Modern Monetary Theory (MMT) has a had its official coming out party over the last few months. Orthodox luminaries from Paul Krugman to Nick Rowe through to their prison wives such as Stephen Williamson have been generating one faux engagement after another with MMT. Clearly both the press and the volume of adherents MMT is attracting is causing inquietude inside the citadel.
The protagonists of MMT come from an assortment of vocations: academic economists and financial sector specialists. The basic thrust of their analysis is that debt and who holds that debt matters. Their main empirical point is that horizontal (credit) money matters when thinking in terms of the economy as whole and their central policy conclusion has tended to be that sovereign currency issuers like Canada and the US are never borrowing constrained. Public deficits do not matter in and of themselves, rather what matters is capacity utilisation rates and aggregate demand. Oddly the MMT position is subsumed under the broader heading of post-Keynesian economic thought.
Williamson thinks they are crazy because he is attempting a restoration of the failed elements of the hard monetarist policy prescriptions from the early 1980s. Krugman hates MMT as near as I can tell because it reminds him of just how much distance he has travelled from Keynes to Freddy Hayek via Friedman. Rowe, well is Rowe: ask him an empirical question and what you will get is a well thought out theoretical restatement of your question on his terms, in his ontological zone of preference.
So all in all, more heat than light. MMT is No Country for Old Men. Not because it lacks grounding in a sophisticated understanding of how both public and private credit creation works (deficit spending), it clearly does, but rather because its policy implications threaten the grand consensus on the veracity of neoliberalism particularly with respect to fiscal policy and labour markets.
MMT is going to win the battle and loose lose the war. Orthodoxy has demonstrated itself to be extremely flexible when confronted with serious theoretical challenges such as the capital controversies, acknowledging its short comings and then returning to the central narrative. It has done the same with empirical short comings as well. In each case, it has first responded with derisive missives, then acknowledged in a limited sense its own short comings and then invented a work around so that it can come back to the basic glib classical proposition: all is for the best in the best of all possible worlds and any attempt to fuck with ‘nature’ is folly.
This view has always served as an ideological resource ready hand. The benefactors don’t really care if it is true in some narrow technical sense. That is not why they pay the rent and heating for the incubation of such thought.
Sure the danger of absorption is to be taken seriously. We are currently experiencing a five hundred year re-run of the predator Henry VIII and his crony aristocrats stripping the Roman Catholic Church social welfare safety net of its assets under the pretext of the Pope interfering in Britain’s affairs of state. Austerity cuts will enable the “interfering Nanny State’s” assets to be sold to the crony predator capitalists at a knock-down discount. Acknowledging the supremacy of the state to use MMT understanding to create money from nothing to reinforce and rebuild that safety net would obviously weaken the premise for “Austerity Raids.”
only disagreement with above is this sentence:
Austerity cuts will enable the “interfering Nanny State’s” assets to be sold to the crony predator capitalists at a knock-down discount.
It should read: “Austerity cuts will *further* enable the “interfering Nanny State’s” assets to be sold to the crony predator capitalists at a knock-down discount. “
Great post! Actually, I think what will happen (can’t say when) is some version of economics blended with complexity science will ultimately dethrone neoclassical economics. Perhaps the latter will find a way to mesh with that, too, though I can’t see how.
Thanks Scott,
I think you will at the very least need a serious shift in the present configuration of modern capitalism. I am not saying neoclassical economics has no scientific content. It clearly does. But it is scientific liberalism. And I don’t mean that in any derogatory way. What I am saying is that neoclassical economics preforms a legitimation function and in that role it is indispensable to technocrats, the state, and above all capital. So unless MMT can make sure nothing radical is implied by its analysis in terms of policy then it will remain on the fringe. Krugman is a monetarist both inside and outside a liquidity trap. The goal of monetarism was never to control the money supply it was to control democracy and restore the institutional power of capital. Where they originally erred was in thinking they could do that by controlling the money supply.
Economic theory is political war by other means. A serious legitimation crisis of the liberal democratic state and the economy may well pave the way for an MMT revolution but then that will be because it is out of necessity not some abstract commitment to having theory in communion with reality.
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“Rowe, well is Rowe: ask him an empirical question and what you will get is a well thought out theoretical restatement of your question on his terms, in his ontological zone of preference.”
Brilliantly put!