By Dale Pierce
For the present, all MMT policy advocacy is fantasy football. Everything we talk about is real, and everything we help to prove or explain or demonstrate or clarify is important – and will be much, much more important in the future. And, of course, there’s nothing wrong with fantasy football – it’s a useful exercise for learning about and interpreting the game. Similarly, the extension of theoretical MMT principles to practical problem-solving is a useful – even a vital – exercise. But nothing we advocate today is really going to happen today – at least not in America. I still keep hoping that some high-up political figure in Latin America, or Latvia, or maybe Iceland will come out with an up-front endorsement, along with an explicitly MMT-informed political platform. And I think that’s a worthwhile goal for us as well – provided that we understand just what it is that we are doing.
The first thing that strikes me is how much this community has evolved since I first noticed it a few years back. And how rapidly things are changing for us now. And please don’t get me wrong – I believe in the power and importance of open polemics, including quite sharp ones when appropriate. I thought Joe’s riposte was a little more barbed than it needed to be, especially given the tentative and largely exploratory nature of J.D.’s original offering. But it’s no big deal, and I think we all know that Joe’s passion for the seigniorage issue has been the single biggest factor in what is, by mountains to molehills, the biggest real-world breakout MMT has yet seen. It’s what got Stephanie Kelton on T.V. in the first place.
But I also agree with J.D. that our messaging needs to transcend the first-blush impression that virtually everyone gets of us now – which is that all we are saying is: “Relax! We can print all the money we’ll ever need!” J.D. is correct in believing that this is virtually everyone’s first and most lasting impression of Platinum Coin Seigniorage (PCS), whether small-bore or large, and of every other form of state money creation for that matter. And I think he is also correct in believing that the real locus of peoples’ deep distrust of this message is more to be found in culture and morals and even religion than in politics or any version of economics. The ideology of market fundamentalism is more-or-less deeply interwoven with these other components of most peoples’ world-view. But their aversion to what they conceive of as live-it-up liberalism lies deeper still. I view J.D.’s post as a valuable new angle on these issues, and I am grateful for it.
I also do not think that J.D. went, or intended to go, anywhere near as deep into the weeds of this issue as Joe has gone. Indeed, I think this particular briar patch is where Joe has largely lived for the past few months and more, to all of our great benefit. To sum it up, I think that Joe and J.D. were mostly talking past each other in this case, and I think I can say that I agree with most of what both have said, and still not consider myself a spineless centrist who just wants everyone to get along.
Turning to the substance of the matter, I think it is instructive that the most notable, widespread impact of the PCS debate was a comically misinformed spike in the price of platinum itself. Like the dumbest dumb-bells on Fox News, and more than a few actual business journalists, the market’s impression was that minting a trillion-dollar coin meant the U.S. Treasury was going to need a trillion dollars’ worth of shiny white metal and a die the size of an ocean liner. When we posit that the public can easily be made to see what we are really talking about, we should remember examples like these.
Joe tirelessly worked his way through every nook and cranny of opinion on the issue. He shined the light of truth into every last corner. He demolished every misconception and non-factual objection that was put forward anywhere. But it is still the case that only a handful of Americans are paying enough attention to even know about this, much less understand it. When the price of platinim returns to normal (if it hasn’t already), it will be because the can has been duly kicked down the road and the pundits are ready for a new toy – not because very many people have gotten beyond the very shallowest layer of PCS.
But it would be a huge mistake to think that this means the PCS issue has ended in failure – just the opposite! For the very first time, the entire national discussion about the economy, from virtually every direction, has been taking place on our turf, utilizing our terminology. If almost everyone is still getting it almost entirely wrong, well, that just tells us how far we still have to go. But this issue, and the way it has played out, represents a true milestone.
Where things go from here doesn’t just depend on us, of course. But moments like this are times for real reflection. Platinum Coin Seigniorage is never actually going to happen in America – not because any part of the idea is invalid, but because by the time we have an administration that is willing to use it, we will no longer need it. What we should ask ourselves now is how we pivot to keep the conversation going our way.
