Thursday, 1 October 2020

There’s nothing new in MMT?


Summary.    A popular criticism of MMT is that it contains nothing new: in particular that it is Keynes writ large. That criticism has some validity. But there’s a catch in that criticism, as follows. MMT was to a large extent introduced to counter the naïve pre-Keynsian “government books must balance / the size of the deficit and debt must be limited” nonsense. And that nonsense never seems to lose its appeal, even amount so called “professional” economists. 

So what were those who make the latter “nothing new” criticism doing over the last ten or twenty years to counter the latter nonsense? Well rather a large proportion were saying nothing much. Thus their “nothing new” criticism is much like someone who sees the fire brigade putting out a house fire by spraying water on it, and then reacts with the snide response, “there’s nothing new in using water to extinguish fires”.  I.e. the criticism (both of MMT and the fire brigade) ignores the fact that MMT and the fire brigade performed a useful task.  

Moreover, the silence of some of those who make the “nothing new” criticism when support from them would have helped silence the “books must balance” lot raises the question as to what the REAL views of the “nothing new” lot really are: had the “books must balance” lot won the argument and MMT had lost, how many of the “nothing new” lot would now be running around claiming that they knew all along that the books must balance and that there’s nothing new in the idea that the books must balance?


A popular criticism of MMT is that there’s nothing new in it. For example George Selgin makes that criticism in an article published last year and entitled “The Modern New Deal That's Too Good to be True”. As Selgin puts it, "MMT often boils down to nothing more than an especially naïve sort of Keynesianism…”. 

But there are plenty of other economists who make the same criticism, e.g. Thomas Palley. 

Well the first weakness in the latter criticism is that, ironically, the criticism itself is “nothing new”. For example I’ve backed MMT for around ten years and admitted a year before Selgin’s above criticism that MMT is arguably just Keynes writ large. 

But a more serious weakness in the “Selgin / Palley nothing new” criticism is as follows – and be warned: this cannot be explained in less than two or three hundred words.

Opinions on the deficit and debt can be divided into two camps. First, there is the above mentioned “Keynes / MMT” view. That view rejects the orthodox idea, backed for example by George Osborne, the UK’s former finance minister, namely that government books must balance, at least in the medium term if not in the short term. 

Two other well known supporters of that view are Kenneth Rogoff and Carmen Reinhart. In particular Rogoff famously claimed that a debt / GDP ratio of more than 90% would stunt growth, though Rogoff’s argument is now widely regarded as flawed. 

In addition to Rogoff and Reinhart, the IMF and OECD while they did not adopt quite as strident a “pro-austerity / anti deficit” stance as Rogoff and Reinhart, have certainly wavered between claiming deficits were needed to deal with the aftermath of the 2008 bank crisis and warning that excessive deficits and debts were harmful. (For IMF and OECD articles on that subject, you could do worse than search articles by Bill Mitchell (co-founder of MMT) on the subject of the IMF and OECD.)

Second camp. 

The second camp is what might be called the “Keynes / MMT” view, which is that the size of the deficit and debt do not matter except in as far as they cause excess demand and excess inflation. And that’s not to suggest that Keynes in person and MMTers are the only ones to claim the sized of the deficit and debt do not matter: i.e. the phrase “Keynes / MMT” is just a phrase used here to describe a body of opinion. 

Now for the big weakness in the points made by the “Selgin / Palley / nothing new” brigade. The weakness is as follows.

If it’s so obvious that there’s nothing new in MMT and that the Keynes / MMT view is correct, where were the Selgins and Palleys of this World when Rogoff, Reinhart & Co were strutting their anti-Keynsian stuff between five and ten years ago: stuff to the effect that governments books must balance and/or that the deficit and debt cannot grow too large, and so on? The answer is: nowhere to be seen half the time!

That is, it was MMTers between five and ten years ago who were drawing attention to the pro-austerity nonsense coming from Rogoff, Reinhart, the IMF, OECD. In contrast, Selgin (far as I can see) was saying nothing. 

The pro austerity “books must balance” idea is still popular.

But it’s actually worse than that. That is, the “pro austerity Rogoff Reinhart” brigade have not actually gone away. For example the UK’s “Institute for Fiscal Studies” is still famous for claiming the books must balance. Plus in the last few days an article appeared in the Financial Times claiming that the current UK finance minister veers towards to the “books must balance” view.  Plus the UK’s former prime minister, David Cameron has piped up on this subject recently, which is a bit of a joke: the idea that David Cameron has any idea what he’s talking about in this connection is just hilarious. 

Again, what are the Selgins and Palleys doing about the latter “books must balance” nonsense? Nothing!

This raises a question.

And that all raises an obvious question, namely why have the Selgins and Palleys of this World being making a song and dance over the last two years or so about MMT containing nothing new? Well I think I know the reason, which is as follows. Or to be more accurate, there are perhaps two or three reasons. 

MMT, although it was first proposed by Warren Mosler about thirty years ago, only really burst out into the open so to speak in the last year or so. That “bursting” was much assisted by, if not wholly caused by MMT being endorse by US congresswoman, Alexandria Ocasio-Cortez around a year ago. Moreover, about half the supporters of MMT over the years have not been academic economists: they have been amateurs like me. Plus there’s Warren Mosler himself, whose career has consisted mainly of running a small bank and trading (very successfully) on Wall Street.

Now it would hardly be surprising if academic economists like Selgin, Palley, Rogoff etc rather feel their noses have been put out of joint when a bunch of amateurs take the world of economics by storm and look like having a much bigger influence on economics than said academics could ever have hoped for. A proportion of those academics have got it in for MMT, I suggest. That is, they’ll be scratching around for any old bit of mud to throw at it. 

However, academics have only themselves to blame for this “disaster”. That is, academic economists (like academics in some other subjects) spend their time getting papers and books published which add nothing to the sum total of human knowledge: those papers are designed purely to further the career of said academics. As Adam Smith put it “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” 

Put another way, economics has become a rotten door waiting to be pushed in. MMT did the pushing, or at least some of the pushing.

Another question.  

Another question raised by the above points is this. If the Rogoffs and Reinharts had won the argument, what would the reaction of the Selgins and Palleys have been? I suggest they might well have been writing articles proclaiming that “we knew all along” that the deficit and debt cannot grow too large and that the books must balance in the medium term.

To summarise, while MMT ideas may not be entirely original, at least MMT did a good job of broadcasting from the rooftops what needed to be done, which is more than can be said for the Selgins, Palleys, Rogoffs, Reinharts and rest of the “books must balance” lot.     

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