Part 2 – Is an Anti-Austerity Alliance of Left Neo-classicals and Post-Keynesians Possible? Is it Desirable?

By Michael Hoexter

Points of Agreement and Division (con’t)

United as they are in their critique of neoclassical economics, it would be a mistake to portray post-Keynesians as united among themselves, a further complication for the emergence of any unified message from anti-austerity economists.  Post-Keynesian Thomas Palley has recently likened MMTers proposal that government institute a WPA-style “job guarantee” program to the policies of the Tory Cameron government that unemployment benefit recipients work for free.  Palley’s concern is that the MMT job guarantee will undermine public sector unions but MMTers dispute that Cameron’s policy is a job guarantee program.  Palley’s objections to the job guarantee and MMT were also the subject of a caustic review by Randy Wray, a prominent MMT economist.  Steve Keen, who calls himself as “Monetary Circuit Theorist”, has shown an interest in finding points of commonality with MMTers while maintaining at other times a distance from it.  MMT, perhaps because it has a popular following and momentum, seems to be a particular target of criticism and self-differentiation by non-MMT post-Keynesians.  Perhaps this criticism is meant to be constructive but at times the disputes are often conducted in relatively heated exchanges in blogs and on Twitter, where ultimately outsiders to these disputes will remain confused and will perhaps throw up their hands.

The question then remains whether these two groups of economists can work together and fight against austerity as a loosely coordinated group, even if they themselves are not even in agreement among themselves.  From the perspective of those outside of the economics profession, the prime consumers of the output of economists, a cogent and unified message against austerity would be a great help.  Political movements and political actors require a unified message to achieve power.  As well, to be ultimately a success if they ever achieve power, they need to have a realistic policy alternative to offer.  As it stands, the voices of the Left Neoclassicals are heard much more widely, yet their vision ultimately does not offer political leaders and political activists on the ground a portable vision and argument to reshape overall policy and popular views.  Post-Keynesians, in particular MMT, are working on a more realistic vision of how the economy and government work and work together that potentially is comprehensible by a wider group of people.  Yet this vision, though now gaining a wider audience, has not yet achieved critical mass in the public discussion.

Political and Epistemological Choices

Ultimately it may be possible in certain circumstances for anti-austerity economists to unite against foolish government policies and the quasi-“Austrian”, quasi-neoclassical austerity impulse that is coursing through policy circles around the world.  These would be largely political efforts by post-Keynesians and MMTers as well as Left Neo-Classicals to press on against the pro-austerity forces as at least a part-time commitment on the part of both camps.  By “political” I mean that there is a recognition by the actors involved of relationships of power and belonging to one or a number of social groups, while ignoring or holding in abeyance intellectual differences.  Some of the groundwork for this inward- and outward-looking political unity would be public conversations on blogs and via Twitter where some degree of respect for each other would be expressed.  Post-Keynesian Steve Keen has for instance developed a respectful dialogue via Twitter with New Keynesian Mark Thoma, though Keen seems to reserve the right to criticize whatever he would want to criticize.

Still Keen’s, MMTers and Post-Keynesians goals are most often to uproot the illogic and falsities contained within neo-classical economics, proposing a variety of approaches that have their roots in a long historical chain of economists before, after and including Keynes.  Most satisfying, from an epistemological view, would be the production of a new economic framework that is much more realistic and predictive of what actually happens in the economy, but is also amenable to the impulse to make the world a better place.

As they are not mired in the unrealistic and inconsistent assumptions of neoclassical economics, Post-Keynesians, MMTers or those strongly influenced by them, have the best shot at creating this epistemological break which would enable a new economic understanding to be elaborated.  Often, left neoclassicals are rightly the targets of the scorn and critiques of MMTers and Post-Keynesians, because they pretend to represent the single anti-austerity alternative when they, in some respects, strengthen the neoclassical, “hard-money”, loanable funds framework upon which austerity is based.  The non-economist progressive public sphere, such as it is, is in awe of Paul Krugman but Post-Keynesians and MMTers continue to find critical flaws in his reasoning and model of how the economy works.

