Simon Johnson and James Kwak’s White House Burning: Progressives in the Grip of “Hard Money” Ideology

By Michael Hoexter

Michael Hoexter is an energy efficiency and renewable energy policy analyst and marketing professional located in the San Francisco Bay Area.  He is concerned that flaws in economic thinking are derailing effective policy action on climate and energy challenges.

Currently, on the world political stage, there is little discussion of an alternative progressive framework for economics that would significantly counteract the push towards fiscal austerity.  One hears now and again protests about the damage already done and yet to be done by fiscal austerity, but the public in general has little knowledge of a comprehensive alternative framework. There are signs that the Modern Monetary Theory (MMT) view is reaching a wider audience, but it is probably the case that even most well informed political insiders remain in the dark.  The public at large is exposed in both media and policy circles to two flavors of the same neoliberal economics that sees no positive leadership role or well-thought-out supporting role for government in the economy.  In the upcoming US Presidential election, the American public must choose between two candidates, superficially different, but who offer in practice weaker and stronger versions of the same approach to governing. The lack of a perceived alternative engenders apathy and cynicism in many.

Even if people with progressive sympathies become aware of MMT and other post-Keynesian alternatives to the status quo, they are faced with a weighty political and intellectual task: MMT’s view of the economy and public finance suggests a very different progressive political strategy than that offered by the current thought leaders on the progressive side of the political spectrum.  In theUS, one of the primary focuses of most mainstream progressives currently is the demand that the government collect more tax revenue from the wealthy as a means to preserve government social and economic programs.  As readers of NEP know, this contradicts almost exactly the observations of modern monetary operations upon which MMT is based: a currency-issuing government does not “use” tax monies to “pay for” programs but simply, electronically, via “keystrokes”, credits bank accounts to pay for goods and services without drawing upon a reserve of collected tax revenue.  A sovereign, non-convertible currency-issuing government can use its power to raise/lower taxes in order to achieve, in a targeted manner, economic outcomes aimed at promoting the public purpose (i.e. democratically decided upon ends), including controlling for inflationary pressures. In the MMT account, taxes are a tool that is used to keep the economy operating at the “right” temperature (with low inflation and high employment), but they are not a source of “revenue” to the sovereign issuer, which simply destroys the tax money when it collects it.

An MMT-informed progressive politics would focus on fighting for the positive benefits to society of the programs and social goals that were democratically demanded by providing the necessary “keystrokes” without predicating this provision on the collection of a certain amount of tax revenue.  Secondarily, such a political orientation might lead one to advocate for higher taxes on the wealthy  or a more progressive tax structure overall, but only as a means, and perhaps not the most effective means in the long-term, to achieve greater social equality and to prevent the continued growth of a plutocracy/oligarchy.  The collected taxes are not “revenues” to the currency-issuing federal government, though they are revenues to state governments or to national governments that do not control their own currency.

Thus, while the reactionary right and the pliable center are united around a “hard money” economic ideology that spurs the continued and damaging drive towards laming or privatizing the functions of government, progressives would be at least temporarily divided if they do start to take the MMT alternative seriously.  A reversal and re-ordering of policy prescriptions would be in order if progressive activists and pundits adopt some or all of what MMT has to offer.

Simon Johnson and James Kwak’s latest book, White House Burning:  The Founding Fathers, Our National Debt, and Why it Matters to You is, in part, an effort by two left-of-center economists to take up the fight against the fiscal austerity wave or at least its most damaging effects. Johnson and Kwak are the authors of the Baseline Scenario blog on the financial crisis and the 2010 book 13 Bankers, an account of the 2008 financial crisis and the grip of the financial industry upon theUS government.  Johnson is a former chief economist at the IMF, a professor at MIT’s Sloan School of Management, a New York Times economics blogger, and a fellow at the Peterson Institute for International Economics. Kwak is a former McKinsey consultant, software entrepreneur and now a law professor atUniversity ofConnecticut.

At first glance the title of the book suggests an emergency, a grave existential threat to theUSgovernment, and seems to be intended to cause alarm in the reader.  J&K have chosen to title their book after a raid during the War of 1812, actually occurring in 1814, when the British burned down the White House, Capitol and Treasury buildings.  This military defeat and humiliation of theUSgovernment surprisingly did not lead to the utter humiliation of theUSat the end of the war, nor, obviously, to the re-conquest of theUSby its former colonial power.

