MMT Update

Been following some interesting back and forth regarding MMT at Winterspeak.com (see below - the comments are public so I feel ok in re-posting them. It's not my intent to remove from context but I truly feel they epitomize the main back-and-forth re: MMT). I am thankful that the MMTers are finally having a discussion on the points that are causing the confusion - the "should/could" instead of "does". As I observe this from afar it becomes apparent that most MMTers prefer to start with the abstract theory and make 'should/could' assumptions about how the Treasury interacts with the Fed (namely consolidating their operations) - assumptions that at least in some cases are factually inaccurate. When one points out the inaccuracies, the response is, "that's a political problem, not an economic one." And then, you are back to my basic beef with MMT in that you cannot, ever, separate political institutions from economic institutions. The only reason the US is a monopoly of its fiat currency is due to the political institutions. So, ignoring real barriers upfront to a 'should/could' philosophy makes ones theory rather moot, in my opinion. This will become even more of a reality as the Fed is continued to be scrutinized for its actions and calls for audits are mandated.

But I am still learning this new and seemingly more realistic way of thinking about the government's role in money. Is my beef for style than substance? Commenters....please discuss.

One specific thought, reading the comments shows that perhaps the focus is existing solely on the interaction on the spending side of the coin - whether its a style disagreement or a substance disagreement. But I'm much more concerned about any real barriers on the tax side of the coin. What if the government made an error and released too much money. According to MMT, taxes could be raised to effectively remove it from the system. But taxation is political and SOLELY in the hands of the executive and legislative branches....

UPDATE - ongoing discussion

JKH said...
(The following is not directed at Dan K.’s articulate comment; it is rather a broad observation.)

I could almost get more value from reading “market monetarist” posts these days than from witnessing the blogosphere train wreck of tortured conceptualizations that has become "MMT”.

MMT has valuable insights into the nature of the monetary system. But it is ineffective as a platform for conceptual exposition of the monetary system. It seems incapable of distinguishing consistently between factual and counterfactual monetary operations. It seems intent on conflating these two parallel modes of analysis, with such stuff as “the government neither has nor doesn’t have money”.

It is not logically possible to present any interpretation of a monetary system that does not reference explicit institutional design assumptions. Monetary systems don’t exist without specific institutional design. In this regard, there are facts of actual prevailing design, and there are counterfactuals, and there are differences between those two things.

It is certainly possible to design an institutional monetary configuration in which “the government neither has nor doesn’t have money”. But the existing system as it is designed does not have this property.

I’d love to see MMT turned upside down in its expositional approach. But the MMT’ers are a small group, with a thoughtful investment in their chosen presentation, so I don’t expect this sort of change to happen. And understandably, like most of us, they probably don’t appreciate criticism at a fundamental level.

6:29 AM

Neil Wilson said...
"But the existing system as it is designed does not have this property."

It does when you consolidate the balance sheet of the government sector and 'zoom out'.

It very much depends what level of abstraction you are working on at the time.

I do this all the time when designing systems. Sometimes I'm zoomed out ignoring the specifics, and sometimes I'm zoomed in dealing with the nitty gritty - often below the level you talk about (how do transaction records get from A to B in a timely and secure fashion?).

Sticking at one level of abstraction, or constraining yourself by the 'current design' is a huge mistake.

What we can learn from the 'current design' we largely have. Now to explore what the new design should be to deliver the required goals.

7:42 AM

JKH said...
Neil,

I'm aware of the abstraction. It's not a question of constraining one's view. It's about being clear on the starting facts.

If you consolidate all of the balance sheets in the world, what you end up with is a single balance sheet. On the left is all of the real assets of the world. On the right is a global net worth valuation of them.

All financial claims net out in such a consolidated view. But the conclusion from that is not that I "neither have nor don't have money".

Such a conclusion would be the height of silliness (unless you assume a design change to barter).

Yet it's the same point.

winterspeak said...
JKH: I think that's an excellent way to put things. The Federal Reserve is the currency issuer, not the Federal Government.

To what degree those two entities are truly distinct is a worthy topic, but fundamentally political, not economic.

10:41 PM