An example of reality vs. unreality and stakes involved revolves around widely divergent theories of banking, debt and loaning money.  Critically important in this era of politically overpowerful, mega-banks devoted to casino-like speculation on asset prices, is an understanding of what banks actually are and how they might be regulated or transformed to serve the greater good.  The largely Post-Keynesian theory of endogenous money supported by a set of empirical observations of how banks and credit-creation works, suggests that banks create money by lending it and that lending occurs independent of reserves in the bank. Banks have social “license” to lend and use it when they see the potential for profit and loan amounts are not drawn on money in their accounts but the loans create money.  This license is a source of political and economic power, enabling banks to drive and shape the economy and the amount of money in circulation by lending or not lending as the case may be.    Neoclassicals of the Left and Right deny that this license exists and instead see lending as driven by reserves, a crude “piggybank” model of bank lending with bankers as transparent intermediaries.  Krugman and other have started to equivocate on this matter but still do not accept that changes in credit/debt add to or subtract from aggregate demand overall.

The choice before post-Keynesian and MMT economists is stark and not easy to enact:  on the one hand make common cause with those who would just as soon forget about post-Keynesians’ intellectual contributions and on the other hand continue to issue searing critiques of their misguided thinking about the basic building blocks of the economy.

The Stakes for Left Neoclassicals

For Left Neoclassicals there are also tough choices involved as in some sense they have based their life’s work on fallacious assumptions, even as they attempt via personal effort and some form of compassion for others, to help spread prosperity to a wider circle.  Their membership in the neoclassical economic club has meant more prestigious appointments in academia and more favorable consideration by media outlets for their views.  These, in turn, have led for some to lucrative consulting jobs with business and government, especially when the nominally more “Left” party is in power.  They can easily perform the role of “economist” because they speak a language that is familiar to academically-educated consumers of economic analyses in both the public and private sectors.  That the content of these analyses is being viewed by the public with increasing skepticism, is for the economist ensconced within the economic establishment, of secondary importance: their primary clientele, the political elite, remains captive to neoclassical and neoliberal assumptions.  What has been most important to date, is the maintenance of a common paradigm shared by tens of thousands of economists worldwide as well as the tens of millions of people who have taken a neoclassically-based economics course without developing critical insights into its devastating flaws.

For epistemological reasons, i.e. ethical commitment to truth-telling as nominal “scientists”, to now dispense with familiar neoclassical assumptions about money and the economy involves great personal as well as academic risk.  The economic establishment, almost more than that of any other social science, via a system of academic appointments and journal editorship, enforces fealty to central, often unrealistic concepts which provide the supports for orthodox economists’ worldview.  Left neoclassicals may currently be relatively disadvantaged as compared to apolitical and right-wing fellow neoclassicals regarding these benefits but they still can claim membership in a “club” that gives them access to a portion thereof.

On the other hand, left neoclassicals, as the face of a supposedly “Left” economics in the public sphere, are subject to the constant taunts of the ignorant right-wing political operatives and Internet “trolls” who subscribe most often to laughably unrealistic “Austrian” economic philosophy.  Left neoclassicals may feel reinforced in the correctness of their own belief system by this type of opposition, they might think:  “surely I am right as my opponents are so wrong”.    As, in some cases, left neoclassicals’ economic frameworks are inconsistent and shared with their sometimes deranged critics, they must at times draw their sense of rightness from a perception of their own “muscular” virtue for having wrestled with unwieldy economic models for the common good.  It is my belief as it is with many post-Keynesians and MMTers that the muscularity of this particular type of virtue is unnecessary and overblown, if more realistic models of the economy were embraced.

Speaking and writing from a position of relative social power in relationship to heterodox economists, left neoclassicals have at times attempted to use their informal power to denigrate or distort rather than engage in dialogue with heterodox economists.  For instance, Brad Delong, professor in the prestigious UC Berkeley economics department, is a prominent left-of-center neoclassical/New Keynesian economist who also served as deputy assistant secretary of the Treasury in the Clinton Administration.   Delong often expresses sentiments regarding the right-wing of neoclassical economists and their political clientele with which many post-Keynesians would agree, especially as regards the foolishness of austerity.

