radical leftists as authorities to criticise Modern Monetary Theory (MMT).

I wondered – at what point they decide whether the views of such progressive people as Doug Henwood, which they are prepared to accept for this exercise, suddenly switch to being incorrect.

But I didn’t wonder too much. This is not an exercise in well-constructed argument based on a deep knowledge of the subject matter.

This is just a scatter gun approach – assemble as many critical voices as one can, all of which are pursuing their own and very different and inconsistent agendas – not that you would mention that.

The Bill was supported by the “Heritage Action for America, Americans for Tax Reform, the National Taxpayers Union, and the Taxpayers Protection Alliance.”

These organisations are really a collection of the crazy right-wing structures that American culture seems to support. They oppose all the usual things that these characters oppose, they use expressions like “Socialist Health Care” and claim abortion means children are “born alive” and all the rest of the stuff that we have become accustomed to since the Powell Manifesto in 1971 supercharged these organisations and the top-end-of-town funded them.

LIke the proponents of the Bill, these organisations regularly take contradictory positions about government fiscal policy.

Heritage Action for America, for example, opposes spending on public health care (calling it Socialist) but demanded the US government spend over $US11 billion on border walls, immigration judges, patrol agents, ICE personnel and other things. They oppose extending fiscal support for unemployment benefits during the pandemic because it encourages workers to stay at home (and not get sick) when they should be … well … getting sick.

In general, it pressured to keep businesses, churches, schools and whatever open and use government money to provide liability protection against lawsuits when this policy created a health emergency.

They typically claim to be ‘independent’ but it is easy to find they serve sectional interests. For example, the National Taxpayers Union accepts money from corporations it does not take money from unions. So corporate taxpayers are represented but wage and salary earners are not.

Americans for Tax Reform was founded in 1985 “at the request of President Reagan” and the current Republican establishment endorses its work. It seeks to reduce government spending but under the pandemic CARES fiscal support it received substantial federal support, which they admitted helped them “retain 33 jobs”.

This article in Forbes (July 6, 2020) – Vocal Opponents Of Federal Spending Took PPP Loans, Including Ayn Rand Institute, Grover Norquist Group – provides a short insight into the hypocrites in the US that build a public lobbying profile opposing government support but when the chips are down accept it.

The ATR, of course, opposed support for the unemployed during the pandemic.

so, overall, a nice bunch to be supporting this Bill against MMT, which is the way they are constructing it.

Which goes to show how ill-informed the politicians and their supporters are.

First, the wording of the final resolution:

That the House of Representatives—
(1) realizes that large deficits are unsustainable, irresponsible, and dangerous; and (2) recognizes—

(A) that the acceptance of Modern Monetary Theory would lead to higher deficits and higher inflation; and

(B) the duty of the House of Representatives to abandon Modern Monetary Theory in favor of mainstream fiscal and monetary frameworks.

It is no wonder that the likes of Summers, Mankiw, Krugman and a range of “noted economists” are giving support to the Bill, tacit or otherwise, because what MMT has actually exposed is the fictional nature of the “mainstream fiscal and monetary frameworks”, which that lot have invested their reputations in.

Second, an unqualified statement like “large deficits are unsustainable, irresponsible, and dangerous” are just the exemplar of ignorance.

The only way we can understand and appraise a fiscal position is to place it in context.

That context is the spending and saving decisions of the non-government sector, which, ultimately determine what the fiscal outcome will be anyway.

In some situations, a large deficit will not be responsible. In other situations, a large deficit might not be large enough.

Making categorical, context-free statements such as in the Bill shows that the proponents (and their supporters) haven’t understood very much about basic macroeconomics.

For a nation such as the US, with a massive household debt problem, a huge student debt problem, an external deficit, and a pretty poor investment ratio (business investment to GDP), there has to be a relatively significant fiscal deficit on a continuous basis to ensure there is enough spending to maintain low unemployment.

Constraining federal spending relative to the tax base in the way the proponents would have us believe they prefer will result in stagnation and elevated unemployment levels.

Third, an understanding of MMT would not necessarily “lead to higher deficits”.

There is nothing in the body of work that we have developed that says anything about the desirability or necessity of higher deficits.

For a country such as Norway, the opposite is the case.

It all depends on context. context. context.

Sometimes a large deficit will be required. Sometimes a surplus will be required. Sometimes something in between.

Fourth, an understanding of MMT does not “lead to … higher inflation”.

What causality is being invoked here? Clearly, the old Quantity Theory of Money, which was discredited in the 1930s by Keynes and others.