If PCS was ever really going to happen, and if J.D.’s post was, in any substantial way, a practical proposal that we do it wrong, that would be one thing. But it wasn’t. PCS was almost tangential to it. This is now about how we pivot, how we message and how we avoid being pigeon-holed and marginalized in the next round of the debate. This doesn’t mean that we should stop talking about PCS. Others won’t, so why should we? And every exchange will be a teachable moment. But MMT is not a one-trick pony, and PCS is just one element of the much larger discussion we are trying to have. And this is where J.D.’s post and his principal talking point really resonated with me.
The central, fundamental economic problem of our time is that the financial economy of money, banking and credit has become detached from, and even starkly antithetical to, the real economy of production, consumption, invention, employment and growth. The legitimate purposes of the financial sector are to evaluate and price real-world risk, and to efficiently allocate capital to real-world economic activities. Since the 1980s, finance has systematically extricated itself from these wholesome and traditional synergies. It has taken on a sinister life of its own. Instead of serving and assisting the real economy from within, it is now wrapped around the outside of it – like a “vampire squid”. A relationship that was symbiotic has become parasitic, and even predatory.
How this all happened is a complicated story. But the mere fact that it has happened is scarcely even controversial anymore. Everyone knows how this works. Gordon Gekko (or Ivan Boesky or Mitt Romney) pulls together a hummongus chunk of plutocratic Wall Street dough (whether via junk bonds or hedge funds), and buys himself a (midsize airline, struggling steel mill), and then uses the mere fact of ownership to enrich himself at the company’s expense. Downsize the pension plan. Close the R&D department (the future is this quarter’s bonus!) Lay off the engineers and load up the executive suite with cronies and nephews. Sell the company’s assets and borrow on the company’s credit to pay the salaries, bonuses and fees. And once this company is sucked dry, declare it bankrupt, fire all the workers, walk away from its debts (perfectly legally) and start over. Lather, rinse, repeat. Get filthy rich by destroying other peoples’ livelihoods.
This is not a complicated story. Everyone knows this story, and everyone knows that it stinks. What everyone doesn’t know is the degree to which this kind of bad behavior, and much, much worse behavior, has been condoned, justified and actively enabled by an economics profession which is, itself, rife with corruption, conflicts of interest and outright fraud. Big Economics doesn’t just provide a veneer of academic cover from a distance anymore. It’s not there to give a business-friendly spin to the evening’s economic news. Big Economics now provides both the generals and many of the foot-soldiers for Wall Street’s war on the real economy.
When Allen Greenspan blesses the business model of Charles Keating for an appropriately hefty fee, what is that? When Larry Summers is getting paid by the Obama campaign and Goldman Sachs at the same time, what is that? When Frederic Mishkin accepts over a hundred thousand dollars in return for a “study” praising the soundness of the *Icelandic banking sector*, what the hell is that? And when he changes the title of the study to make it look like he called it right when he really called it one hundred percent wrong – and gets caught changing it, and then lies about changing it, and then gets caught in the lie – what is all of that?
Maybe it isn’t safe yet to prosecute these lines of argument too openly or too energetically. Maybe the risk of institutional retaliation is still too great. But Paul Krugman came pretty close to calling Glenn Hubbard a liar for some of the shilling he did for the Romney campaign. And when the fight does take place, it will be zero-sum.
But if these reflections seem to have drifted a bit far from the original point, please let me draw them back to it with this summary: the key to understanding and successfully intervening in the ongoing fight over the economy, the budget and the national debt is to disclose the ways in which the different parties and factions understand the relationship of the financial to the real.
Through thirty-plus years of complicated American history, Big Money has hired Big Smart to confuse, enrage and ultimately empower Big Stupid – for the purpose of disarming and deconstructing Big Government’s democratic supervision of Big Money. Through it all, the real economy has never been anything except a means to these ends – and, more recently, an object of predation.
The big problem in Washington now is that Big Money and Big Smart (the hired intelligentsia) have succeeded too well. Big Stupid (the Tea Party) has slipped the leash. Instead of being an obedient attack dog, it has morphed into a snarling, rabid junkyard dog. It can’t be controlled by the think-tanks or establishmentarian pundits anymore. In the debt ceiling fights, in its deeply propagandized confusion, Big Stupid has rounded upon and attacked vital interests of Big Money – even as it tells itself, *and believes,* that it is only attacking Big Government.