One sees abuses of this fairly substantial academic power difference in defense of the underlying economic orthodoxy shared between Right and Left neoclassicals.  Delong apparently felt free to commit an act of intellectual fraud against post-Keynesians and the reading public, when he attempted to edit the history of  “economists who got it right” by falsifying who is a Minskyian and who saw the financial crisis coming in a recent article.  Ludicrously, Delong includes Larry Summers, one of the architects of financial deregulation as an economist who saw the crash coming.  Delong’s list bears almost no resemblance to Dirk Bezemer’s better substantiated characterization of economists who predicted the financial crisis as well as James K Galbraith’s list from 2009.  Delong’s characterizations of the categories of “economists who got it right” as well as who were Minskyians were acts of intellectual fantasy.  To indulge publicly in these fantasies indicates an intellectual sloppiness and suggests a casual arrogance bred within a discipline where the relationship between truth or effectiveness and academic status has been lost.

While Delong is only one left New Keynesian, another aspect of this same incident is also troubling as an example of standards of intellectual engagement and hints of a shaky intellectual edifice defended only by efforts at bullying the less well-connected and less orthodox.  In the piece referenced above, notably missing on Delong’s abovementioned list of who is a Minskyan were Randall Wray who was a Ph.D. student of Minsky and Steve Keen (awarded the “Paul Revere Award” by the World Economics Association for warning of the coming financial crash) who has spent 15 years of his academic life building a mathematical model based on Minsky, for which he received a research grant from the Institute for New Economic Thinking.   These were some of the glaring omissions that caused Steve Keen to write a scathing criticism of Delong on his blog and also on Twitter which Delong also regularly uses.  Delong attempted to make these criticisms all about Keen’s ego and not about his own wild distortion of fact.

At one point in this exchange Delong attacked in a blog post Keen’s approach to an exercise called “The Crisis in 1000 words”.  This was a dispute with some content and Keen wrote a response starting with “Brad, you’re showing your usual powers of comprehension (followed by Keen’s argument)” and sent a link via Twitter to the not-yet-approved comment on Delong’s blog.  I read the comment (no longer accessible because Delong deleted it) via the link and it seemed to-the-point and other than the innocuous comment at the beginning not ad hominem.  Delong never approved the comment, in some sense presiding over a “kangaroo court” where he chose to engineer an outcome that was favorable to him by simply excluding from responding the man whom he criticized in that post.

As I sometimes agree with Delong’s views on other issues and he has some understanding of Keynes, I am alarmed and dismayed by what might be called his narcissistic fragility (in which he is not alone) and intellectual dishonesty.  In the same vein, the blog post mentioned earlier which was essentially an ad hominem attack on Keen, suggesting that Keen was criticizing Delong’s Minsky distortions purely out of ego, did not allow any comments.

Given the willful distortions and gamesmanship involved in this misuse of what remains of the public trust in the profession of economics, the tactics on display by the Left neoclassical establishment such as it is do not give a great deal of reason to hope for better.  The recalcitrance and childishness on display is disheartening given the stakes involved for the future of society if we remain mired in our current debt-deflation.  Without better economic tools, the public and political leaders are trying to row a boat without a paddle.

Anti-Austerity Action Plan

As you can gather from this account of the exchanges between Keen and Delong, it may be impossible to bring together economists who are at war with each other over fundamental issues.  The battle for the future of economics will continue whether or not political activists, political leaders, and the public need clear direction as to how the economy should be shaped in the coming years.  One would hope that a unifying message and better yet a unified workable theory would emerge but it appears we are headed into a time of conflict among those who are opposed to austerity.

If some prominent economists from orthodox and heterodox tendencies could agree that it would be possible to come up with a list of three to five anti-austerity principles which do not offend any “side” to this debate, this might be a way forward.  These principles could then become “talking points” for economists to campaign in the media and in meetings with the powerful for an anti-austerity solution.  Creating an anti-austerity “echo-chamber” would be a step in the right direction.  As an independent commentator on economics not currently affiliated with an academic institution, I do not have the status to get the ball rolling on this process.

If economists, like cats, cannot be “herded” into producing a workable statement of anti-austerity principles, then the diffuse strategy of producing articles, blog posts, testimony, and media appearances becomes second best but offers a glimmer of hope that the perversity of austerity will be communicated to the broader public.

This effort, however, should not compromise or derail the long-term epistemological project to build a better social science and a better economics that can help prevent concurrent disasters like the present ones.  Temporary political victories can only buy time but ultimately cannot solve the problems of governing and managing mixed economies, the type of economy in which we live and that has sorely challenged conventional wisdom.

