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Paradigm shift – not from the CORE Econ Project – as mainstream as you will get

Next Friday (September 22, 2017), I will be presenting at a panel on developments associated with the proposed MMT University and our new MMT Macroeconomics textbook, which will be published by Macmillan in April 2018. The panel will present during the First International MMT Conference, to be held in Kansas City. In part, my contribution will be to discuss the general pedagogical concerns that we (Randy Wray, Martin Watts and myself) had as we wrote the textbook over what turned out to be several years. We were confronted with the situation that we want our textbook to be used as widely as possible in the first and second years of a typical undergraduate program, but also didn’t want to fall into the trap of compromising what we considered to be a unified body of theory based upon Modern Monetary Theory (MMMT) for what other colleagues (particularly, mainstream academics) would claim to be necessary material to prepare a student for the labour market. We now have what we believe is a very strong two-year sequence in macroeconomics, firmly founded on MMT principles, with a good balance between discursive narrative, historical context, empirical challenge, and formal (mathematical) reasoning. When one compares it to other post-GFC developments in the pedagogy of macroeconomics, some of which have received the headlines in the past week, I think the curriculum embodied in our text is progressive, consistent, and doesn’t fall into the typical neoliberal default regarding governments and the monetary system.

A few years ago, I was invited to speak at a iNET (Institute for New Economic Thinking) in Toronto, Canada. iNET was a George Soros-funded initiative aimed at stimulating changes in the economic debate following the GFC, which left no reasonable person in doubt that the mainstream macroeconomic theory and practice was defunct (putting it mildly).

At the conference, one of the sessions focused on a new project designed to revise the introductory economics curriculum to incorporate new insights (allegedly) that were missing in the standard first-year programs at universities all around the world.

The Project, entitled CORE Econ, has just released an on-line version of their proposed curriculum which they claim addresses the limitations of the extant mainstream approach and responds to “what are our students asking, what are they curious about?” (Source).

The Times article (September 12, 2017) – The financial crisis demands a new type of economics – writes that:

CORE promises to be the biggest shake-up since Paul Samuelson’s Economics became the standard bearer for introductory texts in 1948 …

I bet to differ (see below).

The principal authors (Samuel Bowles and Wendy Carlin) recently published a promotional Op-ed article (September 7, 2017) – A new paradigm for the introductory course in economics – where they claim that the proposed CORE curriculum represents a paradigms shift in the way economics is taught and “provides a very different vision of the economy.”

The press has been fawning over the project.

The New Yorker carried a glowing review of the CORE book (September 11, 2017) – A New Way to Learn Economics.

It said that the release of the CORE on-line “introductory economics curriculum” was “good news for incoming students of economics”.

I beg to differ.

The book is replete with the standard neo-liberal monetary myths and is just dressed up to appear to be a progressive development. I question whether any student will gain any valid macroeconomics knowledge by pursuing the curriculum that is set out by the CORE group.

Cassidy also noted something that I think is telling:

Students looking for expositions of Marxian economics or Modern Monetary Theory will have to look elsewhere.

Which means that the CORE curriculum fails to incorporate the inherent labour-capital conflict that marks Capitalism from previous historical epochs (despite its claims to historical context) and also fails to situate the role of government as the monopoly currency-issuer in any meaningful way.

As I note below, the macroeconomics presented in the CORE curriculum begins with the usual neo-liberal myths and so students are mislead from the start.

The CORE authors go out of their way to claim they are responding to what students want to know. They say:

During the past four years we have asked, in classrooms around the world: “what is the most pressing problem that economists should address?” …

we indicate some of the most important problems that students and others have told us that “economists should address” …

This is, in part, a sop to the latest trends in university teaching – ‘student-centred learning’ – which is an anomaly if there ever was one.

Apparently, despite years of education and research, academics are only meant to be ‘facilitators’ as the students beaver away building their own knowledge base, following their interests and curiosities.

The ‘student-centred’ developments were in response, partly, to the perceived disadvantages of a teacher-centred classroom, where the lecturer would turn up, present the material and require the student to go away and read up to achieve an understanding.

Of course, the traditional system was not exactly that, was it? Tutorials and smaller workshops were designed to bring out the student’s individual learning through interaction in a peer-group environment.

But the teacher was the teacher – because after all they had PhDs and were ‘qualified’ in the disciplines they worked within.

The old expression – ‘students do not know what they do not know’ – is an overwhelming problem in the modern approach.

