This post is primarily addressed to the MMTcommunity and whoever considers himself/herself a follower of Modern MonetaryTheory. It deals with the question ofwhat is in the purview of MMT.
A number of MMT supporters from the blogosphere haveargued that MMT has a descriptive and prescriptive part and, more recently, thatthe Job Guarantee program (JG) falls in the category of prescriptions and that itis not as essential to the MMT project as the description of the operationalrealities of modern economies.
The argument is that once we have understood howsovereign governments fund themselves and how the banking system operates underdifferent currency regimes, then we can pick from a menu of policy options thatthe monetary regime affords, depending on our individual political preferences. Some MMT followers have claimed thatthey would prefer tax cuts to spending due to their more conservative leaning, whileothers still seem unconvinced that full employment is possible or evendesirable. By contrast, most first generation MMTers have made the fullemployment objective a salient feature of our work.
Though clearly there is an aspect of MMT that ispurely descriptive, I have always considered this division between thedescriptive and prescriptive part of MMT to be a fundamentally flaweddichotomy. Why are MMTers busydescribing what governments can and cannot do under different currencyregimes? Why have NewEconomicPerspectives,MoslerEconomics,BillyBlog,PragmaticCapitalism,MikeNormanEconomics,CreditWritedowns,to name just a few, spilled so much ink about the flaws of the Euro, thedifficulties with quantitative easing, or the impact of austerity policies inthe U.S. and abroad? Because producing an adequate description of monetaryoperations in and of itself is a useless exercise, but when it sheds light onthe policy options before us it is invaluable. And when we illuminate policychoices, we MMTers inevitably make a choice between one policy prescriptionover another.
The adoption of a currency board, a monetary union, orgold standard is a political choiceand to claim that MMTers are mainly interested in describing the problems withthe EU or dollarization or the gold standard without imparting any normative judgmentor preference of one currency regime over the other would be disingenuous. Idoubt anyone would claim otherwise.
When we discuss monetary policy we are not simplyimpartially evaluating the actual monetary operations, we bet, we trade, wemake claims, assertions and forecasts. Do we not hypothesize a monetarytransmission mechanism different from that of monetarism? Do we not theorize about the multipliereffects from spending on primary/direct employment and in turn on secondary/indirectunemployment? Do we not have a theory about the Fed’s ability to grow theeconomy, about the impact of discontinuing the payroll tax cuts on the economy,or of imposing draconian austerity measures on any nation? Certainly we do. We are not just describing, we are alsoforecasting and ultimately prescribing.
All of this requires some theory about how all thepieces of the reality we’ve just described fit together to produce someeconomic results. And to our credit, MMT has been righton the money on pretty much everything from theimpact of austerity, to the relative ineffectiveness of QE, to the movements inbond yields. This is the true test ofour effectiveness as economists or pundits—it is how well our theory and ourconceptualization of reality stand the test of time.
I realize that it is somewhat of a philosophicalpoint to say that facts do not exist in a vacuum and that we need to have atheory to make sense of these facts. But it is important to make this point,because MMT supporters are doing a disservice to the MMT project by drawingflawed boundaries between what can be called objective and what can be called subjectivein the MMT project.
And whereas a number of bloggers and friends haveembraced the merits of a sovereign monetary system, have renounced the flawedmonetary arrangement of the EMU, and have forcefully debated proponents of thegold standard, the JG has recently received considerable skepticism andcriticism from them (recent critiques can be found here,hereand here).
Now I welcome criticism of the program any day andlike many of my colleagues have answered questions and concerns about the JG formany years. We have also modeled, simulated, and studied specific direct jobcreation programs around the world. Thoughwe may not have a universal JG to study today, we have good many examples thatmimic or at least have important features of the JG that permit us to study themerits of direct employment.
TheJG is not just an afterthought to MMT but a crucial component that has so faroffered the most coherent counter-cyclical economic stabilizing mechanism.
If MMTers want to be technocrats in analyzingmonetary policy, then the same has to hold true for fiscal policy as well. So I ask that critics/skeptics/supporters of theJG apply to it same technocratic scrutiny that they apply to every other aspectof MMT. If you claim that you canobjectively explain the merits and demerits of one currency regime over theother, then the same has to be done with respect to the JG or any other fiscal policy.
Make your case against the JG based on its intrinsicfeatures, not on its political viability. Tell me why your policy of choice ismore sound and more effective than the JG. Tell me why and how tax cuts will produceand maintain high (full) employment betterthan direct job creation. What are your assumed transmission mechanisms, yourmultipliers, your estimated effects on prices and wages? Let’s debate thesetypes of issues, as I do not think that tax cuts and direct job creation arepolicies of equal merit. Tell me why subsidies or contracts to private firmsare more expedient and efficient stabilization methods than direct investmentby government. I may disagree but will be happy to engage.
But to claim that fiscal policy is somehow moresusceptible to crony capitalism, corruption, inefficiency than monetary policy(Fed lending facilities, anyone?) or any other private sector behavior (Enron,WorldCom… heck, all the pervasive control fraud in the financial andnon-financial sectors!) is simply a nonstarter.
The fact that any program like the JG can facevarious problems does not mean in and of itself the program is bad. It’s likearguing that we should scrap voting in the U.S. since elections have beenplagued by voting fraud and a good portion of the electorate has been deliberatelydisenfranchised and prevented from voting. A genuinely pragmatic and technocratic attitude would be to ask thequestion “What is the problem to be solved” (unemployment, corruption, inefficientallocation of resources, inadequate education) and then to find a solution.
I suspect that JG has received a lot of flak, notbecause the program is ineffective, but because at bottom some MMTers from theblogosphere disagree that unemployment is an economic and social evil that hasto be eradicated. If that is the position, then let’s bring it out in the openand let’s have that debate. I am happy to make the case that unemployment is a seriousmacroeconomic problem of capitalist economists that requires a long term solution which cannot bedelivered by the private sector, and that the solution we propose does not rest on some authoritarian controlof the government over the economy. I will gladly argue that an economic systemwith an “employment buffer stock” is a more stable, sound, efficient, and justthan one with an “unemployment buffer stock”. If you think the opposite, thenmake your case, but let’s have a debate on these technical terms, not on thebasis of some people’s visceral “dislike” for government-provided jobs or onthe basis that such a program is politically infeasible. These arenon-arguments.
If you asked me 5 years ago if the U.S. would electa black president in the next election, I would have told you that this was anear political impossibility because many Americans were still not ready for itand wouldn’t like it.
Economists not only have the responsibility toadequately conceptualize, describe, and analyze the economic reality, but alsoto be ready with effective policy tools to solve the most important problems ofour time, no matter how the political winds blow.
As John Maynard Keynes wrote in a letter to T.S.Eliot, good intentions are never the problem; the trouble with formulatingpolicies for full employment is that economists lack both the intellectualconviction of their feasibility and the cleverness to design them (Keynes 1980:384).
MMT-JG advocates justmight be the exception.