I read an article in the Financial Times earlier this week (September 23, 2023) -…
The – Final Report – from Australia’s Royal Commission into to Misconduct in the Banking, Superannuation and Financial Services Industry was released to the public yesterday. The Commission was conducted under highly restricted terms of reference and barely scratched the surface of what goes on in this sector because the conservative federal government that was finally forced into establishing it didn’t want their mates to be exposed. Even so, the Report reveals massive fraud, deception and all manner of cheating behaviour from the major players in the financial sector. But its recommendations are pathetic. It is highly likely that no-one will go to jail for their criminal misconduct and no board member will lose anything as a result of their incompetence. Yet, if an indigenous Australia commits a minor infraction they go straight to jail to not pass go! It is also clear than commentators who appear in influential media publications and predict the worse then steer their readers to financial services they offer themselves should be held to account for the veracity of their claims. If a commentator is making money from their predictions then they should be subject to professional negligence claims if these predictions are systematically incorrect. That shift in law would prevent outlandish and wrongful commentary entering the public domain and influencing the way unsuspecting and/or unknowing customers invest their savings.
Take this Forbes article (January 31, 2019) – The Coming Recession Will Be Different – as a case in point.
It is already running hot favourite to be the worst article for 2019, although I have no doubt that other commentators, who are tripping over themselves to claim some superior insight about the shortcomings of Modern Monetary Theory (MMT), will probably trump it.
But it is bad, make no mistake.
These anti-MMT articles are coming from both sides of the debate – from the Right who just haven’t any understanding at all, and from the progressive side, who see it as a threat to the mainstream macroeconomics they are hanging onto while claiming to be progressive.
The latter critiques are hilarious and I have dealt with them previously. But they keep popping up. Readers are told that the valid parts of MMT are well-known to New Keynesians and already part of that body of work (a lie) and the invalid parts are just loopy (and to explicate they wheel out some stupidity about Zimbabwe, usually).
Others attack MMT as not understanding politics. Well that is strange given MMT is not a political theory or praxis, which just goes to show how shallow the understanding of the critics really is.
Others are attacking the core MMT group for not engaging with mainstream economists in language and concepts that are acceptable – that is, their language and concepts.
First, we engaged with that lot for 25 or more years and got nowhere.
Their Groupthink is so powerful that despite their framework being exposed as being plain wrong in many instances (for example, money multiplier, bond yields, insolvency of governments, hyperinflation, deficits and interest rates, we could go on), they hang on to it with every dying breath.
They are resistant to change and admitting error. That is how a degenerative paradigm (see Imre Lakatos) declines – arrogant, revisionist, ignorant and blind to their failings.
Second, using the language and concepts of the dominant (declining) paradigm is a sure way to get nowhere.
Remember the wise words of George Lakoff that “if you lead with the lie, you privilege it” and if you use the constructs and language of the ‘enemy’ you also legitimise those constructs.
This blog post – The ‘truth sandwich’ and the impacts of neoliberalism (June 19. 2018) – summarises that point.
The famous hijacking of the work of John Maynard Keynes by John Hicks is the case in point. The bastardisation of Keynes’ work by J.R. Hicks in the late 1930s, which was consolidated into the main textbook macroeconomics from then on was only possible because Keynes used neo-classical (the then mainstream) concepts to illustrate their failings.
The problem was that Keynes made important compromises – notably in Chapter 2 when he assumed a simple Classical marginal productivity theory to explain labour demand (the so-called (flawed) law of diminishing returns).
In adopting this assumption, which he later realised was unnecessary and empirically unjustified, Keynes opened the door for subsequent developments which perverted his message. Ultimately, we could argue that the neo-liberal dominance now is, in part, due to that strategic error made by Keynes.
This blog post – On strategy and compromise (July 3, 2012) – provides more detail on that point.
Third, the core MMT group decided many years ago – at the advent of the social media revolution in communication – to take MMT to the public directly via blog posts, etc and build networks in that manner – completely bypassing our mainstream colleagues.
And now that the profile of MMT is becoming more public and more people are talking about our work and seeing its possibilities, the mainstream economists are feeling an attention-deficit and sensing the threat to their hegemony.
We are a long way from ‘winning’. But the progress over the last few years has been strong and eventually MMT will become self-evident to young economists entering the academy.
By way of promotion – our new textbook – Macroeconomics – will be published by Macmillan (available for sale on March 11, 2019).