A PhD is meant to narrow the things that the lecturer doesn’t know. Which means the teacher is really meant to be an authority and the student is called a student for a good reason – they don’t know things that are deemed important to know and they do not know what is important and what is not.

So to design a curriculum in economics based upon what the students are curious about gives too much away to the obvious ignorance that the students have – which is not a perjorative observation in any way. Education is meant to be about developing knowledge not appealing to popular (media-driven) interests.

I have always encouraged students to be daring and read widely and question every statement their teachers make. But there also has to be respect for the fact the teachers have studied for years and the students are the novices, there to learn, listen and challenge.

So if students have only been exposed to mainstream macroeconomics ideas – in the media, school, from their parents etc – then how are they going to be in a position to demand their teachers discuss currency sovereignty, for example?

The CORE curriculum does not represent a paradigm shift. Thomas Kuhn introduced this concept in 1962 in his marvellous book – The Structure of Scientific Revolutions.

Kuhn considered a ‘paradigm shift’ (revised “disciplinary matrix”) had to, at least, expunge the most obvious anomalies and be able to present ‘solutions’ to important “unsolved puzzles”.

So if you had studied macroeconomics in a mainstream university program and tried to explain the dynamics of the Japanese fiscal and central banking system you would fail.

Only Modern Monetary Theory (MMT) provides a body of ideas that are consistent with understanding Japan, for example.

A teaching program that assumes governments have to borrow in order to spend will not address the most obvious anomalies.

John Cassidy (New Yorker article) also claims that the

CORE material isn’t just for incoming students. It will also reward the attention of general readers and people who think they are already reasonably conversant with economics.

I would actually recommend the general public read The Mandibles instead. At least the neo-liberalism is more upfront in that (-:

The CORE curriculum covers both microeconomics and macroeconomics. I am only concerned here about the macroeconomics. I could critique the former but I have no interest in doing so. For a start its treatment of power is rather orthodox and fails to address inherent class conflict. But that is all another story.

It is not until Chapter 14 – Unemployment and fiscal policy that we meet the currency issuer. Prior to that there are chapters on Money and financial assets but students will not understand from that the essential, and primary relationship between the government (as the currency-issuer) and the non-government (as the currency-user).

Where does the currency come from? A basic question but one obscured in the CORE approach.

We just get the standard (mainstream) discussion that “Money is a medium of exchange” and refines the exchange possibilities relative to “barter exchange” – the standard argument talks about eliminating the ‘double coincidence of wants’ problem inherent in barter.

That is, to get a plumber to do some plumbing you have to have some service that he or she desires simultaneously. That is not often likely.

As the CORE book says:

Money makes more exchanges possible because it’s not hard to find someone who will be happy to have your money (in exchange for something), whereas unloading a large quantity of apples could be a problem.

Money is thus seen as the means of lubricating the exchange of goods and services. There is no other reason why a person would wish to hold it under this limited conception of money.

In our MMT textbook, we note that money is much more than just a means of exchange.

Money matters because:

1. We need money to spend … Money buys goods and goods buy money but goods do not buy goods.

2. We measure success in terms of money. Marx argues that capitalist production takes the form of Money -> Commodities -. (hopefully) more Money.

3. We can hold money against an uncertain future.

But we go further than this, in the MMT approach.

MMT adds the link between money and sovereign power, which is largely lacking in other heterodox approaches to money, as well as in orthodoxy.

The state too, needs to finance its spending and plays an important role in organising the monetary system to move resources to the public sphere.

Money cannot be neutral for the state either, since currency sovereignty is critically important to ensure that the state is not financially constrained.

The neoclassical notion of Ricardian Equivalence cannot hold in the case of a sovereign currency. If a government spends more or taxes less, it would be irrational for the private sector to cut its own spending in anticipation of future tax hikes.

Sovereign governments do not need to raise taxes in the future to pay for spending (or tax cuts) today.

And indeed, they do not do so in the real world. We observe that the normal situation for most sovereign governments is to run nearly continuous deficits and rarely, if ever pay down a significant portion of debt.

What matters, in any case, is to run the economy near to continuous full employment of its resources. Any labour resources not used this year cannot be stockpiled for future use, nor can those labour resources used this year be somehow paid for by taxes later. Any resources mobilised this year for use in the public sector are paid for now immediately, by cutting cheques or by marking up bank accounts.

It would be irrational for the private sector to react to greater receipts from government spending by cutting back household and business spending. Rather, it is far more rational to increase private spending alongside the rising public spending.

