Earlier this week (April 25, 2023), I saw a Twitter exchange that demonstrated to me…
MMT is what is, not what might be
One of the things I have noted with regularity is that readers and other second-generation Modern Monetary Theory (MMT) bloggers often fall into the error which we might characterise as the “When we have MMT things will be different” syndrome. Or the “we need to change to MMT principles to make things better” syndrome. Thinking that MMT constitutes a regime change is incorrect and steers one away from the core issues. In this blog, I reflect on that syndrome and some other aspects of the development of ideas, which I hope will provide readers with a clearer picture of what the core (early) MMT developers (Mosler, Bell/Kelton, Wray, Mitchell, Tcherneva, Fullwiler) had in mind when we set out in the early 1990s to construct a better way of doing macroeconomics. The point is that while MMT constitutes a regime change in economic thinking within the academy it does not constitute a regime change in the way the monetary system operates. We need to separate the operational principles exposed by MMT academics from their ideological values to really come to terms with the fact that MMT is what is, not what might be.
I have been reading the 2001 book What Evolution Is by the famous evolutionary biologist Ernst Mayr recently. He took on the establishment in his area of research and has definitely been a major influence on the way we think about biodiversity in modern times.
He was influential in the emphasis on secular explanations for evolution. In one interview in 1999 he was asked:
EDGE: How do you account for the fact that in this country, despite the effect of Darwinism on many people in the scientific community, more and more people are god fearing and believe in the 8 days of creation?
MAYR: You know you cannot give a polite answer to that question.
EDGE: In this venue we appreciate impolite, impolitical, answers.
MAYR: They recently tested a group of schoolgirls? They asked where is Mexico? Do you know that most of the kids had no idea where Mexico is? I’m using this only to illustrate the fact that and pardon me for saying so the average American is amazingly ignorant about just about everything. If he was better informed, how could he reject evolution? If you don’t accept evolution then most of the facts of biology just don’t make sense. I can’t explain how an entire nation can be so ignorant, but there it is.
That insight has bearing on how we think about macroeconomics as well and I will return to that soon.
His account of evolution is interesting and has parallels with the way other ideas develop, including those in economics.
To some extent, Mayr’s work constituted a ‘regime change’ in his discipline after resistance from the established thinkers. in another sense, his discussion of evolution itself has relevance to the ways ideas emerge and move from being unacceptable to broadly accepted.
Evolution, in Mayr’s work, involves novelty, changes to some species. Changes accumulate.
Our understanding of this process through time sometimes takes us down dead-ends or blind alleys as the new ideas are tested against reality.
These ‘mistakes’ in perception are important though, because while they cannot help us understand the reality of interest, they do provide other information that helps us see things in better perspective.
In economics, I characterise most of the mainstream theory as ‘fake knowledge’. Please read my blog – The failure of economics – reality and language – for more discussion on this point.
It doesn’t help us understand the way the monetary system operates. The mainstream explanations and characterisations are just plain wrong – and systematically so – one myth links into and reinforces another in a stream of logical nonsense.
But if you then ask why the mainstream adopt the position that they do, which in any reasonable assessment is ‘just plain wrong’ – then exploring that question is insightful because we enter the world of ideology and the role that ideas have in reinforcing existing power elites.
It is clear that the adoption of ‘free market’ conceptions help maintain the elite position in the deployment of real resources and the income flows that are derived.
There was a recent and interesting article in The Nation (March 6, 2017) – Our political economy is designed to create poverty and inequality – along these lines.
So, while mainstream economics is bunkum, understanding its role is important and helps us understand why ‘better’ ideas struggle to gain ascendancy in the contest of ideas.
There are many examples of such ‘contests’ in the evolution of ideas.
I have previously noted the struggle of American biologist Joseph Altman.
Please read my blog – Whatever – its either employment or unemployment buffer stocks – for more discussion on this point.
He specialised in neurobiology and discovered adult neurogenesis in the 1960s. He showed that adult brains could create new neurons but the idea was fiercely denied by contemporary thought at the time.
The power elites in his field were challenged by the new ideas.
It wasn’t until the phenomenon was ‘rediscovered’ by another scientist (Elizabeth Gould in 1999) that the proposition became fashionable. Neurogenesis is now one of the most significant areas in neuroscience.
Why were Altman’s discoveries ignored for almost 30 years?
In an article – Three before their time: neuroscientists whose ideas were ignored by their contemporaries – which came out in 2008 in Experimental Brain Research. Charles Gross wrote:
… the dogma of ‘no new neurons’ was universally held and vigorously defended by the most powerful and leading primate developmental anatomist of his time.
Paradigms reject change when establishment hegemony is threatened.
A while ago I followed the story of Jacques Cinq-Mars who was a French-Canadian archaeologist who did fieldwork, searching “the Yukon riverbanks and rock shelters for traces of Ice Age hunters”.
His work in the Bluefish Caves in the North-West of Canada between 1977-87 and his subsequent analysis established that human life in that area existed 24,000 years ago.
The findings challenged the established view at the time – the so-called Clovis-First theory – which had dated the arrival of humans to ‘America’ at 13,000 years.
A recent article (March 7, 2017), by Heather Pringle – From Vilified to Vindicated: the Story of Jacques Cinq-Mars – provides an accessible introduction to this controversy.
On May 3, 2013, the editorial in the journal Nature – Young Americans – described what happened when Cinq-Mars released his findings and sparked “one of the most acrimonious – and unfruitful -in all of science”.
