My review of a MS Econ-ist's hatchet-job attack on MMT - Politics Forum.org | PoFo

Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...

"It's the economy, stupid!"

Moderator: PoFo Economics & Capitalism Mods

Forum rules: No one line posts please.
#15191197
I was recently shown a link to an article that attacks MMT. I would describe this article as a typical hatchet-job attack on MMT by MS economists. It says 16 things about MMT that are wrong, and just 3 thing that are right about MMT, also 2 things that are correct about econ. reality.

I will just quote the examples and and reply (in italics) to them. The correct things I put in bold.

1] The article says, MMT “ignores the fact that deficit spending is constrained in the long run by a government's ability to satisfy creditors.”
. . . This assumes that the US Gov. must issue bonds to the public to deficit spend. MMT asserts that it can (if laws are changed) sell bonds to the its central bank directly, because doing it indirectly is just a choice. Also, MMT asserts that when necessary the US Gov. can just deficit spend (if laws are changed) without creating bonds, again it's a choice. MMT asserts that the only real constraint on such behavior is the inflation constraint.

2] It says MMT says “... and simply print currency to pay for its expenditures indefinitely without economic costs or constraints.
. . . Later, the article says, “In fact, many MMT theorists are quite concerned about the dangers of inflation — perhaps to a greater extent than adherents to post-Keynesian or even New Keynesian views — ”
. . . So, it admits that MMTers do worry about the inflation constraint. So, this is just a bold face lie to misrepresent what MMTers say. It also intentionally uses the inflammatory phrase ‘print money’ instead of the correct MMT phrase ‘deficit spend’, which it had used above.


A] It correctly says, “implementing MMT would reverse the role of policy institutions ...”.
. . . Later, it clarifies this by saying the monetary and fiscal policy makers have their roles reversed.


3] It asserts without any evidence or explanation, that “MMT's outcomes are potentially catastrophic.”
. . . Clearly, some explanation is necessary. Did they say this so that others could quote it of maybe to insert this thought into the reader's minds?

B] It correctly says, “Nonetheless, some aspects of MMT are perfectly consistent with the dominant monetary paradigm in economics and are, in fact, the subject of much ongoing macroeconomic research and debate.”

4] It says, “But MMT differs greatly in its policy prescriptions.

The [MMT] idea that a government, as the monopoly issuer of currency, can always print money to cover budget deficits and fund government spending may appear reasonable.”
. . . Again it implies the opposite of what it admitted MMT does say. Which is that the only constraint on deficit spending is inflation.
. . . OTOH, isn't the sentence true? Isn't it true that the Gov. that issues the money can always issue money to fund itself, if the downside of this is to be ignored for now?


5] It says, “But in the end, MMT provides only an untested set of statements about the consequences of monetary policy.”
. . . In fact, the claims of MMT have been tested for the 50 years since the world went off the gold standard. This, by the way, is actually one of MMT's core tenets. That the economic system is now very different when the world is off the gold standard. The article never mentions this core tenet, and in fact, it assumes implicitly that it doesn't matter at all if the world is on or off the gold standard. Can I deduce that this is a core tenet of MS Econ. theories.
. . . Below, the article points to cases of hyperinflation. However, of the 4 cases, 3 were when the gold standard was in effect, and 1 was caused by crop failures and resulting food shortages, that could only be filled by importing food which required vast amounts of money printing, real printing in this 3rd world case only.


6] It says, the “Federal Reserve had begun to increase its policy rates in response.”
. . . [So, what the Fed. is neo-liberal to its core.

7] It says, “In addition, demographic changes occurred in the United States and ...”, “Older societies tend to experience lower rates of inflation ...”, & “... the large cohort of baby boomers approaching retirement typically have had high savings rates, which exerted downward pressure on interest rates.”
. . . And this is going to change, when? IMHO, this will never change as ACC hits with a vengence.

C] It says, "Finally, the effects of QE were blunted by the fact that most of the additional liquidity remained in the form of excess reserves in banks' accounts with the Federal Reserve — as opposed to cash or bank deposits in the hands of consumers."
. . . A good point.


8] It again says, “The core tenet of MMT is that a government can print money indefinitely and without constraints since it is the monopoly issuer of currency. More pertinently, the government can compel households and businesses to hold currency to make tax payments. This has two implications for the efficacy of MMT. ..snip..
First, economic history is awash with disastrous attempts to finance government spending and debt simply by printing money. These examples range from currency debasement in the Middle Ages to the hyperinflations of the 1900s (for instance, Germany in 1923, Hungary in 1946 and Zimbabwe in the 2000s).”
. . . Again it gets the core tenet of MMT wrong. And, this where it points to 3 cases of gold standard times and 1 case of not on the gold standard, but almost certainly pegged it currency to the US$.

D] Here is where they say, “What they derive from these insights is that the roles of fiscal and monetary authorities (Treasury/Congress and the Fed) could be effectively reversed. Under MMT, the Fed finances the deficit by printing money, while the Treasury and Congress use their tools (taxation, expenditures and fees) to stabilize the economy and fight inflation. For example, Congress could raise taxes to dampen aggregate demand when the economy heats up. In fact, many MMT theorists are quite concerned about the dangers of inflation — perhaps to a greater extent than adherents to post-Keynesian or even New Keynesian views —”

E] It says, “The hallmark of MMT is thus a fiscal view of the world, where the fiscal authority becomes responsible for the traditional monetary policy domain. In fact, MMT might be more aptly called "modern fiscal theory."
. . . This is true, I think.