There is no necessary or robust relationship ever been demonstrated between the fiscal position of government and the rate of inflation.

A fiscal surplus could be associated with an inflationary state, under certain circumstances.

It all depends on context. context. context.

Having a sound knowledge of the way the modern fiat currency doesn’t lead to any predisposition other than being erudite.

That is something the proponents of this Bill are not!

Fifth, the Bill calls on the politicians to “abandon Modern Monetary Theory”.

How exactly does one abandon MMT?

It is as if the proponents of this Bill think MMT is some sort of regime that you can choose over others or jettison (abandon) over others.

As I have explained often, and students who have completed my MMT edX MOOC will know full well, MMT is not some sort of regime or a set of policies.

A government does not suddenly ‘apply’, ‘switch to’ or ‘introduce’ MMT.

Rather, MMT is a lens which provides a better understanding of the fiat monetary system and the capacity of the currency-issuer. By linking institutional reality with behavioural theories, it provides a more coherent framework for assessing the consequences of government policy choices.

MMT allows us to appreciate that most choices that are couched in terms of ‘budgets’ and ‘financial constraints’ are, in fact, just political choices.
Given there are no intrinsic financial constraints on a currency-issuing government, we understand that mass unemployment is a political choice. Imagine if citizens understood that.

An MMT understanding lifts the ideological veil imposed by mainstream economics that relies on the false analogy between an income-constrained household and the currency-issuing government.

Households always have to finance their spending choices, through earned income, savings, asset sales or through borrowing. A currency-issuing government spends by instructing its central bank to type numbers electronically into relevant bank accounts.

All the elaborate accounting structures and institutional processes that are put in place to make it look as though tax revenue and/or debt sales fund spending are voluntary smokescreens, which serve the purpose of imposing political discipline on government spending.

Insiders know this, but actively decline to share that knowledge with the public.

Renowned British journalist Martin Wolf (2020), commenting on MMT, recently wrote in the Financial Times:

In my view, it is right and wrong. It is right, because there is no simple budget constraint. It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint.

And don’t forget that famous US economist Paul Samuelson said something similar during an interview with Mark Blaug in 1988:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times … Once it is debunked takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have … anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that long-run civilised life requires.

These are profound statements of how a ‘fictional’ world is promoted by mainstream economists to serve as a brake on political volition except when the interests they serve have their hands firmly out for public assistance or public procurement contracts.

While MMT exposes these fictions many economists still think it is better to keep the public in a state of ignorance.

An MMT understanding must be combined with a set of values to define a set of policies. Two people from the extremes of the ideological spectrum can share an MMT understanding but articulate radically different policy mixes.

Thus, it makes no sense to talk about a suite of MMT policies.

Obsession

In terms of the strictly economic words used in the Bill, the following graph shows the word frequency.

No mention of unemployment, underemployment, poverty, inequality etc.

Completely obsessed with Inflation (12.8 per cent of total) and Public Debt (10.1 per cent of total).

The mainstream academy has been co-opted to defend their tattered reputation

The media release (cited above) notes that:

More than 40 leading economists were asked whether they agreed with the underlying tenets of MMT by the University of Chicago’s Booth School of Business. 100 percent of respondents disagreed or strongly disagreed with the economic principle.

And 100 per cent were not answering questions that had anything to do with the body of work we refer to as MMT and so was a dishonest exercise.

I discussed the University of Chicago’s Booth School of Business survey in this blog post – Fake surveys and Groupthink in the economics profession (March 19, 2019).

This was a rather shameless and transparent demonstration of the Groupthink that is rife in mainstream academic departments and has crippled that paradigm from being able to evolve to fit the facts.

Many of the so-called “Economic Experts Panel” assembled by Chicago for this survey are cited in the proposed Bill.

I think the significance of the survey in relation to this political stunt in the US Congress is that it implicates the members of the academy have become co-opted to the process.

Politicians regularly are loose with the truth and peddle fake knowledge as part of their ‘craft’ and the fact that the University of Chicago allowed its name to be associated with this disgraceful survey indicates that institution has become part of the political process rather than being committed to advancing knowledge.

And I won’t even respond to the ‘deficits don’t matter’ construction

Other than to say that for MMT economists, deficits really matter, because they link the government sector to the non-government sector in important ways and the fiscal position determines whether the nation sustains full employment or not.

So instead of saying ‘deficits matter’ we say the ‘fiscal position matters’ because in some circumstances a fiscal surplus might be the appropriate requirement to achieve full employment and price stability.