This development will provide academics with a systematic 2-year study resource in macroeconomics from a pure MMT perspective – no compromises.
Our language, our concepts, our framework.
As an aside, once that book is published, our earlier introductory book (published in March 2016) – Modern Monetary Theory and Practice: an Introductory Text – will be withdrawn from sale. The new book subsumes this book and adds another 17 chapters of more advanced material and more on policy etc.
So if you want a copy of the Introductory book only you need to get it soon. Frankly, I would wait. The Macmillan book is very reasonably priced (well under the usual macroeconomics texts) although I appreciate for many in this day of flat wages growth and elevated levels of unemployment, our book will still be too expensive.
I am working on a solution to that – more about which later.
Anyway, for mainstream New Keynesians to now berate us for not writing out MMT models in a way that is easily absorbed into their ridiculous schema (rational expectations, intertemporal maximisation, etc), the only thing one can do is laugh – insecurity is a bad thing for anyone to have to endure!
But, there is clearly a rush at present to denounce MMT as the devil’s work. And these critiques keep coming (to my amusement).
The Forbes article (January 31, 2019) – The Coming Recession Will Be Different – is the latest and was written by one John Mauldin.
This guy has form.
I wrote about his work in this blog post – Watch out for spam! (January 25, 2010) – yes, 8 years ago.
At the time, I was being encouraged by several readers to subscribe to a financial advice E-mail service written by Mauldin.
These readers told me that the insights from Mauldin were valuable and I could learn something from this expert.
I found out that (as at January 25) that we were now approaching the “end”.
Yes, Mr Mauldin was predicting that:
But make no mistake, we are coming close to the end game. Some countries and economies are closer to that point than others, but the entire developed world is lurching, in almost drunken fashion, towards our economic denouement …
Over the next several months, we are going to start to explore various aspects of the end game. Whither Japan? Are they actually, as I think, a bug in search of a windshield …
I loved his sense of theatre – dénouement (the final outcome).
In the wake of the increase in the US federal fiscal deficit to combat the GFC, Mr Mauldin thought it was sensible to ask:
Where do we find $1 trillion (plus!!!) in US savings to fund the deficit
The old faithful.
It doesn’t matter, it seems, that the funds that are borrowed from the non-government sector were provided by the net government spending (the deficits) in the first place – $-for-$ – as a “wash”.
Apparently, that doesn’t matter.
It doesn’t matter, that there is not a finite pool of saving, but, rather a flow of saving that grows with income.
So the deficit spending, inasmuch as it stimulates economic growth, is actually the source of finance for non-government savings.
There is a debate that can be had about the form of the fiscal intervention – but never about the principle that a rising non-government spending gap requires a rising government fiscal deficit to ensure that income generation doesn’t contract.
The dominant economics ideology seeks at every point to disconnect these ideas.
Anyway, Mr Mauldin issues a weekly newsletter which holds himself out as a financial advisor and predictor of doom. He intersperses his commentary with promotional material.
In 2010, he was promoting his annual “Strategic Investment Conference” and told his readers that:
This year we are going to focus on “The End Game.” I can guarantee you lively debate, fun times, and over-the-top wines – plus, you will be with people who are simply the coolest ever. The speakers are all friends who “get it.” They called the crisis well in advance. These are the guys who sit and think every day about how this will all end up. The panels are going to be fun. Do not procrastinate. Register now.
I was sorry to have missed the event.
What, hanging out with “the coolest people ever” and havinge “fun times” and listening to all his mates (friends) who “get it” and attending “fun panels” – what more could a simple academic like me aspire to?
And I supposed as Armageddon or the apocalypse was approaching (“The End Game”), all these cool cats would anaesthetise themselves on the “over-the-top wines”.
Well, as we know “The END” didn’t come in 2010, nor in 2011, and, last time I looked out the window of my office, it still hasn’t come in February 2019.
That doesn’t stop the likes of Mauldin though.
In his recent Forbes article (January 31, 2019) – The Coming Recession Will Be Different – he is telling the readers that a disaster is on the way and:
There will be few places to hide.
And don’t except there to be a “recovery” as is usually the case with recessions because:
Except it will be different this time.
Okay, the doom prediction again.
Mauldin then launches into an attack on Modern Monetary Theory (MMT).
