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.