… endured brutal criticism from opponents who did not give them, or their evidence, a fair hearing. Scientists who supported the Clovis-first model countered that reports of pre-Clovis sites were examples of poor scholarship.
Heather Pringle describes the criticism and pressures that Cinq-Mars was put under by the academy as he unveiled the findings of his research:
It was a brutal experience, something that Cinq-Mars once likened to the Spanish Inquisition. At conferences, audiences paid little heed to his presentations, giving short shrift to the evidence. Other researchers listened politely, then questioned his competence. The result was always the same … In his office at the Canadian Museum of History, Cinq-Mars fumed at the wall of closed minds. Funding for his Bluefish work grew scarce: his fieldwork eventually sputtered and died.
And studies now support his earlier claims “that humans reached the Americas well before the Clovis culture”. But the facts were not the issue – it was the challenge to the hegemony in this area of study that mattered.
As Pringle writes: “Today, decades later, the Clovis first model has collapsed”. It was fake knowledge all along but built careers and influence.
Well-paid professors who had made a lucrative career and garnered massive social status as a result of their claims about the first Americans were suddenly staring at a void – they had been peddling fake knowledge.
The impacts of the resistance are still being worked out.
Did archaeologists in the mainstream marginalize dissenting voices on this key issue? And if so, what was the impact on North American archaeology? Did the intense criticism of pre-Clovis sites produce a chilling effect, stifling new ideas and hobbling the search for early sites? Tom Dillehay, an archaeologist at Vanderbilt University in Tennessee and the principal investigator at the Chilean site of Monte Verde, thinks the answer is clear. The scientific atmosphere, recalls Dillehay, was “clearly toxic and clearly impeded science.”
Similarly, does an adherence by policy makers to the fake knowledge offered by mainstream macroeconomics force millions of people to endure unemployment and poverty unnecessarily. The answer is clearly yes.
A final example before I move on is closer to home. I refer to the story of Helicobacter Pylori. If you do not know what I am referring to then it is an amazing case of the resistance to new knowledge by those who had entrenched interests in maintaining fake knowledge.
In this case, it also involved the capacity of large pharmaceutical companies to make huge profits by forcing unnecessary drugs onto unsuspecting patients, kept in ignorance by their trusted doctors, who under pressure from the pharmaceutical companies to resist adopting new discoveries.
It involves the research of Dr Barry J. Marshall, who was a young doctor at the Fremantle Hospital in Perth, Western Australia in 1984. He discovered that the bacterium Helicobacter Pylori was associated with the incidence of stomach ulcers. Further research convinced Marshall and his team that the association was causal.
The mainstream of the profession at the time considered ulcers to be caused by “psychological turbulence” (see New Yorker link below).
This New Yorker article (May 3, 2003) – Marshall’s Hunch – provides an interesting insight into the controversy.
It recounts how Marshall first presented his work in 1983:
… at a gathering of infectious disease experts in Brussels. The audience was full of heavyweights … When Marshall finished speaking … The scientists chuckled and murmured and shook their heads, a little embarrassed for a junior colleague whose debut was such a disaster …
One scientist said Marshall’s theory was “the most preposterous thing I’d ever heard … I thought, This guy is a madman”.
The problem for Marshall was that up to that point the pharmaceutical giant Glaxo(SmithKline) were making massive profits selling Zantac to people whose doctors had diagnosed stomach ulcers. The drugs were palliative only – moderated symptoms (pain).
Patients were then on a treadmill where doctors would perform expensive and regular investigative colonoscopy procedures to ‘see’ whether the ulcer was contained and in between times would ingest Zantac and other remedies to control the pain.
They were put on special diets (cutting out things they liked) to stop the ulcer from erupting.
All of which Marshall demonstrated was unnecessary.
Now, Marshall’s findings are standard fare for the medical sector but it took many years before the message got through to GPs who were under the influence of the large drug companies, intent on suppressing the findings and keeping their markets.
All of these stories (and there are many more I could write about) involve regime change. They involve a new set of ideas or explanations coming headlong against the perceived mainstream and then being undermined until it becomes self-evident that the facts support the new idea.
Academic disciplines (such as, neurobiologists, archaeology, economists etc.) work within organised ‘paradigms’, which philosopher Thomas Kuhn identified in his 1962 book – The Structure of Scientific Revolutions – as “universally recognized scientific achievements that, for a time, provide model problems and solutions for a community of practitioners”.
Typically, the body of knowledge that defines the paradigm are “recounted … by science textbooks, elementary and advanced” (Kuhn, 1996: 10).
Kuhn challenged the notion that ‘scientific’ activity is a linear process, whereby scholars add new empirically supported facts to the knowledge base to replace previously accepted notions.
Rather, Kuhn said that dominant viewpoints persist until they are confronted with insurmountable anomalies, whereupon a revolution (paradigm shift) occurs. The new paradigm exposes the old theories as inapplicable, introduces new concepts, asks new questions and provides students with a new way of thinking with a new language and explanatory metaphors.
Once supplanted, the old theories are no longer considered valid knowledge. Kuhn also noted that there is a sort of mob rule among practitioners within a dominant paradigm and they vehemently hold onto their views even in the face of logical or empirical anomaly.
The dominant group becomes trapped in what Irving Janis called Groupthink and initially vilifies those who propose new ways of thinking.
The work of Joseph Altman, Jacques Cinq-Mars, Barry Marshall and countless others across all discplines represented the potential for a paradigm shift and was resisted by the mob until change became ineluctable.