The reason for the authors’ selection of this incident as the pivotal vignette for their book on contemporary USfiscal policy is not at first obvious but J&K quickly explain their choice.  J&K feel, as do some other historical commentators, that the US was ill-prepared to defend itself from British attack not because of some inherent military weakness but because the US government had not set up strong enough centralized banking and taxation authority for the government.  Not enough soldiers and material could be mustered to defend Washingtonin August of 1814, in part because of lack of funds and the lack of a strong currency.  The political faction that had ruled early 19th Century America, the “small government” Jeffersonian Democrat-Republicans opposed what J&K feel were the more prudent Hamiltonian/Federalists who advocated setting up a national commercial and banking system backed by the US government with sufficient power to tax.  The US federal government at the eve of the war of 1812 was not collecting enough taxes to pay the army and buy war material from abroad.  Still influential Thomas Jefferson, the President from 1801-1809, and the eminence grise of the Democrat-Republicans had a suspicion of bankers and large commercial interests.  The early policies of Alexander Hamilton, the first Secretary of the Treasury, included an excise tax, and were partially rolled back in the decade prior to the war.  While this incident highlights two unique historical personalities and a policy dispute from the distant past, the general political struggle was between a more centralized federal “big” government philosophy and a more decentralized, confederal “small” government, a political/cultural issue that continues to re-emerge in political conflicts in the US and abroad.

By selecting this metaphor, J&K maintain that government borrowing is one of the most critical attributes of a functioning government, especially during an emergency.  Therefore, in their view, the defining strength, function, and service of government is to maintain its credit rating as a borrower.  Ironically, Johnson and Kwak, in 13 Bankers and in numerous posts and editorials, in which they call for diminishing the power of large commercial banks by breaking them up, find themselves now siding with the opposite side, theHamilton side, of the Hamilton-Jefferson political conflict.

Also the metaphor seems to be an effort by J&K to be noticed by the Obama White House itself: if a book suggests an existential threat to the home of the Presidency, someone at1600 Pennsylvania Avenueis sure to pick it up.  Though perhaps a clever ploy, the book offers so many different interpretations that it is unclear what those readers will take away from it.  The notion that public debt is threatening the Obama Presidency seems to resonate more with the foolish efforts of the current Administration to cut deficits during a time of private sector over indebtedness, i.e. a debt deflation.

J&K’s primary policy prescription for today’s politicians and the broader public is to collect more taxes, including from the wealthy but also from ordinary people, and to use tax collection to reduce, the US debt to below 50% of GDP sometime in the future (it is currently around 69% and rising).   J&K see maintaining theUS’s ability to borrow funds from abroad as a critical function of government and they praise theUS’s generally high credit rating, though they, as do others, see storms on the horizon. J&K make efforts to distinguish their position from those of the loudest advocates for fiscal austerity, deficit cutting, and public debt reduction.  J&K believe that in the near future, due to the weakness of the overall economy, that budget deficit cutting should not be the primary focus of politicians.

Furthermore, J&K make some strong and interesting arguments from a modified neoclassical/New Keynesian (NK) perspective that support social spending more generally.  J&K are strong believers in social insurance programs like Social Security and Medicare and make clear New Keynesian arguments that from the point of view of individual citizens, pooling risk across the entire society is an economically rational way to approach funding these social programs.  Furthermore they are rightly critics of President Obama’s health reform, seeing in it an avoidance of the much more efficient single-payer/Medicare-for-all alternative.  They also show a concern for addressing our climate and energy challenges, proposing a new carbon tax and a higher gasoline tax, the latter to disincentivize car use specifically with its imposition of external costs on cities.  They also are fans of a value added tax as a means of reducing income taxes, which in their analysis disincentivizes saving.  They propose cushioning the regressive aspects of carbon and value added taxes by rebates after tax collection.

