Wednesday, December 28, 2011

Cullen Roche on MMT v. Austrian Economics


In case you missed this.

Read the rest at Pragmatic Capitalism
The Fundamental Difference Between Austrians And MMT’ers
by Cullen Roche

12 comments:

Matt Franko said...

Tom,

At Cullens, it seems the JG is getting the short shrift.

This is typical of right libs who when they start to get MMT, they want to discount the JG or Employment Assurance aspect.

To me, they are missing what the "Modern" part of MMT brings to the table. I believe the acrcheological record and the Sacred Scriptures document well the concept of a state currency and how it operates. This is old news.

What we today can add to this milleniums old system is a realization that the system has to address an individuals guaranteed right to a MEANS of subsistence as part of a nation's economy.

These right libs are stubborn to accept this truth, like goats.

Resp,

Detroit Dan said...

Cullen Roche claims his blog gets by far the most MMT readers. That does tend to be the one I read the most, with this a close second. I agree with Cullen that MMT without the job guarantee is still MMT. Mitchell has said as much in writing that the descriptive and prescriptive can be separated. The job guarantee appeals to me, but it's definitely in the category of new and untested...

Tom Hickey said...

I agree that the descriptive aspect of MMT is most important but that includes policy options that follow from the descriptions, and also policy options that MMT shows are based on erroneous assumptions and premises. Central is the description of the existing monetary system in general and how this manifests specifically wrt different countries. Basic to this is the vertical-horizontal distinction, and the concept of net financial assets. Even Austrians can understand these aspects of MMT, as Edward Harrison goes to show.

Where the JG comes in is wrt the goal of macro according to most economics, that is, maximum attainable employment consistent with price stability. Most mainstream economists hold that actual full employment (full employment less frictional only) is not possible to achieve. MMT holds that it is achievable. The JG plays a key role in this regard.

I would say that understanding the MMT argument for achieving full employment through application of MMT as a theory is essential for understanding MMT. One may choose to reject full employment with price stability as a high priority goal, as some Austrians do. But they should understand that if it is set as a goal, MMT shows that it is a viable policy option, and this is is achievable in the strict definition of unemployment and price stability, that is, making everyone willing and able to work has a job offer is consistent with an economy that does not experience a continuous rise in price level resulting from it.

A range of policy options is given by the theory. Choice of options to adopt is a political choice, determined by representative who are elected by voters based on the kind of society in which they wish to live.

geerussell said...

Matt,

I'll believe that the concept of a state currency and how it operates is truly old news when public figures from president Obama on down stop saying the federal government needs to live within its means like a household.

For now it's not old news, it's lost knowledge.

Tom Hickey said...

Here is the comment I posted at Cullen's:

I don’t see any difficulty in cooperation between MMT and Austrian economics to the degree that both side limit themselves to fact rather than desire. The fact is that sovereigns like the US, UK, Canada, Australia, and Japan are all monopoly providers of a non-convertible floating rate currency, even though one might wish that the facts were otherwise. Until that system should change we have to deal with it as it is, and MMT provides the clearest and most comprehensive description of those states of affairs and operations. MMT builds a macroeconomic theory (explanation) based on that description. This explanation enables predictions, and these predictions regarding alternative courses of action and their consequences set forth a spectrum of policy options. Choice concerning which options to implement is political. Various MMT proponents advance different policy options based on political persuasion. This advocacy should not be confused or conflated with MMT as a description of the monetary system or as a macro theory. Both of these stand alone. Even if only only adopts the description of the monetary system one will be ahead of the game in understanding what actually is, rather than what one wishes were the case but is not.

Tom Hickey said...

My comment at Cullen's on the JG kerfuffle:

The issue surrounding the JG is achieving truly price stability along with full employment, that is, subtracting frictional from the group of people that are willing and able to work and have employment with no so frustrated as to be not participating. This is the holy grail of macroeconomics. Mainstream macro believes this to be impossible and therefore define full employment down. MMT is the only macro theory that provides a path to actual full employment with price stability. The question is whether the JG is a necessary component in achieving that goal. If it is, it is an essential aspect of MMT as a macro theory.

MMT is often considered by some to be chiefly a description of the existing monetary system. While it is that, it is not only that. It is a macro theory (explanation) that enables predictions that set forth a spectrum of policy options. The choice of implementing any of these governmentally is political. These choices are made by elected representatives based on the wishes of voters regarding the kind of society they desire. MMT as a description of monetary operations, a macro theory build on this, and a spectrum of policy options that follow from it should not be confused or conflated with advocacy of certain policy options by MMT economists speaking as citizens of a particular political persuasion.

Laura said...

Austrian economics advocate policies that would lead to full employment. Are they being descriptive or prescriptive?