9] It assumes that “the intertemporal government budget constraint” (IGBC) is true. So, “Sustainability in this context means that government bond holders and purchasers believe that a current level of indebtedness can be repaid [..snip..] with net government revenues at some [any and all?] point[s] in the future.
. . . Well, any thinking person must know that this claim is totally false. The very idea that the US Gov. could (without borrowing or creating cash $$ in some way) tax $26 trillion away from the American people and the rest of the world's people is laughable.
. . . They do cover their ass by adding the part I snipped, “or at least cover the interest”.
. . . MMTers assert that the proof of the IGBC is deeply flawed, and in any case has not been tested since 1971 when the world went off the gold standard. The Greek case doesn't count because it uses, and can't issue, the euro. MMT only applies, according to MMT, to nations that issue their own currency, don't peg it to any thing or other currency, and don't have any debts in any foreign currency. So, all the EU & EZ nations don't count as examples.
. . . So, I suppose the basic claim here (that nations must satisfy their creditors) will convince many who read this article, however, it should not until they have seen the proof of IGBC and accept it.


10] It says, “The main implication is that people would buy and hold government bonds only if they expected the IGBC to hold. In other words, outstanding debt has value today because it will be repaid by future net revenues.
. . . Anyone who believes that revenues will someday pay off the US debt is a fool. Economic players are not fools. therefore the assumption that the IGBC constraint is real is disproven. Note: here it didn't add the interest escape phrase.

11] It says, “MMT does not escape from this IGBC logic since government debt has to be marketed and sold to willing investors.”
. . . Yes, it does (as long as the inflation constraint is kept in mind) because the Fed. can (if laws are changed) buy bonds directly, or (if laws are changed) the bonds don't even need to be sold for the Gov. to spend dollars.

12] It says, “But this does not obviate the requirement that ultimately someone must be willing to hold such debt instruments, even if those instruments are simply money — and this is far from a given, “
. . . Here, I take “simply money' to mean hold US$. Well, how can Americans not hold US$? Are they going to burn their dollars and return to gold? What can they do to escape dollars. If they are using them, then when the US Gov. offers dollars to buy their labor or something, what can they do?
. . . The answer is clear. They can demand more dollars. But, this is exactly the inflation constraint the the article admits that MMTers worry more about than other MS Econ. theories do. And, if this assumed situation happens, then the MMT suggested responses will be required to slow or stop inflation.


13] It syas, “There is a substantial literature on debt sustainability from the 1980s and 1990s ..snip.. the fiscal-limits literature [now] finds ratios of 180 percent to 200 percent sustainable. Japan, with its stable economy and a debt-to-GDP ratio of more than 200 [actually >246%] percent, provides suggestive evidence of this higher limit (although that higher limit has costs) [What costs? They are not inflation, high yields on bonds, or a weak yen.]  No one knows for certain where the U.S. limit lies, but there is certainly a limit.”
. . . Here I agree, it does seem like 10,000% of GDP seems unlikely to be OK.

14] It says MMT's allowed increase in deficit spending by the US “is counter to the historical record ...”
. . . It is not counter to the historical econ. record after the world exited the gold standard.

15] It says, MMT has “an apparent disregard, at least in the public debate, for obvious constraints on government spending.
. . . Really? Really!? I saw above where the authors acknowledge that MMT talks more about the inflation constraint than most MS Econ. theories do.
. . . Maybe, they mean the public debate between MS economists, who have a reason to avoid mentioning MMT's deep regard for the inflation constraint.


16] It concludes, “Given this gap, we believe that current policy challenges are best addressed in the context of mainstream macroeconomic theory. The caveat that needs to be attached to MMT is that it would require a fundamental realignment of the relationship between the state and the individual …”
. . . So, after lying about what they know MMT says, otherwise being wrong about what MMT says, simply asserting that MMT is wrong on some points, and make assertions not in evidence, they conclude that MMT is not to be used. And, where above was this 2nd point argued? Note: it wasn't.]

F] It goes on in the same sentence “… in addition to a reversal of policy responsibilities between fiscal and monetary authorities — in exchange for highly uncertain benefits[?].”
. . . [i]This reversal part is true. However, they never actually said one word about what the benefits of using MMT thinking more would be, and yet feel they can conclude they are highly uncertain.


I assert that it is totally improper to lie about the other's points and thinking, to support a conclusion that they are wrong.
And, they more than once spoke about the relationship between the state and the individual being at risk or needing to be changed, but never said one word about how this was so.
They also spoke about the “core tenets” of MMT but never mentioned MMT's actual core policy idea, that the national Gov. fund and the various local govs. admin. a MMT-style-Job Guarantee Program that offers a socially useful job, and pays an identical “socially inclusive wage” to every adult who wants such a job. Maybe $25/hr. Maybe, such JGP workers could be rented (at a loss to the Gov.) to farmers in Calif. to harvest crops (harvesting crops is very socially useful, even necessary). Etc.

EU is not prepared on nuclear war, but Russia,[…]

It is implausible that the IDF could not or would[…]

Moving on to the next misuse of language that sho[…]

There is no reason to have a state at all unless w[…]