Monday, May 9, 2011

Quiggen asks about MMT, Murphy disses it

Two blog posts brought MMT further to the fore in the blogosphere today.

John Quiggen posted Some propositions for chartalists at Crooked Timber.

Robert Murphy posted The Upside-Down World of MMT at Mises.

A good exchange was had by all at Matt Rognlie's over his post, The fallacies of MMT.

Some gems in the comments.



20 comments:

Laura said...

According to the dreaded Robinson Crusoe analogy, a government running a surplus would be equivalent to the tree reclaiming its coconuts!

Letsgetitdone said...

I left this late comment 5/9/11 @11:00 PM on Matt's post and the related exchange.

"I’m not saying that economists can predict the long-term equilibrium real interest rate—just that it exists."

Well, if you don't have a coherent theory to explain past long-term "equilibrium real interest rates" and you also can't predict the current "long-term interest equilibrium interest rate," then what reason do you have to believe that is remotely scientific that an "equilibrium long-term interest rate" exists. You've accused MMT theorists of "creationism," presumably because you believe that certain aspects of MMT theory are "metaphysical", even "religious" in character, as is creationism. But what then of your belief that "equilibrium long-term interest rate" exists? isn't that a "metaphysical," even "quasi-religious" belief motivated by your seeming commitment to the neo-liberal economic paradigm with its unquestioning faith in the ultimately determinative influence over the international economic system of the bond markets? So, who's the creationist now?

More importantly, since your disagreement with MMT seems to be coming down to your belief in the existence of an "equilibrium real long-term interest rate," shouldn't you be trying to devise a crucial experiment or test of the theory that such a rate exists? And, if you can't imagine how to do so, doesn't your continued belief in its existence, come to down to a metaphysical belief without practical utility? And, if that's so, if we were to reject MMT-based policies because of this belief of yours, wouldn't we as Trader's Crucible recently said in connection with his recent criticism of the IGBC, be:

". . . little more than cave people sacrificing the lamb and burning it on a stone altar to hold back the wrath of the always angry gods for another year. . . ."

You also said:

"By the same token, any economist who told you that he could predict the path of oil spot market prices over the next 50 years would be crazy. That doesn’t mean that oil prices aren’t determined by supply and demand, or that government intervention into the market would have more than a transitory impact."

While this is true. it doesn't mean that oil prices in the spot market are entirely determined by supply and demand either. While I'm no expert on the spot market, it appears to me that the Saudi monopolist sets the boundaries of prices on the spot market, and that the ling-term path of these prices will be determined very much by whether we choose to remain dependent on oil, and to the extent that we do where the Saudis decide to set the prices.

Finally. as you can gather from my previous comments, I believe that your earlier comments that the MMT view asserting that ". . . control of the monetary base relieves the government of the need to satisfy a budget constraint is absurd, and akin to creationism," was quite unreasonable and also irresponsible. I asked you earlier whether you still believed that after a lengthy exchange with MMT supporters. You replied by doubling down.

Now there has been much more discussion of the differences between your views and MMT, and the result is that your contention that there is a GBC comes down to the truth of your belief that an "equilibrium real long-term interest rate" exists, and you have shown us that 1) you have no good theory accounting for the existence of such a rate, and 2) you cannot predict the long-term path of this so-called real interest rate constraint in order to test any theory you do have. So, since, at best, the validity of your own view that an IGBC derived from this constraint exists, is as much a hypothetical as the MMT theory that there is no such constraint, are you ready now to give up the "absurd" and "creationism" which were surely designed to marginalize MMT?

Andrew Rogers said...

Nice. It's great to see all the publicity MMT is getting these days.

Cullen did Mises justice. Tom, you offer JQ some great sources. Hope he reads them or one of the heavyweights directly shuts down his assertions.

Clonal said...

Two from Brad DeLong - almost on the same page -- not quite there yet, but getting close!

Three Economic Things That Do Not Exist and A 2% Inflation Target Is too Low...

modernmoney said...

As I've previously tried to write, if you can convince John Quiggin and Saul Eslake (http://senexx.wordpress.com/2011/03/10/happy-birthday-to-me/) of Neo-chartalism then MMT has it made in Australia.

New Keynesians as well as Keynesians agree on a lot of issues with Post-Keynesians so it can often look like we're splittling hairs but the distinctions are extremely important.

Mitchell & Quiggin used to work closely together so it is fascinating that he is unfamiliar with the body of work. Though MMT didn't really take off to the late 90s and it was the mid-90s when they worked together.

Musgrave said...

Robert Murphy, author of the Mises article, has by his own admission only “briefly” looked at MMT. Thus I don’t attach much importance to his criticisms (not that I attach much importance to stuff coming from Austrians anyway). In fact he doesn’t even mention the basic idea behind MMT, namely that if the private sector saves too much money per month, government needs to make good by increased spending and/or reduced taxes.

David said...

Interesting about the coconuts. Now Henry George was pretty micro. His favorite economic analogy was "the savanna."(or more correctly fire managed cultural landscape of the indigenous American population) Anyway, a rugged individual settles on "the savanna." Then others come. Community infrastructure is developed and land acquires value. They wisely choose to tax the land and use the proceeds for further infrastructure and so on.