Despite these commitments to progressive ideals and policy goals, the overall message of the book is that the financial viability of the USgovernment depends upon ultimately reducing the national debt and reducing budget deficits in the medium and longer-term.  The accompanying website for the book as of April 20, 2012, has a page titled “Debt for Beginners” that in the body of the text only discusses public debt.  This titling is a misleading sleight of hand which suggests, along with the deficit hawks they claim to oppose, that public debt is the problem and private debt is not a major challenge for the American people.  J&K in their account of the economic crisis in 13 Bankers do show that they know that private sector leveraging, excessive household debt and now deleveraging play a role in our economic woes.  That J&K now define “debt” overall as public debt is troubling.

Unfortunately, Johnson’s association with the Peterson Institute for International Economics, though maybe incidental, links Johnson to Wall Street billionaire Pete Peterson ,the funder and chief co-organizer of the anti-public debt, anti-social spending madness that has swept America and elsewhere..  Over the past few decades but increasingly in the last 4 years, Peterson has done untold damage via his misguided and/or malevolent campaign to dismantle government social programs and lame the ability of government to spend money for the public good that Johnson and Kwak are ostensibly defending.  Are they functioning as useful idiots for Peterson?  I would hope not.  Still J&K are reinforcing the “hard money” ideology that is the foundation for Peterson’s campaign against government spending.

There has been no widely accepted theory about how governments work within economies, which leaves economists and commentators like J&K room to interpret or shade their account for political ends or to even contradict their own seeming political and ethical commitments.  Johnson and Kwak offer material in White House Burning that could support a number of different narratives about fiscal policy but in the end, it seems that “hard money” views provide the overarching story which they tell.  J&K vacillate in their descriptions of and evaluations of how public finance works.  As a reader you are able to see in these variations the gaps in conventional economic models of the monetary, fiscal and economic operations of government, into which MMT has made some advances.

In their account, J&K are promoting the political-economic belief that somehow when the US government spends more money than it receives in taxes in any given year that it must borrow the currency that it itself creates at almost zero cost from either its own citizens or those outside the US.  The message of White House Burning is that the US must maintain its good credit rating in order to borrow dollars at some point in the future when it needs them. White House Burning leaves the reader with the impression that this borrowing is how, above the amount of taxes collected, theUS can finance deficit spending.

Johnson and Kwak seem to know better and at points in their historical narrative, the inconsistencies in their overall position show themselves.  In discussing the issuance of paper currency and the suspension and eventual exit from the gold standard, J&K acknowledge in passing some of the historical realities of fiat currency issue but seem to want to exclude them from their “hard money” narrative.  J&K write dismissively of the early experiments in paper currency as inherently inflationary and seeming policy “mistakes”: the issuance of Continentals during the Revolutionary War and the issue of Greenbacks during the Civil War.  In their view, it seems, these were not hard currencies and therefore are suspect. Roosevelt’s suspension of the gold standard is described as an episode in crisis management but its critical role in transforming the role of money in the economy is lost in the account.  In the 1930’s were a critical period in the development of modern money technologies and Keynesian fiscal policy but J&K seem to miss or don’t want to alert the reader to a qualitative shift during this period.

A critical event or set of events in the emergence of modern money was the breakdown of the Bretton Woods system in the early 1970’s.  J&K discuss a number of the events involved but seem to accord the emergence of a non-convertible fiat currency as largely a “non-event” and not the emergence of a new monetary technology.  They manage to sidestep its significance in part by claiming or implying that the US dollar’s continuing role as the preferred reserve currency in the 1970’s and beyond hides the fact that the dollar remains dependent upon the willingness of other countries to lend us our/their money in order to be issued, i.e. a virtually convertible currency.   Dean Baker, is his review of White House Burning, points out that J&K’s assumption that the dollar’s global reserve currency is a benefit to the US is unwarranted:  the ballooning of the US’s trade deficits are for the most part attributable to efforts by countries with export-led development to maintain dollar reserves which has had the side benefit for them of shutting down competing US manufacturers. Thus what would be the story of an evolution or a change in the quality and type of money, instead becomes the story of “more of the same”.

