British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
I have very little free time today. I am now in Dublin and am travelling to Galway soon for tonight’s event (see below). Last evening I met with some Irish politicians at the Irish Parliament and had some interesting conversations. I will reflect on the interactions I have had so far in Ireland in a later blog post. But today (and next time I post) I plan to reflect briefly on my thoughts about the Second International Modern Monetary Theory which was held last weekend in New York City. Around 400 participants were in attendance, which by any mark represents tremendous progress. The feeling of the gathering was one of optimism, enthusiasm and, one might say without to much license, boundless energy. So a big stride given where we have come from. Having said that, I had mixed reactions to the different sessions and the informal conversations I had over the three-day period, which might serve as a cautionary warning not to get to far ahead of ourselves. This blog post is Part 1 of my collection of some of those thoughts. They reflect, to some extent, the closing comments I made on the last panel last Sunday.
Here are some reflections ordered in the way I discussed them in my contribution to the closing panel last Sunday at the MMT Conference in New York City.
I hope that these comments are taking in the right spirit.
It was a tremendous effort by the organisers to put together such a diverse panel structure. I think the balance was a little skewed away from the educational content backed by research efforts with evidence-backing and towards a variety of opinions some of were not at all within, what I call, the MMT paradigm.
This is not about disagreement.
Rather, it is about starting from a grounding in what MMT actually is and using that perspective to structure the activism. There were several offerings from people who I concluded had only the slightest awareness of what MMT actually constituted and this resulted, at times, in less than effective debate.
Too often I heard speakers say that ‘we have to work this out’ or ‘we haven’t considered this yet’, when, the reality is that the body of work we have constructed over the last 25 years (about, at least) has considered all those angles.
So while there was an engaging enthusiasm and optimism among the participants which I think bodes well for the future we need to maintain a realistic view that there is a massive amount of work yet to be done.
While it is undeniable that MMT is now increasingly penetrating the public debate these ‘idea challenges’ are typically a slow burn – it takes a long time to mount an effective challenge to the dominant thought processes in any academic discipline.
I sensed that there is a tendency among some new to Modern Monetary Theory (MMT) to use the term MMT as a slogan rather than relating to it as a coherent and meticulously developed body of academic work in economic theory and practice.
Many people I spoke to and listened seemed to limit their conception of MMT as saying that the capacity of the government to fund programs is unlimited and so there is massive scope for all sorts of progressive policies to be introduced.
The corollary to this was a tendency I observed (heard) that MMT is sort of a grab-bag of ideas that we can pick and choose from to suit our own preferences. In this vein, all the various employment guarantee schemes that have popped up in the last several months is symptomatic of that tendency. See more on this below.
To some extent that it true but merely constructing MMT as some sort of licence for government to do whatever it wants is a simplification that invites criticism.
And not appreciating the full MMT story – what the body of work involves – means that a pick-and-choose approach can often lead to policy proposals being unworkable and open to severe criticism from mainstream economists.
For example, now that we have mostly gone beyond the knee-jerk response from mainstream economists that the government will run out of money – the usual first response that was common in the early days of MMT – to an instant claim that running continuous fiscal deficits will, ultimately, be inflationary, it is important that we understand the price stability mechanisms within the MMT body of work.
It is project that the debate has shifted from solvency to inflationary bias. In part, this is progress because it focuses the debate on the issue rather than the smokescreen.
Inflation is a risk for all spending – government or non-government. And while it is a lesser evil than mass unemployment, it is still desirable, and the core MMT team certainly emphasise this, that our policy structures do not trigger accelerating inflation.
This means that activists have to be keenly aware of how the MMT approach attenuates the inflationary risk of government spending and not propose policies that undermine those mechanisms. I am referring to the employment buffer stock mechanisms that are intrinsic to MMT.
Merely considering these mechansims to be job creation schemes and then believing that we can have better versions of these job creation schemes (see below), many of which, violate the essential inflation-stabilising aspects of the price anchor, is to undermine the credibility of MMT as the alternative macroeconomic orthodoxy.
I write more about that below.
In other words, operating within the parameters of what we now refer to as MMT – meaning that one accepts the body of work we have developed – does not allow one to advocate a free-for-all.
The core MMT team has spent nearly 25 years together (in various ways) creating this body of work.
The fact is that an understanding of it leads to an appreciation that governments can only operate in a tightly disciplined fiscal environment if they desire to be responsible and serve the interests of the many.
While there are no financial constraints on a currency-issuing government there are certainly very tight real resource constraints. The scope for government intervention is limited by those real constraints.
Fiscal deficits really matter. And the challenge for all activists is to know how they matter – that is, in what sense do MMT economists say that and to distinguish that concern from the way the mainstream economists construct the ‘deficits matter’ narrative.
I wrote about this in this blog post – The full employment fiscal deficit condition (April 13, 2011).
Anyway, it is not a free-for-all at all.
In the real world, there are likely (definitely) to be hard political choices that have to be made on an on-going basis in terms of the allocation of goverment funds between competing ends for those productive resources.
In that context, it is crucial that the activist arm of our program takes as its point of departure the rich literature that we have developed on what MMT is and the implications of its foundational propositions.
This will condition the sort of options that are then proposed.
We cannot have everything we want.
For example, with an MMT mindset, a politician can easily introduce an unconditional job offer at a fixed wage. That proposal would create work but at the same not put pressure on the price level.
But it does not, then, necessarily follow that the same government can create public sector employment opportunities, by competing with the non-government sector at market prices for productive resources, without encountering inflationary and other negative consequences.
