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MMT and pluralism in economics

Summary:
I am recording some promotional videos in London today for Macmillan Higher Education who will publish our forthcoming textbook – Macroeconomics on March 11, 2019. These will be the first of many short videos to support the teaching program outlined in the textbook. At last Friday’s very successful launch of the – Gower Initiative for Modern Money Studies (GIMMS) – I was asked a question at the end of the first formal workshop I presented, which I was unable to answer due to time constraints. The question went something like – “What do you think of the movements to instill pluralism into the teaching of economics?” The corollary was whether our forthcoming textbook adopts a ‘pluralist’ approach. The question implied that ‘pluralism’ was a desirable characteristic for a macroeconomics

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I am recording some promotional videos in London today for Macmillan Higher Education who will publish our forthcoming textbook – Macroeconomics on March 11, 2019. These will be the first of many short videos to support the teaching program outlined in the textbook. At last Friday’s very successful launch of the – Gower Initiative for Modern Money Studies (GIMMS) – I was asked a question at the end of the first formal workshop I presented, which I was unable to answer due to time constraints. The question went something like – “What do you think of the movements to instill pluralism into the teaching of economics?” The corollary was whether our forthcoming textbook adopts a ‘pluralist’ approach. The question implied that ‘pluralism’ was a desirable characteristic for a macroeconomics course to feature. In this blog post I discuss this question. It outlines what I might have said by way of answer to that question. But, given the medium, in a lot more detail than I would have provided at the actual event. Generally, we adopt a ‘pluralist’ approach. But it all depends on what we mean by that term. What we do not do is privilege the mainstream macroeconomics in any way. Too often, those who call for ‘pluralism’ in economics think it is appropriate to force students to learn swathes of the mainstream theory and practice as if it is knowledge. They think this is somehow a liberal approach to learning. Our view is that learning is about knowledge accumulation. Universities are not places where ‘fake knowledge’ should be disseminated. That is what propaganda is about.

The International Confederation of Associations for Pluralism in Economics (ICAPE), which was founded in 1993, “a consortium of over 30 groups in economics working cooperatively to maintain diversity and innovation in methods, approaches, policy analyses, and higher education in the profession”.

It considers “pluralism and intellectual progress” to be “complements” and “that each tradition of thought (Austrian, feminist, old and new institutionalist, Marxian, neoclassical, Post Keynesian, Sraffian, etc.) adds something unique and valuable to economic scholarship”.

By implication, they consider ‘pluralism’ to consist of a:

1. “a multiplicity of approaches to the scientific analysis of economic activity”.

2. “tolerant communication among different approaches”.

The Wikipedia page – Pluralism in economics – says that it is:

… a campaign to change the teaching and research in economics towards more openness in its approaches, topics and standpoints it considers …

Pluralism encourages the inclusion of a wide variety of neoclassical and heterodox economic theories—including classical, Post-Keynesian, institutional, ecological, evolutionary, feminist, Marxist, and Austrian economics,

In 1992, there was an advertisement placed in the May edition of the American Economic Review, one of the bulwark publications of orthodox economics (published by the American Economics Association).

The advertisement – entitled a “Plea for a Pluralistic and Rigorous Economics” – was signed by 44 economists and read:

We the undersigned are concerned with the threat to economic science posed by intellectual monopoly. Economists today enforce a monopoly of method or core assumptions, often defended on no better ground than it constitutes the ‘mainstream.’ Economists will advocate free competition, but will not practice it in the marketplace of ideas.

Consequently, we call for a new spirit of pluralism in economics, involving critical conversation and tolerant communication between different approaches. Such pluralism should not undermine the standards of rigor; an economics that requires itself to face all the arguments will be a more, not a less, rigorous science.

We believe that the new pluralism should be reflected in the character of scientific debate, in the range of contributions in its journals, and in the training and hiring of economists.

As time passed, student movements – such as the “autisme-économie” petition in France (2000) and the “Opening Up Economics” petition from PhD students at Cambridge, UK (2001) – formed to advocate ‘pluralism’.

The so-called ‘Cambridge 27’ call was representative:

We are not arguing against mainstream methods, but believe in a pluralism of methods and approaches justified by debate. Pluralism as a default implies that alternative economic work is not simply tolerated, but that the material and social conditions for its flourishing are met, to the same extent as is currently the case for mainstream economics. That is what we mean when we refer to an ‘opening up’ of economics.