But to say that we think “deficits don’t matter” is just being dishonest.

And all those mainstream economists who are being used by the Bill as authorities to attack MMT are obviously part of that dishonesty. Otherwise, they would have spoken out by now.

Conclusion

So my question to Paul Krugman, Larry Summers and co, are you happy that you are being used by this disgraceful effort advanced by hypocrites who have no intention of advancing knowledge?

Of the so-called progressives mentioned as authorities in the Bill – are you all happy to be associated with right-wing lunatics also mentioned (eh Doug)?

I wouldn’t be happy being used like this and would set the public record straight immediately.

This is not some stray social media effort which one can readily ignore as I do every day (stupid Tweets etc).

This is the US Congress involved.

I also wonder whether the right-wing lunatics are happy being in the same bed with the radical left.

Anyway, it means MMT is in the public debate, which is good.

That is progress.

But if this is what the US legislature now considers to be relevant business – in the middle of a shocking pandemic with massive welfare fallout – then it just signals a failed state.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

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    This Post Has 29 Comments
    1. Just because one member of the US Congress proposes some stupid resolution does not mean the US is some failed state. There are a lot of ignorant people here in the US and their views are apparently well represented in the US Congress. But that is democracy.

    2. To me, this is fundamentally about honesty, but I will accept that democracy is involved too. In my simple minded view, democracy is only sustainable if there is political honesty.

      I would like to propose an analogy from the world of physics; an event that never happened. Suppose that the politicians in any democratic country decided that they could not accept the implications of quantum physics and relativity and passed a bill condemning those ideas. Funding for their development consequently dries up. Imagine the consequences in the long term: No GPS that works developed, no advanced electronic devices.

      It should make everyone think about the overall direction of travel for the political class and their backers.
      Just a thought

    3. As you say Bill, a good sign that the subject has been raised again. And not surprising the line of attack from a corrupt state.
      Reading Andrew Feinstein’s ‘Shadow World: The Global Arms Trade’ which shows how developing (exploited) countries’ economies can be wrecked by the global north fuelling wars and corruption and taking the resources. Ultimately the people remain in poverty.
      Enjoyed your MOOC.

    4. @Jerry Brown I feel your ‘that is democracy’ comment errs towards exasperated and flippant rather than serious, but taking it as serious I’d reply that Democracy has to have more to it than ignorant people being represented by ignorant people. Much better to see it as an ideal worth striving for than a set reality to be waved like a flag. Ideally people are sufficiently knowledgable to not only know their wants and needs (and be able to distinguish) but how to further them through collective action (eg know such things as the paradox of thrift), but at the very least, representative democracy (because participatory democracy is even more difficult) depends on us being able to pick representatives who can make up for our ignorance and lack of ability. The better educated we are, the better chance we have of getting closer to the ideal of democracy. There is some considerable way to go on both sides of the Atlantic and probably further south too.

    5. “it is ‘‘hard to pin MMT down on anything at all’’ due, in large part, to the fact that ‘‘prominent supporters of MMT have taken vague, sometimes contradictory positions,”

      Oh the irony

    6. A formal written complaint – An Inquisition – experts witnesses giving ‘unqualified’ assessments of theory as false – unsubstantiated claims against proponents of theory – theory denounced as heretical – Inquisitors issuing a prohibition against a theory.

      Sound familiar?

    7. This is not the first time Republicans have introduced a congressional resolution condemning MMT. The resolution is a pretty slapdash thing. Note how all the quotations date from 2019 or earlier; nothing in the last year. Some young staffer must have discovered that you can search the Internet for ‘MMT’, string quotes together and get a draft resolution out of it. The most difficult part must have been finding some staffer on the other side of the Capitol to co-sponsor the motion. But, as many commentators have observed, having lost their majorities the congressional Republicans have given up dealing with actual policies. It’s all about performing for their base now.

      This resolution will go nowhere, of course. That’s the fate of most congressional resolutions and I suspect that Krugman, Summers, Henwood, et al. will just ignore it. It will, however, be interesting to see whether any ‘Blue Dog’ Democrats — the guys who were introducing a Balanced Budget constitutional amendment resolution two years ago this month — will sign on. At least one of them lost to Republicans in the 2020 elections and the Democratic margin in the House is so thin that Pelosi has had to keep the Blue Dogs on a short leash.

