...Archive for March 2019

Three levels of controversy over MMT

One thing I think worth pointing out about the recent MMT controversializing is there are (at least) three levels, related but distinct, at which these arguments take place.

The first is the argument that people mostly pretend they are engaging. Is MMT “good economics”? Is its characterization of the economy empirically accurate? Does it yield useful predictions that other perspectives on economic phenomena might not? If a philosopher king took an MMT economist’s advice, would the policy outcomes be virtuous?

This is definitely an important component of the discussions, but although it sometimes pretends to be, it is far from the only piece.

A second argument concerns the political economy of MMT, as opposed to conventional Keynesianism or other “left-ish” approaches. In this actual world where there is no philosopher king, but a restive public, entrenched elites, and a cumbersome political system whose arcane workings are determinative of policy, would characterizing the economy in MMT-ish terms, in the public and/or the technocratic sphere, yield better results or worse than other descriptions?

Obviously, this is related to the first question on the quality of MMT as “pure” economics. If MMT-ish views are politically potent, but the policies they recommend would bring catastrophe, that shouldn’t count as a point in MMT’s favor. But among the center-left to leftish groups among which this controversy rages, there is a fair amount of overlap in near-term policy goals. Most of these groups would like to see tax rates on the wealthy raised, as a means of addressing inequality, not (just) as a matter of public finance. Most support Medicare-For-All, or at least some reform of status quo ObamaCare that would be substantially more aggressive about universality and affordability. Most want, if not the Green New Deal, some form of much more muscular climate policy.

There are differences too, of course. The MMTers are famously supportive of a job guarantee or employer of last resort program, where others favor seeking full employment more conventionally by running the economy “hot”. Some on the left favor a UBI or universal dividend, policies towards which MMTers have been less than gently skeptical. Some worry that MMTers would discredit otherwise good programs by failing to tax sufficiently, causing high inflation or debilitating interest rates that could open the door to a crushing reaction.

Still, there remains a lot of overlap, and an important component of the debate is whether MMT or more traditional views will be better politically at delivering the goods that many of us can agree we want. MMT economist Pavlina Tcherneva’s riposte to MMT-skeptical Doug Henwood is extraordinary in this regard:

Henwood does not acknowledge that one of the most effective ways of engaging in this struggle is to render the wealthy obsolete — as in, we will stop pretending that we need them to pay for the good society. In a world with a sovereign currency and modern monetary and fiscal institutions, we never really did, and we sure don’t now. And the public needs to know it. That’s the MMT message.

For the record MMT, as Henwood acknowledges, has always argued for taxing the wealthy to address the problems of inequality and political power, but we also offer a different kind of empowerment — one that comes with lifting the veil of money.

I would say that Henwood (like other “tax-the-rich-to-pay-for-progress” lefties) is tethered to the wealthy by an imaginary umbilical cord that holds his progressive agenda hostage to his oppressors. To me, this is the definition of a self-induced paralysis.

Time to cut the cord. MMT has a profound emancipatory power and the Left would do well to awaken to its potential.

And here is MMTer Randy Wray:

Henwood wants us to believe that Government needs inequality. We’ve got to cater to the rich. They get to veto our progressive policies. If there weren’t rich folk, we’d never be able to afford a New Deal. We only get the policies they are willing to fund. If we actually did tax away their riches, government would go broke.

As [MMT economist Stephanie] Kelton puts it, people like Henwood think money grows on rich people.

For far too long left-leaning Democrats have had a close symbiotic relationship with the rich. They’ve needed the “good” rich folk, like George Soros, Bill Gates, Warren Buffet, Bob Rubin, to fund their think tanks and political campaigns. The centrist Clinton wing, has repaid the generosity of Wall Street’s neoliberals with deregulation that allowed the CEOs to shovel money to themselves, vastly increasing inequality and their own power. And they in turn rewarded Hillary—who by her own account accepted whatever money they would throw in her direction.

Today’s progressives won’t fall into that trap. “How ya gonna pay for it?” Through a budget authorization. Uncle Sam can afford it without the help of the rich.

And, by the way, they’re going to tax you anyway, because you’ve got too much—too much income, too much wealth, too much power. What will we do with the tax revenue? Burn it. Uncle Sam doesn’t need your money.

Henwood replies by Twitter:

Me: tax the rich to feed kids and save the planet.

Randy Wray: “What will we do with the tax revenue? Burn it. Uncle Sam doesn’t need your money.”

Which makes for better politics?

me: “Fewer Lamborghinis, more bullet trains. Fewer Hamptons houses, more public housing.”

