24 Hour Modern Money People

Paul Krugman’s recent posts “Deficits and the Printing Press (Somewhat Wonkish)” and “A Further Note on Deficits and the Printing Press” have been responded to by leading modern monetary theorists and contributors to the various comments sections at NYT and MMT blogs. Tom Hickey has collected the key contributions to the debate here and here.

My first thought on reading Krugman’s discussion of MMT was that he was attempting to position his own arguments against austerity as “moderate”. Whatever the motive, he may well have done the “modern monetary theory people” (I prefer “24 Hour Modern Money People”) a favor. By posting an easy-to-counter straw-man characterization, he has basically given MMT proponents an open invitation to articulate their position on a high-profile site. The commentary on the original post was so lopsided in favor of MMT – they are 24 Hour People, after all, and their posting activity frenetic – that he apparently saw fit to add the follow-up post clarifying his position. It was another easy-to-counter straw-man characterization and open invitation. The crazy thought occurs that maybe he is actually trying to give MMT a boost. It wouldn’t completely surprise given his real concern at the moment is austerity – a policy matter on which he is in agreement with MMT in the neoclassical short run – and not primarily theoretical debate.

It is encouraging to see MMT gaining exposure, but part of me worries where all this may be heading politically. There seems to be an ugly combination of the general population believing in the merits of austerity, which paves the way for cutbacks on social expenditures and continued high unemployment, alongside an understanding in high places that the government has a larger than ever capacity to pursue military aggression in the Middle East and elsewhere to control access to oil and other resources (larger than ever because of the high unemployment and excess capacity) and a Fed that uses fiscal actions to transfer wealth to banks, including foreign ones.

There appears to be a concerted effort by the elites to grind down general living conditions as low as possible while preserving a privileged position for the few. In the aftermath of the Depression and WWII, capital made concessions, mainly due to the threat (to them) of socialism. That threat seems largely absent this time. Technological advances (e.g. relating to surveillance capabilities) and ideological developments (a widespread rejection of socialism and embrace of neoliberalism) mean compromise is no longer necessary. Propping up living standards for the “middle class” (i.e. working class) in developed economies would now seem superfluous from the perspective of capital.

On another level, there is also a grinding down of knowledge and understanding (decimation of the education system and unrelenting propaganda through all media) that is reducing the capacity of general populations to assess political and policy options or to separate lies from truth. This is occurring alongside the ever-increasing acquisition of knowledge accessible to the few.

Relating back to the recent exposure given to MMT and the relevance, if any, to the elites, Tom Hickey has mentioned in a recent comment the possibility that a certain section of the establishment may fear a repeat of 1937 and believe – as Kalecki and Keynes influenced approaches suggest – that applying austerity everywhere is counterproductive to capital. If so, austerity measures and the political shenanigans over the debt ceiling may have some in the establishment concerned.

If this is the case, their concern would relate to profitability. In aggregate, profits are the sum of capitalist expenditures, budget deficits and net exports minus saving out of wages. At the global level, net exports are zero, meaning global profits are simply capitalist expenditures plus budget deficits minus saving out of wages. Contrary to the position of the Crowding Out Crowd, Kalecki and Keynes influenced economists argue that private investment is positively influenced by the level of aggregate demand, which can be bolstered through budget deficits when there is excess capacity and high unemployment. Cutting budget deficits, in this view, depresses demand, private investment and aggregate profits, since smaller budget deficits together with low private investment imply weak global profits as a matter of accounting.

There is, however, a role for austerity from the perspective of capital. Austerity, from that perspective, would be best targeted at beating down organized labor (especially in Europe). Stimulus measures could then be used in the US and China partly to provide export demand for Europe, putting a floor under Eurozone profits, and partly to underpin aggregate demand and profitability in the US and China.

Putting it all together to get a sense of what may be ahead, and how MMT might fit in, military expenditure is likely to be the preferred form of deficit expenditure for the elites. There is also plenty of scope to step up development and application of surveillance, security, propaganda and police-state measures to tame any dissent in the US and its client states. The capacity for the US government to do this is self-evident on MMT grounds. Understanding MMT is useful to capital in this respect. It leaves the way open for further military aggression and curtailment of individual liberties.

At the same time, concerning the general population, budget cuts can be justified as necessary for currency-using state governments. MMT makes clear the constraints on currency users. Of course, the states’ financial constraints are completely at the discretion of the financially unconstrained federal government. This is one benefit, from capital’s perspective, of having a federal system. Responsibilities most important to capital can be retained at the federal level while responsibilities most pressing for general populations can be relegated to (deliberately constrained) state governments. The feds can starve the states, limiting funding for social expenditures on education and public services, and leave general populations to blame their state governments for poor service provision. Meanwhile, things important to capital can be funded by the financially unconstrained federal government.

The class-interested motive for the common currency in the Eurozone is basically the same. It puts national governments in the same position as states in a federal system and legitimizes austerity for the many and bailouts and fiscal transfers for the few, framed as being necessary to “save” the system from collapse.

The daunting task is to convince general populations of the correctness of MMT so that they resist austerity measures and the intentional starving of the states (or EMU member nations) and the deliberate attacks on working conditions and living standards. Unfortunately, general populations seem to remain utterly unconvinced by (or ignorant of) the MMT position and, on the whole, adhere to neoliberal thinking on fiscal matters. This is as true of the socialist left as it is of social democrats, liberals, centrists and most conservatives. These people might oppose specific austerity measures but they don’t doubt that cutbacks are necessary (at least under capitalism). They just want them made elsewhere (or in the case of socialists, the system replaced, which personally I support, but not based on a groundless claim of a financial constraint for fiat-currency issuing governments).