The Tea Party doesn’t (and can’t) even conceive of the distinction between financial and real. They are far too one-dimensional for that. They believe in magic and morality plays. They believe that all the dire warnings emanating from Big Smart only prove that liberalism has corrupted even the Republican Party and its establishment operatives. They believe that if they force default upon the U.S. Treasury, everything will immediately just get better. Everything. Nothing will collapse. The pointy-headed intellectuals in government will be exposed as frauds, the advantages of the gold standard will become apparent to everyone and the private sector will take off like a bottle rocket. No problemo. All they have to do is stand their ground and mean it.
This is, increasingly, the real political divide. Democrat versus Republican is becoming less and less important. The Republican Party and the dominant, corporatized Democratic faction are both, jointly, the Party of Money – the Party of Wall Street, at least at the national level. They are vying to demonstrate their loyalty and effectiveness to the plutocracy, and, for the moment, the Democrats are winning. The political parties and their appendages overlap with, and are parts of, what I am calling “Big Smart” – the vast organizational and intellectual superstructure of neoliberal rule. And Big Smart has problems of its own – not the least of which is that when it comes, specifically, to macroeconomics, it is *not as smart as it used to be*, and is nowhere near as smart as it thinks it is.
The phenomenon universally described as “drinking their own Kool-Aid” has converted most of ‘mainstream’ neoclassical economics from a useful intellectual muscle into a worse-than-useless bundle of uncoordinated ideological jerks and twitches. Housing bubble? Oh no, it’s just a froth. Don’t worry. Systemic risk? What are you, a killjoy Luddite punchbowl-snatcher? Fix the depression I just said couldn’t possibly happen? Uhh, I think I still have a copy of the Hoover Plan lying around here somewhere. Oh! Even better: I have a nice model here that proves you can jump-start growth using a device we Nobel Prize winners call an “electric chair”. Just sit your country’s economy down in it and press the button labeled “austerity”. See? Hmm. Well then why don’t you try pounding on it with this ball-peen hammer?
The insoluble problem with this disconnect lies in the forgotten, totally disregarded, relationship between the financial and the real. In this vital area, Big Smart has morphed into not-so-smart, so the financial crisis has been transmitted to the real economy with only minor, inconsistent buffering (by inadequate and poorly structured stimulus). In Europe, of course, it wasn’t buffered at all, it was reinforced. This has resulted in a hobbled, low-growth recovery – one that barely limps along as it is, and which the geniuses at the Peterson Institute and in the White House are still trying to rig up for a ride in Old Sparky.
We have now reached a point where even the best, most well-intended and moderate “official” economic advice will, to the extent it is acted upon, only hamper the real economy. Throwing away the payroll tax cut was austerity. Ending revenue sharing to the states was a massive dose of austerity. Freezing government workers’ pay is austerity. And everything leaking out of the various organs and institutions of Washington, along with the plain meaning of Obama’s own words, indicates that the appetite for more budget-cutting is still very much a bipartisan buffet. In the wake of Obama’s flowery inauguration speech, base progressives don’t realize that the big speech *was* their bone. When it comes to jobs and the economy, words are all they are going to get. The cuts will keep coming, because Obama believes in them just as much as the Republicans do.
Next comes the transmission of the weakening real economy back to the financial sector – and the resulting next-big-crisis. It may take a year or it may take longer. But the U.S. economy and the world economy can’t return to pre-crisis levels of employment or growth as long as the current, profoundly flawed doctrines of neoclassical economics continue to be followed. The question becomes: at what point does the consistently correct analysis of MMT and the rest of post-Keynesian macroeconomics get a new trial? It has been locked up in Siberia for a generation, where it has patiently continued to work out what went wrong and what needs to be done to fix it. We have those answers. How do we insert them, in a meaningful, effective way, into the broken process, and the incoherent babbling brook of a “debate,” that characterize the world as it currently is?