Anyone with a familiarity of the evolution of the history of economic thought will know that in the Post World War 2 period (particularly in the period of neoliberal expansion – post 1980s), economists (micro and macro) gradually started to exclude consideration of schools of thought such as ‘institutionalism’ because it didn’t fit the growing antipathy towards government intervention and the growing emphasis on ‘free markets’.

This was an ideological shift.

The textbooks that were common, say in the 1950s, were more likely to present macroeconomics as a debate between schools of thought (hence the typical ‘Keynes and the Classics’ approach) rather than impose a unitary model for the pedagogy – a self-contained set of principles that is espoused without question.

Certainly, the more recent textbooks, such as Mankiw’s Macroeconomics, are clearly not ‘pluralistic’. That is, they do not present a debate between, equally privileged, but contrary conceptions of the economy.

There is now pattern where the New Keynesian approach is homogenised and presented as if there is no alternative explanation.

Just before the Global Financial Crisis (GFC) revealed its worst, Olivier Blanchard, the then chief economist at the International Monetary Fund (IMF), published a paper (August 2008) – The State of Macro – which reviewed the understanding that macroeconomists had of the real world,.

In his assessment, the “state of macro is good”.

He asserted that a “largely common vision has emerged” (p.5) in macroeconomics, with a “convergence in methodology” (p.3) such that research articles in macroeconomics “look very similar to each other in structure, and very different from the way they did thirty years ago” (p.21).

They now follow “strict, haiku-like, rules” (p.26).

He also noted that the dominant ‘New Keynesian’ approach in macroeconomics had “become a workhorse for policy and welfare analysis” (p.8) because it is “simple, analytically convenient … [and] … reduces a complex reality to a few simple equations” (p.9).

It didn’t seem to matter to these economists that in the “basic NK model is that there is no unemployment” (p.12), such that all fluctuations in measured joblessness are characterised largely by workers choosing whether or not to work as part of a so-called optimal choice between work and leisure.

The mainstream macroeconomists, who have an abiding faith in the ability of the self-regulated market to deliver optimal outcomes – which we will refer to as the neo-liberal approach, had declared some years before the crisis, with an arrogance common to the discipline, that the business cycle is dead.

That is, the large swings in macroeconomic performance (recessions and mass unemployment and boom and inflation) that had dominated the attention of economic policy makers in the Post World War II period and led to fiscal policy (the manipulation of taxation and government spending) being the primary tool governments used to maintain full employment and price stability, were now being denied.

University of Chicago professor Robert Lucas Jnr gave an extraordinary address to the American Economic Association in January, 2003 where he claimed (Source):

… that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.

A year later (February 20, 2004), the then US Federal Reserve Bank Governor, Ben Bernanke claimed that as a result of the policy shift away from governments attempting to manage total spending in the economy by varying fiscal policy settings in favour of using monetary policy (interest rate setting by central banks) to concentrate purely on price stability and the pursuit of fiscal surpluses, the world was enjoying the Great Moderation (Source).

Allegedly, damaging recessions were a thing of the past and low inflation and steady growth were now the norm.

The public was led to believe that these mainstream economists had triumphed over the old interventionists who had over-regulated the economy, sucked the enterprise out of private enterprise, allowed trade unions to become too powerful, and bred generations of indolent and unmotivated individuals who only aspired to live on income support payments.

The business cycle was dead and economic policy should now concentrate on deregulating labour and financial markets and reducing income support payments to reduce the subsidy to unemployment so that the ‘market’ can work even more efficiently.

This was denial writ large. And then the GFC arrived.

But, the point here, is that this arrogance fed into teaching programs everywhere.

Students were taught these “strict, haiku-like, rules” and everything else was excluded.

Progressively, courses in economic history, economic methodology (philosophy of science), ethics, history of economic thought, Marxian economics, and more were dropped from curricula that students were required to satisfy in order to graduate as an economics major.

And it didn’t seem to matter that mainstream macroeconomics had become a degenerating research program – in the way philosopher, Imre Lakatos conceived a body of work that had lost any sense of explanatory capacity.

