MMT blows the cover on the fictional world of mainstream economics that serves class interests

Given I presented a full analysis of the National Accounts release yesterday, I am calling today Wednesday and not writing much by way of blog posting, to give me more time to write other things that have to be done. But there is one issue that I will deal with today and regularly comes up and indicates that we are making progress. And after that we can all ‘Rise and Shine’ with some beautiful music.

We agree with everything but don’t want anybody to know anything!

That is where the evolution of Modern Monetary Theory (MMT) is heading at the moment.

The critics started off just shouting insults – getting as many nasty epithets into an Op Ed as possible – in between sniping about ‘printing money’, Zimbabwe, chaos etc.

That showed they were realising that their dominance was under threat.

Then the criticisms were along the lines that what is old in MMT is correct and what is new is incorrect and variations on that argument.

The variation ranged from ‘we knew it all along’ claims to denial that there was anything interesting to know – which always amused me.

More recently we are hearing the story line – MMT is correct (although they don’t express it that way) but god save us if anyone finds out.

An MMT understanding allows us to appreciate that most choices that are couched in terms of ‘budgets’ and ‘financial constraints’ are, in fact, just political choices.

Given there are no intrinsic financial constraints on a currency-issuing government, we understand that mass unemployment is a political choice.

Imagine if citizens understood that.

An MMT understanding lifts the ideological veil imposed by mainstream economics that relies on the false analogy between an income-constrained household and the currency-issuing government.

Households always have to finance their spending choices, through earned income, savings, asset sales or through borrowing. A currency-issuing government spends by instructing its central bank to type numbers electronically into relevant bank accounts.

All the elaborate accounting structures and institutional processes that are put in place to make it look as though tax revenue and/or debt sales fund spending are voluntary smokescreens, which serve the purpose of imposing political discipline on government spending.

Insiders know this, but actively decline to share that knowledge with the public.

Renowned British journalist Martin Wolf, commenting on MMT, recently wrote in his Financial Times article – Summer books of 2020: Economics:

In my view, it is right and wrong. It is right, because there is no simple budget constraint. It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint.

And I have provided this historical quote before – famous US economist Paul Samuelson saying something similar during a 1988 interview with Mark Blaug for the program – John Maynard Keynes – Life – ideas – Legacy (the statement starts at 52:50 minutes with the ‘aahs, ums’ taken out):

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times. Once it is debunked takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that long-run civilised life requires.

We have taken away a belief in the intrinsic necessity of balancing the budget, if not in every year in every short period of time. If Prime Minister Gladstone came back to life he would say oh oh what you have done and James Buchanan argues in those terms.

I have to say that I see merit in that view.

These are profound statements of how a ‘fictional’ world is promoted by mainstream economists to serve as a brake on political volition. While MMT exposes these fictions many economists still think it is better to keep the public in a state of ignorance.

This sort of reasoning – MMT is right but the politicians cannot be trusted narrative – was most recently rehearsed in the Sydney Morning Herald article (August 29, 2020) – We’re edging towards a big change in how the economy is managed – written by their Economics Editor, Ross Gittins.

My research centre – Centre of Full Employment and Equity (CofFEE) used to hold an annual ‘Path to Full Employment Conference’.

At the third edition of that Conference held on June 14-15, 2001, Ross Gittins appeared as a discussant on the panel – The Job Guarantee Versus The Five Economists.

The Five Economists were are group who proposed supply-side solutions to the chronic unemployment and underemployment of the day, claiming that demand-side solutions would unlikely reduce unemployment below seven percent.

They represented the mainstream orthodoxy.

They claimed that wage restraint (real wage cuts) and making it harder to stay on unemployment benefits.

They advocated a reduction in the rate of wage increases relative to the rate of productivity growth via a four year freeze on award wages.

Tax credits would be used to compensate low wage earners in low-income families while lower effective marginal tax rates would improve the incentives for low-income families to pursue employment opportunities.

My paper with Martin Watts contested that view, saying that it was just a modern version of the classical wage cutting approach, with some equity insurance being provided by the state. It also invoked the classical Say’s Law which assumed all the demand issues (insufficient spending) could be assumed away.

In his comments on both papers (as a discussant), Ross Gittins opposed the Job Guarantee, claimed MMT was nonsensical and largely supported the view expressed by the Five Economists.

19 years or so later he wrote in his weekend article that:

But here’s the scoop: the idea that, rather than borrowing to fund their budget deficits – thus incurring big debts and interest bills – governments should just create the money they need has been anathema to economists for the past 40 years, but this may be changing.

There is a growing debate among economists, between the proponents of what they call “modern monetary theory” and more conventional economists and econocrats over whether governments should just create the money they need.

The defenders of the conventional wisdom have had to concede a lot of ground. Whereas a decade ago MMT was lightly dismissed as a crackpot idea, as this radical idea has gained more attention its opponents have had to admit it would be perfectly possible to do. They just think it would be a really bad thing to do.

So he is now really admitting we were correct.

He also said (by way of revising history):

As sensible economists always knew, it was never true that creating money always leads to greater inflation. It does so only when the demand for “real resources” – land, labour and physical capital – exceeds the supply of real resources. Only then do you have “too much money chasing too few goods”.

Where in any mainstream textbook will you find that clearly stated?

But then he pulled out what the critics are now relying on as their trump card.

He acknowledges that the leading proponents of MMT do not claim that:

… governments would be free to create (or “print”, to use a misleading metaphor) as much money as they needed, without restraint. The restraint is the same one it always was: the limited supply of real resources.