Not all novel ideas face this sort of brick wall. But when the professional bodies become trapped by Groupthink and, typically, there is status and money at stake (particularly, commercial edge) then resistance can be fierce and prolonged.
So we can fairly say that the ideas discussed above resulted in regime change in their particular areas. In some cases, the regime confronted was dominated with real knowledge (such as the dating of the Clovis society) but some assertions relating to that knowledge become exposed.
In other cases, the knowledge is fake all along and the dominance of the discipline is maintained through control of media, professional appointment and promotion, access to research funds, and other smokescreens that are erected to deter outsiders from knowing what the facts are.
Mainstream macroeconomics fits into that latter category. It is fake knowledge and always has been. But the Groupthink discpline among the profession is very tight and coercive. Anyone who has ever challenged its position will know what I mean.
I was giving an invited presentation once at a prestigious conference on my macroeconomic views (I was the token Keynesian they used to have along to say they were providing a balanced roster of speakers! Not!).
Anyway, after I had given the presentation, the discussant started off by saying (with a whirring noise to start his spiel) “ladies and gentlemen, I think we are being visited by a presence from Mars today!” He said very little after that and just rode on the laughter in the audience. That was meant to be serious professional interchange.
It was nothing more than bullying. There was huge laughter at my expense – but by this stage I was a senior professor and had experienced years of this sort of ignorance. Always water off a duck’s back! I was inured to it.
When I was starting out, my very first referee’s report on a journal submission was one sentence long (they are normally, at least, a few pages long). It said “the author obviously hasn’t read or understood the first chapter in Lipsey”, which was a major mainstream textbook at the time, preaching the sort of rubbish that goes for mainstream macro.
That was it. I had spent hours working on the paper ensuring it was very tight and all I got was that. I took it as a challenge. But many more sensitive younger aspirants would have been destroyed by it – their confidence shot and their motivation damaged.
The economics profession is brutal and you have to have a thick hide to survive if you take it on.
So in this sense, Modern Monetary Theory (MMT) constitutes a regime change. It directly challenges (and exposes) the lies and deceptions of the dominant economic theories and provides a systematic and consistent alternative.
At first we were ignored – for the first 10 years at least of our work (the small group I noted above). Then the progressive side of economics (Post Keynesians) started criticising us – mainly because they attended similar conferences. They were hostile because MMT challenges some of the neo-liberal baggage that Post Keynesians still accept.
But as the message has spread further and the ‘second-generation’ MMTers on social media have become more vocal and numerous, there is now attacks coming from the mainstream economists.
I wrote about a recent attack in this blog – When mainstream economists jump the shark and lose it completely.
These attacks are becoming widespread and represent the next stage in our development as a set of ideas. The neo-liberal Groupthinkers in the profession are now sensing that their position is weakening as more and more people are starting to eschew the value of the mainstream economics as a result of its massive failure in dealing with the GFC.
That event exposed my profession, which for years had been operating under the radar, so to speak. But its failures were manifest and the mob rule has began to erect all sorts of defences to protect their regime, including mounting public attacks on MMT.
But the regime shift that I have been talking about up to now is not the same thing as the blogosphere claims that ‘things will be better when MMT is adopted’.
That sort of sentiment implies that we can shift to a ‘MMT regime’ if enough politicians are convinced.
The point to understand is that MMT is a system of thought that allows us to understand how a fiat currency monetary system operates and the central role that government can play in a modern monetary economy.
Modern monetary economies use money as the unit of account to pay for goods and services. An important notion is that money is a fiat currency, that is, it is convertible only into itself and not legally convertible by government into gold, for instance, as it was under the gold standard or later versions of the gold standard.
What is mostly ignored in mainstream economic commentary is that in August 1971, the monetary system agreed at the famous Bretton Woods conference in July 1944, which required the central banks of participating nations to maintain their currencies at agreed fixed rates against the US dollar, collapsed.
The system proved unworkable and when President Nixon abandoned the convertibility of the US dollar into gold, most nations moved to a fiat currency system.
Within a fiat currency system, the government has the exclusive legal right to issue the particular fiat currency.
Further, given that this money is the only unit which is acceptable for payment of taxes and other financial demands of the government presents the government with a range of options.
We know that the government is not just a ‘large household’. The latter is the user of the currency and must finance its spending beforehand, ex ante, whereas government, the issuer of the currency, necessarily must spend first (credit private bank accounts) before it can subsequently debit private accounts, should it so desire (raising taxes).
Clearly, a fiat-currency issuing government is always solvent in terms of its own currency of issue.
MMT also teaches us that the purpose of State Money (fiat currency) is to facilitate the movement of real goods and services from the non-government (largely private) sector to the government (public) domain.
Government achieves this transfer by first levying a tax, which creates a notional demand for its currency of issue. To obtain funds needed to pay taxes and net save, non-government agents offer real goods and services for sale in exchange for the needed units of the currency. This includes, of-course, the offer of labour by the unemployed. The obvious conclusion is that unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.
This analysis also sets the limits on government spending. It is clear that government spending has to be sufficient to allow taxes to be paid. In addition, net government spending is required to meet the private desire to save.
If the Government doesn’t spend enough to cover taxes and the non-government sector’s desire to save the manifestation of this deficiency will be unemployment. The basis of this deficiency is at all times inadequate net government spending, given the private spending (saving) decisions in force at any particular time.
Different nations (or blocs of nations) structure and use the capacity possessed by a fiat currency in different ways. The Eurozone Member States voluntarily ceded the capacity to Frankfurt and then imposed harsh rules on themselves with respect to net spending.