As Thomas Kuhn noted, practitioners within such a program grimly hang on to their theoretical core despite failure to explain real world events.

A degenerative research program maintains its hegemony in a number of ways, including control of teaching programs in universities; control of the hiring process within the Academy; control of key publication outlets; control of major research funding bodies; and a dominance in the linkages between the Academy, business and government.

Much of the control is implicit and accomplished through networks to get around external oversight such as, anti-discrimination legislation.

The late economist Jack Barbash discussed the way in which the economics profession protects its belief system from criticism and avoids, as far as possible, addressing real world problems.

I wrote about his contribution in this blog post – 5.4 into 1 does not equal 5.4 (August 21, 2012).

In an article published in the US Magazine Challenge (March-April, 1982) entitled The Guilds of Academe (JSTOR link for those with library access), Barbash wrote there is:

… no formally coercive apparatus … [but] … the equivalent of an ‘old-boy’ network” in operation.

This “network” ensures that advantages (publications, research grants, promotions etc) accrue to those who conform to the rules.

Socialisation begins in one’s student days where the masters of the paradigm control the curriculum; the grading systems; and who gets postgraduate scholarships to pursue doctoral studies.

The indoctrination intensifies when one enters the postgraduate stages.

In economics, the graduate student learns that “rigor is more important than substance” and “method is more important than result” (p.52).

Remember those haiku-like rules that govern an economics paper’s chance of publication success.

More insidious is that mainstream (neo-liberal) economics privileges the interests of capital.

To understand why there is so much resistance to abandoning the failed economic theories we need to understand that the mainstream economics paradigm is much more than a set of theories that economics professors indoctrinate their students with.

In his 2013 book – Austerity – Mark Blyth noted that that these mainstream economic theories:

… enshrine different distributions of wealth and power and are power resources for actors whose claims to authority and income depend upon their credibility …

This explains, in part, why there was such resistance to abandoning them, even though it was clear that they were bereft of any evidential standing.

Historically, the body of theory that now represents neo-liberal economics was first developed in the late C19th as an antidote against the rising influence of Marxism, particularly in Europe.

The message was getting through to workers that profits were the reward for ownership of capital not a reward for any contribution to production.

The capacity of owners of capital to take the surplus labour of the workers – for nothing – was then the central story.

It was patently unfair and increasingly violent protests were threatening the capacity of capital to maintain their hegemony over the vast bulk of the population.

Clearly a solution was needed.

Economists were recruited by industrialists to develop theory that made it look like competitive capitalism was a fair system because it rewarded productive input in proportion to the contribution of that input to final output.

Later this was refined as attacks on government policy aimed at redistributing national income.

All the time, the interests of those who own or serve capital were being advanced at the expense of the less advantaged.

So, such is the Groupthink in the academy and the fact that the mainstream macro theories were supportive of the interests of capital, that any number of ’empirical failures’, including the failure to see the GFC coming, failed to dent the primacy of this approach.

Teaching programs have hardly been changed since the GFC.

It is in that context that the call for ‘pluralism’ has been gathering in popularity, particularly among student groups, who are sick to death of being fed the mainstream nonsense.

How does MMT deal with pluralism?

In my three presentations at the GIMMS launch – the initial polemic to launch GIMMS and then at times during the two formal workshops I conducted – the first on an introduction to MMT and the second on the Job Guarantee – I mentioned that our new textbook did not take the usual ‘pluralist’ approach.

By that I mean, it is common among previous ‘pluralist’ efforts to produce ‘heterodox’ texts, to privilege the mainstream approach as it is presented in the mainstream texts and then offer critical scrutiny of that approach – to broaden the students’ perceptions and to provide them with a ‘counter narrative’ to the mainstream pedagogy.

When we were conceiving of our own MMT pedagogy we considered that approach to be deeply flawed.

It was sort of trying to be ‘Mr or Ms Nice Guy’ – look how liberal we are – we don’t trash the orthodoxy but just criticise it. Students get to learn the orthodoxy but also some of its failings.

This implies there is some value in the orthodox theory and practice.

We disagree.

As part of our own strategy, we have been doing a lot of research in the area of social psychology and cognitive psychology (including the use of language and framing) and what becomes clear is that if one leads with a lie, the lie is immediately privileged.

