This post is for all the MMT foot soldiers out there in cyberspace, including myself and most readers (prominent MMT economists who are kind enough to drop in from time to time excepted, of course).
Come on, we know who we are. Battling it out in diverse message forums, matching wits with fellow participants who, judging from their arguments, mostly appear to read our posts with their eyes shut and their fingers in their ears to block out the sounds of our linked video presentations. This navel-gazing exercise may seem self-indulgent to the crustier MMT old-timers among us, but, hey, rationalize it, we deserve it!
The post is also for readers who have not yet made up their minds about MMT. Think of this as a small taste of the kind of self-congratulatory back slapping you too will be able to enjoy at heteconomist if you decide to join the ranks of the foot soldiers. Enjoy! You also deserve it!
Straw Men in Cyberspace
On a private message forum I often visit, a regular participant – who is very bright, and a good contributor on many topics – recently posted a criticism of the MMT position on budget deficits that went something like this:
Budget deficits increase demand in some areas and decrease it in others. To illustrate the point I will show an extreme example. Say Honest Annie has $10,000 in savings. Mr Lucky is given $100,000,000 to stimulate the economy. Oh look, now Annie can produce more goods because Mr Lucky can afford to buy them. Of course, look at poor Annie’s real disposition. This new demand comes with the devaluation of her hard-earned savings. What is changing is that now she has to produce more to be able to afford more goods. The government has tricked her into having to work more because her savings have been devalued due to inflation. Sure, Mr Lucky is happy because Annie is producing more goods for him, but there are two sides to the coin.
Clearly the government should not adopt such a ridiculous policy in which it randomly gives one person $100 million in an economy where a typical person has savings of $10,000. But even in terms of the ludicrous example, the poster’s logic is lacking.
If Mr Lucky spent some of the money to buy stuff from Honest Annie, and she had the available time and resources to respond to the additional demand at current prices, she would receive some of Mr Lucky’s money in payment and also have increased spending power to purchase output from Mr Lucky or somebody else. The deficit expenditure can increase demand in some areas without reducing it in others provided the economy is operating below full capacity.
The question is whether there are idle resources that people would willingly put to use if there was demand for the resulting output, and whether this additional output could be supplied in a non-inflationary manner.
No one in the MMT camp is suggesting the government should net spend more than is necessary to enable the purchase of potential output at current prices.
The author of the example is influenced by the Austrian school, so some of his reasoning is defensible within that framework. In particular, as I discussed here and here, the Austrian definition of inflation is different from the one used by other economists. For everyone but the Austrians, inflation means a persistent rise in the general price level (the weighted average of all prices of final goods and services), not an expansion of broader money per se.
This can lead to differences between Austrians and non-Austrians in their assessments of whether inflation is occurring. If there is a rise in general prices, there will typically be an expansion of broader money to accommodate it unless real potential output shrinks due to a supply shock. In this case, both Austrians and non-Austrians alike will observe inflation. But it is possible for the broader money supply to expand (inflation for Austrians) without general prices rising (no inflation for other economists) whenever the economy is operating below full capacity. This means that from the Austrian perspective, it makes sense to suggest deficit expenditure will reduce the value of money even if, for other economists, there is no inflation.
Differences such as this can be discussed as part of a healthy debate. What is more annoying is the practice of creating straw-man arguments, such as the suggestion that MMT economists are advocating mindless spending out of all proportion to the actual demand deficiency or without any thought to the allocation of that net spending. The tactic often appears to be deliberate, in that there is a wilful misinterpretation of the argument to make it easier to ridicule or criticize. No matter how many times the point is clarified, the wilful (and convenient) misinterpretation will be repeated as if nothing has changed. The result is a discussion that fails to advance beyond irrelevant mischaracterizations and attempts to set (reset) the record straight.
As a practical matter for foot soldiers, we need to balance the need to deal with such mischaracterizations with the desire to develop the argument further for those not thrown by the mischaracterizations or to present the same argument elsewhere. At some point, it is probably best to assume that intelligent readers have been provided with enough clarification to make up their own minds about the merits of the straw-man argument, and just get on with advancing the discussion, or if the point has been made, move on to other forums. There is no need to convince every person in every forum.