[ Part 1 of this post is available here.]

24 responses to “Part 2 – Is an Anti-Austerity Alliance of Left Neo-classicals and Post-Keynesians Possible? Is it Desirable?

  1. Michael, an alternative has already been created, by the other half of the university who typically gets ignored by those who follow MMT online. Fred Lee is Mr. heterodox himself, and he has written a couple of papers I would recommend you read.

    Read these, in order:

    • oops, I read too quickly, my post above doesn’t exactly address anything you said per say, but hey, they’re good reads!! 😛

  2. “If some prominent economists from orthodox and heterodox tendencies could agree that it would be possible to come up with a list of three to five anti-austerity principles which do not offend any “side” to this debate, this might be a way forward.”

    Worst thing that could possibly happen.

    A camel is a thoroughbred horse designed by a committee.

    What you will end up with by taking that approach is what we have at the moment with, at best, a little more Vaseline applied.

    • Neil,
      I guess this means you might give up on politics altogether: because politics means making compromises between people (and policy is often worked out in committees before being put up for a vote or other means of passage).

      I made it pretty clear in my piece that I think that economists should be able to engage in tactical alliances while holding firm to long-term strategies that might bring them into conflict with each other. Maybe I am hoping for too much..

  3. “If some prominent economists from orthodox and heterodox tendencies could agree that it would be possible to come up with a list of three to five anti-austerity principles which do not offend any “side” to this debate, this might be a way forward.”

    This seems impossible. They would never get past the most fundamental question: Is austerity ever desirable and, if so, when? How could those who believe that austerity is called for some, if not most, of the time come up with principles that would be acceptable to those who know that austerity is almost never desirable?

    They couldn’t even agree on what a budget deficit is and does.

    • Maybe… but Krugman’s “Manifesto for Economic Sense”, for instance, contains many statements that Post-Keynesians would endorse. Your comment is highlighting differences…but there are also points of agreement. If highlighting differences remains a point of pride, then of course you are right. Also if fears that one’s position will be undermined or overwhelmed by opponents then you are also right. However, neither of these are the only scenarios available.

  4. This was an excellent essay. Left Neoclassicals publicly state that long-term deficit reduction is needed, but they would be the first to oppose it if they felt the economy was still too weak to withstand it.

    Economists like Paul Krugman and Dean Baker are with us on the big stuff. The poverty rate would be much lower now if they had been making policy these past few years instead of the Rubinites.

  5. I don’t think really-existing economics is a social science anymore. It is a highly formalized and mathmatecized discipline that should be categorized along with subjects like formal and mathematical logic. James Galbraith proposes that we leave that entire kennel to Lassie-and-company and start over. I agree.

    Prominent left neo-classicals are highly unlikely to abandon their comfortable place in the establishment to make common cause with MMT or any other intellectual rebels. Maybe their students will, though. I’d start with them. It can’t be easy watching the top professors get it wrong over and over again, and then listening to their alibis.

    The prospects for gaining mainstream traction are pretty bleak. Bill Mitchell published a spectacularly good MMT article in the Nation about a year ago – it generated zero buzz even in the lefty blogosphere. I think our best hope is to internationalize the conversation and take it to places where the needed paradigm shift is closer to critical mass. Michael Hudson and some others from UMKC took MMT on the road to Italy recently, and were welcomed like rock stars. Is anyone following up?

    But hey, I don’t mean to gloom-and-doom the thing. If anyone can suggest a way to get the New Keynesians’ attention in a serious (honest, non-narcissistic) way, I’m all ears.


    • Bill Mitchell published a spectacularly good MMT article in the Nation about a year ago – it generated zero buzz even in the lefty blogosphere.

      Yes, but I think the problem is that we are all too guilty of turning the issues into theoretical macroeconomic issues, with a lot of confusion and ambivalence about political ends and policy means. Most of the American public doesn’t care, and will never care, about the abstract modeling issues that fill the economics blogosphere with so much theoretical heat. They don’t care about the various named camps and schools of economists. They don’t care about the alphabet soup of PK, NK, MM, DSGE. IS/LM and the rest. They don’t care about the innumerable personal rivalries and sheer bitchiness that seem to turn academic economists on so much. They also don’t care about who predicted what when, and the various priority battles academics like to get into.