Other nations have evolved differently.
But the point is that every day, across every nation, monetary systems are in place that operate along the lines described and explained by MMT.
MMT has a very close relationship to reality, whereas mainstream macroeconomics is largely incapable of dealing with reality.
So to think that a better world is just a matter of moving to MMT is to misunderstand the reality. Monetary systems of all shapes and sizes already operate according to MMT.
So when I read comments like “if we introduced MMT …” or “under MMT policies …” or “when MMT becomes the norm”, which all imply that MMT is a regime that we would move to if society was more enlightened and would open up a new range of policy options that a truly progressive government might pursue I know that this point has been misunderstood.
This is tied in with other comments, specifically about the Job Guarantee, which suggest that MMT is a progressive doctrine or a left-wing approach to economic policy-making and what is holding MMT back from being introduced is the right-wing conspiracy to maintain hegemony.
I understand all these comments are well intended and people are genuinely attracted to some of the policy options that MMT proponents advance. This is notwithstanding, what I consider to be some doctrinal and irrational resistance to proposals such as the Job Guarantee.
But the conception that we might move to an MMT world where enlightened policy will free us from the yoke of capitalist exploitation is plain wrong.
The fact is that we are already living in the MMT world. We interact with each other every day in the MMT world. The monetary system, whether it be in the US, Australia, Japan or any of the Eurozone nations, operates along MMT lines.
So it is not about moving to some new Shangri-La, which we might call the MMT world – we are already in, that world.
What MMT provides is a new lens to view the world we live in and the monetary system operations that are important in our daily lives.
This new lens opens up new insights into what is going on in the economy on a daily basis. It’s not something to move to, it already is.
MMT, as a new powerful lens, makes things that are obscured by neo-liberal narratives more transparent.
It means that the series of interlinked myths that are advanced by conservative forces to distract us from understanding causality and consequence in policy-making and non-government sector decision-making are exposed.
So when a Conservative politician or corporate leader claims that the government has run out of money and therefore cannot afford income support for the unemployed any longer at the levels previously enjoyed, MMT alerts us to the fact that this is a lie and that there must be an alternative agenda.
MMT thus empowers a population who learn about it to see things for what they are and to ask questions that they never previously would have thought possible to ask or even relevant.
Previously, when a politician has said the government will run out of money or is maxing out its credit card, an uninformed population will take that statement as granted.
But an understanding of the MMT framework all its lens would mean that the population will now reject the “run out of money” obfuscation and instead demand to know why the government doesn’t want to support a particular policy option.
MMT thus, introduces into the policy debate, the possibility of new policy options and directions that have previously been dismissed out of hand through the use of spurious economic arguments that the politicians and their advisors know will not be properly scrutinised nor understood by the general population who they are trying to manipulate.
MMT is thus, a framework for understanding how the monetary system we live in operates and the capacities and options that are currency-issuing government has to advance our well-being.
It also allows us to understand the likely consequences of deviating from a truly sovereign state, which we define in terms of the currency-issuing status of the government (incorporating exchange-rate arrangements and central bank interest rate setting capacities).
In the latter context, the MMT lens provided us with a clear understanding of why the Eurozone would be a failure with significant negative consequences for the Member States.
Further, MMT is neither left-wing nor right-wing.
Where the confusion lies is in conflating the theoretical and descriptive content of MMT with the value systems that the proponents of MMT overlay on this content.
It might be thought that MMT is left-wing because the values I expound are from the left. But that would be a wrongful inference.
The ideological persuasion of any perspective will manifest in the values that are expounded and the policy prescriptions that are proposed to advance those values.
What MMT has allowed is for the ideological persuasion to become much clearer when a person advances a particular policy proposal.
For example, when a politician, faced with rising unemployment, says that there is no fiscal space for the government to create jobs to deal with the mass unemployment, a person considering that comment through the MMT lens, will immediately realise that the government must have a reason for maintaining higher than necessary unemployment.
We know there must be a ‘hidden’ agenda because our understanding tells us that the government fiscal space is defined in terms of available real resources that the government can purchase with its currency-issuing capacity. So if there is mass unemployment then we know that there are such available real resources.
So why would the government refuse to purchase them and bring them back into productive use?
The focus then shifts on what that reason is and questions are likely to lead, for example, to an examination of corporate influence that might be leading the government to refuse to use their currency-issuing capacities to maintain full employment.
But when a right-wing politician inspired by MMT expresses a desire to ensure there is a reserve army of unemployed because it will suppress wage demands and enhance profits (which he/she values above worker dignity etc) then they would propose cutting the fiscal deficit because their MMT training tells them that is how they will achieve their goal.
MMT just tells us what the consequences of imposing our values on society via policy choices will be. Those values can take any political or ideological colour.
I hope that discussion helps some readers out there who have been struggling with this sort of issue.
Next week, I will present a blog forecasting the “first 100 days of a Melenchon Presidency for France”. Right-wing economists trading in fake knowledge have already published such an exercise. It is comical. I will try to be more serious.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.
This Post Has 46 Comments
Thanks for this. For me it’s a case of reframing what already is – and that’s the tricky part!
“They were hostile because MMT challenges some of the neo-liberal baggage that Post Keynesians still accept.”
That continues with the trade argument – as recently repeated by Steve Keen in his podcast. The usual fixed rate vs. floating rate stuff. The problem is that with the majority of MMT being based in the USA it doesn’t get the attention it will require. So the attack is that MMT can only work in the USA, or in export surplus countries.