    8. The ultra-right of the western world just got hit by the greatest blow they could have imagined: the failed trump re-election – considered certain just a a year ago.
      Charlatans all over the world faltered as the news from the US became more and more absurd.
      In the US, this came with additional woes: the GOP became minority in the senate while in some redneck states the polls turned blue for the very first time in history.
      The usual trade-offs between the GOP and the Dems just got blurred to.
      Usually, the GOP spends big, and creates big deficits.
      Aftwards, the Dems come to power and engage in some sort of austerity to curb the deficit, like the neoliberal mantras tells them to.
      It happened with Reagan/Bush-Clinton and with Bush-Obama.
      So the Dems are spending big right now, potentially leaving the GOP with the role that was traditionally played out by the Dems.
      They are even on the brink of ditching out the filibuster, the big power that the GOP had left.
      The redneck state got scared and needs to limit the Biden Administration form free ridding on fiscal and monetary policies.
      Turning MMT illegal might be a way to use the US courts to do what they can’t do in the House of Representatives and in the Senate.

    9. Unfortunately, I don’t think many representatives actually invest much time studying the relevant background material before deciding on a bill or in this case before introducing a bill. Individual representatives just seem to do a simple calculation of political support from other representatives they win or lose for their own pot of pet projects by endorsing or rejecting it.
      This is how you can have a situation were something like adopting some form of gun control which has massive support from individual Americans never gets on the table. Too many representatives receive donations from the gun lobby, which has more persuasive power than everyone else apparently. No evidence of democracy at work on that.

      The mere introduction of the bill is dangerous because of the precedent it could set. It wouldn’t be unlike restricting thought to what is contained in a particular religious canon.

    10. @Patrick B, ‘Exasperated’ describes it very well. It might even be a good thing that most people would be exasperated with their legislatures. They are almost always slow to act, they do things in half measures, no one is ever completely satisfied with the results of what they do manage to accomplish. Maybe it is a feature rather than a bug in the system.

      So Bill, the USA is a failed nation state? What are some examples of the successful nations in your opinion? If there are any. I can think of a few maybe- but they have populations smaller than the metropolitan areas of our larger cities here. And none are perfect.

    11. Bourgeois democracy is democracy for the rich and dictatorship for the poor.

      “Clearly, the old Quantity Theory of Money, which was discredited in the 1930s by Keynes and others.”

      I recently read Value, Price and Profit. I think Marx debunked QTM too. Its quite amusing in general how zombie arguments that were debunked in 19th century are still being used today by even “well-educated” people.

      “It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint.”

      No, it is impossible to manage an economy sensibly because they are politicians who are trained to serve the status quo.

      The quote from Samuelson is amusing but we should somewhat appreciate his honesty about how degenerated economics is. On the other hand, the nerve to talk about long-run CIVILIZED life when people are out of work and poor! Inefficiency! We have massive number of young people not working and he talks about inefficiency! But he couldn’t have foreseen it! Well, some people have and so Samuelson needs to do better.

      Its great to see the economists show their true face. These few years have been quite revealing with the Bernie moment, Trump election, and now this.

      Kalecki once wrote about this: that its not about profit, but control. If you let people realize that government can step in and regulate then all bets are off for the exploiters.

      I need to get better at smashing that inflation argument though. Its the excuse they run 24/7.

      Finally, the 100 percent rejection by economists should be viewed as badge of honor.

    12. Normally I’d roll out the Churchill quote “Americans always do the right thing. After they’ve tried everything else.” That said, the excommunication of MMT by Congress might backfire if the media starts putting some MMT experts on TV. I know that L. Randall Wray gave testimony explaining the basics of MMT before a Congressional Committee. Your textbook is popular, Stephanie Kelton’s book is a best seller in the non fiction category, and Michael Hudson pretty much torches mainstream economics every chance he gets. Putting all these folks on the public stage and pitting them against the mainstream professors would be disastrous for the mainstream.

    13. Answering my own question. Canada seems like a country that has managed to be fairly successful sort of. Never been there but have met many Canadians who have come to work here in the US. I think I liked every single one of them. One of my best friends is from Saskatoon and came here to work as an engineer making jet engines. Canadians are notorious for being polite so maybe it is not unusual that they never mentioned the failing of the US as a state while they moved here to work. Sort of strange they would move to a failing state from a successful one though.

      Apparently, there are lots of people around the world that would like to live here in the US, failed state or not. More than we are willing to accept I guess. It is actually very sad that there are so many desperate people from actual ‘failing’ countries that seek asylum or a chance to make a living here.