In the US, there is a piece of legislation known as the Humphrey-Hawkins Full Employment Act. It allows for a reservoir of public employment if the private sector fails to provide enough jobs.

MMT should at least describe how full employment can be achieved.

Tom Hickey said...

MMT as a macro theory is chiefly about achieving full employment along with price stability. The title of Randy Wray's 1998 book was Understanding Modern Money: The Key to Full Employment and Price Stability. This was the fist book by an academic economist on MMT.

Randy had the background in monetary theory and history. Warren contributed "Soft Money Economics" as an understanding of the existing monetary system and how it operates in practice. Bill Mitchell provided the concept of buffer stock of employed to replace the buffer stock of unemployed. The JG was first called the BSE for buffer stock employment.

Matt Franko said...

Gee,

" it's lost knowledge."

Good way to put it.

Consider that line stolen. ;)

Laura said...

And Bill and Randy will be out with another book, to address yet again the question of price stability and full employment.

The audience for their book will likely be 1% of what it should be if we (the people) are to have a debate on these issues. Privileged knowledge can be controlled.

Dan Kervick said...

"MMT as a macro theory is chiefly about achieving full employment along with price stability."

I that's an important point, Tom. I agree that MMT has a purely descriptive component. And I think it is completely fair to say that the descriptive component is the core of MMT. That descriptive component can be separated from prescriptive elements, and stand on its own.

But people don't develop novel descriptive economic theories in a vacuum. They are usually trying to show something about the way parts of the economic world work because they think it is important to understand those things.

Suppose you are looking at pages of a book, and the book shows detailed maps of LA and San Francisco, along with highway maps of the interstates between those two cities, with descriptions of rest stops, restaurants and hotels along the interstates and of facilities in the cities as well. The content is all descriptive. And that descriptive content can stand alone to be used by various people for whatever purpose they desire. But it’s pretty clear from the nature and structure of the book that the book was designed to serve a particular purpose – it is designed for travelers between LA and San Francisco, and provides them with practical know-how for that particular activity.

Now MTT isn’t a comprehensive description of every aspect of our economy. There are vast areas of economic life about which MMT has either little to say at all, or nothing original to say. So what is the purpose of MMT? What is the point of its careful operational descriptions of the particular parts of modern economic system on which it focuses?

In Bill Mitchell's post yesterday, he quotes Randall Wray’s CofFEE keynote speech this month:

"And then there was the job guarantee, which I immediately recognized as Minsky’s employer of last resort. I can’t remember what Warren called it but Bill called it BSE, buffer stock employment.

"I had never thought of it that way, but Bill’s analogy to commodities price stabilization schemes added an important component that was missing from Minsky: use full employment to stabilize prices. With that we turned the Phillips Curve on its head: unemployment and inflation do not represent a trade-off, rather, full employment and price stability go hand in hand."

This idea of "standing the Phillips curve on its head" seems to have been a key eureka moment for some of the earlier developers of MMT. And it really is a key part of the rationale behind the development of the descriptive parts of MMT.

If you read a lot of the blogs written by mainstream economists, or any mainstream macro textbook, you see that mainstream economist have had the Phillips curve and its companions burned into their brains, along with ideas such as the natural rate of unemployment. They think instinctively in terms of a tradeoff between employment and price stability. They are constantly arguing that either we need to accept high unemployment to keep the inflation rate down, or produce inflation to get employment up. Overturning this broad front of depressing orthodoxy is the central reason that Wray and Mitchell, I think were so excited about the views they were developing.

Wray emphasizes that point in the preface to Understanding Modern Money:

“The primary policy conclusion that comes out of this analysis is, perhaps, shocking, but can be stated simply: It is possible to have truly full employment without causing inflation. This will appear to be a desirable goal, but a preposterous claim; no self-respecting Keynesian, monetarist or supply-sider would allow herself to entertain such hopes. But if the analysis here is correct – and it goes without saying that I am sure it is – then the logical conclusion is that we can move immediately to full employment with enhanced price stability. Indeed, as I will argue, the two goals are inextricably linked: the policy that is recommended to achieve full employment will also increase price stability.”

geerussell said...

The tyranny of deficit hawks and deficit doves is absolute. So much that even such familiar policy stalwarts as social security and medicaid are under siege as things we can't "afford."

In this environment an idea like JG will never get a fair hearing on its merits and its proponents are consistently dismissed as unrealistic and toil in relative obscurity.

This is why in addition to the the work of the core academics and theorists, I also value the contributions of individuals who break off the descriptive portion of MMT and wield it like a sword to slay TINA. Only when the mainstream consensus moves away from There Is No Alternative can progress be made on any other front.