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My Brief Encounter with Warren Mosler, MMT

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May 23, 2011 – Comments (7)

In an economics chat room the other day, I challenged a supporter of MMT about certain aspects I found lacking.  Warren Mosler, leading advocate of Modern Monetary Theory (MMT), was commenting in the thread as well.  Our interaction is reposted here (I don't have time to add concluding remarks or to summarize right now, but if you drop  a good comment below, I will try to respond) :

MMT Supporter May 21, 2011 at 10:33 pm

MMT rejects Samuelson’s work as “bastard Keynesianism.” Samuelson combined Keynesianism and Neoliberalism into New Keynesianism, which MMT also rejects. MMT is Post Keynesian.

David in Qatar May 22, 2011 at 12:24 am

Ok, then admit that. As far as descriptive work of Fed operations, I think you guys are great. But that’s not economics. That’s journalism.

When you move past descriptive work and start discussing theory, you are Keynesian, and as such it makes me quite annoyed that discussions of theory end up with MMT supporter saying “operational reality.” There is no operational reality to post-Keynesian theory. It is no less “imaginary world” than you make out Austrian School Theory to be.

A little more honesty, a little less arrogance, and a lot less disingenutiy would serve MMT very well.

Warren Mosler May 22, 2011 at 5:32 am

Mmt might be more accurately called pre Keynesian.

And I was viscously and personally attacked by many mainstream post keynesians in the 1990′s and many continue to do so.

Mmt today says in the US today taxes function to regulate aggregate demand, and federal borrowing to alter the term structure of rates, and not inherently and or operationally to raise revenue per se.

I include the fed and tsy as agents of govt for this analysis.

All recognizing the dollar as a public monopoly.

And all for better or for worse

David in Qatar May 22, 2011 at 6:36 am

Warren,

And I was viscously and personally attacked by many mainstream post keynesians in the 1990′s and many continue to do so.

That’s a badge of honor around here.

Mmt today says in the US today taxes function to regulate aggregate demand, and federal borrowing to alter the term structure of rates, and not inherently and or operationally to raise revenue per se.

But does MMT say that Aggregate Demand is an accurate theoretical framework from which an economist should analyze economic problems? This is my main point of contention with MMT supporters. Aggregate Demand does not represent the “real world” in contrast to Austrian theories – which several MMT supporters in this very thread have castigated as “imaginary” economics. Aggregate Demand is not “operational reality.” It is a theoretical framework, and I believe it to be a faulty one.

I include the fed and tsy as agents of govt for this analysis.

Only the most hard core Fed apologist still maintains that it is an independent entity.

All recognizing the dollar as a public monopoly.

You call it a monopoly, we call it a counterfeiting machine backed by force. No dispute here. It is in what we do with this fact that our difference lies. We both recognize this operational reality.

But once you move past that descriptive aspect and into proposal, MMT has also moved beyond description and into theory, whether you guys are willing to admit that or not. So far, no one seems willing.

And all for better or for worse

In respect to economic calculation and liberty, clearly it is for the worse. The gold standard did not die becuase the economy evolved beyond it. It took an army of filthy bureaucrats and politicians to kill it. That was clearly for the worse, and every growth of the police state and imperalism should serve as a gruesome reminder.

And that, my good sir, IS an operational reality.

Warren Mosler May 22, 2011 at 6:57 am 

Aggregate demand is best thought of as the posture of the currency issuer.

Yes, it’s a major factor, as the currency issuer is a monopolist controlling both supply via his spending and/or his lending, and nominal demand through his taxing.

It’s the dogs and bones story. Send 100 dogs into a room with 95 bones in it and 5 dogs come out boneless. The dollars to pay taxes come only from govt spending and/or lending when you drill down to the bottom of it, and in fact that’s what makes it all work, again for better or worse. Taxation is necessarily coercive and the govt then makes the economy scratch and claw to get the net dollars we need to pay taxes and net save dollars if we so desire.