      What is needed is a clear road map and guide book, with a list of concrete and invigorating policy proposals. You need to start with a social and political agenda. The economics then comes in afterward to defend the policy agenda and fight off critics. Politicians need a plan they can defend in clear terms for their constituents, and back up with intelligent but easily explainable economic principles, set in a clear framework of moral values that people will be excited about and proud to fight for.

      If you are a practical politician, what does MMT offer you that you can hang an election campaign on, or use to run a presidential administration of a senate office? What is the detailed rule book for public finance from an MMT perspective? Politicians need a plan of action that tells them exactly what tax plans to support and what tax plans to reject; what spending plans to support and which to reject; how much debt the government should issue; whether to push for important operational reforms of existing institutions, or to work within the existing institutional framework. There is too much confusing dancing around in MMT about the “general case” and the “specific case”.

      For example, when I first discovered MMT, there was an awful lot of talk on the MMT blogs about how the government spends by “crediting bank accounts” and a lot of confusing hemming and hawing and semantic hair-splitting about whether or not the government “funds” spending with tax revenues. There was massive neglect and avoidance of frank discussion of the existing legal and institutional constraints on government operations. Then when the debt ceiling crisis occurred, people hanging around the blogs said crazy things like “Why doesn’t Barack Obama just order Timothy Geithner credit bank accounts?” When they realized that couldn’t happen, it disenchanted a lot of people, who felt MMT had mislead them.

      I’ve been guilty of too much of this myself in emphasizing that MMT is just a general framework for understanding the economy, consistent with a whole range of political perspectives. Maybe that’s true. But then it shouldn’t be surprising that MMT doesn’t catch on and generate buzz. People reading the Nation are looking for moral clarity, and causes to believe in and fight for, not just some generic neutral framework for understanding the economy, or maybe for helping private investors with tips on how the Treasury market works.

      There has also been too much emphasis on ad hoc proposals. Consider the Big Platinum Coin proposal. Obviously that is just a temporary workaround for handling a crisis caused by the debt ceiling law and an implacable Congress. Shouldn’t all the focus be on repealing that law? It’s not as though anyone thinks a non-idiotic government will conduct its business on and annual basis by minting a completely unnecessary big, shiny metal coin every year, and driving it over the the Fed for deposit. The very idea and spectacle is ridiculous.

      And once the law is repealed, the government administrator needs to know exactly how they are supposed to determine taxing and spending policies – and on what principles. Look at Social Security. A lot of MMTers have supported the payroll tax holiday – a sort of indefinite payroll tax holiday. If I’m a politician, I need to know what I am supposed to be telling my constituents about that. Is the point to move social security to the general fund? Or is it to play into the hands of conservatives who are trying to create a funding crisis for social security so they can get rid of it?

      And if you ask them to tell the constituents, “Don’t worry about it, because the government spends by crediting bank accounts and doesn’t need tax revenues at all!” you are just going to make people throw their hands up in the air.

      • Ding!

      • Dan, you win 1 billion internet points. This, this, and more this. This sentiment needs its own blog post.

      • Great comments.
        Economist are like lawyers; little value, unless you want to argue minutia which can support any argument. Where history can tell the facts of what is right or wrong.

      • Look, almost all our problems today eminate from the fact that peope simply don’t know the truth. Top politicians don’t know the truth. Top economic advisers don’t know the truth. Top wonks, whether left or right don’t know the truth.

        Joseph Stiglitz, when criticism World Bank leadership said that everybody has models in their head (about the economy), but whether they correspond to reality is a different story.

        That’s quite clever thing to say. Challenge to the MMTers is how to give realistic models to these people. That will lead to good policies. Policy is done by the elite, not the people. And over time, when economic textbooks for example get rewritten, even public discourse will change.

