Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Friday 8 May 2015
Censorship in academia.
Prof Bill Mitchell recently published a pair of articles here and here on the subject of full reserve banking as advocated by Positive Money and a recent report to the Icelandic prime minister. But this phrase in the professor’s article is a joke: “I will delete comments that provide links to Positive Money sites.”
Whaaat? You engage in a debate with an organisation, and just to make it clear the debate is – er - “open and impartial” you refuse to entertain references or links to articles published by that organisation? LOL. I have advice for opponents of free speech: if you want to engage in censorship, make it a bit more subtle than THAT!!!!
Universities and the academics who work there are supposed to be in favor of free speech, impartial enquiry and so on. As anyone with half a brain knows, they are anything but. If it’s free speech you want, get a job on a construction site, not at a university.
Having said that, Bill Mitchell does know a lot about Modern Monetary Theory (MMT) and has done a great job demolishing the arguments for austerity over the last five years or so. Plus in the comments after the above two articles he DID PUBLISH a very large number of comments, not all of them supporting his views. Many of the comments were from me.
But he does mean what he says about censoring comments with links to Positive Money: the last comment I left there DID INCLUDE a link to a PM article. Lo and behold it was censored. Plus another comment from me with several criticisms of his articles was censored.
Also it is right to be very suspicious of even the smallest constraint on free speech. The reason was nicely set out by Noam Chomsky when he said, “The smart way to keep people passive and obedient is to strictly limit the spectrum of acceptable opinion, but allow very lively debate within that spectrum….”.
I’m happy with banning comments by people who are SERIOUSLY stupid, ignorant, rude and engage in that behavior in a REPETITIVE manner. But I’m suspicious of anything else.
The Positive Money article.
Anyway, if you’re interested in the comment of mine that contained a link (shock horror) to a Positive Money article, here it is. You’ll be able to judge for yourself whether my comment was “seriously stupid, ignorant or rude”. But first the background.
My comment was in response to a commentator called “Iconoclast” who made two points. The first was a very common and flawed criticism of PM ideas namely that they involve important economic decisions being taken by a committee of economists who are not democratically elected.
The second was an expression of sympathy with Prof Mitchell’s claim to have been sent lots of impolite emails by Positive Money supporters suggesting that Mitchell abandon MMT and adopt PM’s ideas. (Incidentally I’m very suspicious of that claim by Mitchell about having been sent loads of impolite emails. Reason is that anyone can contact ME via my site and people occasionally do. But I haven’t had a single impolite email in years. Granted my site probably doesn’t have anywhere near the same number of views or hits as Bill Mitchell’s. But that “zero impolite emails in years” figure does make me suspicious.)
Anyway… Iconoclast’s actual words were (I’ve put them in green italics):
“Bill Mitchell says “I do not support frameworks where key economic decisions are handed to an essentially unaccountable body which then constrain the Parliament we elect to be our agents.” I agree with you Bill.
BTW, I can’t believe the rudeness of people who bombard Bill’s email, business or personal. If one does not know Bill personally or professionally, anything one has to say in MMT or economic debate can be posted in this blog. I myself have posted items which Bill has disagreed with (as well as items he has agreed with or simply not commented on). But to bombard him with unsolicited emails (especially insulting ones) is simply a very poor reflection on the sender.”
My censored comment that responded to Iconoclast’s remarks was thus (also in green italics):
"Ikonclast,
Anyone who objects to PM proposals because they allegedly involve handing economic decisions “to an essentially unaccountable body which then constrain the Parliament we elect to be our agents” has no grip on reality. And it’s not just Bill Mitchell who has no grip on reality in that connection: Neil Wilson, Anne Pettifor and others suffer from the same delusion.
The REALITY is that almost identical “unaccountable and undemocratic” committees ALREADY HAVE a dominant say on stimulus, namely those central bank committees that decide on interest rate adjustments, QE, and so on.
Re the emails that Bill claims to have been bombarded with, that’s a straw man argument: there are nutters in ANY MOVEMENT. More to the point would have been if Bill had looked at the OFFICIAL Positive Money attitude to MMT. A flavor of that attitude can be found in this recent article published by PM.
http://www.positivemoney.org/2015/03/positive-money-versus-modern-monetary-theory/
That article cannot possibly be described as “rude”. Moreover, it actually points to ideas that PM and MMT have in common! Indeed I myself have been pointing out for a long time that PM and MMTers have in common the idea that in a recession, the state should simply create and spend extra base money (and/or cut taxes).”