Ultimately, then it is no accident that J&K have chosen to title their book after an historical event that occurred during an era of hard currencies, when monetary technologies were limited by the supply of precious metals.  In 1814, theUSgovernment during the “hard money” era was almost required to view money and tax collection as the management of a store of physical monetary entities that needed to be collected or borrowed from abroad.  However, J&K’s primary mistake is to bring into the current era aspects of monetary technology and government monetary operations that no longer persist.  Despite their manifest intelligence and good will they have in crucial areas of their book dumbed-down money and the evolution of monetary systems into a narrative that is all-too-familiar and might be called “Goldbugism Lite”.

There are other, also common, flaws in J&K’s macroeconomic model, leading potentially to policy mistakes in the future.  Accepting J&K’s premise for the moment that it is important for the purpose of funding government that the government have a good to excellent credit rating, the solution that J&K are offering doesn’t directly address that issue, and in fact might do damage to the economic health of the US and therefore its credit rating.   In setting the goal of future debt reduction and cutting government budget deficits in the future, J&K engage in the all-too-common accounting error of most non-Post-Keynesian economists by using stock-flow inconsistent accounting in describing the flows of funds between the three great sectors of any economy: the public sector, the private sector, and the rest of the world.  The goal of cutting budget deficits in a world which assumes that this must occur by levying taxes requires that government must then either receive an increase in payments from the private sector or the rest of the world.  Thus reducing national debt, with the exception of the very much possible but still frowned-upon route of “printing” the money, would require either a large trade surplus (with the rest of the world) and/or a net surplus with the private sector, potentially slowing that portion of the economy by taking money away from it.

Rather than set the reduction of budget deficits as an overarching, assumed goal, policymakers should be asking what type of deficits or surpluses government should be running with the private sector and the rest of the world and for what reason.  Perhaps it makes sense to reduce the size of the private sector or certain aspects of it by running a government budget surplus (more taxes collected than money given out) under certain economic conditions. But these conditions need to be specified.  In inheriting or accepting a “hard-money” model of money and macroeconomics, J&K seem to be allowing an unthinking economic “reflex” to structure their “take-home message”.

In the end, I am convinced that Johnson and Kwak believe in human progress and using the tool of human rationality to improve our individual and collective well-being.  They are also aware of some of the empirical evidence that is used by Post-Keynesians and Modern Money Theorists to construct a more plausible narrative of a dynamic monetary system.  Despite these commitments, their breadth of knowledge and their often admirable efforts to expose hypocrisy and corruption in our current political economic system, White House Burning misdirects our attention to public debts and continues to promote an antiquated conception of how money and government work.

20 responses to “Simon Johnson and James Kwak’s White House Burning: Progressives in the Grip of “Hard Money” Ideology

  1. Nice job, Michael!

  2. Great review Michael. And they derive the wrong lesson from the War of 1812. We lost the war because of political corruption related to govt finance. The Madison Administration didn’t do the most godawful obvious thing simply because a very wealthy Upstate New York landowner (and T-bond investor) thought it was bad for business.

    “British military officers marveled at the American failure to contest the St. Lawrence River, which served as the critical supply line of British Canada… “If they had done so with any kind of spirit, we must have abandoned upper Canada”, a British officer explained….. A savvy British officer hinted that the Madison administration kept troops away from the valley to appease the private interests of a very influential individual… By loaning millions of dollars to the Madison Administration, [David] Parish procured a tacit understanding that the government would keep its troops away.”.
    Boy, who could imagine that that requiring the government to borrow its own money would lead to such a thing?

    • I’m no expert on the War of 1812 but if what you say is the case, then Johnson and Kwak were massaging the historical data more than I had thought. I tried to find corroborating interpretations from historians of the period in White House Burning to see if this view of the weakness of the American defense was widely shared by historians. J&K didn’t engage with the historiography of the period in either the text or the footnotes.

      This is a time remote enough in history that any number of interpretations are possible. It is conceivable that governments in that period could have suffered militarily because of an inability to raise funds from abroad to fund their armies. However, J&K or any historian would probably be going to far to say that this would be the only factor in determining victory or loss in a particular battle.

