My Brief Encounter with Warren Mosler, MMT
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.
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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
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