The state is “financially constrained”?
A further reason Prof Mitchell may not have published the above comment of mine is that it actually reveals another clanger dropped by him, as follows.
Under his heading “The Sovereign Money Proposal – flawed paradigm underpinnings.” he claims that the PM / Iceland brigade are unaware of the fact that a state which issues its own currency is not “financially constrained”, as Mitchell puts it. I.e. a country that issues its own currency can if it chooses, simply print money and spend it (and/or cut taxes) with a view to implementing stimulus).
Of course the idea that PM is unaware of that “freedom to print” is pure nonsense given that (as I point out in my comment) one of the central ideas pushed by PM is that the state CAN AND SHOULD in a recession simply print extra base money and spend it, and/or cut taxes.
To end on a positive note, and to repeat, Bill Mitchell has done a great job demolishing the arguments for “consolidation” and austerity. However, on banking he is not so clued up, and should allow total freedom of speech to those who disagree with him.
Subscribe to:
Post Comments (Atom)
1. Prof. Mitchell gave you clear warning that he did not want his blog cluttered with references to PM literature. This is not "academic censorship". He ereferenced Iceland's SMS proposal and this speaks for itself. More than a dozen of your comments were printed, some when on your own admission you had only read a fraction of the article. And you still complain!!
ReplyDelete2. The allegedly censored PM article was a response to an article by Chris Ballinger. To anyone who hasn't read the latter, the PM article is almost incomprehensible. Perhaps this illustrates one of the reasons why Prof. Mitchell tried to avoid references to PM literature.
3. "in a recession the state should simply create and spend extra base money (and/or cut taxes)".
Sure, but there are no new insights here. This has nothing whatsoever to do with the institutional changes proposed by PM.
4. The final sentence in the PM article is:
"In contrast to the current monetary system, Positive Money proposals would give the Bank of England more flexibility, allowing it to choose when to slow down the rate of creation of new money directly".
Here we can see the underlying monetarist ambitions of PM, namely a desire in some circumstances to control the economy by means of money supply targets. This echoes the recommendations of Milton Friedman, which were discredited when Mrs.Thatcher tried to apply them in the UK in the early 1980s.
Such policies are alien to MMT.
However, like yourself no doubt, I am not at all persuaded by Prof. Mitchell's alternative list of proposed banking reforms.
Much better, for reasons often rehearsed in this blog, would be simple full reserve banking akin to proposals of the Chicago Club and Irving Fisher in the 1930s.
So, Ralph, to escape from the allegation of being another PM crank, please go back to the simple basics of the full reserve idea. Drop all the unnecessary and contentious Positive Money clutter regarding a new Money Creation Committee, Friedmanite policies to control the money supply, private deposits at the CB etc.
KK,
DeleteI’ll take your numbered points in turn.
1. Yes I know Bill Mitchell gave a “clear warning that he did not want his blog cluttered with references to PM literature”. However, first (and to repeat) it is plain bizarre to engage in a debate with an organisation, and then ban references or links to that organisation in your comments. If that’s “open, fair, impartial etc etc” debate, then I’m a Dutchman.
Second, given that he allowed several thousand words of comments, ten or twenty links to PM literature would not have constituted “clutter”.
Third, whence his assumption that PM supports ACTUALLY WOULD have “cluttered” the comments section with references and links to PM? If PM / Iceland supporters WERE TO DO something like that, they’d make themselves look stupid. So why didn’t Bill Mitchell let them hang themselves by their own petard?
Reason is (I’m 99% sure) is that they WOULDN’T have hung themselves by their own petard. What they would have done (and indeed what I tried to do but got censored for my troubles) was to make the VERY OCCASIONAL reference to PM literature as and where relevant. I plonked roughly a thousand words of comments there and tried to include JUST ONE link to PM.
So I suggest that Bill Mitchell’s motives were very simple: to skew the debate in his direction.
2. Re your claim that Ballenger’s article is “almost incomprehensible”, that’s just your opinion. If you want to substantiate that claim, the go ahead. You may notice that I’m not simply dismissing your above comment as “almost incomprehensible”: I’m going through your points in detail.