I like what J.D. suggested – always frame everything is terms of financial-versus-real. PCS benefits from this framing as much as any other plank, or potential plank, of our evolving platform. Why is PCS preferable to either default or austerity? Because it’s easy? Because we can create as much money as we need to? Maybe. But, in the first instance, it’s because of the knowable, demonstrable effects that default or austerity would have on the real economy. And, at that point, the teachability of the moment is proportional to the intellect and open-mindedness of the audience. A few will be so intrigued by the sheer do-ability of PCS, they will dig in and try to learn more. An even smaller group will be motivated to take it all the way to a full-on MMT self-re-education, as most of the regulars here have managed to do. And *if we can keep peoples’ attention,* as the debate moves on to other things, we may get new opportunities to blow their minds and draw them closer.
What’s next, then? Unavoidably, the budget. With default off the table for now, most of the pundit class will pivot away from everything directly linked to it, including PCS. But PCS will remain a hot topic, and continue to receive attention from the crucial demographic of those-who-would-be-smart. Many of the well-educated and intellectually upwardly mobile people who have been reading the PCS commentary Joe has so assiduously inventoried will remember that the next Big-Stupid-Default-Threat is just around the corner. They will want to be ready for it. Some of these people are *almost* in our camp, and all of us should make it a priority to watch for, and encourage them, in the comment threads and elsewhere. But most people – most, even, of the winnable people – will see the next mechanical rabbit take off and move on to the next dog-race on the card – sequestration.
The alternatives to sequestration, within the existing Washington consensus (small-c), are cuts to the military, cuts to social programs and higher taxes. Naturally, the President is going to insist on a balanced plan. Naturally, Big Stupid will quadruple down on paying for more wars by starving American children and repealing the “job-killing taxes” (along with the rest of) Obamacare. The Republican wing of Big Smart will posture and wink and dog-whistle until the very last minute, and then cut the best deal they can get with the White House. How should we frame our response to this “debate”?
Financial-versus-real. Austerity by any other name is still austerity. Cuts to social programs (especially to the poor, who spend everything) are sure to be contractionary. Cuts to the military, to the extent that they involve money spent domestically, will *also* be contractionary. And regardless of how much any set of tax increases targets the wealthy in relative terms, every dollar and dime of any *absolute* tax increase on the middle class will also be at least dollar-for-dollar contractionary. If Boehner and Obama successfully strike any significantly large austerity deal, it is a virtual certainty that it will land us right back in recession city.
The hinge of the MMT position on this is that if you have to choose between a hypothetical and problematic financial risk (bigger deficit) and a gigantic, disastrous real-economy risk, you take the financial risk and monitor what happens. The teachable moment is that if we do indeed get austerity, and it gives us the recession we predict (highly likely), we gain credibility. No one wants this, of course, but we want what we can get. And if, by some miracle, significant near-term austerity is largely avoided, we get a different kind of bite at the apple.
Absent a huge positive movement in the trade balance, *every* size serving of austerity will be contractionary. But one of the problems with trusting not-so-smart macroeconomists is that they can always be relied upon to predict much better results than their advice can deliver. There will be a budget deal – or else we’re back at the edge of the default-cliff, in which case, Joe will be ready with the PCS power-point. But if, as all indicators indicate, Big Smart makes peace with itself and delivers some sort of compromise, the only thing it can be, in the short run, is either neutral, contractionary or very contractionary.
When we call it and calibrate it this way, with the trade caveat as an additional ex-post-facto teachable moment, we gain credibility again – because every representative of not-so-smart, with the likely and useful exception of Paul Krugman, is going to be calling it the start of a sure-thing bigger global recovery. Much bigger than is really possible when the really likely scenario for a double-dip here, and nested dips (deepening recessions) in Europe.
I fully believe that MMT is teetering on the brink of a major, and permanent breakout. Over the next few years, we are going to clean the clock of Big Economics (with help – we’re not the only ones thus motivated). The profession, clearly, must be reformed. And the worst offenders should pay for their misconduct with their reputations and their careers. There. I said it. If several thousand big-shot bankers and financiers belong in orange jump-suits (and they do), then the big-shot academics who gave them cover belong in a different line of work. I fully believe that this is going to happen. And I fully believe that it will be the start of a process which will *culminate* in an MMT-centric revolution in public policy-making as well.