Apparently the “progressive left’s siren song will begin to play everywhere” – “free everything” – because of the the likes of Alexandria Ocasio-Cortez have become entranced by the:
… economic insanity called Modern Monetary Theory or MMT
This is from a commentator who was organising conferences in 2010 to focus on “The END”.
His characterisation of MMT is, consistent with this sort of commentary, erroneous, to say the least.
They talk about raising taxes on the rich. But there’s simply not enough money to do what they propose – even if you take everything the rich have.
Raising taxes on the rich is not to generate “money” to facilitate spending.
In part, it is to deny the rich of purchasing power and would free up real resources that can be diverted to other uses that would benefit more people and reduce the strain on the natural world.
In that sense, it creates more room to spend without encountering demand-pull inflation.
But it is also to reduce the power of the rich – to reduce their capacity to lobby the political process, to fund think tanks, to fund media outlets etc.
There has to be a fundamental rebalancing of ‘influence’ in the future away from those who currently wield it through their access to purchasing power.
Further, the currency-issuing government has all the ‘money’ it needs to buy anything that is for sale in that currency, including all idle labour.
The issue is not a shortage of capacity to credit bank accounts with numbers.
The constraint, that MMT highlights is that the US government or any currency-issuing government may not be able to command enough real resources to do everything that we want.
A nation’s material prosperity is always limited by the real resources (people, machines, equipment, etc) that it can bring into productive use.
A nation with few real resources at its command will typically always experience low material standards of living, even if all the resources it can command are being fully utilised.
Full employment of a nation’s productive resources thus is a necessary but not sufficient condition for a high material standard of living.
That is core MMT.
Mr Mauldin appears to misunderstand that.
My concerns about all the promises that people on the Left might make with respect to Green New Deals etc is that there might not be sufficient real resources available to do everything that would be desirable.
Then the game turns to which sectors or people will we allow the government to deprive of current access to real resources in order to divert them elsewhere.
That becomes the tricky political issue.
Mr Mauldin continues that because “there’s simply not enough money”, the US government will have to:
… add more debt and eventually monetize it.
I thought there wasn’t enough money?
And if there isn’t enough money (liqudity) how can the government issue debt? The issuing of debt is a process of swapping bank reserves for a bit of paper.
One account (A) at the central bank gets debited and another (B) gets credited.
And, how does a government “add more debt and eventually monetize it”?
Oh, via “quantitative easing on a scale that makes the Bernanke years look like an elementary school picnic”.
Which swaps bank reserves (liquidity) for outstanding government debt.
Okay, so the numbers get transferred back from B to A.
Well, Mauldin seems to started his Op Ed by copying earlier doom predictions and then he must have reflected that he better not say the end is near and so he tells us:
Now, the world will not come to an end.
A few predictions about technology eating jobs etc.
And then the marketing … for his subscription newsletter providing advice on how to “invest” in an era of new “volatility”.
It was about as facile as that.
But the point is that at some point, financial commentators should be called to account.
I understand the principle of Caveat emptor and for those who pay to subscribe to any of his services or conferences, that is their look out.
His continual doom predictions that never turn out to be correct should be warning enough for these ‘buyers’ and it is a wonder there are any left.
But, when a person comes out in the mainstream media as an Op Ed columnist making all sorts of claims and predictions that are erroneous then I think the issue of professional negligence comes into play.
Just like the Australian bankers who lied, cheated and stole money from naive or duped customers, Op Ed ‘experts’ who continually predict one thing and another happens should be brought to account.
They won’t be but they should.
The current period is interesting as public scrutiny on our work (MMT) is increasing all over the World.
The New Keynesians are coming out with preposterous Op Eds against us.
Some Post Keynesians, who hate New Keynesian macro, are attacking MMT. Their problem is they became so lost in identity issues and methodology and all that that they have dropped the ball on macroeconomics. Now they are trying to claim relevance.
And so the MMT train rolls on as more and more intelligent people, not poisoned by mainstream macroeconomics, grasp its message and see a political route to improve the well-being of all of us rather than just the few.
It all looks as though we are making progress.
Upcoming speaking tour
Between February 23 and March 13, I will be in Europe.
I will be conducting classes at the University of Helsinki on February 26-28 and March 5-7 in Modern Monetary Theory (MMT).
While the lectures are part of a university degree (in my role as Professor of Global Political Economy at the University of Helsinki) – they are open to the public and I would welcome anyone to attend.
It is possible I will also be in London to launch our text book (Marchh 1) – more details to follow.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.