  3. Great review Michael,

    What 99.9% of our leaders have failed to understand well enough to force themselves to think like post-1971 monetary and fiscal policy decision-makers, are the four AXIOMS listed below, none of which can be disputed or disproved. It is received wisdom and the understanding of most economists that after August, 1971, when Nixon closed the gold window, (defaulted on convertibility) the Federal Government, through the Federal Reserve Bank, became the sole issuer of this nation’s currency of account, the dollar.

    That being indisputable, please tell me why the following Axioms are not, today, the basis for the management of our economy? They are the operational reality which flows directly from the policy decision made by Nixon in 1971.
    Axiom #1 — America, became the sole issuer of its own currency and can never be
    insolvent in its own currency, nor can any of its Federal Programs.
    Axiom #2– The U.S. is not constrained by revenue per se to spend.
    Axiom #3 — A sole currency issuer does not tax and borrow to raise revenue, it taxes
    and borrows to manage aggregate demand.
    (The Federal Government also taxes to create disparities in the distribution of income, and to distort domestic and foreign markets.)
    Axiom #4 — Until the Federal Reserve spends currency into the economy there is no
    currency to tax or borrow.
    (Banks do not create money, they create credit to obtain deposits from which they clear checks.)

    As such, they beg the question, why this administration, like all of its predecessors back to the Nixon Administration, perpetuates the fraud that tax receipts pay for government expenditures?

  4. Mainstream economists continue to perpetuate the fraud that the payroll tax funds Social Security and Medicare. They’re as guilty of fraud–and their fraud is as damaging–as the banksters on Wall Street. Some of these deficit hawks even have the audacity to call themselves Keynesians.
    “Look after the unemployment, and the budget will look after itself.” – John Maynard Keynes, in a radio interview in 1933 (Reference: Collected Writings of John Maynard Keynes, Volume XXI, page 150)

  5. “Despite these commitments to progressive ideals and policy goals, the overall message of the book is that the financial viability of the US government depends upon ultimately reducing the national debt and reducing budget deficits in the medium and longer-term.”

    One cannot be committed to achieving progressive goals and to reducing budget deficits short of full employment. The two are fundamentally incompatible — and Johnson and Kwak know it. This is a political document aimed at gaining access to and favorability among the PTB.

    • I was giving J&K the benefit of the doubt in this review. I may have overstated their commitments given their overall macroeconomic framework. They do seem to be hankering for access and as I point out the central metaphor of the book is designed to get the attention of the White House in a way that I find to be overwrought and could easily backfire. Best case scenario is that they believe that by regurgitating the economic framework of Very Serious People they can gain access then advocate for preserving social spending and other progressive programs. Unfortunately this formula corrupts public discourse about how the economy works.

    • Absolutely right. yet, we have these “Peterson Pimps for the 1%” taking all the air time with their bloviations about deficits and debt. If we really had a left wing/liberal press in America MMT would fill the airwaves.

      • Still, I find it interesting that almost nothing gets on MSM and that there are no MMT oriented politicians on the national scene. Warren was the only one in my memory who even took a shot at it. Apparently also, there are no billionaires committed to it, as there are for the neoliberal variety, including an ample assortment of think tanks. So what does it take to break through? The basics of MMT are easily understood. Those four axioms take us a long way. How can it be that with twenty million plus not working full time that there is not a national conversation about the JG? And this is on going now four years. I should note that Mike has been on shows, but we need persistent advocacy to break through.

  6. I don’t personally know anyone remotely connected to the media. While I’m a big Rachel Maddow fan it would take someone like Mike to get to her to have him on the show. Maybe do a round table, even a series with Jamie, Steve, Randall and Warren. I can always dream.

    Maybe Warren could do a media blitz of his own (write it off) with the other MMT geniuses? Everyday there’s more goldbuggery BS, i.e., the Buffet Rule, Ryan’s Budget, and the President’s New Tax Receipt Site where you can actually see what your tax dollars are paying for based on your very own personal income tax return.

    Hell of a job Benny, Timmy, Larry!! The President will never know the extent to which his fiscal flexibility was emasculated by you guys handing him a line of crap about harming bond holders if he used zero rate Fed funds to bail out Main Street. Don’t want those contributors to get pissed off. Better to let the rabble grouse than to pass up the big bucks.