Moreover, Ballenger is not stupid: he is a Cambridge graduate. I normally read his articles because I find them interesting (while not agreeing with everything he says).
Continued below.
3. Your third point is actually very clever (maybe unbeknown to you). It’s basically a very simple point but probably way beyond the comprehension of Bill Mitchell, Neil Wilson and other opponents of full reserve.
DeleteYou say as I understand you that the “create and spend” idea is not an idea that PM thought up. Quite right. (I’m not actually sure whether PM claim that as an original idea – I hope they don’t).
You also say that print and spend “has nothing whatsoever to do with the institutional changes proposed by PM.” Agreed. In fact I’ve been trying to bang it into the heads of the oppoents of full reserve for a long time that “print and spend” is not an INHERENT or essential ingredient of full reserve: that is, one could combine full reserve with OTHER ways of implementing stimulus. So far I’ve seen no evidence that they’ve grasped that point.
4. Your fourth point is complete nonsense. Incidentally Anne Pettifor makes the same point. That’s your claim that PM’s policies are similar to Milton Friedman’s monetarism and that PM’s policies involve a “money supply target”.
Nowhere in PM literature is there any reference to “money supply targets” far as I know (and I’ve read a good million words of their material). What THEY DO ADVOCATE is that in a recession, the state should create extra base money and spend it, and/or cut taxes.
That policy amounts to a MERGE of monetary and fiscal policy. That is, the policy has monetary and fiscal effects, so yes, it DOES RESULT in an increase in the money supply. But what’s wrong with the money supply expanding approximately in line with economic growth and what’s wrong with a NOMINAL increase in the money supply so as to make up for the decline in the REAL VALUE of the money supply due to inflation? I don’t have a problem with that.
Re your claim that “print and spend” is “alien to MMT”, MMTers are not entirely clear or unanimous on what form of stimulus they want, but certainly Bill Mitchell HIMSELF is always going on about the fact that a country that issues it’s own currency is not financially constrained: i.e. it can print and spend whenever it wants and I agree with that. And Roger Erickson (a regular contributor to Mike Norman’s MMT site) is always banging on about the need to create and spend “fiat” (as he calls it) in a recession. So “print and spend” is not at all “alien to MMT”.
Re your final paragraph, you claim that PM’s Money Creation Committee is “contentious”. Well what the MCC would do is in effect EXACTLY THE SAME as what we’ve done over the last three years or so, i.e. implement fiscal stimulus and follow that with QE. That comes to the same thing as “print and spend”. So I don’t see anything very contentious there. I’d call it “taking existing policies to their logical conclusion”.
Finally, and re your last paragraph thanks for supporting my attempts to have full reserve as set out by Irving Fisher & Co put into effect.
You say: Nowhere in PM literature is there any reference to “money supply targets”
ReplyDeleteWhat on earth is the point of a "Money Creation Committee" if it doesn't determine how much money is created? Surely it would set numerical targets or at least ranges?
The final sentence in the PM article which you recommend is:
"In contrast to the current monetary system, Positive Money proposals would give the Bank of England more flexibility, allowing it to choose when to slow down the rate of creation of new money directly".
OK, the word "target" isn't used here. But this suggests a restriction or limit on money supply growth.
If PM's MCC were to succeed in controlling the money supply, the government couldn't simultaneously maintain its interest rate targets, as Prof.Mitchell explains.
PM macroeconomics is inconsistent with MMT, even though PM may well agree that fiscal stimulus is required in a recession.
And of course, recent experience shows that the Money Creation Committee would have little no role near the zero lower bound of interest rates because in such circumstances money creation is ineffective (e.g. QE).
P.S. I did NOT say Ballinger' article was incomprehensible. I said "the PM article is almost incomprehensible".
KK,
DeleteRe your first question, there is no target for the money supply in the same sense as Friedman envisaged one. Friedman argued that the money supply should be expanded by the same small percentage every year. In contrast, the Money Creation Committee would look at inflation, unemployment etc and decide what amount of stimulus was suitable. As it happens, Positive Money advocates that stimulus should take the form of just creating new base money and spending it, and/or cutting taxes. It’s quite possible that in some years NO STIMULUS AT ALL would be suitable, so no extra money would be created. That’s significantly different to Friedman’s annual increase idea.
