Originally published February 29, 2012 on the New Economic Perspectives blog.
Ok: 32 comments and counting. Must be a record. Way too many to respond to. I guess we need another full blog. You either love them or you hate them. Apparently there’s no in-between. Also I note that reporter John Carney has picked up my MMT for Austrians blog and written several of his own ideologically-infused interpretations that have almost no earthly grounding.
It is late on Wednesday night and I’m going to pick and choose a few things to respond to. Watch the NEP main page for another response.
In related news, as you have probably seen, some MMTers associated with NEP went to Italy and some bottom-feeding (let us be careful here) commentators have latched onto the claims that MMT is some crypto Nazi-Austrian-Fascistic-Austerian-Big Government-Socialistic-Bolshevik-free market-Ayn Randian-Stalinistic plot to eliminate free choice and install a dictatorship of Wall Street, Hitler,Stalin, and OWS occupiers.
My colleague Bill Black wrote a nice response and I hope you all will go to the front page of NEP to read it.
I’ll also contribute something after I stop laughing hysterically at the accusations.
So, to be fair, I will respond here only to very specific questions about the original post. There are quite a few comments on ELR /JG—but that is the topic for coming weeks so I will punt on those. If your questions are not answered in the next 2-3 weeks then please ask your questions again. I’m also going to avoid the more political/ideological questions/comments as I want to write a reasoned response in the next couple of days.
Q: . Do you think the idea of equilibrium has any place in economics?
A: Yes. Keynes used the idea of “shifting equilibrium”—every time expectations change you get a different point of equilibrium corresponding to the level of effective demand. Sorry, it is wonky but yes it is useful. It is nothing like the “market clearing” general equilibrium of invisible hand-waving free marketeers.
Q: Can’t wait for the day when people start obsessing about resources and output instead of money
Keep up the good work Prof you’re getting there.
A: Look, MMT has never shied away from real resources. Go to www.levy.org, click on scholars, click on my name, click on all my papers that have anything to do with Social Security. I’ve been pounding the drum since 1992: it has nothing to do with “finance” and everything to do with our ability to provide real resources to tomorrow’s seniors. MMT has always been in the forefront of separating “affordability” from the real issues. We get it. We always have. It is only the lazy accusers who don’t know this.
Q: Several responses to my claim that MMT does not support pump-priming and military Keynesianism.
A: Yes, someone referred to Pavlina Tcherneva’s work demonstrating that Keynes always supported “directed” spending and job creation. (Hey, one of my favorite students of all time—how could I disagree?) So do we. The idea that you just “pump” demand—without regard to where it will go—and then jobs trickle down to Harlem so we get full employment is rejected by all MMTers. Will not work. Will cause inflation. My dissertation advisor, Minsky, was very clear on all this. It is the “bastard” Keynesian approach and completely inconsistent with MMT and Keynes. Unfortunately, many “progressives” do support it. Just think about it a second. It really is not even possible as a policy prescription. Government does not fly black helicopters dropping bags of cash. It chooses who gets the money. Yes. Let’s spend it where it helps most. Hint: not at Boeing. Or Goldman Sachs. Infrastructure? Ok, generally, yes we agree.
Some have very strangely believed we advocate “deficit spending” to deal with unemployment. Of course not. We advocate hiring the unemployed. Credit bank accounts. Will that result in deficits? Depends. Who knows? Who cares? Return to three balances, dude (Golfer dude are you paying attention?). Budget deficits are not discretionary. They are not a policy goal. Ever. They are a result.
Q: These leads me to two questions. One for Prof. Wray (and other MMTers) and the other for Austrians. Firstly, can we get an honest look at the effects of increasing/decreasing the money supply? Secondly, for Austrians, why is it that government should be distrusted and abolished, but private industry should be trusted to regulate itself?
A: Government cannot increase/decrease money supply. Most of the money supply is privately created in decisions between banks and their customers—and that decision is hard to influence. Should we distrust government? Yes, hold the darned b*sturds accountable. Feet to the fire. Should we abolish it? Of course not. Trust industry? Take a good long look at “Doing God’s Work” Blankfein and I think you know the answer to that. Feet to the fire. Maybe head, too.
Q: We haven’t fully monetized everything.
A: Of course not and I’ve made that an important point in the MMP blogs. I’d suggest that even in the US today most of the important activity for survival is still not monetized. But capitalism monetizes evermore.
[Golfer: we already do “intervene” to check on household “production”—there is a public interest in checking on child abuse and the like. Get over it. (Could I suggest you write out your comments and then read them 3 times, then wait 30 minutes before posting them? No disrespect intended, but sometimes it does help to think before acting. Or writing. And posting.)]
Q: Why don’t we have “Henry Fords” currencies?
A: Yes we have had privately created currencies, commonly called scrip. Usually only accepted in the company store. It was a scam to doubly screw the workers (low pay and high prices in the company store). We argue that taxes are sufficient to drive currency. But if you work in a woodmill in the Northwest cutting Redwoods, your company can “drive” its currency by accepting it for payment for necessities at the local stores it runs. There are other examples, such as US military scrip in foreign countries—accepted at the commissary and also thus by prostitutes. Taxes are sufficient but not necessary to drive a currency. We have always argued this. Somewhat related to this were comments about Zimbabwe hyperinflation, Russian defaults, gold standards and soon. All of these issues were covered in earlier MMP blogs.
Q: What about Big Government to buffer the business cycle?
A: Yes, you need a government whose balance sheet can swing as much as investment (and other private spending) to stabilize GDP over the cycle. As Minsky argued, a 3% government is too small. Investment is, say,12-15% of a developed economy’s GDP so you need government at least that size.We now know consumption can also swing quite a bit, and for some countries so can net exports. So, say, government of 20% of GDP is the bare minimum; maybe you need more if government’s balance sheet doesn’t swing counter cyclically very much. My guess is that all the major countries have a government that is big enough. The rest is politics.
Q: M-C-M’: is that Marx?
A: Marx, Veblen, Keynes. More later.
OK you will note I did not deal with the ELR /JG comments. Ask them again if they do not get answered in coming weeks.