These ideas underpin the concept of the Keynesian multiplier, although if you read the CORE approach to the multiplier, this understanding is missing.

Further, while orthodoxy (and even some heterodox approaches) imagine that money was invented by private markets in order to reduce the inconvenience of barter based trade, MMT argues that the macroeconomic analysis of government policy must take account of the difference between a sovereign currency and a non sovereign currency, where the latter applies, for example, to members of the Eurozone.

The sovereign government chooses the money of account, issues its’ own sovereign currency, spends its’ currency, and enforces most legal contracts in that currency. It also accepts its’ currency in payment for various obligations, notably taxes, fees, and fines.

Thus, there is an important relationship between the government and its’ monetary system, that any student should be familiar with and, which is missing in the CORE approach.

The CORE approach also claims that “money requires trust to function” becauses “the fundamental characteristic of money … is a medium of exchange.”

There is no mention that fiat currency is worthless unless the government imposes a tax obligation that can only be lawfully dispensed using that fiat currency.

All the talk about “trust” as the driving force towards currency acceptance misses the basic point – that we have to get hold of the currency (as a non-government sector) to pay our taxes and therefore we have to be prepared to supply goods and services to the government sector (that is, accept government spending) before the currency is spent into existence by the government.

That is basic macroeconomics. It is missing from the CORE approach which is as mainstream as they come in this area.

Chapter 14, Section 8 is about The government’s finances.

We read:

When there is a budget deficit, this means the government must borrow to cover the gap between its revenue and its expenditure. The government borrows by selling bonds …

Because of the existence of global financial markets, foreigners can also buy homecountry bonds. Government bonds are attractive to investors because they pay a fixed interest rate and because they are generally considered a safe investment: the default risk on government bonds is usually low. Investors are likely to want to hold a mixture of safe and risky assets, and government bonds are normally at the safe end of the spectrum.

‘paradigm shift’? Hardly. Mainstream as it comes. And wrong to boot!

First, the statement that “the government must borrow to cover the gap between its revenue and its expenditure” as an assertion of some law (“must”) is false. It is fake knowledge.

It immediately imposes a structure in the mind of the student that the government is financially comstrained, like a household, and needs to fund its spending either through taxation or borrowing.

That is false.

Currency-issuing governments may choose to match the gap between ‘revenue’ and expenditure with debt-issuance but that is a voluntary imposition on their intrinsic capacity in a fiat-monetary system, which is not financially constrained.

Even the illusion that the non-government sector provides funds that permit the government to spend denies the way in which the non-government accumulates the net financial assets that it then swaps for bonds in the bond issuance process.

In MMT, students learn that past deficits accumulate as net financial assets (in one form or another across the non-government wealth portfolio).

The CORE curriculum says nothing in this regard. A major deficiency.

Second, bond markets consider government bonds from currency-issuing governments to be risk-free rather than low risk. A student should learn that a currency-issuing government can always honour its financial obligations (liabilities) at all times.

So in the rare times that such a government has defaulted, the reasons are not financial but political.

The mainstream literature often accumulates instances of government debt default but fails to discriminate between situations where the debt is denominated in a foreign currency, the government uses a foreign currency (for example, a Member State of the Eurozone), or where the government has simply, for political purposes chosen not to pay its debts (for example, Japan during World War II).

The CORE text also files in this regard.

It’s discussion of sovereign debt crises is mixed in with the discussion on government finances. There is no distinction made between a currency-issuing government and a government that, for example, uses a foreign currency.

So students are reading about accounting relationships (“primary budget deficits”) and then suddenly confronted with a discussion about the 2010 Eurozone crisis where the “Irish, Greek, Spanish, and Portuguese governments” were considered to be at risk of default.

The CORE text then says:

Governments of countries experiencing a sovereign debt crisis may have no alternative to austerity policies if they can no longer borrow, because in this case they cannot spend more than the tax revenue they receive.

Which is as mainstream as you will get and fundamentally wrong.

For example, the currency-issuing governments did not experience a sovereign debt crisis during the GFC. Only the Eurozone Member States were deemed to be at risk of default, because the bond markets understood, intrinsically, the difference between a currency issuing government and a Member State of the Eurozone.

In the latter case, the Eurozone Member States that were facing default because their tax revenue had been demolished by the magnitude of the recession, had a clear alternative option to that suggested by the CORE textbook (as TINA).

They could have simply left the Eurozone and reinstated their currency sovereignty and redonominated the external debt in the new currency.