    It’s a damn shame that the Peterson Pimps like Reich, Johnson, Kwak, Krugman, Rivlin, et al, get face time with the tube, Internet, and print. They get away with bolivating about their goldbuggery palliatives for America’s economic disaster. Which are then blindly followed up and taken as holy grailisms, by goldbuggery policy decision-making in the White House and even worse, tainted legislation from Congress.

  7. I think reading a book, and judging the quality of a book on whether it verifies (agrees with) your own personally held beliefs on economic theory (a very young economic theory, which while it might end up being valid, has very little concrete proof to hold it up other than “well the main two theories are frustrating us now”) isn’t exactly a good way. And most authors are not going to hang their hat on very young economic theories, when ones that seemed to be very valid in recent years have been shredded pretty well (namely suppy-side economics, which was questionable at beginning, but probably had “Hoexter-like enthusiasts” at the start of its emergence).

    I think if you read enough of Kwak and Johnson’s writings, you would know they have spent a lot of effort to de alarm people on the immediate deficit issues. If you read the book they even go so far as to say, they wouldn’t see an annual budget deficit of 50% of GNP as a reason to necessarily push the panic button. They make that very clear in at least 2 parts (and I venture to say more but couldn’t swear to it) of the book.

    Another issue that you seem to be missing is, many of the ways they discuss raising revenues is by eliminating “tax expenditures”. Many of these tax expenditures are in fact harmful to the economy long-term. If the tax exemption for mortgages hadn’t existed, would the Fannie and Freddie mess be what it was in 2008 and really continues to be?? Certainly the Fannie and Freddie taxpayer cleanup probably would have still been there, but not near as huge. Have those tax exemptions really been that beneficial to the private economy, if most of the exemptions are aimed at the wealthy, who are much less apt to spend it on consumption?? Or have those tax expenditures helped add to/create the huge imbalance between spending and government revenues we have had the last roughly 32 years??? In fact I am wondering how any sane person could look at the government subsidization of private debt over the last 30 years, and not come to the conclusion that that subsidization has only encouraged more private sector debt, rather than helped families extinguish their debt.

    You also very conveniently neglect the fact that many of the revenue increases proposed in the book, Kwak and Johnson strongly promote the idea of turning around and using part of the increased revenues to lower payroll taxes for the poor, and/or cash rebates for the poor. They propose for example using 1/2 of the VAT proceeds to go to low-income households, as low-income families would pay a higher proportion of their income for auto fuel, the rebate would make the VAT “distribution neutral”.

    Other revenue solutions Kwak and Johnson propose such as a charge for TBTF banks to be used to accumulate an insurance fund for future crisis, and a fee for excessive risk taking in the banking sector would take very little out of the private economy, and what money the fees took out of the banking sector might actually be economically healthy in the sense that the financial sector has become a disproportionately large piece of the overall economy.

    I do agree with Mr. Hoexter that the title “White House Burning” shrieks a little too loudly. That being said, I don’t think they are the first American authors to choose an attention getting book title. Maybe “1 or 2” others since the 2008 crisis (or before??) come to mind??

    You also say in comments “they do seem to be ‘hankering’ for access”. I think the substantive message of the book, that is “we can reduce the deficits and still fund social programs” is not that wild a platform to stand on, and other than on its merits alone, I think there would be more effective ways to get attention from the White House. But let us say for the moment that you are right on the particular point that Kwak and Johnson “seem to be hankering for access”. Could you name a single “opinion leader”, “expert”, or columnist who wouldn’t like the President’s ear?? I dare say even you, Mr. Hoexter, would grasp that chance.

    • “I think the substantive message of the book, that is ‘we can reduce the deficits and still fund social programs’ is not that wild a platform to stand on … ”

      It is a fundamentally incorrect and misleading platform. We know all too well that capitalism — certainly the version we currently practice — is given to long periods of unemployment, which lower tax receipts and , due to the stabilizing effects of the social safety net, naturally lead to larger deficits. This is a regular occurrence in our economy, not an exception. We also know that the private sector is not interested in, or capable of, making the investments in infrastructure that are required to maintain a productive economy. To suggest that deficits can be reduced, while pursuing the most important of progressive goals — full employment — while also making the investments in infrastructure needed to sustain economic growth is quite dishonest.