Meanwhile, the elites can make use of an understanding of fiat-money systems when it suits them (military, police-state measures, stepped-up propaganda, Fed fiscal operations) and exploit the neoliberal beliefs of general populations when it comes to legitimizing attacks on working conditions and entitlements or cuts to expenditures on health, education and other social services.

MMT offers paths to a better world. But what are the odds of it being employed for good? The establishment will do everything in its power to prevent the knowledge becoming general, and general populations give every impression of preferring delusion to truth.

We need to keep getting the word out there into the general community. It’s up to others if on hearing it they accept it. Krugman’s recent posts, though critical and straw-man representations, gave MMT more exposure and may help in this respect.


12 thoughts on “24 Hour Modern Money People

  1. It was not my starting position, but this is my current conclusion

    The crazy thought occurs that maybe he is actually trying to give the 24 Hour Modern Money People a boost.

  2. Thanks for your thoughts, Senexx. I’ve just been reading the commentary at billy blog and noticed you said as much before the thought even occurred to me. Who knows? Seems possible. Maybe …

  3. I haven’t gotten into the mind of PK and I don’t intend to so I could be completely wrong, others perception of PK suggest I am wrong.

    And I don’t like calling him PK as others do, it is too Keating-esque and the same as Post-Keynesian.

    Then again I’ve never found a market that marketed to me. I must be too niche.

  4. On one reading, this appears suggestive of a concerted effort by the elites to grind down general living conditions as low as possible while preserving a privileged position for the few

    I agree.

    Certainly, some people are supporting austerity because they are just in the grip of bad theory. They honestly believe that slashing spending will increase growth – maybe because of Ricardian equivalence. Or else they think we simply have no choice because they are confused about solvency constraints.

    But others are promoting austerity for more insidious, though far-sighted, motives. They don’t think austerity is a path to growth in anything like the near term. But they are willing to impose austerity on our societies and crush most of us economically because they are trying to socially re-engineer these societies. They are out to destroy social democracy, social insurance and welfare programs and the power of democratic government because those are the only things standing in the way of the abject subordination of everything to private ownership and private capital. They want to gut government and and permanently reduce its power, and the power of working people.

    The Republican Party released an economic plan last week that makes clear their diagnosis of the problems with the American economy. They think Americans are too rich – especially the bottom half of Americans. Despite decades of stagnant wages, their strategy is based on improving “competitiveness” by reducing real labor costs. And yet, of course, they have no desire whatsoever to reduce the costs associated with compensation of top executives or the ROI of all of the financial parasites who are sucking the blood out of productive enterprise.

    Unemployment is a feature for these people, not a bug. It is what guarantees a buyers’ market for labor and drives labor costs down. They are also working to improve the balance sheets of owners at the expense of people who work. Corporate profits are soaring while unemployment rages.

    Working Americans and Europeans – the entire Western middle class really – is under attack.

  5. Scary thought, Peter. But looks like we don’t really have a lot to loose. If the premise is that the elites already understand MMT, promoting its exposure will not lead to more potential for using it for evil – it is being used for evil all the time as it is. There might be some in the elites who don’t get MMT and thus genuinely think of such things as, say, raising taxes for the rich and cutting defense expenditure – Alan Simpson of the Obama’s catfood commission might be one such example – but those are far and few between, seems to me, so, our downside in exposing MMT is limited 🙂

  6. There’s a lot of optimism here. Can I remind you all of the words of Sir Bernard Ingham.

    Many journalists have fallen for the conspiracy theory of government. I do assure you that they would produce more accurate work if they adhered to the cock-up theory

  7. Regarding austerity pushes. There is not a single person I’ve seen that advocates austerity for ALL. Its always for THEM. Its the proverbial circular firing squad.

    Even if your worst fears about this are realized, the power structure cannot hold. Continuously increasing expenditures on war and destruction while cutting back on basic needs of education, healthcare and food/shelter will reach a breaking point. Its happening in the most autocratic of Arab nations as we speak. If TPTB start acting like they believe MMT, the gig will be up I think. They need to perpetuate the scarcity (of money) myth as long as possible. This exposure of MMT ideas can only be good I think. The truth sets you free.

  8. Fascinating post, PeterC and pertinent comments, everyone.

    On this subject I tend to share the views of Prof. William Cronon (Wisconsin, USA). Prof. Cronon has recently become a bit of a cause celebre, for very unfortunate reasons.

    For one, the apparent right wing campaign has deep social, economical and political reasons and it’s not the work of any centrally organized group.

    Which is not to say that there aren’t groups, acting largely independently, trying to impose their own versions of a right wing ideology.

    Prof. Cronon wrote an interesting piece (probably the cause of his troubles and focusing on only one aspect of the problem, namely legislative projects) that I highly recommend:

    Who’s Really Behind Recent Republican Legislation in Wisconsin and Elsewhere? (Hint: It Didn’t Start Here)

    And at least some of these groups are decidedly anti-democratic, as this piece, ironically, by Congressman Ron Paul, makes clear:

    Democracy Is Not Freedom.

    I would also like to draw your attention to the fact that the late Friedrich Hayek was highly supportive of the Chilean dictator Augusto Pinochet.

  9. This analysis ignores the partisan element, which is huge. Government employees are a source of support for Democrats. So for Republicans, austerity is obviously beneficial since it reduces this interest group base of support.

  10. Magpie, thanks for the very interesting links and kind words, and thanks to everyone else for the insightful comments. Unfortunately I’ve been short for time the past month, although I’ve just managed to put up a new post. Hopefully, my posting activity will pick up again soon.

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