As for the Fed, for all practical purposes it’s a public purpose entity. The officers are govt appointees, it’s mandate is congressionally determined, and all profits are turned over to the govt. I know about the vestigial shareholders. I’m one of them. I get 6% interest on a very small investment and nothing more and certainly no semblance of control whatsoever

Warren Mosler May 22, 2011 at 6:58 am

And when I venture into theory I say so

David in Qatar May 22, 2011 at 7:38 am

Warren,

Aggregate demand is best thought of as the posture of the currency issuer.
Yes, it’s a major factor, as the currency issuer is a monopolist controlling both supply via his spending and/or his lending, and nominal demand through his taxing.

I am hesitant about what to infer from this statement. My first reaction is that you believe government manipulation of the currency is good because it alters the individual demand scales of market participants.

This idea would run direclty counter to Austrian Theory about the role of prices in the market. If prices are formed from subjective value scales and imputed up to higher order goods, altering demand through currency manipulation is foolish and dangerous no matter how rosy your intentions.

In other words, the prescription of regulating currency to impact demand (or Aggregate Demand, if you prefer) will cause more harm than good, since it will distort the signals that market actors rely on to make decisions about the use of economic resources.

I understand the basic Keynesian/Malthusian/MMT Aggregate Demand story, but to call it the only descriptive analysis is deceitful. Aggregate demand is not a valid starting point for describing economic reality from a Mises/Rothbard point of view. Human action and subjective value scales are descriptive from this viewpoint.

So if the two schools are not going to agree on a starting point, it’s easy to see why they talk past each other.

My final question would be this,

If MMT has learned anything, it is that mainstream economic theory offers little value for understanding our world. Why then would MMT borrow so heavily from mainstream theory (Aggregate Demand, Excess Capacity, and in general, a Positivist Methodological Approach)?

It’s the dogs and bones story. Send 100 dogs into a room with 95 bones in it and 5 dogs come out boneless.

Assuming every dog eats one. I’m not sure what this has to do with economics, however.

 =======================================================

I did not get an answer to my question.  MMT accepts a positivist approach derived from previous positivist approaches, while simultaneously taking as given that previous postivist economic approaches failed.  

David in Qatar

7 Comments – Post Your Own

#1) On May 23, 2011 at 9:01 AM, mtf00l (45.82) wrote:

Interesting, thanks David.

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#2) On May 23, 2011 at 9:14 AM, TCWeaver (99.84) wrote:

Great read. I don't think Warren could answer your last question.

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#3) On May 23, 2011 at 10:19 AM, XMFSinchiruna (27.49) wrote:

David in Qatar,

I too am pressed for time, but I wanted to take a moment to thank you for another enormously valuable contribution to the ongoing public debate between the competing paradigms. I find I do not always enjoy the time necessary to remain directly engaged in such discussions as they unfold, but I am always delighted by the opportunity to review your exceptionally well constructed arguments and the range of responses (and non-responses) to them.

Seriously, do you have a publisher? You have an unbelievable talent for concise expression of complex ideas, while still remaining accessible to a wide spectrum of readers. Do you have any interest in publishing? Because I believe in your talent, I would be willing to offer my assistance in that regard.

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#4) On May 23, 2011 at 11:05 AM, whereaminow (20.41) wrote:

TMFSinchiruna,

Thank you Chris.  You've always been very helpful, and I learned a great deal from reading your articles. I'd be remiss to take credit without mentioning your influence.

I don't know how I feel about publishing my work. My career places a heavy demand on my schedule, and you can almost see from my writing when I have time to dedicate to this hobby and when I don't.  The drop off in quality gets pretty dramatic.  I don't know how a publisher would feel about that.

But I would like to hear more about it so please feel free to email me your ideas.

David in Qatar 

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#5) On May 23, 2011 at 12:14 PM, rfaramir (29.31) wrote:

“Mmt today says in the US today taxes function to regulate aggregate demand”

This is reason number one why MMT is Keynesian.


“I include the fed and tsy as agents of govt for this analysis.”