MMT – and heterodox approaches, in general – seem more susceptible to this kind of straw-man treatment because its proponents have to make the running. In debates with critics or skeptics, the aim of the MMT proponent is usually to explain why the current dominant understanding of the economy is lacking, and why an alternative may offer an improvement in understanding.
A skeptic who is only interested in a better understanding of the economy has no motive to mischaracterize MMT arguments. The motive for engaging in discussion for such a person would be to understand the approach to enable an informed assessment of it. But when a skeptic or critic is more interested in defending a preconceived view of the world – possibly for psychological, political, or careerist reasons – their motive may not be to understand but to obfuscate, sidetrack, or otherwise hold up the discussion in ways that at least muddies the waters enough to make it difficult for others, who may be trying to understand without prejudging positions, to separate nonsense from valid argument, especially if they do not have a training in economics.
Consider journalists who write on economic matters, for example. In a way, it is hard to blame them for erring on the side of the orthodoxy when in doubt if they don’t have sufficient confidence in their own understanding of the subject. When in doubt, it is surely safer to go with the view of a Nobel Prize recipient or Professor from an Ivy League university over the views of a heterodox economist, even if the heterodox position seems to make more sense.
Opponents of the heterodox position can take advantage of this, knowing that they do not have to win arguments, or even engage in them in many cases, provided there is sufficient doubt over the heterodox position, whether because of perception, status, obfuscation or deliberately disruptive tactics, which on the internet can of course be done anonymously.
Straw Men in Academia
Straw-man argumentation is not limited to the orthodoxy or the internet. Heterodox schools use this tactic in disputes among themselves. For example, Marx’s theory of value was widely claimed to be “internally inconsistent” for eighty years on the basis of a straw man (the dominant dual-system, simultaneist interpretation of his theory) before a group of economists were finally able to demonstrate that Marx’s work could be interpreted in a way that not only gave it internal coherence but reproduced all of his results on value, including the long-run tendency of the rate of profit to fall, which had supposedly been “disproved” by Okishio’s theorem.
It wasn’t until the 1980s that papers began to be published by economists adhering to the so-called “temporal single-system interpretation” of Marx, demonstrating the theoretical coherence – validity, not necessarily correctness – of his theory of value when interpreted in a temporal and “single-system” way. It took another twenty-five years of persistence by these economists before the critics grudgingly stopped dismissing Marx’s theory in pat phrases repeated over and over again without any authority other than the insinuation of authority.
One of the leading protagonists in this debate, Andrew Kliman, has written an accessible book, Reclaiming Marx’s Capital (no free link available), for the generalist reader documenting the history of the debate and summarizing the major findings. For anyone interested in the debate over Marx’s theory of value, it is well worth reading, and eye-opening in bringing to light the extent of intellectual dishonesty in academia, including within the heterodoxy.
The straw-man tactic of the critics served to discredit Marx and help to create a justification for alternative heterodox theories to replace or “correct” Marx’s theory. The tactic was also employed by developers of an array of alternative, though short-lived, value theories, such as the New Interpretation, Simultaneous Single-System Interpretation, Value Form theory, etc. A certain career benefit and “respectability” no doubt also comes from distancing oneself from Marx’s theory of value in a capitalist society.
The straw-man attack on Marx’s theory was effective partly because Marxism is outside the orthodoxy and Marxists have little to no presence in academic economics, let alone clout. Another reason for its effectiveness may be that Marxist thought is critical of the capitalist system itself. It is not merely reformist. This is not exactly the most career-savvy research program for an up-and-coming academic.
None of this is to suggest that the alternative positive theories of the critics are not valid approaches in their own right. It is simply to insist that the developers of these theories were not entitled to assert the invalidity of Marx’s theory almost like a religious mantra when the argument relied on a straw man.
The unjustified but highly successful eighty-year banishment of Marx’s theory can be contrasted with the lack of impact the Cambridge Capital Controversy has had on the dominance of neoclassical economics. This time the position of the critics in theoretical terms was very strong, and their central points were conceded by Paul Samuelson and other leading neoclassical participants in the debate, yet the victory has so far had little impact on the status quo in academic economics.
The strategically effective response of the neoclassical orthodoxy to heterodox critiques drawing on the results of the Cambridge Capital Controversy has been simply not to respond through debate but rather ignore the implications, stop publishing heterodox work in the top journals, and cease hiring heterodox economists in the most prestigious universities or leading policy-making institutions (see Nobel-nomics for a polemical take on the aftermath of the Capital Debates).
