Number 2A in the MMT Series
By William K. Black
March 31, 2019 Bloomington, MN
The second article in this series deals with Modern Monetary Theory’s (MMT) predictive and policy successes. The article has three, separately published, parts. Part 2A deals explains why predictive ability and policy success are so critical – and notes that MMT’s critics have been conspicuously unable to provide a record of predictive failure by MMT scholars.
Part 2B deals with MMT successes in microeconomics. The MMT work on microeconomics constitutes a powerful refutation of the ‘microfoundations’ of ‘modern macroeconomics.’ The key characteristics that the MMT theorists have demonstrated dramatically superior predictive ability, particularly in the most important microfoundation issues of the last 70 years. In the microfoundations context, MMT scholars have also demonstrated exceptional policy success.
Part 2C deals with macroeconomics. Again, MMT scholars’ predictive success has been excellent. Equally important, MMT scholars have demonstrated their predictive successes in the most important macroeconomic issues of our lives.
Predictive Success is how Economists Agree We should Test Theories
With the exception of ‘Austrian-school’ economists, who sometimes believe that laissez faire ideology is self-evidently true, virtually all economists agree that the way one should test the validity of theories is their predictive success. Paul Krugman and the other prominent orthodox economists who have attacked Modern Monetary Theory (MMT), all agree with this proposition. The obvious question, given their disdain for MMT, is why none of these prominent orthodox economists was able to point to predictive failures by any MMT scholars. Given the tone of the orthodox attacks on MMT and MMT scholars, dismissing it and us as nonsense, and the length of our work (roughly 25 years in ‘macro’ and 35 years in microfoundations) it should be simple for our critics to point out a dozen major predictive failures. Nonsense theories produce nonsense predictions. One can be lucky predictively for several years, but not for a quarter-century. Krugman and Larry Summer’s instinctive approach to refuting MMT must have been to check out our predictive record. Why does no attack on MMT mention even a single predictive failure? Why, instead, did they rely on inventing strawmen claims they attributed to MMT scholars that they knew we rejected? Why did they rely overwhelmingly on ad hominem attacks on unnamed MMT scholars? We do not have to guess whether Krugman would have attacked our predictive failures had he found them, for he just wrote a column denouncing a foe on the basis of his repeated predictive failures.
Here is How Krugman Criticizes Economists with Poor Predictive Records
Krugman wrote a column on March 25, 2019 that demonstrates my point. He denounced President Trump’s decision to appoint Stephen Moore to the Fed. Krugman argued that Moore’s terrible predictive record proved that he was a terrible economist.
About Moore: It goes almost without saying that he has been wrong about everything. I don’t mean the occasional bad call, which all of us make. I mean a track record that includes predicting that George W. Bush’s policies would produce a magnificent boom, Barack Obama’s policies would lead to runaway inflation, tax cuts in Kansas would produce a “near immediate” boost to the state’s economy, and much more. And, of course, never an acknowledgment of error or reflection on why he got it wrong.
Beyond that, Moore has a problem with facts. After printing a Moore op-ed in which all the key numbers were wrong, one editor vowed never to publish the man’s work again. And a blizzard of factual errors is standard practice in his writing and speaking. It’s actually hard to find cases where Moore got a fact right.
Krugman’s column attacking Moore demonstrates exactly how he would have attacked MMT scholars – if we had a record of predictive failure or made “a blizzard of factual errors.” If MMT were a bogus theory and MMT scholars were dishonest, he would have given three examples of major predictive errors and examples of repeated “factual errors.” Instead, Krugman – and every other ‘expert’ critic of MMT has failed to present even the “occasional bad call” or factual error by any MMT scholar. That is a devastating failure because it is universal and total. If any of our orthodox economics critics had been able to demonstrate even a few predictive errors by the weakest MMT scholar over the course of the last 25-35 years, you know that they would have done so with gusto. Such an attack, of course, would not have invalidated MMT or its strongest scholars, but it is revealing that Krugman and other orthodox critics could not even find a junior scholar’s predictions to pillory. What terrifies our orthodox critics is that MMT scholars have a superb predictive record on the most important economic issues of our lifetime.
Article title: MMT Scholars’ Predictive and Policy Successes
There’s plenty in the article about the failure of MMT critics to identify predictive or policy failures but I didn’t notice any examples of predictive or policy successes.
Right down the pipe, Dr. Black, and thank you. The validity of a scientific theory rests upon its predictive strength, even when the actual dynamics of that which is predicted remain obscure. MMT has the double strength of accurate prediction of economic events AND an elegant explanation of the economic dynamics that lead to them. As far as this layperson is concerned, the professional proponents of MMT would be wise to introduce all explanations of their discipline by going immediately on offense, by noting their long history of accurate predictions while simultaneously pointing out the abject failure of mainstream economic theory to get much of anything right. And as I’ve harped on before, a proper intro to MMT should also emphasize the precious environmental hope to which it gives birth; i.e., that we CAN afford to save the ecosystem and thus help ensure the continuation of threatened species, including our own. IMHO, that one/two lead-off punch combination–prediction and environment–would be a knockout.
Larry, did you even read this article?
If you had you would have noticed that this is the first of 3 parts and the predictive successes are covered in parts 2 and 3.
I did have to read it twice to see that myself.
Sure, but if no failed predictions were cited and if predictions were made, dodn’t that say something?
For what it’s worth, the noises being made MMTrs are sounding increasingly suspect.
I would love to hear or be directed to an opposing view…
At the momment, the way I see it is that MMT assumes that government can get the inflation mix right through spending and taxation alone, if monetary policy is abandoned. (Interest rates at zero, nix govt bonds)
In the back of my mind I have the fact that Neoliberals in 1970’s thought that the private sector could do it (manage inflation) if government abandoned fiscal policy (leaving government to focus only on the interest rate mechanism (RBA inflation targeting, Greenspan put))
Similiarly, Neoliberals thought that only the private sector should pick winners and thereby price risk (I.e. to reduce the impact of the business cycle).
My reading is that MMTrs seem to be saying that only government should price risk and thereby pick winners. (a bit of a technical slight of hand)
Both appear to be extreme economic views, both share a common starting point: being popularized in extreme economic times…
I suspect that MMT is only going to gain more traction as the western everyman (sic) spirals further into debt induced poverty. Given my binary understanding (above), I fear the day that MMTrs will follow Maggie and be the next to say, TINA!