  6. Regarding the epistemology of economics, at one level it seems silly that anything less than the politicized discord of dys-functionality would not be expected. No matter where you go, there you are, culture tightly in hand. Sociology is a similar house in need of exhumation, only the dynamic is framed (whispered) as positivism a’la structural behaviorism and more silly sciencism, often wanting to be just like neo-classical Economics. It is when the labels come off and socialization is based upon capacities not upon conditioning intended to reproduce a particular social order. The tighter investment in the sociology of economic knowledge will tend to reproduce the the sociological equivalent. Part of the subtext here is that, you would think that in expecting a domain of discourse to also be reflexive, seems to be a stretch and contra to the usual everyday cultural pre-assumptions. Opening up just the discourse to a heterodoxic process will probably aid the sorting hat. The DSA neo-classicals, et al are entirely comfortable with what is for others major cognitive dissonance. The first question out of the DSA political economist’s mouth, was “who are you with?” And he was dead cold ignorant of MMT et al and didn’t seem to have any interest, since it probably wouldn’t add to his stature with the DSA. Though I found T. S. Kuhn’s description of ordinary science to be illuminating, the succession by mortality over standards for a scientific discourse.

    The appearance of Steve Keen, Michael Hudson, Michael Kumhof, and Kaoru Yamaguichi at the American Monetary Institute Sept Conference will I expect cause a shift in some of the associations between AMI and the rest of the economics/monetary/fiscal reform process. AMI has also associated itself with the POCLAD people, who have had a tendency to be proclaim numerous critiques of corporate failings, yet are more about having some illusion of control of the microphone, a common dis-order. Also, monetary reform and economic history has been a looong been abandoned domains by the neo-classical economics departments and their token post-Keynesian. This abandonment needs to be patiently and incrementally re-claimed. It was been occupied to a degree by amateurs short on analytic skills and and an adequate stock of knowledge of the domain. Even so I believe that having the AMI conference as part of the rolling context for related discourse will be a net positive before too long.

    Exasperation at the penchant of the neo-classical Keynesians to reproduce dys-functional science, aka sciencism is sort of pointless. That there are serious disputes and confrontations going, great. I’m not interested in reproducing by replacing the claim of the neo-classicals, as delusion as they be at times, with a claim of dominance by MMT/ff/et al replacing one eyed monochromatics under a different brand. The actual nature and trajectory of socializing movements ought to center upon the success in serving the public purpose. Transiting to a heterodoxic standard of economics related discourse, will in the process require also some deep repairs under the cultural and theoretical hood. Fast forward.

  7. Great posts, but I remain skeptical that any alliance can be achieved given that the two groups operate from such different paradigms. The left Neo-Classicals, though their heart may be in the right place, still believe that the govt can run out of money. Therefore, they don’t stand up well to criticisms from the fiscal conservatives. The PK/MMT group, on the other hand, stand on much firmer foundations from which to carry the debate forward.

  8. The theory of ‘endogenous’ money being obviously correct should be seen as neither victory nor defeat by any group with a focus on monetary solutions. It is what it is – a broad recognition that banks create money whenever they want to – and do not create money whenever they do not want to.
    Some see that phenomena as a sort of modern revelation that accommodates this or that theory of monetary production.
    I am amused, and reminded of the oft-quoted comment on ‘endogenous money’ by Atlanta Fed Credit Manager Robert Hemphill, who was a primary drafter of the Monetary Control Act of 1934, the legislation that attempted to advance the Chicago Plan for Monetary Reform.
    Said Hemphill:
    “””If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit.
    If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a
    permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can
    investigate and reflect upon.”

    For some reason, supposedly progressive efforts aimed at economic reform are content to not only accept, but kind of admire, this asinine, staggering thought. I must conclude the MMTers and Nuevo-Post Keynseians are comfortable with such a precarious money-production scheme for the national economy.

    The problem with trying to rally the theoretical left behind a non-austerity monetary-economic program is that we have failed to reflect upon that staggering thought, and to remedy the situation.

  9. The various economic sects agree on the important stuff, but typical of professors, get wrapped up in minutia.

    The agreement is this:

    1. A growing economy requires a growing money supply. It’s explicit in this formula: Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

    2. The federal government adds dollars into the economy by spending, and removes dollars by taxing. (Put together #1 and #2 and it becomes obvious why austerity doesn’t work.)

    3. The federal government, being Monetarily Sovereign since 8/15/71, has the unlimited ability to create its sovereign dollars by paying bills, so never can be “broke.” Having this ability, it does not need to ask anyone for its sovereign dollars — not you, not me, not China.

    4. As #3 states, a Monetarily Sovereign government never needs to borrow its sovereign currency. The federal “debt” is the total of T-security accounts at the Federal Reserve bank. “Borrowing” occurs when existing dollars are transferred from checking accounts to T-security accounts. “Debt” is paid when dollars are transferred back from T-security accounts back to checking accounts. The government could pay all debt tomorrow, simply by debiting all T-security accounts and crediting checking accounts, thus the debt is no burden.