We thus have to be mindful of context.
Not having any financial constraints is one thing – and thank whoever that we are finally conditioning the debate to move beyond the fallacy that currency-issuing governments can run out of money.
But knowing when to use that fiscal capacity is another thing all together and we must not think that everything is possible.
It is not. Choices still have to be made among priorities.
In my comments at the closing panel I made the point that just like the Disney studio had created the 101 Dalmations in 1996, it seems like there are now 101 or more job guarantee proposals circulating, many of which claim to be derived from MMT.
Note the use of the lower case j and g in the previous paragraph.
Here are some caveats:
First the original MMT team does not claim to have invented the concept of the ‘right to work’. This goes back to at least the C13th and there has been a constant struggle between those who want to improve the lot of the working person and those who desire unemployment buffer stocks to keep the working person down since.
So the development of the Job Guarantee (note capitals) is not an attempt to usurp the concept of the ‘right to work’. In fact, and I don’t want this point to be misunderstood, the development of the Job Guarantee concept within MMT has nothing necessarily to do with philosophical or moral views on the ‘right to work’.
What you say? How can that be? So now Bill Mitchell is saying he doesn’t believe in the ‘right to work’.
As I said, I don’t want the point to be misunderstood.
I personally have a deep and abiding commitment to the concept of the ‘right to work’ for all. There is no question about that.
But my work on developing the Job Guarantee concept within MMT can be seen as being separate from that value commitment.
The Job Guarantee within MMT is a technical construct designed to replace the mainstream Phillips curve (the trade-off between unemployment and inflation). I will return to his in Part 2.
The Job Guarantee is a superior buffer stock mechanism to mass unemployment to maintain price stability.
And this means, that even if one didn’t hold the philosophical or moral commitment to the ‘right to work’ they would still advocate a Job Guarantee (MMT style) in contradistinction to the NAIRU-approach which uses unemployment as the buffer stock price anchor.
They would have to agree that in efficiency terms – which relates to resource wastage etc – the employment buffer stock approach is superior to the current dominant alternative.
This point illustrates perfectly the common misunderstanding that MMT is a regime we can move to if we only try.
As I have noted often MMT is not a regime that we ‘apply’ or ‘switch to’ or ‘introduce’.
This point still seems to escape the attention of many critics (and second-generation MMTers, for that matter).
Rather, MMT is a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.
It helps us better understand the choices available to a currency-issuing government.
It is not a regime but an accurate perspective on reality.
It lifts the veil imposed by neo-liberal ideology and forces the real questions and choices out in the open.
In that sense, MMT is neither right-wing nor left-wing – liberal or non-liberal – or whatever other description of value-systems that you care to deploy.
I mean by that, that while MMT provides a clear lens for viewing the system, to advance specific policy platforms, one has impose a value system (an ideology) onto that understanding.
It is meaningless to talk about MMT’s prescriptions – anyone who talks in that way reveals that they haven’t fully understood the distinction between a lens and a value application.
The point is that MMT is what is already in place. It is not a matter of moving to MMT.
By eschewing the discretionary use of fiscal policy and imposing fiscal rules one is not exercising ‘non-MMT’ policy options.
The MMT lens allows us to tease out and more accurately predict the consequences of such a policy choice.
But there are no ‘non-MMT’ policy options. That is not very well understood.
So the Job Guarantee in MMT is a technical construct – it goes to the heart of our specification of a price anchor.
I will continue this discussion in Part 2 – maybe tomorrow, available time depending.
Wednesday, October 3 – Galway – Reclaiming the State Workshop – Harbour Hotel, New Dock St, Galway.
This is a public event
The event will be chaired by Professor Terence McDonough.
Organiser: Desmond Greaves Annual School.
Contact: Kevin McCorry – email@example.com
Thursday, October 4 – Dublin – Reclaiming the State Workshop – at Wynn’s Hotel, 35-39 Abbey Street Lower, North City, Dublin 1, D01 C9F8.
This is a public event
The event will be chaired by Dr Karen Devine from Dublin City University.
Organiser: Desmond Greaves Annual School.
Contact: Kevin McCorry – firstname.lastname@example.org
Friday, October 5 – London – Launch of the The Gower Initiative for Modern Money Studies portal.
Event Time: 12:30 to 19:15
Location: The Diskus Lecture Theatre, Unite the Union, 128 Theobalds Road, WC1X 8TN London.
Registration for the Launch is from 12.30 for a 13.00 start.
1. An introduction to Modern Monetary Theory (MMT)
2. The Job Guarantee.
Registration for the workshops is from 1600 onwards for a 1630 start.
There are a limited number of places. The launch is free, seminars have a nominal charge of £7.50. Booking is separate for the two sessions. Refreshments will be available.
At the Launch, I will be joined by Randeep Ramesh, Chief Leader Writer for The Guardian, who will he talking about the role of our media in shaping our economic narrative.
Sunday, October 7 – Lisbon – Details to follow. I will be talking about the Job Guarantee and UBI.
Saturday, October 13 – Wurzburg, Germany. Makroskop event.
I am on a panel at 13:15 with Heiner Flassbeck and Martin Höpner – topic Exchange rate regimes
Location: Tagungszentrum Festung Marienberg, Oberer Burgweg 40, 97082 Wurzburg
The workshop runs from 9:00 to 18:00 with several speakers discussing aspects of currencies.
Contact: email@example.com for details.
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.