We need to have a better way of showing how the float buffer works as a stabilisation mechanism.
“MMT, as a new powerful lens, makes things that are obscured by neo-liberal narratives more transparent.”
The economy as it stands operates like a man in a strait jacket. The data collected is of a man in a strait jacket. MMT allows you to see the full movement potential of the man if you removed the strait jacket.
And that there is little or no empirical data in the world that isn’t tainted by the strait jacket. All there is are little snippets where the straps aren’t completely tight.
Very helpful and important blog here-thanks to Bill again for some clear thinking.
I think Wray takes pains in his book (Modern Money Theory) to make this point as well when he explains that MMT clarifies the range of choices available and that MMT insights can be used by those that want small Government its just that the argument for small Government would have to be an honest one and not based on false explanations of how the system works which is then presented as a metaphysical truth. For me this is the great thing about MMT , that it shows:
Unemployment is a choice – if a Government is using unemployment as a price control then MMT forces it to be honest about it and not pretend it is ‘the way things are.’
In the UK when Theresa May says Corbyn will ‘bankrupt’ the country then an MMT aware populace will know it is a lie and that she is up to tricks maintaining vested interests.
I sometimes see MMT as a sort of change of ‘Gestalt’ shift in a therapeutic process and as such it is a difficult process of shifting a lot of mental wallpaper and in a culture that is very dumbed down with a trashy media reaffirming ignorance change will be slow – the upcoming UK election will only affirm myths and lies even more.
I think Godley and Cripps were pioneering in their 1982(?) book on macroeconomics in this respect as they perceived that Governments were negotiating without really knowing what they were talking about.
“History may be read as the story of the magnificent rearguard action fought during several thousand years by dogma against curiosity.” -Robert Lynd, writer (20 Apr 1879-1949)
Converting mainstream belief is difficult.
I was looking at the New York study on Trans fats. Rather than believing all the evidence that Trans fats are responsible for large swathes cardiovascular problems, we just get “we should prescribe more Statins”. Not ban Trans Fats and get rid of statins altogether.
To solve a CO2 problem they produced more NO2, which studies have long said is worse than CO2.
There is no way to do it, except keep plugging away trying to get it into the mainstream
“Unemployment is a choice – if a Government is using unemployment as a price control then MMT forces it to be honest about it and not pretend it is ‘the way things are.’ ”
Some unemployment is not a choice?
“Why hasn’t it worked? Because real growth today is constrained by real resource shortages, while in the 1930s traditional Keynesianism’s assumption of unemployed resources was reasonable. There is still unemployed labor to be sure, but not unemployed natural resources, which have become the limiting factor in today’s full world.”
The use of lime for skurvy was discovered two hundred years before it was accepted-and then consequently rejected again!
I will never understand people hostilities to new understanding or new approaches
This continues to prove to be every insightful. Thank you Bill, you continue to open my eyes on this wonderful way of thinking about macroeconomic.
Postkey -not sure what you meant or where the quote was from – probably me being a bit dim. But it sounds like you are saying that in a finite world the materials aren’t there for full employment – but are resources always chiefly material ones? For example in the UK we have an ‘epidemic’ of mental health issues and people who need support, this could be automatically a growth area for jobs using mostly human resources (teachers/unemployed people who want to work in the field) the only material resources would be a classroom and maybe some books.
The idea that you have to have unemployment because of ‘natural resource shortages’ is utter bunkum. What resources are so short that you can’t get people to give up X hours a day in the service of others? That’s what a job is.
Everybody needs something to do with their day. To suggest that some people are banned from doing something with their day due to ‘shortages’ is a triumph of dogma over reality.
Those who believe such nonsense can be quietly ignored. They are incapable of designing a system that is compatible with the needs of humanity.
It is certainly true that when we have a Jobs Guarantee things will be different.
I’m fascinated by this
Must read more
I think this is one of your best blogs to date. – very easy to read…and says many things that read true.
However…..there is one thing. Where you say “A person considering that comment through the MMT lens, will immediately realise that the government must have a reason for maintaining higher than necessary unemployment.”
I honestly thing the government is as nieve as everyone else…..listening to mainstream economists… they are just following up on what they believe to be true. “Never attribute to malice that which is adequately explained by stupidity”.
Yes, there might be some at the top, who know the truth and apply a little bit of influence to keep the status quo….. BUT, for the vast majority of MP’s they are, just like the doctors kept under pressure by the drugs companies to resist adopting new discoveries, kept from telling the truth or even investigating it , through fear of loosing their position within the political party.
The good news is despite biologists believing 99% of all previous animal species on this plant became extinct predominantly through virus activity human beings have come along being both highly inquisitive and mindful of the the needs of others with both attributes combining to eradicate small-pox (a most lethal virus) from the planet. No doubt we’ll further eradicate other deadly viruses as time goes by. The same will apply to main-stream views about money especially as China with its “nationalised finance” approach grows stronger as a world power.
Bill, The link for The Nation article isn’t working. It leads back here!
The household analogy is a strong analogy, most people don’t have the time and interest to take the extra loops to bypass that. But they are despite that right, the nation is also like a household when it comes to the availability of real resources (but not “fictitious” financial balance sheets). When people think of their own household economy it is about the real resources they can buy for money.
I believe the key point should be to emphasis the household analogy, but in relation to real resources available. That we are severely underutilize our potential. Ordinary people wouldn’t live in a one room apartment with their family if the easily could afford much bigger.
But the financial household narrative is severely internalized.