    5. Banks create dollars by lending, and destroy dollars when loans are repaid.

    That’s the important stuff, and that is where economists should focus communication to the public. The minutia has to do with execution, for instance Jobs Guarantee, how banks create money, where the federal government should spend, how much the rich should be taxes, etc. We make no headway by presenting plans, when we haven’t yet communicated #1, much less #2-5.

    It’s like arguing about what color to paint an airplane, when the mainstream still believes heavier-than-air objects can’t fly.

    Rodger Malcolm Mitchell

  10. Dear Folks,
    Tadit is right about Yamaguchi, Keen, and Kumhof’s presence at our 8th Annual AMI Monetary Reform Conference in Chicago, Sept. 20-23. It IS a very big deal as these 3 are the world’s top economic modelers. The panels and discussions on the Chicago Plan, which is the precursor and model for HR 2990, are long overdue, about 77 years overdue.
    Kumhof’s paper can be read at
    There is a one page summary of just what Kucinich’s HR 2990 will do. It is the second page of this url:
    The first page announces HR 2990 and links to two of Kucinich’s 3 minute videos on it. After the page 2 summary, is the 12 page bill. DO take a look.
    Stephen Zarlenga
    Director, American Monetary Institute

  11. Thanks to Dan Kervick.
    I only wish that he and others would take that eminently constructive criticism of the lack of ‘political’-economic focus of MMT, and its search for a remedy, and place it alongside a fair reading of the Kucinich Bill and ask oneself – what aspect of the MMT search for socio-economic justice, by definition only available through law and politics, is not rendered possible by passage of the National Emergency Employment Defense Act of 2011?

    At some point, ALL that MMT espouses as worthy goals will have to be boiled down to a comprehensive legislative proposal, or NOTHING will permanently shift to favor the 99 percent. There is a profound, progressive legislative proposal afoot that can accomplish the outcomes that are claimed available through the nuances of reserve accounting. Read the Purpose and Intent of the Kucinich Bill. Then see how it solves for the Neo-classical as well as the MMT view without resort to what view is correctly premised.

    It’s the outcome that’s important. Not, who is right.
    For the Money System Common

  12. Pingback: Is an Anti-Austerity Alliance of Left Neo-classicals and Post-Keynesians Possible? Is it Desirable? (Part 2) « naked capitalism

  13. The vested interest argument for maintaining current economic theoretical constructs is sad. So many great economist have changed their minds. Ricardo’s Chapter 31 “On Machinery”, Marx was constantly gathering information from all over the world to better understand social evolution, Keynes’s paradigm shift to a monetary production economy, and even the investigations of Socialism by Mill, Clark, and Marshall (while not mind changing exercises at least appeared to be honest) to name a view. Academic integrity is not defined by having the same idea your entire career. It should be defined by being a part of a scholarly community who’s joint stock of knowledge is always growing and adapting to changing social and physical environments. Here in Kansas City the average age of a homeless person is 7. Do you think they care what the assumptions an economist make are? I hope our academic community can grow and help prevent austerity. Thank you for opening this dialogue.

  14. Jacob Richter

    By and large, the left neo-classicals are drifting more and more into the establishment. Those who aren’t and are merely “shock jocks” don’t have much of a manifesto mindset. In other words, the answer is no.

    MMT Post-Keynesians should really get their hands dirty and go into political economy. In Europe, their best audience would be the “populist socialist” parties described by the British Labourite Luke March: the rising Dutch Socialist Party, SYRIZA in Greece, the Left Front in France, and Die Linke in Germany. In Latin America, their best audience would the ruling PSUV in Venezuela or MAS in Bolivia.

    Michael Hudson tends to be more sympathetic towards a fully nationalized financial system (the stance of Binary Economics, for instance) than MMT Post-Keynesians, so there is ground towards radicalism a la Occupy, not “pragmatism,” that MMT Post-Keynesians must concede.

    The “popular socialist” orientation would also serve as a criticism of the more political amongst “Marxian” economists whose reform discussions (within a maximum-minimum program) always resort to Left Neo-Classical crap at the first utterance.

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