Wray: “burn their money”

On purely economic terms, this is a case where the MMTers clearly have the right of it. MPC (“marginal propensity to consume”) effects are real, not a mere artifact of an empirically invalidated Permanent Income Hypothesis. As Dean Baker reminds us, short of near wholesale confiscation, taxing the income at the gilded heart of America’s top inequality is a poor way to free up real resources that would otherwise be consumed. You’ve got to tax more normal people, whose spending is sensitive to changes in income. You can’t actually pay for bullet trains by displacing Lamborghinis. You want to tax the very rich anyway.

But “Fewer Lamborghinis, more bullet trains” is still a great slogan!

So, which is better as politics, the pop-MMT “Fuck the rich, yes we can, just do it!” or Henwood’s “Melt Lamborghinis, make mag-levs!”? I don’t know. But I think it’s an important question. Even if you think MMT economics is total bullshit (to be clear, I don’t), it may still, as Brian Beutler argues, be

useful because it’s a specific, articulable way of describing national finance that provides Democrats an answer to starve the beast… Democrats must either come to grips with the nature of their opposition, and prepare themselves—whether it’s through embracing MMT or just pure political grit—to use power on a level playing field with Republicans, or leave us stuck on the seesaw until, eventually, Republicans win. The left is either going to beat conservatives at the game of chicken they have forced us into, or it is not.

Tcherneva, the MMT economist, provocatively asks on Twitter:

Suppose a very progressive govt says “Yes, #MMT is right, we have all the financial resources we need” and starts working on implementing a #GreenNewDeal, #JobGuarantee, #M4A etc etc. What’s the worst that could possibly happen from the POV of all fervent Left MMT critics?

If you think MMT is good politics but bad economics, it may be worth asking whether there isn’t some tweak or reform that would render the economics acceptable and retain the good politics. And advancing that project of reform might, all things considered, be a more virtuous project than ostentatiously dissing MMT under the banner of your own economic views.

Or not! If you think that MMT is just snake oil, that the economics is so bad it will undermine and discredit any policy undertaken in its name, then ostentatiously diss away! We all have hard choices to make.

Which brings us to the third level of MMT controversializing. Economics debates are often passionate, and frequently become too personal. But MMT debates are stuck on infinite recursion, and they take place in a thunderdrome entirely their own. The depth of the resentments between veteran partisans is astonishing. MMT arguments escalate almost immediately to thinly veiled campaigns to publicly expose ones opponent not merely as mistaken, but as a fraud, an idiot, a hypocrite, or a traitor to some Left cause. Like members of hostile tribes doomed over centuries to share the same tiny valley, each side points to perfidies and massacres perpetrated by the other, the Twitter horde that harassed for weeks, the line taken out of context and publicly mocked. I’m not here to adjudicate those claims, to decide who started it or who is ultimately to blame. But at this point it is simply there, ubiquitous, on all sides of every MMT-related controversy.

Which does matter as you read this stuff. All persuasive writing is susceptible to motivated reasoning. But given the duration and the depth of resentments on both sides of MMT debates, I advise fresh readers to take the strength of writers’ assertions with boulders of salt. I urge seasoned readers to do their best to muster some openness and goodwill towards the side you think you disagree with. Often the disagreements are smaller than you think.

Love your enemy. Who is not your enemy, not remotely.

Update History:

  • 3-Mar-2019, 10:35 p.m. PDT: “would yield bring catastrophe, that wouldn’t shouldn’t count as a point…”; “groups among whom which this controversy is live rages“; “…infinite recursion, and in my experience they are take place in a thunderdrome…”; “MPC effects (“marginal propensity to consume”) effects are real”

MMT streetfighting

It’s nice to see that some of the traditions of the old economics blogosphere have carried into this ugly new world where everyone is a professional and markers of status and quality crowd out most vestiges of joy, and most useful conversation. In particular, it seems that every few years we still get a recrudescence of MMT wars — arguments over the shard of post-Keynesian heterodoxy that goes by the name “Modern Monetary Theory”. MMT has gained new prominence recently. They say AOC name-checked it! And that, of course, is the chattering-class equivalent of throwing a sheep into a piranha tank. Watch the waters roil! Care to take a dip? People who seem to really like me on Twitter keep trying to push me in. The water’s nice, they say. It’s getting hot out here.

For now, I’m just going to curate a list of some recent contributions to the scuffle. (I may add more.)

I hope I’ll offer a few small comments in later posts.