Austrians are ultra-micro. They start with Robinson Crusoe hoarding coconuts. Anyway, the analogy still holds...

Matt Franko said...

Tom,

It looks like perhaps Murphy is falling into the same trap as Narcissus.

In this case Murphy has an obsession with an image of a 'barter' economy, and he cannot snap out of it and realize that is not the reality.

He is in love with the image of an economy that can operate without government involvement. Hence his use of Rob. Crusoe who was alone on an island (no govt required with a population of 1).

"Rugged individualism" operating in a barter economy, this is the image he is obsessed with or at least strongly prefers and his analysis is warped by it.

Resp,

Dan said...

Rob Crusoe is a good story. Mother nature is (as always) the ultimate government. The central bank is a coconut tree that issues currency (coconuts) by dropping them to the ground. Rob eat (taxes) and saves what he doesn't eat (tax).

Clearly the creation of currency is an asset to the private (Rob) sector. The service being bought by the government is to live.

Seething said...

Murphy said on his blog back in April: "OK I have decided that this MMT (Modern Monetary Theory) doctrine/worldview needs a thorough refuting, ......"

Looks to me like he failed.

Matt Franko said...

Dan,

Good analogy. Perhaps Murphy cannot see this.

Persons given Christian faith can substitute "God" for 'mother nature' in your statement and it should work for them (if they can see it, looks like big 'if 'for some).

Keeps coming back here for me anyway: "Be paying, then, Caesar's to Caesar, and God's to God."

No brainer. Resp,

Detroit Dan said...

The Austrians are an emotional lot. I read through the comments from Murphy's posting, and they are all over the place. We MMTers seem to be a bit more unified in our understanding of the basics of our economic system and the implications.

The core difference between the Austrians and the MMTers seems to be as follows:

"Austrians believe money is a creation of the voluntary sector of the economy in its process of development and evolution, while MMT says that money is a creation of central government." [from Austrian K.O. in the Murphy comments]

Since all countries today have fiat (government) currencies, it is no wonder that the Austrians are so emotional. They must believe that control of money has been improperly confiscated by the governments of the world.

Thus, the Austrians are far more revolutionary in perspective than are MMTers...

P.S. Does anyone have a better term than "MMTers"?

Tom Hickey said...

Micro people don't get macro. They think macro is scaled up micro. So they do macro as if government is just another participant in the economy crowding everyone else out and throwing its weight around by imposing inefficient regulation. Dumb.

Jim Baird said...

"Does anyone have a better term than "MMTers"?"

This sticks in my craw, too. Since it's neither "modern" *the ideas have been around for a long time), about "money" (since "money" is such a slippery term that can mean a lot of different things), nor a theory, you couldn't get a worse term. I myelf prefer Lerner's "Functional Finance", which is more discriptive.

Detroit Dan said...

I too prefer"functional finance" to "modern monetary theory", and I use the term "functional finance" frequently. However, I tend to use the convenient term "MMTer" instead of the more cumbersome "advocate of functional finance". I don't imagine "FFer" would work...

Detroit Dan said...

Murphy Logic:

1. MMT uses accounting identities
2. These accounting identities are consistent with possibilities that are not part of MMT (e.g. Google running deficits with the non-Google sector, crowding out investment by government)

Therefore:
3. MMT is irrelevant.

The accounting identities are necessary, but not sufficient, for understanding the monetary system.

Thus, the fact that the government creates money and Google does not actually makes a difference according to MMT…

Crake said...
This comment has been removed by the author.
Crake said...

His Robinson Crusoe analogy is weak and upon exploring it deeper, it actually supports MMT. For example, for the analogous economic goods, Murphy chose coconuts, which probably could last a few weeks and therefore could be physically saved for a month. But what if the goods in question were clams, which are often used as the proverbial goods and services in Robinson Crusoe economic analogies.

Clams could not be saved more than a day or two without high risk of food poisoning. So the only practical way clams could be saved is via an arrangement, where another party borrows them to consume now with some promise to repay that consumption at a later date. That other party could pay more or less or nothing at all (a gift) but whatever the two parties arrange, by their "market" bargain, the future arrangement equals the two clams today, therefore, Robinson Cruscoe’s savings equals the other party’s debt – so in their macro economy, there is no savings.

And this hits home with real economics, because if the macro economy net saved in physical goods, as Murphy suggested by his Robinson Cruscoe tale, then that means more goods are produced than consumed, which means inventories would build, a situation which is a precursor to deflation/economic decline. The way to avoid that economic constriction would be to get another party to increase aggregate demand to meet that gap – i.e. either government deficit spending and/or increasing exports to foreign consumers.

Tom Hickey said...

A. Mitchell Innes provided the rationale and history of credit-based money in 1913, refuting the bater and commodity money narratives as imaginary.

References here at the new MMT Wiki that is now under construction at long last, thanks to selise.

Laura said...

Implicit in the Robinson Crusoe analogy are vertical and horizontal transactions.