Re government losing control of interest rates under PM system, I actually answered that point in the comments after Mitchell’s articles (unless it was one of the comments from me he didn’t allow). Anyway, I imagine the answer of at least three prominent advocates of the PM system (PM itself, Richard Werner and the New Economics Foundation) would be, “We couldn’t care less if government loses control of interest rates”. In the submission that those three made to Vickers, they positively ATTACKED interest rates as a means of adjusting demand, and I agree with them.
In your 2nd last para, you claim that money creation is ineffective because money creation a la QE is ineffective. The answer that is that money creation PM style and QE style are chalk and cheeze.
First, QE has little or no effect on the total value of private sector assets. Put another way there is no effect on what MMTers call “private sector net financial assets” (that’s government debt plus base money). Reason is that QE just swaps debt for base money. I.e. it simply swaps two assets which are quite similar in nature. That’s almost as ineffective as the Bank of England offering to give everyone two ten pound notes in exchange for each twenty pound note.
In contrast, money creation PM style DOES BOOST private sector assets: for every X million created and spent, private sector assets rise by X million.
Second, there is the FISCAL ELEMENT in money creation PM style. That is, if government creates and spends new money, THE MERE FACT OF SPENDING that money creates jobs. If government gets hold of enough money to employ a thousand extra public sector employees by the end of the month, then all else equal, employment will rise by a thousand by the end of the month, unless I’m much mistaken.
1. You now say the "Money Creation Committee" would not be concerned with money creation by QE - it would only be concerned with money creation through a budget deficit.
ReplyDeleteSo why isn't PM more transparent? Why isn't the committee called the "Budget Deficit Committee"?
Of course, the government already has various expert committees which deal with budget policy, so a new committee on fiscal policy would be superfluous.
2. There are numerous statements in PM literature like "the MCC would aim to change the growth rate of the money supply in order to keep inflation at around the 2% a year target". This implies that PM thinks like Friedman that inflation is primarily caused by excess money supply. However, most economists now think that the direction of causation is largely the reverse of this "quantity theory" view. Note the massive expansion in M and low inflation rates in recent years. If M has little or unreliable effect's on P, how would the MMC achieve its inflation target?
3. You say: "the Money Creation Committee would look at inflation, unemployment etc. and decide what amount of stimulus was suitable".
Suppose the MMC "experts" think that there is a choice between maybe x% higher inflation (with a bigger budget deficit) and maybe y% extra unemployment (without the fiscal expansion).
Doesn't the choice between such options involve political values and empirical judgements about the future which are far outside the expertise of economists. Shouldn't responsability and accountability for such judgements remain with democratically elected governments?
4. You say that "prominent advocates of the PM system... couldn’t care less if government loses control of interest rates”. However, you yourself have blogged several times that you favour zero or very low interest rates.
How will you achieve this if the government/MMC restricts the availability of credit, as in the UK in the 1980s?
1. Pos Money is reasonably “clear” on that point I think. Though I’d agree that PM literature contains its fair share of clutter and mistakes which can make discerning their basic message a bit difficult. (Same goes for Laurence Kotlikoff, I think.)
DeleteRe “extra committees”, yes, the job of the MCC could perfectly well be done by some existing committee, the obvious ones being the BoE MPC and OBR.
2. Personally I think that a rise in the amount of base money CAUSES stimulus (assuming it doesn’t come about QE style) and that a rise in the amount of commercial bank created money RESULTS FROM a desire by the private sector to do business. I.e. businesses and households apply for loans from their commercial bank when confidence increases, when a business sees viable investments that can be made etc.
3. No. The MCC would be given very much THE SAME objectives as the existing (and horrendously undemocratic) BoE MPC is given: i.e. something like “aim for 2% inflation”.
4. This is complicated. I think there are strong arguments for government as currency issuer issuing currency at a zero rate. I.e. I don’t think government as currency issuer should artificially raise interest rates so as to control demand (though I wouldn’t totally rule that out as an emergency measure). Milton Friedmand and Warren Mosler argued the same.
Note that government as currency issuer is different to government as investor in infrastructre projects. Borrowing so as to fund those investments might be justifiable, though I’ve got doubts.
Anyway, assuming government as currency issuer does not try to artificially raise rates, that doesn’t mean that private lenders and borrower wont charge each other interest. They will. Plus the latter rate is liable to rise and fall in line with supply and demand for loans.