By introducing the lie first, you immediately trigger the frames that support that lie and no matter how ‘factual’ you become in refuting key elements of that lie, the damage is done – the framing is reinforced and you get nowhere fast.

Those insights, which I have written about in the past, provide very powerful guidelines on how to present a pedagogy.

Past blog posts that are relevant here:

1. Framing Modern Monetary Theory (December 5, 2013).

2. The role of literary fiction in perpetuating neo-liberal economic myths – Part 1 (September 11, 2017).

3. The role of literary fiction in perpetuating neo-liberal economic myths – Part 2 (September 12, 2017).

4. The ‘truth sandwich’ and the impacts of neoliberalism (June 19, 2018).

My first refereed journal article with Dr Louisa Connors (more to come) came out last year in the Journal of Post Keynesian Economics – Framing Modern Monetary Theory (June 14, 2017).

That literature makes it clear that the way we frame our arguments and the language and vocabularies that we deploy is highly significant in whether our views are accepted or not in the public discourse.

So the question for those who call for ‘pluralism’ in economics teaching programs is: Should ‘non-knowledge’ be privileged equally with ‘knowledge’?

My answer to that question is clear: NO.

Non-knowledge should not enter teaching programs in any other guise as ‘history of thought’, to allow students to appreciate where an academic discipline has been in the past.

Juxtaposing ‘non-knowledge’ with what we would claim to be ‘knowledge’ is a flawed approach, no matter how dominant the ‘non-knowledge’ is in the current context of the economics profession.

Education is a process of expanding perception beyond crude superstitions and prejudices.

It is a way of exposing ideological dogma.

In that respect, I told the GIMMS audience that our soon to be published Macroeconomics textbook presents Modern Monetary Theory (MMT) as a mainstream approach – without compromise.

Where we think students should be exposed to existing mainstream macroeconomics we treat the material in a ‘history of thought’ manner and in self-contained HET-type chapters.

We never privilege the mainstream approach.

Why not? Simply because we consider it to be fake knowledge.

Its construction of the monetary economy and the capacities of the currency-issuing government within that economy does not correspond to anything in the real world.

Our goal was to present a macroeconomics that was strongly ‘congruent’ with the real world – to provide students with an accurate (if somewhat stylised) depiction of how things actually work in central banks, treasuries, commercial banks etc.

Congruency is about being consistent with the evidence.

We don’t claim that we are providing the ‘truth’. Rather, our body of work is a tentatively adequate depiction of the data generating process within the institutional framework that is operating.

That approach provides many insights that bear up when confronted with the data and which are in contradistinction to the predictions (or claims) of mainstream macroeconomics.

Some might claim, then, that our approach is monistic, which is the opposite (or denial) of pluralism.

I would disagree.

We present the specific MMT approach within a background of history, culture, institutional description and a very strong attributive environment recognising the past influences.

What we do not do is privilege the mainstream approach in any way.

We do not see it as a debate where the jury is out.

That is one of the shortcomings of the ICAPE approach – which thinks that New Classical Economics, Real Business Cycle Theory, New Keynesian economics offer “something unique and valuable to economic scholarship”.

We disagree.

They offer fake knowledge. We are not writing a religious liturgy. The textbook is about knowledge.

Conclusion

So if by ‘pluralism’, we mean that all ideas in the past and present should be treated with equal respect and privilege, we disagree.

We consider pluralism to mean a body of work that draws on past influences that are congruent and consistent but also adds new insights that might be temporally or institutionally dependent.

We should not ‘tolerate’ fake knowledge, especially as it has been used to advance policies that have deliberately forced millions of workers into unemployment, cut public sectors to the disadvantage of the poorest members of our societies, and redistributed income to capital.

This is a time for MMTers to be confident and not pay lip service to the mainstream macroeconomics, hoping that there will be some acceptance of our ideas.

Our textbook is 100 per cent MMT solid. And I make no apologies for that.

Remaining date in my current UK/European speaking schedule

I have several significant meetings in London tomorrow (which I may or may not disclose publicly – depending). Then I am off to Germany for the last event on this particular speaking tour.

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: rsvp@makroskop.eu for details.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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