We just had the spring budget presented and it talked about a minor surplus, when I commented/asked on some places why was that good then it means we the people have exact the same deficit there is zero response. The discussion just goes on in the myth narrative.
The policy making by governments has been so poor over the years since the switch to fiat, that one initially finds it very difficult to believe politicians actually understand any part of MMT. It does appear now that they have just been very dishonest and misleading while gearing policy to favour certain political interests; we need to stop giving them the benefit of our doubt until they staret to put the correct frame around their policy proposals, so they can be evaluated under the light of day.
Excellent reflection. As a modest MMT blogger I should take due note of your warning. Lately I am trying to write two types of posts, those which merely describe our MMT world and those which contain prescriptive and progressive policy proposals.
In any event we are at a tremendous disadvantage. In Spain, the neoliberal and Austrian schools dominate the media and the minds of most, even people who describe themselves as progressives. Their think tanks are full of cash and can celebrate all kinds of conferences and meetings expounding their reactionary prescriptions whereas we barely have enough to publish a web and organize a few events (mostly ignored by the mainstream media). One mediocre Austrian, Juan Ramón Rallo, [Bill notes: unnecessary link deleted] has preemptively published not one but two books against MMT. He gets regularly invited to mainstream media to disseminate his rubbish.
It will take a long time to see a paradigm shift in Macroeconomics.
In most of the examples of stubborn science it’s about money and prestige, in economics (and modern history) it’s about the servants of power that hold their positions precisely to be the servants of power. “Religious” deceptions that serves power can go on forever.
It will not be like a suppressed disclosure of nature laws that will eventually by its own float up as a truth.
That strong forces in society do want it unfair is ancient and nothing new. A just, fair and better society for all is not a common ground issue.
We had one prominent economist specialized in balance of payments. In the 70s he argued that the whole narrative of the current account, private sectors foreign debt and the big export companies gross profit was severely misreported. He was co-chief with Assar Lindbeck at Stockholm International Institute. He got the entire economic, administrative and political establishment against him. Despite that he stubbornly pursued because the falsification was an instrument to subdue the potential of the economy. And he did finally prevail and there was the largest revision of national accounts ever made in any modern industrial nation. It had of course to be mentioned in some articles and national TV. But his carrier as an economics was already y over, no one in the establishment wanted even touch him with pliers. So a few articles and the common economic discourse continued as it never had happen. And do so until this day, every mention of the history aka the 70s is framed in the false narrative.
Great summary of the resistance to new ideas. A little bit later this year we will see the beginning of the complete overthrow of the nonsense of modern quantum theory. Many worlds theory, instantaneous action at a distance, collapse of the wave function, even the big bang theory and the Higgs field will falter. It will be fun to watch and painful as the arrayed forces of the academy fight back for some vestige of prestige.
I’ve put together a seminar on monetary operations and have given it at community ed and adult ed (oasisnet.org) as a way to spread this information. Little by little…
@ J Christensen
I believe most politicians are “honest” but severely misinformed, and the power of self-deception is a strong force.
In the case of politicians I believe the stick and not the carrot is the appropriate tool.
The link (not working but you can google) to The Nation article by Dennis Kucinich (God bless Dennis Kucinich) mentions that he got his ideas about monetary reform through his wife from the American Monetary Institute (www.monetary.org) which has, on its front page today, an article entitled “A Refutation of so called “Modern Money Theory (MMT).” AMI is doing the old debt-free money thing, evidently…
I learned about Kuhn’s idea of paradigm shift in a parasitology course during my undergrad years.
My professor also quoted Max Planck:
“A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
I hope we don’t have to do that, because it would take a long time.
I was a bit surprised when I read about archaeologists and biologists not accepting observable results. I have always thought that scientists will readily change their dogmas when new evidence is available. I guess some of us are not immune to it, especially when careers are built on these ideas.
If anyone comes out and say “we don’t have any money.” I immediately see a big red sign in my head that reads “I don’t understand fiat monetary system, and i am a victim of mainstream economic hogwash.”
I have to agree that MMT is empowering. I went on a trip to New York to help teach a biology course. One of the postdocs there said to me that scientists are struggling because US has spent too much on military. I had a smile on my face because it was very clear that he was duped. Many of the scientists there said they were being very frugal in their own labs. While I am a very frugal person myself, I also realize that my spending = another person’s income. Therefore, if a lab saves too much, somebody is going to be out of work. We have been living in this silly self-imposed constraint that decreases quality of scientific research because we always pick the cheaper option.
Certainly, the US is spending too much on military and its wasting able young people on fruitless disastrous wars of aggression, but the US cannot run out of money. It needs to spend more in non-military sectors to keep people employed in non-military sectors.
“First they ignore you, then they laugh at you, then they fight you, then you win.”
I think we are entering the “fight” phase.
I like Steve Keen’s analogy about astronomy. He said the Ptolemaic universe centred on the Earth was difficult to shift when the Copernican revolution started, so we have mainstream Ptolemaics and MMT Copernicans.
Here’s a Ptolemaic quote from a respondent in my mail today;
“As for MMT . tis nothing more than yet another blathering bunch of economic bs disguised as fact by a group of self proclaimed experts who in reality don’t have a single provable evidence based fact providing answers to nothing while promoting Fear Mongering among those fawning before their feet”
This a part of his response. He says he knows Mosler [not a fan] and the UKansas people, [and his IQ is 180]
I am quoting Herman Daly, an American ecological and Georgist economist and emeritus professor at the School of Public Policy of University of Maryland.
I would give the ‘link’ but my comment would not be allowed.