Why does the CORE team think that TINA is an appropriate assertion for students. It gives them no understanding of what actually happened or what the alternatives were.

Further, a government which is facing stress in the bond markets (low demand for their assets and thus higher yields) can keep spending, despite the inference from the CORE curriculum that they are financially constrained by the preferences of the bond markets.

They are not. A currency-issuing government could simply instruct its central bank to credit bank accounts at will to facilitate its spending plans.

The CORE team are marketing themselves as offering a new paradigm.

They are misleading their audience. Their treatment of the government sector is a disgrace and students will continue to be taught fake knowledge interspersed with some new more reasonable analysis.

But the most basic thing that a student needs to start with in macroeconomics is the importance of the currency-issuer and what capabilities the government has.

The CORE curriculum goes further into the morass of fake knowledge.

We read:

A large stock of debt relative to GDP can be a problem because, like a household, the government has to pay interest on its debt and it has to raise revenue to pay the interest, which may require raising tax rates. However, governments are not like households in that there is no point at which they need to have paid off all their stock of debt-as one set of bonds matures, governments will typically issue more bonds, maintaining a stock of debt (this is called rolling over debt, which firms also typically do to finance their operations).

The household does have to pay back debt and service the outstanding liabilities. True. It has to finance those commitments before they can be fulfilled.

A currency-issuing government also has to service its liabilities and pay back its debts. But the fundamental difference is that the government does not have to do “raise revenue to pay the interest” nor increase “tax rates” to pay the interest or repay the outstanding liability upon maturity.

Further, the basic difference between a government and a household is not that the government can continually rollover their debt, but, rather, that the government issues the currency whereas the household uses the currency.

Thus a most basic element missing from the CORE treatment is that a sovereign government is never revenue constrained because it is the monopoly issuer of the currency.

Finally, the CORE curriculum introduces the intergenerational problem within the chapter on fiscal policy, in the most standard way. We read that “governments and voters are facing a difficult choice: do they limit benefits, or put up taxes?”

Which is as mainstream as you will get an fundamentally wrong.

The problem of the ageing society and the increased dependency ratios that are implied is nothing to do with the financial capacity of the currency issuing government to meet the rising demands for public services.

The problem is ensuring that there will be sufficient real resources available to ensure that first-class hospital services can be supplied and that pensioners can continue to enjoy a reasonable material standard of living.

If those real resources are available, any currency-issuing government will be able to purchase them and make them available to advance public purpose.

The challenge is productivity not finance.

The CORE student will learn nothing of these matters from studying the curriculum as it is.


I will write more about our pedagogical approach in the MMT textbook soon.

The manuscript is completed and the publisher is currently working through it to prepare it for release in April 2018.

In terms of ‘paradigms shifts’, our approach can justifiably be seen to satisfy the requirements.

The CORE project, despite its claims to the contrary, is a major disappointment and a waste of the significant funds that have been spent to develop the textbook.

Reclaiming the State Lecture Tour – September-October, 2017

For up to date details of my upcoming book promotion and lecture tour in Late September and early October through Europe go to – The Reclaim the State Project Home Page.

For sale – Just released book at discount price

I have stock of the book (paperback version) available for sale at discounted prices, well below the current market price from the booksellers.

If you would like a copy signed by yours truly then you should send me an E-mail me (Bill.Mitchell – @ – deleting the – and space before and after the @ sign) with your location and I will send you PayPal details plus postage costs.

The discounted price I can make the book available (while my stock lasts) is plus postage.

My stocks are limited.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

This Post Has 12 Comments

  1. “The problem is ensuring that there will be sufficient real resources available to ensure that first-class hospital services can be supplied and that pensioners can continue to enjoy a reasonable material standard of living”

    Which funnily enough requires that you spend and spend well today to get the investment goods in place necessary to drive productivity forward.

    Not only is the mainstream narrative about financing wrong, but their solution (austerity) is doubly destructive. It prevents the necessary build up of investment goods in a way that can never be recovered due to path dependency.

    All of which is blisteringly obvious from the systems and engineering viewpoint.

  2. Neil ( and Bill),

    I presume you have have seen yesterday’s Ralph Musgrave comment, designed, I guess, to put austerity under neo-liberalism into a comparative context alongside the (suggested) profligacy of the nationalized era.

    Productivity, as both of you point out, is critical to a nation’s well-being; especially in a global trading system that handsomely rewards the competitive process.

    Private enterprise (under Thatcher) was supposed to remedy the shortcomings of nationalization’s bias towards subsidy in periods of threatened high unemployment – hence neo-liberalism’s valid reputation for brutality.