That’s a good admission, but remember that they function separately. The Treasury issues new government debt, the Fed monetizes whatever debt is not voluntarily purchased. (Thus the Fed initiates violence on our purchasing power by diluting it when we don’t buy enough Treasury issues. In the absence of the Fed, the free market would force interest rates higher when the Treasury is perceived to be taking on “too much” debt.) Outside of new debt issuance (or the rare surplus year), the Treasury’s taxation and spending balance. They have no net effect on the money supply. They do have an effect on the economy. Every dollar taken by government is not available to meet our needs. Government spending is no substitute, since it only spends on things people would not have spent their money on if left in their hands. Therefore government impoverishes us all, on average. The more they spend, the more we are worse off. The more they spend than they take in, the more our dollars are diluted, our purchasing power robbed, and we are hurt further.


“Aggregate demand is best thought of as the posture of the currency issuer.”

This makes no sense to me. Aggregate demand, if it means anything, means the sum total of what all purchasers purchase. It has nothing to do with a currency issuer. The policy of a fiat currency issuer does impact demand, of course. If he is inclined to inflate the money supply (and what issuer is not?), the poor unfortunates who have to use it are motivated to exchange it for goods and services as soon as possible, and if they find that the market runs out of possibly useful goods, they look for silver, gold, and any other hard asset that will be useful to someone else in the future to maintain some purchasing power in the face of debasement.


“The dollars to pay taxes come only from govt spending and/or lending”

This is reason number two why MMT is Keynesian. The government has no money of its own, despite being the paper issuer. Government produces nothing and can only take the people’s money to have any to spend. A goldsmith (or later, bank) which issues receipts for gold kept in its vaults cannot claim to own the paper money, though it is responsible to honor the receipts. It does not own the gold, only holding it on behalf of others. When it over-issues receipts, it commits fraud, since it is creating claims by multiple people on the gold that it holds on their behalf. When all private gold was forcibly (and therefore immorally) put into the government bank (by FDR, 1933), theoretically nothing changed. The gold was still ours, and we had the receipts as proof. By refusing to honor the receipts held by Americans but still doing so for foreigners, they only made it harder, not impossible to exchange them. The government then unilaterally reduced (by violent, irresistible force) the value of the people’s receipts by 35/20ths in 1934. The government committed more fraud by overissuing until Nixon closed the gold window in 1971 (to stop the outflow of gold to other countries, the free market solution to bank fraud). By doing so he effectively (though wrongfully) claimed all the remaining gold for the government, as the receipts we now hold are not exchangeable for anything but more receipts, so are completely valueless inherently, only having a residual exchange value for as long as people think they are still exchangeable. By law, dollars represent nothing, but their exchange value rests in the distant hope that in the future they will once again represent a minuscule fractional ownership of their gold in the immoral possession of the US government. In the future, this will either come true by the law changing, or the dollar will become completely valueless. The more the government multiplies the receipts as if they are completely worthless, the more likely that will be the dollar’s final fate.


“MMT accepts a positivist approach derived from previous positivist approaches, while simultaneously taking as given that previous positivist economic approaches failed.”

Awesome summary, David! Potentially, they might consider that they have built on and finally fixed all the flaws of previous approaches, but really, they need to justify that. 

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#6) On May 23, 2011 at 9:20 PM, TheDumbMoney (42.60) wrote:

I would love to see David in Qutar and Cullen Roche of Pragmatic Capitalism go at it.  David, when you have some time, go look at his long old posts on MMT and see if you two can debate.  I don't always agree with you (in fact as you know I often dont), but I usually learn something.

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#7) On May 24, 2011 at 3:45 AM, whereaminow (20.41) wrote:

Thanks for the comments and recs, everyone.

rfaramir,

As always, you are as fundamentally sound as a pick n' roll executed by a Bobby Knight coached team.  Loved your comment.

dumberthanafool,

I spent some time on his site when I first heard of him.  Didn't really enjoy debating him, since like most people, if I disagreed with him, he falls back on "austrian crackpot hyperinflationist tin foil hat goldbug" etc etc.  I do remember getting into it with him about the gold standard, the debt ceiling, and whether he was just a Keynesian disguised. 

I've done a few posts here on MMT.  I've always invited MMT supporters to comment, but I never get any takers.  In fact I openly challenged any MMT supporter to debate several months back, but instead ending up debating myself  :(

David in Qatar

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