But:

This is what’s really worrying the opponents of MMT (and me). If you let the politicians off the leash to spend as much as they liked up to a point, how would you ever get them to stop once that point was reached? …

why risk letting the pollies start creating money when the government can borrow from the public at interest rates that are pathetically low.

So there you have it.

Thus:

1. The politicians are deliberately left in the dark by the technicians (the economists) who know that they are pushing a fiction but use it to keep the politicians doing things they determine rather than other things that the economists might think are less worthy.

That means unemployment remains at elevated levels – because the economists think it is necessary to discipline inflation – poverty rates increase and income is redistributed to profits away from the workers.

The economists know the government could do something about these problems but tell their political masters otherwise.

And/or:

2. The politicians know damn well they are lying and use the fictional world developed by economists to provide the authority (cover) to pursue politics that serve their own interests and those of their mates (funders etc).

There is clearly truth in both options.

I can tell you that most ‘economists’ do not actually know what is actually going on. They go to university, rote learn the mainstream dogma, and then take it into their professional lives.

Clearly, there are some who do have more awareness that they are creating a fictional world to serve particular interests.

I can also say that most politicians really do not have a deep understanding of the way the monetary system works and take the mainstream litany as gospel.

But either way, it is the citizens who are being kept in the dark.

Clearly those who espouse this view that it is better people do not know the truth believe it stops us making demands on politicians that the economists prefer not to be pursued.

They never extend the argument to consider the implications for the quality of democracy. Yet it asked they would extol the virtues of democratic systems over their alternatives.

Not only do those who support this deliberate deception want to deny reality but they also want to pervert the choices available to people when electing their governments.

It amazes me that they can keep a straight face when doing so.

But then politicians have been lying ever since.

Irish writer – Jonathan Swift – wrote an essay – The Art of Political Lying – for the Tory publication The Examiner, which was published on November 9, 1710.

Swift explains that politicians apply the art of lying “to the gaining of power and preserving it, as well as revenging themselves after they have lost it.” In other words, they lie all the time.

But is this sufficient reason to set out fictional constraints on them to constrain their ability to, for example, spend freely?

And do the constraints we put on politicians through these deficit and debt fictions actually ensure they use their ‘constrained’ fiscal capacity to serve generalised well-being?

That is the crux of the issue.

We might be offended but willing to support the continuation of these voluntary fiscal rules (derived from the fictions) if the policy outcomes were advancing well-being for all.

But the neoliberal reality is that, even within the fictional world we operate in, governments use their fiscal capacity to serve special interests at the expense of the rest of us.

So these disciplines that are placed on them by the ‘fictional world’ really just serve class interests.

There is never a shortage of currency when a bankster needs to be bailed out or some invasion of another country is pursued.

MMT blows the cover on that scam.

And that is the real reason there is so much hostility towards our work right now.

Music – Bunny Livingston

This is what I have been listening to while working this morning.

This is from Jamaican singer, poet, drummer – Neville O’Riley Livingston (aka Bunny Livingston, aka Bunny Wailer).

The latter assignation (Bunny Wailer) comes from his status as one of the original Wailing Wailers with step-brother Bob Marley and Peter Tosh. That band would split and produce three separate and brilliant musical contributions in the 1970s and beyond.

To some extent Bunny is my favourite despite the fact that he is probably the lesser known of that illustrious trio from the 1960s.

He was often backed as a solo artist by the premier Jamaican rhythm section – Sly and Robbie – which comprised Robbie Shakespeare on bass and Sly Dunbar on drums.

Horn sections were usually supplied by the Blazing Horns (Tommy McCook and Bobby Ellis).

This song – Rise and Shine – is off his 1981 release from Solomic Records (with Solomic Dub on the B-side).

I regularly received shipments of Mento, Ska, Rock Steady, Reggae and Dub singles from the UK in the 1970s and beyond. They were very cheap and you could buy a big box of records for hardly anything.

Some of the gems of all time were in those boxes and I learned a lot of the diversity of artists, recording studios and their technical differences from those bits of plastic.

Here is what he is singing – rather apposite in this current period one thinks:

This is the cry of a people
who were robbed and raped from their homeland
and their loved ones.
A people stripped of their culture,
their dignity, their liberty and their rights
and by the cruel and presumptuous
hands of the colonial and imperialistics slavers
were cargoed into the west,
where for over 400 years they have toiled and laboured,
and with their blood, their sweat, them tears and hands
they have built the great cities of Babylon,
only to be paid with the wages of the taskmaster’s whip,
torture and death.

Oh yea yea! This is my history!
Oh yea yea yes! Oh!

We’ve been down in the valley much too long.
We’ve been down in captivity oh so long.
We’ve been down in humility much too long.
We’ve been down in slavery oh so long.

But we’re gonna rise and shine!
And win our liberation,
for now is the time
when all nations must be free.
So rise and shine!
Restore your strength and power,
waste no more time,
remember your history.

We’ve been down in a sufferation much too long.
We’ve been down in a condemnation oh so long.
We’ve been down in a segregation much too long.
We’ve been down in humiliation oh so long.

But we’re gonna rise!
As the morning sun that surrounds you,
it’s international morality time,
where mankind must be born anew.
So rise and shine!
For the sake of the younger generations,
putting hearts and minds,
to brotherhood and unity.

Oh yea yea yea yea yes!
Remember the slavemaster’s ship!
Remember the taskmaster’s whip!
Oh yea!

We’ve been down in the valley much too long.
We’ve been down in captivity oh so long.
We’ve been down in slavery much too long.
We’ve been down in humility oh so long.

But we’re gonna rise and shine!
And win our liberation,
for now is the time
when all nations must be free.
Rise and shine!
Restore your strength and power,
waste no more time,
remember your history.

Yes we’re gonna rise and shine!

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.