      The US is not a failed nation as of this point. It would be silly to think it was. Got a lot of problems no doubt about that. But someone said there was a lot of ruin in a nation and this is a huge nation and it is not even clear that the ruin outpaces improvement. You will have to deal with the US as being a world power for the foreseeable future. It could be worse.

    14. Jerry Brown: the USA is a “failed nation” or not, depending on how you define that term. Until we agree on the definition, arguing about “true or not” is pointless.

    15. There is an almost religious fervour about some of the content of this bill. “The world is flat. And we will burn anybody who says otherwise!”

    16. “Two people from the extremes of the ideological spectrum can share an MMT understanding but articulate radically different policy mixes.” I can’t see anyone from the far right being overtly accepting of MMT as it would be quite clear what their objectives are.

    17. Carol, I’m actually surprised that more right wingers have not accepted that MMT is correct and used it for their own political goals. I mean we have an economic theory that quite clearly states that the government does not ‘need’ to tax the rich in order to spend on the things it needs- I figure the wealthy would be all for that understanding. The wealthy don’t need much from the government except to protect their property rights- they would probably be happy with a smaller government where the value of the currency was ensured through poll taxes. They might even support a Job Guarantee that ran like a workhouse with a really minimal wage and requirements to work to receive any benefits whatsoever. You keep JG wages real low and there won’t be any wage competition for your hired household staff.

    18. I think the problem the rich have is that MMT gets too radical. MMT theorists have gone on to say that we don’t need the rich for anything at all.
      The theory of Plutocracy seems the be that we others desperately need the rich to pay for *everything* — but we need them to loan the money to us at interest, to discipline us against frivolously pissing it away on foolish things. To preach that the rich are not the originators and sole source of money strikes at their vitals. The loop where the rich borrow from the central bank to buy bonds from the treasury to sell to the central bank is an easy game that always pays off; funding the government straight from the central bank would kill all that profit.

      H.G. Wells described that kind of industry-run guaranteed job system in his dystopian novel _When the Sleeper Wakes_. Available from gutenberg.org . It’s a rousing good read.

    19. It seems to me Mel that MMT shows us that we don’t need money from the rich in order to have our government implement the policies we want it to.

      Now some of the wealthy are also very talented in various ways- maybe such that the world benefits from their particular talents- so we might need them that way. But we don’t need their ‘money’. At most we just need them not to spend all of it.

    20. Jerry, the Republican Party understands perfectly well that the government does not ‘need’ to tax the rich, end of sentence.

    21. @Jerry Brown

      “What are some examples of the successful nations in your opinion? If there are any. I can think of a few maybe- but they have populations smaller than the metropolitan areas of our larger cities here.”

      Either you are falling hook line and sinker to the propaganda of the “exceptional and indispensable Nation ideology” or you are clueless – no idea what it is that ails you.

      According to your statement
      China
      Russia
      Germany
      India
      Japan
      Vietnam
      France
      Australia
      Canada
      Brazil
      etc. etc. are all “unsuccessful Nations? I wonder what are your criteria?

      ” And none are perfect.” That seems about the only part that makes some sense in your statement…

    22. Question for Bill – The proposed Congressional resolution references a Prof. Mankiw paper from 2019. In that paper, the Prof implies that the Mitchell, Wray, and Watts text advocates for wage and price controls. I admit I haven’t read the text, but I’ve never seen anything here or elsewhere in MMT advocating for such controls. Am I missing something?

    23. @Peter Moritz, I think you misunderstood my question to Bill. If the USA is a ‘failed nation’ according to him, I am curious as to what are successful nations in his opinion. If Bill thinks China is a ‘successful nation’ and the US is not, well I would be interested why he does. Just to take the first on your list.

      I am not the one calling out nations as failures here. And I am not generally naive or clueless.

    24. Dear Jerry Brown (at 2021/04/01 at 3:36 pm)

      We might examine exceptional and seemingly uncontrolled negative events to help us decide the status of the US.

      The US likes to claim exceptionalism – well how many mass shootings have there been so far this year in the US versus the rest of the world?

      https://en.wikipedia.org/wiki/List_of_mass_shootings_in_the_United_States_in_2021

      Another incident in the last 24 hours.

      A failed state is one that cannot control gun violence.

      best wishes
      bill

    25. Well that at least lays out some criteria. Thanks Bill. The level of gun violence in the US is much too high and if that is what determines if a country is failing then you have made your case. The US has a lot of problems and citizens shooting each other is a rather serious problem. There is no disputing that.

    26. Shocking! At least they recognize how dangerous a descriptive theory is to the pervasive misunderstandings required to keep the status quo.

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