by Summary:
The backers of Ocasio-Cortez’s bill released and then withdrew an FAQwhich seemed to suggest the investment would be paid for using the methods advocated by Modern Monetary Theory (MMT). MMT rightly argues, as against free-market economics, that a state with a sovereign currency cannot go bust. The state can create growth, and thus the means to pay back money borrowed; and it can create money, via the central bank, which can be used to lend to government.For many people on the radical left, MMT has become a new panacea - a get-out-of-jail free card for Keynesian economics in a world of highly indebted and stagnant capitalism. Unfortunately, it is not.While it’s true there is a lot more tax and spend capacity in a modern economy than the free-marketeers admit, it is not infinite. Nor is
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Mike Norman considers the following as important: Alexandria Ocasio-Cortez, AOC, GND, Green New Deal, MMT, MMT criticism, MMT critics
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The backers of Ocasio-Cortez’s bill released and then withdrew an FAQwhich seemed to suggest the investment would be paid for using the methods advocated by Modern Monetary Theory (MMT). MMT rightly argues, as against free-market economics, that a state with a sovereign currency cannot go bust. The state can create growth, and thus the means to pay back money borrowed; and it can create money, via the central bank, which can be used to lend to government.For many people on the radical left, MMT has become a new panacea - a get-out-of-jail free card for Keynesian economics in a world of highly indebted and stagnant capitalism. Unfortunately, it is not.While it’s true there is a lot more tax and spend capacity in a modern economy than the free-marketeers admit, it is not infinite. Nor is
Topics:
Mike Norman considers the following as important: Alexandria Ocasio-Cortez, AOC, GND, Green New Deal, MMT, MMT criticism, MMT critics
This could be interesting, too:
Mike Norman writes Jared Bernstein, total idiot. You have to see this to believe it.
Steve Roth writes MMT and the Wealth of Nations, Revisited
Matias Vernengo writes On central bank independence, and Brazilian monetary policy
Michael Hudson writes International Trade and MMT with Keen, Hudson
The backers of Ocasio-Cortez’s bill released and then withdrew an FAQwhich seemed to suggest the investment would be paid for using the methods advocated by Modern Monetary Theory (MMT). MMT rightly argues, as against free-market economics, that a state with a sovereign currency cannot go bust. The state can create growth, and thus the means to pay back money borrowed; and it can create money, via the central bank, which can be used to lend to government.
For many people on the radical left, MMT has become a new panacea - a get-out-of-jail free card for Keynesian economics in a world of highly indebted and stagnant capitalism. Unfortunately, it is not.
While it’s true there is a lot more tax and spend capacity in a modern economy than the free-marketeers admit, it is not infinite. Nor is it possible to infinitely expand the money supply without collapsing the value of money towards zero. MMT gives no account of where economic growth or profit comes from other than within the monetary system itself. Unlike Marxists, who believe value is created in the production process, the MMT crowd believe it can be created by the interplay of fiscal and monetary policy. (For a longer takedown, see this from the left economist Michael Roberts.)
If MMT is wrong, there are two negative outcomes for the Green New Deal project.
That "MMT gives no account of where economic growth or profit comes from other than within the monetary system itself" is flat out wrong. Paul Mason claims to have read all of the MMT literature. Well then, if he has, he doesn't seem to be been an attentive reader, or lacks reading comprehension.
MMT is in agreement with most economists that economic is about the allocation of scare real resources, non-scarce resources having no market value, i. e. are "free goods." What conventional economics misses is how finance and economics are joined at the hip in a monetary production economy, and that this joint is structured in terms of double-entry accounting, which implies stock-flow consistent modeling using a unit of account. This brings in the the institutional arrangement and operations of finance, both public and private.
Finance makes economics understood as the production, distribution and consumption of real good possible in a monetary production economy through price rationing in markets. Failure to understand this and its implications results in economic under-performance and inefficiency in the use of real resources, and also leads to financial excess (inflation) and deficiency (deflation).
This was a major point made by Keynes that MMT economists agree with: Investment causes saving. It is not the case that saving causes investment. In a market-based capitalist society, production is chiefly the outcome of investment, with government acting in the background to provide a fertile field on which to plant, so to speak.
Full employment is the outcome of optimal economic performance. In a monetary production economy, proper understanding of the relationship of finance and economics is needed to maintain optimal economic performance and real full employment (not defined-down unemployment) while also maintaining price stability.
This may seem to be the same as the neoclassical assumption of general equilibrium in the long run, but it is not. According Keynes, whom the MMT economists follow in this respect, there is no tendency to long-run equilibrium. Optimal performance with minimal waste of real resources has to be achieved and maintained. The task that MMT undertakes to make possible by providing the needed understanding that is now missing.
Optimal efficiency arising from natural spontaneous order in perfectly symmetrical markets exists only in formal models and not in the real world, where social, political and economics asymmetries predominate. The question is what to do about this.
The answer of economic liberalism is bend the real world toward the ideal. That is a chimera given culture and institutions that impose social, political and economic conditions that work against it. It is as utopian as the pure communism that economic liberals criticize.
MMT is about dealing with reality, such as it is, and doing what is possible to make it better for all.
This is not to say that Paul Mason has nothing constructive to say. There is plenty to say about the Green New Deal and what it implies financially and economically as well as socially and politically. This is a huge challenge and instead of sniping at each other, we need to exert concerted effort to develop the design solution that has the best chance of success, with no guarantees that it will actually succeed. And it has to pass muster globally, where a myriad of competitive interests are in play.
Alexandria Ocasio-Cortez’s Green New Deal is radical but it needs to be credible too
Paul Mason