When aimed at the orthodoxy, even legitimate criticism struggles to make a dent. For the heterodoxy, the very strongest arguments take a long time to break through.
Eventually, though, as MMT commentator rvm often reminds me, truth will out. Advances in understanding in many areas of human endeavor have faced the same kind of opposition throughout history. Even now, some heterodox advances in economics eventually slip in through the back door of neoclassical economics.
For example, there appears to be an increasing recognition among monetary researchers that some traditional concepts are untenable. Recent notable examples apply to the money-multiplier theory and money endogeneity. Understanding of these points has been well established in Post Keynesian economics for a long time. Now, slowly, some of the ideas are creeping in to mainstream analysis (usually without appropriate credit being given to earlier heterodox work).
All this is a longwinded way of saying that the road is uphill, but the only option is to keep plugging away. Some of the leading proponents of MMT have been grinding away for thirty years now. As internet foot soldiers, we can follow their lead. Sooner or later, perhaps long after we’re all dead, society will wake up to reality, strengthen conceptual understanding, and implement sensible policies.
Ancient historians of twentieth and twenty-first century economic thought will look back and realize that much of the truth was worked out by Kalecki, Keynes, Lerner, CofFEE, UMKC, The Center of the Universe, etc. From their vantage point of 5000 AED (five thousand years After Environmental Destruction), orthodox historians will wonder how the clear and cogent answers of MMT could possibly have been ignored by so many experts of the era, who seemed inexplicably fond of straw men. These orthodox thinkers of the future will know with utter certainty that they could never be so close-minded!
A Comment on MMT Internet Discussions
There is one particular straw man that is repeatedly erected by critics of MMT. I’m sure most foot soldiers reading this will have noticed it. It is one that I find especially grating. The best (i.e. most irritating) phrase I’ve seen to encapsulate the nuances of this particular straw man is the refrain:
MMT claims we can print prosperity.
The phrase “print prosperity” is shorthand for the common message board accusation that MMT ignores real resources and gets bamboozled by money as if it is magic. The accusation is very common. The term “print prosperity” was coined, to the best of my knowledge, by a Math Professor, no less, who happens to be keen on the kind of “fiscal conservatism” advocated by the Concord Coalition.
I consider it a perverse injustice that, in online discussions, MMT sympathizers are frequently reproached for imagining that “we can print prosperity” when in fact it is us who constantly stress as a fundamental point that the only true constraints are resource based, not financial or monetary in nature. We are the ones insisting that if we have the resources, we can put them to use. It is the neoclassical orthodoxy and others who try to make out that we can’t use resources, even if they are available, because of some magical, mysterious monetary or financial constraint. Just who is it that believes in magic here?
MMT shows clearly that if we have the resources, money is no obstacle to a government that issues its own flexible exchange-rate fiat currency. It is not saying that creating money magically creates goods and services. It is saying that it is nonsense – superstitious nonsense – to think affordability for such a government could be about money rather than resources.
Obviously, anyone is entitled to disagree with the MMT position. But they are not entitled purposefully to misrepresent MMT as suggesting that it is oblivious to real resource constraints when it is alternative theories that attempt to obfuscate matters by conjuring up fictitious “financial constraints” (e.g. the neoclassical “government budget constraint” framework).
Take the debate over how to address the aging population for example. It should be obvious – and is obvious in MMT – that the only way to address this issue is to increase future productive capacity. This involves the application of real resources now to research, infrastructure development, education (including in areas relevant to servicing an aging population), etc.
Clearly, MMT is not, as many internet critics claim, saying that creating money solves the problem. It is really the MMT critics who are falling into the trap of thinking money rather than the application of real resources is the solution, despite their frequent protestations to the contrary. They are the ones who think that if the government “saves” money now, this will somehow help to address the needs of the aging population in, let’s say, twenty years time.
Yet, these same people also stress that you can’t “print prosperity”. Well, if you can’t “print prosperity” – and we all agree on that – what good is that money the government supposedly should stash away going to be twenty years from now? It won’t help to provide the infrastructure and technological knowledge that was not developed in the preceding twenty years because governments preferred to “save” money for the future rather than apply resources to the real task of raising productive capacity.
Oh well. We shrug and move on. Such are the trials and tribulations of an internet foot soldier.