    But, no matter which economic regime is in operation, the problem of worker (voter) well-being will force a government to bend in the wind, its just a question of how far – and what moral/economic argument can justify the cost to future prosperity (and how well that can be hidden from the public).

  3. This post is just what we need if we see a “Core” approach in a blog or article. Approval by the usual suspects is just as misleading as are the arguments you demolish here.
    I now simply say, for example, that the government must spend before it can tax because it is mechanically impossible the other way round. That is, we need to earn money to pay tax and to know how much it will be. Since every monetary unit gets clipped by taxes at every exchange it eventually gets reduced to near zero and so the government has to spend continuously to keep ahead. It’s not just a first time problem.

  4. I have had a look at some of the CORE material. I noticed that the University of Oxford was heavily represented, sans Wren-Lewis, as well as that bastion of neoclassical econ, UCL. I was surprised that Samuel Bowles was one of the authors. Among the contributors was Piketty – one of his colleagues is from Science Po and is one of the authors so probably not surprising and the argument in P’s book is heavily influenced by the neoclassical frame although his inequality data is good, Martin Wolf, Stiglitz, Alvin Roth, he of the famous, or infamous, dwarf tossing and wife schlepping studies, Barry Eichengreen, Anatole Kaletsky, John Kay, Branko Milanovic, and the late Tony Atkinson, among others.

    However, I don’t think it is any surprise that the CORE curriculum commits the howlers it does when you see who is on the Steering Group and where they are from. I couldn’t find Cambridge U represented, however. But maybe that shouldn’t be surprising given the heavy influence of Oxford U and the OUP. I did find a reference to Malthus and the bibliography references his Principles of Population, though not his Principles of Political Economy, where can be found the principle of effective demand which influenced Keynes – he credited Malthus. There is no reference to your work at all.

    That Samuelson forms the ‘core’ of the kind of a curriculum they are critiquing is possibly worthy of note, as Samuelson admitted that his neoclassical synthesis Keynesianism, the framework dominant during the Bretton Woods period, was what he considered to be a necessary lie and the authors are engaged in promulgating another, slightly different, lie.

  5. bill:

    There’s an even more condescending smiley available now, which is :^)

    Besides that, if Graeber is to be believed, there has never been a (real-world) double coincidence of wants problem, and unlike-for-unlike barter has never seriously been done in the absence of a money system. If you’re in a pre-money society, then you’re also pre-state so you’re in a small group and connected to everyone nearby by mutual obligation. Hence the solution to matching wants is a general sense of “I’ll just do the plumbing today, and they’ll return the favor at some point.”

  6. “The state too needs to finance its spending” ???
    I’m clearly missng something. I may need to take the new undergraduate course.

  7. “The state too, needs to finance its spending”

    That is strange. Would “acquisitions” or “projects” be a better word then “spending”?

  8. Larry, what does it say to you? I suppose I see it as being more smug than the average smiley (I can’t really nail down why), which seemed to be what Bill was going for. Though not relevant to the current conversation, I feel like a drastically underutilized smiley is the chicken, <")3

  9. Good point about the teacher being the expert.

    I have always thought it’s a little bit wishy-washy when people say we should have student-centered learning.

    How do students come up with interesting research proposals when they don’t know basic techniques or the fact that what they are proposing has already been done ages ago?

    I don’t think mainstream economics is correct on the origin/purpose of money at all. They just use a hypothesis rather than look at reality.

    You quoted CORE:
    “When there is a budget deficit, this means the government must borrow to cover the gap between its revenue and its expenditure. The government borrows by selling bonds …”

    I screamed there. I was screaming,” noooooo!!!!”

    As I read more and more of the quotes, I began to think that they just made it all up as they went along.

  10. Goverments must belive MMT works because they keep the deficits growing while giving lip service to debt repayment. No Thatcher platform is ever going to get control again. Spend as required.
    One thing i find confusing is the interest rate settings. Why do we have just one setting? If we need less or more building jobs an adjustment to specific interest rate could be used to manage suply. ? Turn the tap on and off as needed. Even vary city by city as jobs and shelter are needed. Better than real estate boom and bust we have now.

  11. Director of the Institute of Fiscal Studies speaking yesterday: “The current changes (to the cap on public sector pay) are only in the order of millions, but if the Chancellor wants to increase it by billions he will need to decide whether to borrow more or to increase taxes”. (Not verbatim).

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