But this doesn’t mean that any faction within the neoliberal establishment is going to start taking advice from us anytime soon. Again, if we want to influence policy today, we need to learn Spanish or Italian – or, really, put more energy into finding and cultivating overseas colleagues and collaborators. Living in the belly of the beast also has its advantages, of course. But being able to move quickly from radical ideas to radical action is, unfortunately, not one of them. I wish it were. Nothing could possibly make me happier than to be proved wrong. But when I ask myself what I really think, it’s this: I think that Barrack Obama deciding to mint any version of the platinum coin is, if anything, marginally less probable than that he will decide to build a Nimitz-class platinum aircraft carrier.
Our day will come. We *will* prevail. But the wilderness of ignorance and prejudice which we must traverse in order to reach that point is far denser, more tangled and more extensive than any single briar patch might lead one to believe. Clearing it will be the work of years, at least, if not decades.
And the big MMT breakout, when it comes, will make this work harder, not easier. For it represents only the first transition point in Gandhi’s four-step model of they-ignore-us, they-ridicule-us, they-fight-us, then-we-win. Big Economics will not go gently into that good night. In the polemics of Paul Krugman we can already see the degree to which even quite liberal-minded mainstreamers will be prepared to distort, dismiss and decontextualize MMT whenever it makes them even a little uncomfortable. As their tribe begins to apprehend the truly Khunian shift that we (and others) have in mind, we should expect an avalanche of much harsher, more pointed, and more intellectually sophisticated ridicule. We should expect it, prepare for it, and not be caught off-guard by it when it comes. These guys ain’t dumb. And this ain’t bean-bag.
But *economics*, is our arena – not politics. At least not here and not for now. When we advocate, it is for the sake of educating the audience we will reach – not because we believe that anyone with real power in America today has even the slightest interest in what we’re saying. They don’t. To them it’s like we got three heads. If there is even one single exception, anywhere in American government, I can’t think who it might be. Even Dennis Kucinich, than whom no progressive is stauncher, believes in – wait for it – a return to the gold standard. Even Bernie Sanders, than whom no humanitarian is more great-hearted, spends half of his basic spiel bashing China and demanding that we raise taxes (albeit on the rich) so that our budget will balance and our grandchildren won’t be slaves to the cunning, T-bond-clutching mandarins in Beijing.
We can’t undo thirty years’ worth of effective propaganda and misinformation at a single stroke. No matter how cogently reasoned. No matter how perfectly suited to the moment. No matter how ably argued. And no matter how much determination we may bring to bear. Platinum Coin Seigniorage is one of the very best issues available to us – for the purpose of winning over seekers and independent thinkers, essentially one-at-a-time. That is, people who sense that there is something profoundly wrong about our Monetary Matrix, but don’t yet suspect how unreal it truly is – or how deep this rabbit-hole goes.
But if we tell these seekers that everything depends on the actual implementation of a PCS policy in Washington, we risk losing them when this, quite inevitably in my opinion, fails to materialize, and when the sky does not then promptly fall. Because it won’t. American capitalism and American government will keep on muddling through. The only thing we accomplish by declaring PCS the sole road to national salvation is to demonstrate just how little political leverage we really have – which is none. Even if we get to the next-big-crisis, under current conditions, it will just lead to the next-big-bailout (regardless of what they call it), followed by the next-big-bailout-brouhaha. Our having been right about systemic risk (again) will matter. But it won’t translate directly into political influence any more than it did the last time around.
Karl Marx (sorry – I won’t make a habit of this), but it was, in fact, Marx who observed that while we make our own history, we don’t make it just as we please. And that is really the only point I am trying to make. As much as anyone else, I wish that Washington and Thirty Rock were overflowing with honest, open-minded, public-spirited people – people with the courage to challenge their own deeply-felt prejudices and conceits. People, in other words, who we could reach. But, instead, Washington and Thirty Rock are full of people with agendas of their own – people who still barely know that we exist. And could care less.
PCS has brought a few of our ideas to their attention, which they grant only very reluctantly, and only for the purpose of dismissing these dangerous ideas out of hand. They don’t want our help. They don’t think they need any help. They’re all about legacy now. And legacy, or rather Legacy, is all about how much Obama can out-Clinton Clinton in the second term. Team Obama is as addicted to the Kool-Aid as anyone else in Washington. There is no appeal or redress for us there. So, yes, we should continue to praise Platinum Coin Seigniorage to the very heavens. But we should make sure everyone knows why hell won’t have it in the end.