      Achievement of virtually all progressive goals requires a federal commitment to deficit spending. This is especially true in light of the demonstrated weakness of monetary policy in recessions. Even economists still wedded to the ludicrous IS-LM approach admit that cutting deficits in the short run would be disastrous. Well, absent fiscal policy, what if the stagnation lasts a decade? Is that the short run or the long run?

      IMHO, one cannot claim to be a progressive and adhere to a policy of deficit and debt reduction. We are now in a period — perhaps an extended one — in which those two things are fundamentally at odds.

      But YMMV.

  8. Ted,
    My review of the book was already quite long and I don’t pretend that it’s complete. There are aspects of J&K’s suggestions about the tax code that seem reasonable which I didn’t mention. It is within your power, I’m guessing, to write your own review that calls out features of their work that you like. My focus was on inconsistencies in their model of public finance and also where they curiously seemed to skim over important episodes in US economic history. By the way, the roots of MMT stretch back to Keynes and Abba Lerner who formulated the concept of functional finance around 60 years ago. I consider MMT to be a work in progress but to have great promise, more promise than the existing models that are failing to grapple with our most pressing problems.

    Based as it is on a series of trends in economics for which there is growing interest after the critical failure of conventional economics in 2007-2008, my review is no more personal than J&K’s tortuous New Keynesian/neoclassical efforts to play on fears of deficits and debt (i.e. the image of a burning Executive mansion) while at the same time trying to reassure that they are not that important. Your comment also indicates that you don’t understand the points I was making about stock-flow consistent macroeconomic accounting, in that you seem not to appreciate that reducing public debt is not necessarily a positive for the overall economy, unless we were entering an inflationary spiral (which is nowhere in sight). I may not be as appreciative as you would like of J&K’s approach but I give them a number of compliments about it and I recognize that they are trying to fight for social welfare programs. Before you make accusations about my not having read the book, you should do me the favor of actually reading my review of it.

    On the other hand, you seem to want to make our interaction here online personal by using my name as a part of an epithet without having the courage to use your own surname in your comment. Instead of arguments from authority and name-calling, why don’t we have an economics of whatever description which uses empirical evidence and rational debate to settle these matters? I would be happy to engage with you or with the authors on the substance of how public finance works now or should work in the future. Name-calling and appeals to “old time religion” are not going to get us anywhere.

  9. I’m not exactly sure what “epithet” or “name-calling” you’re referring to Mr. Hoexter. But if all you want is limp-wristed agreement and to be showered with love, maybe blog hosting could be a little rough on you emotionally. Or maybe filtering all diverging opinions might be your way, I imagine some bloggers do that.

    FYI Mr. Hoexter, Keynesian economics has been around a long time, and there are strong connections, but to even imply that MMT has been around 60 years is strongly misleading to blog readers. In fact, if you wanted to give your first useful/enlightening info. you have yet to give in this post, you might tell your readers in the thread below when exactly the term “Modern Monetary Theory” first appeared in the literature.

  10. Interesting analysis Mike. Here is my gloss on your thought provoking post

  11. Dean Baker, is his review of White House Burning, points out that J&K’s assumption that the dollar’s global reserve currency is a benefit to the US is unwarranted: J&K’s “assumption” is of course correct, irrefutable, true by definition. Baker is just plain wrong, crazily wrong. Other countries using your currency as a reserve is a great benefit, a free lunch, as long as you manage your economy with minimal sanity.

    Ted K: It is far more misleading to not call Keynesian economics “MMT” or not call MMT “Keynesian economics” or “Institutional economics” or “Monetary economics/analysis”. MMT is as old as the hills. Matt Forstater is the guy to read on this, and IMHO he has missed some. Everybody understood MMT in the 40s & 50s, but progressively, a dark age of economics fell, because of improper valuation of what is important and what is not, because of bad education.

  12. roger erickson

    Very useful review, Michael.

    ps: much briefer, commentary on another S&K book here

  13. Pingback: The Mania for Fiscal Austerity, “Hard Money” Ideology, and Reification of the Money Signifier | | New Economic PerspectivesNew Economic Perspectives