{"id":43997,"date":"2019-12-31T10:24:05","date_gmt":"2019-12-31T00:24:05","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=43997"},"modified":"2019-12-31T10:24:05","modified_gmt":"2019-12-31T00:24:05","slug":"a-response-to-greg-mankiw-part-3","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=43997","title":{"rendered":"A response to Greg Mankiw – Part 3"},"content":{"rendered":"

\t\t\t\tBefore Xmas, I published a two-part reply to Gregory Mankiw’s paper on Modern Monetary Theory (MMT) – A Skeptic’s Guide to Modern Monetary Theory<\/a> (December 12, 2019). I was trying to get the response finished before the break and Part 2 had already become too long. So I decided to leave one issue that I didn’t get to address for a shorter third response once service resumed. I think this part of the response is necessary to set right on the public record. It exemplifies how critics need to work harder to actually understand what MMT is about. And while they try to claim that MMT is opaque and difficult to get to terms with, thereby sheeting the blame for their misguided renditions of our work back onto us, the issue I discuss today is very easy to come to terms with. It is front and centre and there have been many scholarly and other articles written about it. I refer, of course, to the Job Guarantee as MMTs response to the mainstream Phillips curve. The failure to appreciate where this sits in the MMT framework is not confined to mainstream economists. But this group know all about the Phillips curve literature and the place it holds in their macroeconomics. So there is no excuse not to understand it within a buffer stock framework and how MMT responds.
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Previous posts:<\/p>\n

1. A response to Greg Mankiw – Part 1<\/a> (December 23, 2019).<\/p>\n

2. A response to Greg Mankiw – Part 2<\/a> (December 24, 2019).<\/p>\n

Since Part 2 was published last week, there has been further correspondence with Greg (on his initial instigation), which clarified some of the unknowns laid out in Part 1.<\/p>\n

He assured us that he was acting in good faith (which I accept) and had “spent several months reading … [our] … book carefully”. He also said his initial intention when he wrote to us initially was different to what eventually was produced in the “Skeptic’s Guide”.<\/p>\n

The shift was driven by deadlines.<\/p>\n

While I have no reason to doubt any of that, I still think it is beholden on an academic critic to render the object of criticism fairly.<\/p>\n

I don’t think his “Skeptic’s Guide” is a fair rendition for reasons I outlined in Part 2 and will extend in this part today.<\/p>\n

In fact, his readers will come away from reading his paper with a very weird version of our work. I hope they are curious and come back to source to learn how they have been mislead – intentionally or otherwise.<\/p>\n

So here is one way his readers were totally mislead about MMT.<\/p>\n

Somehow Greg Mankiw missed a major departure of MMT from the mainstream he loves<\/h2>\n

In his critical ‘guide’ (or non-guide as it happens), Greg Mankiw writes:<\/p>\n

\nMMT proponents advance a very different approach to inflation. They write, “Conflict theory situates the problem of inflation as being intrinsic to the power relations between workers and capital (class conflict), which are mediated by government within a capitalist system.” (MW&W, p. 255) That is, inflation gets out of control when workers and capitalists each struggle to claim a larger share of national income. According to this view, incomes policies, such as government guidelines for wages and prices, are a solution to high inflation. MMT advocates see these guidelines, and even government controls on wages and prices, as a kind of arbitration in the ongoing class struggle. (MW&W, pp. 264-265)\n<\/p><\/blockquote>\n

This is a totally inaccurate account of the MMT approach to inflation control and reflects badly on his claim to have read our – Macroeconomics<\/a> – textbook faithfully before writing about it.<\/p>\n

In Chapter 17 on ‘Unemployment and Inflation’, we do consider incomes policies (Section 17.5) in the context of inflation being the outcome of the distributional struggle over real income shares by labour and capital, fought out by each claimant pushing nominal wages and\/or prices up.<\/p>\n

We say that:<\/p>\n

\nGovernments facing a wage price spiral and who are reluctant to introduce a sharp contraction in the economy, which might otherwise discipline the combatants in the distributional struggle, have from time to time considered the use of so called incomes policies<\/strong>.<\/p>\n

Progressive economists often advocate the use of incomes policies to rein in cost pressures to avoid the need to reduce overall spending, which creates higher involuntary unemployment.\n<\/p><\/blockquote>\n

We document historical episodes in various countries of attempts to use incomes policies to control inflation.<\/p>\n

We conclude that, in general, that historical trends (institutions etc) have made the “operation of incomes policies difficult” despite this approach have been successful in some nations (for example, Scandinavian economies).<\/p>\n

Nowhere in that discussion do we say that the MMT approach to inflation is to use incomes policy.<\/p>\n

In fact, we closed the discussion with this:<\/p>\n

\nIn Chapter 19, we will introduce the concept of employment and unemployment buffer stocks in a macroeconomy and analyse how they can be manipulated by policy to maintain price stability.\n<\/p><\/blockquote>\n

And in Chapter 19, at the outset, we reflect on the material in Chapter 17 before pursuing the “main focus” which is to analyse:<\/p>\n

\n… two approaches to achieve sustained low and stable inflation (inflation proofing). We construct the discussion in terms of a comparison between two types of buffer stocks<\/strong>, both of which are created by government policy aimed at avoiding aggregate demand pressures that might fuel an inflationary spiral.\n<\/p><\/blockquote>\n

And:<\/p>\n

\nThe two buffer stocks<\/strong> that we will compare are:<\/p>\n