He is saying that he believes that most unemployment is voluntary, and thus not susceptible to demand stimulation.
It’s useful to understand the Ptolemaic model, to help understand why it originally dominated. First, there were heliocentrists in Ancient Greece, and they weren’t persecuted for it. The reason the Ancients rejected heliocentrism is that they didn’t see any stellar parallax; that is, if the Earth orbits the Sun, then our view of all celestial bodies changes over the year. In spite of this, the background stars are (appear) fixed in place throughout the year.
The modern perspective, of course, is that background stars DO shift throughout the year, but the closest ones move by a few arcseconds (1/3600 degree). Naked-eye observation would never be able to detect that, nor would the telescopes that just became available around the time of Copernicus, Kepler, and Galileo. Indeed, Kepler’s data (from which he derived his Three Laws) came from the last of the great naked-eye astronomers, Tycho Brahe, who used basically a huge pair of protractors to get something like arcminute (1/60 degree) accuracy. So at the time of the Copernican revolution, there still wasn’t an answer to the stellar parallax problem, and the revolution proceeded because people had grown uncomfortable with the amount of cruft that had accumulated in the Ptolemaic model.
To complete the story, the “true” modern account is that there are no privileged reference frames. The Earth doesn’t orbit the Sun anymore than the Sun orbits the Earth; they’re two equally-valid ways of posing the problem, and they’re each better for different problems.
I say these things because it’s important to understand one’s “enemies.” The opponents to the Copernican revolution were totally justified in their opposition, and the whole thing is better understood in terms of “what people are comfortable believing.” (That sheds a better light on the Planck quote about advancement-by-death, anyway.) And I do think MMT represents a huge improvement over the mainstream, but not because I think this is some war between progress and regress or truth and falsehood.
Just wanted to say that was a great comment. Hadn’t thought about it from your perspective.
I am quite ignorant about the history of heliocentricism. Thanks for bringing up stellar parallax so I can learn about it.
I seem to remember reading a Steve Keen article about the Ptolemaic model that was developed to explain the retrograde motion of Mars. Apt.
Good post as well Tom, reading Bill’s post that quote about ideas dying with their proponents did spring to mind but I couldn’t remember the wording nor the author – much appreciated !
If MMT is what is, why was Theory included in its name? It implies that it needs testing out.
Surely Modern Macroeconomics or Sovereign Macroeconomics would have been better.
Does anyone know the rationale behind the name? I haven’t been able to find anything online – grateful for any info.
For me, theories are concise explanations with implications that can be repeatedly tested and verified. You are right. I guess it’s hard to test a sovereign money system but haven’t UKMC done it with bukaroos? ^^
Come to think of it, theory is quite an apt word for the economics propounded by MMT people. We have theory of evolution to explain how we get all the wonderful lifeforms on Earth. We have theory of gravity to explain apple falling from tree onto Newton’s head. Now we have MMT to describe how a fiat sovereign currency functions.
P.S. Thanks Jeff L.
Sean, I think the retrograde motion of the planets was observable at any time in history. It’s more noticeable than parallax although it’s related to it. That should have been noticed before Kepler. Anyway my remark is a repeat of Steve Keen’s analogy. Often it doesn’t concur exactly, but one gets the message that the two systems have each been believed across time. The more realistic one wins out. Thats what we await now re the mainstream and MMT.
Here’s Charles Hall putting the boot into mainstream economics;
That was a intriguing video. I never knew about biophysical economics.
Took some courses in thermodynamics, shame that I didn’t really took them to heart.
Tom, Thanks for your reply. That’s settled my queries. (I’m not from an academic background, as is obvious.)
You are welcome. I would never act like i’m superior just because i was lucky to have some education. Your comment made me think about testability though. Scientists can only model things like climate change and maybe economy because, to my knowledge, I don’t think there is a way to do experiment for these huge systems.
I just read a bit about biophysical economics. In MMT, we say that a government that has monopoly on its own currency is not limited by money, but by real resource constraints. It looks to me that biophysical economics deals with that constraint. This could be very important stuff. Thanks for the link.
Also, thanks for scaring me so much that I may not able to sleep tonight. It seems to me biophysical economy points out the very possibility of running out of real resource, which is scarier than any horror movies I have watched.
Man… war, racism, climate change, mainstream economics, real resource constraints… How many problems do we have on our hands! We are in deep trouble…
John Doyle: Thanks for posting the video presentation by Charles Hall. I’m thinking like a Cheetah about everything from here on in.
I like when some people make the distinction between “descriptive MMT” (that describes modern economy as it is) and “prescriptive MMT” (that suggests better political ways for the modern societies, like the JG program).
But that kind of separation of MMT in two parts is usually heavy criticized by MMTers themselves, I don’t know why. So it’s all very confusing!
The Job Guarantee program is an excellent idea, but obviously it is not a description about how the modern economy works…
“Unemployment is a choice – if a Government is using unemployment as a price control then MMT forces it to be honest about it and not pretend it is ‘the way things are”
not any more simon,
in oz, if the unemployment rate doubles or even goes up by 50% we have a banking system crisis of 1893 proportions. unemployment is not an optional extra for policy makers anymore.
but there is good news in all of this, in that the build up of private debt is going to force a paradigmic shift towards mmt. we will get a very definitive answer on the money neutrality issue.
the bigger the private debt the bigger the level of intervention required by treasury and the central bank, when the next payments system crisis appears. debts will be socialised , but at some stage so will the cash flow move towards more and more government money and less banking system money because of this process through regulation or re nationalisation of key infrastructure both financial and non financial.
market failure and the laws of buraucratic power leads to bigger government in the long run, that’s why we will all end up being socialists once a few technological issues are solved.
its 2017, give it till 2029, and everyone will be whinging about why bills latest textbook is core reading for first year economics students, and how he’s taken over the world 😉
I’ve tried getting many individuals over the hurdle of realising that spending has to come before taxation or government borrowing for about 5 years with very little success. It is a very simple concept and it’s intuitively and logically obvious.. All you need in order to understand it is to spend time thinking about it.
