In a recent working paper, Marc Lavoie provides a friendly critique of neo-chartalism (MMT). Hat tip to Cullen Roche for the link.
My own reaction to the paper, which may differ from how the experts will react, is that it is a promising development. First, Lavoie demonstrates a strong understanding of the approach, which is not surprising given he co-authored the seminal book on sectoral-balances analysis with Wynne Godley. His depiction of MMT will not prejudice the issue for readers of the paper. Second, Lavoie appears to be in close agreement with MMT on many substantive points and goes into some depth on areas of consistency between MMT and Post Keynesianism.
His central criticism focuses on the technical sense in which taxes and bonds can or cannot be said to “finance” deficits under current self-imposed arrangements. The argument centers on the MMT treatment of the consolidated government sector (the collapsing conceptually of the Fed and Treasury into one). If I am understanding correctly, then in relation to the U.S., Lavoie might be paraphrased as saying “the government could have complete sovereignty, but does not quite have it under current arrangements”, whereas leading MMTers might be paraphrased as saying “the government effectively has full sovereignty but in a roundabout way”.
Implicit, though, seems to be a shared understanding that full monetary sovereignty could be made unambiguous, transparent, and straightforward in operation through certain modifications of current arrangements. The difference in opinion is over whether this is strictly the case at the moment.
Overall, I think Lavoie’s contribution is an encouraging development. MMT appears to be moving to a stage among some Post Keynesians of broad acceptance with differences mainly in details, not fundamentals. Debating the finer points is all part of healthy intellectual activity in the development and strengthening of a theoretical approach.
The Impact of the Blogosphere
It’s interesting to see the blogosphere having some influence on the development of theory in recent years. On the upside, it is creating greater awareness of various approaches. It has no doubt been easier to notice MMT because of its internet presence. On the downside, the standard of behavior in debate in the blogosphere can undoubtedly be unfortunate at times. Both these aspects are touched on in Lavoie’s paper. For those non-academics among us, such as myself, who are involved in the dissemination of MMT in small ways, we may need to keep this in mind, or find ourselves being quoted in scholarly journals as horrendous examples of militant behavior by autodidacts! Or, more seriously, we might inadvertently become a hindrance to the academic MMTers.
Besides, from a strategic standpoint, antagonism will rarely be more convincing to a neutral reader than civility. Maybe the trick is always to remember that the target audience of the blog post or comment is not just the person being responded to, but others who read without comment trying to determine their own positions. It is something I will try to keep in mind in my own posting activity, anyway, after reading Lavoie’s paper.
Can’t make any promises, though – heteconomist is far too undisciplined for that. 🙂