But they don’t
I believe that, in the future, the extent of this delusion will keep many psychoanalysts on the gravy train for life.
John Doyle thanks for sharing that link. I have a science background and so it rings absolutely true. There would a nice alignment between that scientific approach to support MMT. Talking about physical constraints on a scientific level might help people ‘click’ and look at MMT I hope. Just something to add to the arsenal.
Two points on this article:
1. You go on and on and on and on about MMT being the way things are and seem to think that people don’t know this and are asking things about when will MMT be installed or started or whatever. But that’s not what people are meaning. They are meaning when will governments and others start acting using MMT precepts instead of neo-liberal ones. This is quite a bit different than what you keep on hammering on. The question is not: is MMT the reality. It is when will MMT be implemented worldwide. Please drop your admonitions from on high about this. It just sounds arrogant and out of touch.
2. You appear to be very emotional about making the point: that MMT is the reality and neo-liberals are clear that it is the reality and are just deliberately not acknowledging that. But you definitely know that is not true. Because you spent the first third of your essay speaking of how groupthink in various fields causes those within that field to sincerely and very emotionally believe that that neo-liberal economics does work and that MMT does not. You explained it well up at the beginning, yet when it comes to the acceptance of MMT, you seem to think that it is a grand conspiracy of knowing economists who just want to prevent MMT from being the reality used in economics and governance.
That is obvious nonsense. You described how paradigms change. That is how this one will. Keep writing about MMT and how its implementation could and can change the way our world and our society works. Give concrete ways this would occur and the concrete and likely results.
Doing that would go a lot farther towards changing the paradigm than scolding us for not using the proper terminology in regard to MMT and accusing those in power of deliberately knowingly stifling MMT.
Dear Stephen Douglas (at 2017/04/27 at 1:54 am)
1. You disclose the exact point I was making. There is not MMT policy regime to “start acting” with. The policies followed are according to values.
2. Your use of terms “emotional” etc miss the point and try to be personal. The continued teaching of mainstream macroeconomics is a combination of wilful ignorance and clear design on behalf of my profession despite it clearly being ‘fake knowledge’. Disasters like Greece are the result. Engineers would have been sent to prison for such displays of incompetence.
It is not “obvious nonsense” to suggest that my profession is culpable. Examples abound. Think of the disclosures that were made in the documentary “Inside Job”.
Sean, that there are no privileged reference frames, which we get from special relativity, does not imply that there is no difference between the assertions that the sun revolves around the earth and the earth revolves around the sun. One is true while the other is false. Their relative motion vis-a-vis one another is another matter.
So many thoughts.
Regarding the word “theory”. Being a formal mathematics nerd, I feel a bit of technical ownership of the word, but the usage in the term “scientific theory” is hard to pin down really. A theory describes a collection of observables (abstractions of values) and some basic relationships (axioms) they are assumed to exhibit.
One game is then to determine what other relationships between the observables (theorems) we can deduce from the axioms. Another game is the determine whether any axioms are unnecessary, in that they can be deduced from the other axioms.
Another game is to determine what assignments of values to the observables satisfy the assumed axioms and are therefore models of the theory.
Once you have a model, you can have confidence that the theorems will also be true of the model, allowing you to make predictions about the model, predictions made because of the abstract properties of the theory rather than any intuitions about the model.
A scientific theory includes at least one these mathematical theories and an experimental apparatus that explains how to identify a model of the theory in the existential chaos surrounding us.
Then there comes engineering, which is something of the study of what happens when you put lots of little models together to make a big model.
Then there is reverse engineering, which is something of the study how to make sense of a big unknown model in terms of the little well understood models that could be or are used to make it.
Most of biology is reverse engineering.
Most of main stream economics seems to view itself as reverse engineering.
Reverse engineering is a good game for academia, especially when the basis models are hard to isolate or observe directly.
MMT has more of the flavour of engineering applied retroactively, in that it provides a useful description of an engineered artifact that was not properly specified and analysed before being implemented: the fiat currency system with floating exchange rate.
There is something of a culture clash then with the reverse engineering focussed economists as MMT does not really address the huge complex beast called the “economy” that economists think they can tame with their cute little Differential Equations between unobservable features.
Regarding whether some of the actions of politicians should be considered incompetence or malice? What do you call it when a fellow soldier claims to be targeting the enemy, but repeatedly scores bulleyes on friendly forces? The words loyal and incompetent do not come to mind.
Targeting high unemployment is deliberate and no amount of claiming it is an unfortunate side effect of the fight on inflation can reduce the culpability. After all “fighting inflation” is just political speak for “constraining wages”. We know this because MMT tells us that income is spending. MMT helps us identify when rhetoric is being used to confuse the producer and consumer perspectives of the same quantity.
This is a great introduction to MMT which I’ve shared widely, but it doesn’t mention the Job Guarantee at the core of MMT, particularly its macro economic purpose?
It would be great if you could some brief description and economics purpose for the JG, eg as stabiliser/output maximiser and labour price floor?