Randy Wray: Response to Doug Henwood’s Trolling on MMT in Jacobin

Yves here. Wray saves one of his best lines for late in the article: “As Kelton puts it, people like Henwood think money grows on rich people.” But boy, is it a hard slog to deal with people who refuse to deal with MMT in good faith.

By Randy Wray. Originally published at New Economic Perspectives

Doug Henwood has posted up at Jacobinan MMT critique that amounts to little more than a character assassination. It is what I’d expect of him in his reincarnation as a Neoliberal critic of progressive thought. (https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping). It adopts all the usual troll methodology: guilt by association, taking statements out of context, and paraphrasing (wrongly) without citation.

According to Henwood, MMT is tainted by Warren Mosler’s experience as a hedge fund manager. Beardsley Ruml (father of tax withholding and chairman of the NYFed, who argued correctly that “taxes for revenue are obsolete”) is dismissed because he was chair of Macy’s (and Director of the NYFed—Macy’s still has a director on the NYFed) andbecause he argued that the corporate tax is a bad tax (his main arguments were later advanced by Musgrave&Musgrave, thetextbookon public finance, by Hyman Minsky, and by me in the second edition of my Primer).

Oh, Ruml must not know anything about either taxes or central banking because he was a corporate stooge. Never mind that he was a New Dealer who helped to organize the New Deal plans for projects all over the country. And a PhD who authored several books and who was the Dean of Social Sciences at the University of Chicago. He must be an ignoramus when it comes to taxes and central banking because he does not adopt Henwood’s belief that the sovereign government of the United States must rely on the taxes that come from corporations and rich folk. Such is the depth of Henwood’s argument against MMT. It amounts to little more than a series of baseless ad hominemattacks.

I used to respect Henwood in his earlier role as editor of the Left Business Observerand indeed we enjoyed a good relationship, often corresponding on progressive issues. He disappeared from the scene some decades ago and I thought he had died. However, he reappeared recently as a troll arguing in blog commentary against MMT. His rants were largely incoherent and as we say in economics, orthogonal to anything MMT actually says. He has apparently suffered the fate of many aging Marxists—after years of fighting the good fight against capitalism they realize they’ve accomplished little and decide to instead engage the progressives on the argument that all is hopeless.

Apparently, Jacobinassigned to him the task of destroying MMT. My name is mentioned 17 times in Henwood’s article—I think that is more than anyone else. The magazine is publishing the attack without any offer of a response. That is quite typical when it comes to diatribes against MMT—dating all the way back to my first book in 1998 (Understanding Modern Money—the first academic book on MMT. The editor of the main Post Keynesian journal published a critique of the book—by Perry Mehrling, someone with no Post Keynesian credentials–without giving me an opportunity to respond in the same issue, and then declined to even let me have a response in a later issue. This is the way academics has dealt with MMT from the beginning—any critique, no matter how groundless, will be featured and no response will be allowed. And so it goes.

As Jacobindid not give me a chance to respond, I’m penning this for NEP. These are my responses and none of the other MMTers Henwood has trolled in his piece should be implicated. I’m sure that all of them—Kelton, Tcherneva, Mosler, Tymoigne, Fullwiler, Dantas, Galbraith, and Mitchell—can defend themselves ably and with more nuance and respect than I can. Me, I detest trolls and I cannot hide my distaste.

In any event, here are some of the topics I would address if I had been given a chance to respond.

  1. According to Henwood, Wray does not discuss the role of private money (and financial institutions) in the private economy. Henwood claims “absent” from Wray’s work “is any sense of what money means in the private economy”. In fact, My 1990 book (Money and Credit in Capitalist Economies”is one of the foundational books in the endogenous money literature (that Henwood discusses favorably). My work before and after that book has focused on the private financial sector and includes hundreds of articles, chapters, and books on the topic—including a book co-authored with Tymoigne on the global financial crisis (The Rise and Fall of Money Manager Capitalism, Routledge 2014), and a recent book on Minsky’s approach to finance (Why Minsky Matters, Princeton, 2015). I’d wager that there are vanishingly few authors who have written more on the private banking system than me, and along with Bill Black, few who have taken such a critical perspective of private banking as practiced.
  2. In one place, Henwood seems to backtrack a bit, writing “Wray, who once wrote a book on the topic, now dismisses endogenous money as a “trivial advance” next to MMT”. Yes, I do argue that in retrospect the endogenous money literature is trivial for several reasons. First, the modern endogenous money research (that began seriously around 1980) largely just recovered the pre-Friedmanian views that were common in the 1920s (and that were never lost in the UK); second the endogenous money approach was rather quickly adopted by heterodoxy; and third all the central banks of the rich, developed countries have also adopted the endogenous money approach. The policy recommendation that comes out of it is to direct central banks to target interest rates, not reserves or money supply. Central banks had usuallyadopted interest rates, anyway, outside of the relatively brief Monetarist experiment that began under Chairman Volcker—and although it is true that mainstream economists had taught that central banks could choose money targets, they recognized that if both the IS and LM curves are stable, choosing a money target is formally equivalent to choosing an interest rate target. By contrast, we have been pushing the MMT approach to fiscal finance since the early 1990s and it still remains highly controversial—and still attracts the same comments from trolls and others, like Bill Gates and Austin Goolsby who both recently announced “that’s crazy!”. Why? Because the implications of understanding fiscal finance are huge. By comparison, the implications of endogenous money are trivial—which is why it was relatively easy to get the theory adopted.
  3. Wray supposedly “shies away from” discussing use of tax increases to counter inflationary pressures. While I am (and MMT in general is) skeptical of use of discretionary tax hikes to fight inflation, we strongly support progressive income taxes that will automatically rise in a boom. MMT also supports use of a JG to cause government spending to rise countercyclically (rising in a downturn as workers are shed from the private sector and falling in an expansion). Together, these can help to stabilize spending and income at the aggregate level. We also argue that the countercyclical swings of employment in the JG pool can act as a bufferstock to help stabilize wages. If there were a prolonged stretch of inflation we would—of course—recommend pro-actively raising taxes and/or reducing spending. We’ve been very clear on this. Our argument has always been that a JG and progressive tax system help to stabilize aggregate demand, wages, and prices but if that is not sufficient, government still has at its disposal the usual methods of fighting inflation—everything except using unemployment (since austerity will not increase unemployment but will instead increase employment in the JG).
  4. According to Henwood “Wray has said MMT is compatible with a libertarian, small government view of the world”. Yes, the descriptive part of MMT accurately describes how sovereign currency systems work, and such knowledge can be used by Austrians or Marxists to better understand the world they want to change. MMT proponents, however, are mostly progressives, who are not content with merely explaining the world but more importantly want to radically change it. Hence, we do have policy proposals—proposals that I expect both Austrians and Marxist will hate, such as the JG. As I’ve written before, it is strange that the far right and far left come together in favoring unemployment over employment in a JG. One of those strange but true alliances against progressive policy. Austrians oppose the JG on the basis that it expands the role of government; some of the Left opposes it because the JG ameliorates suffering, presumably reducing recruits for the coming revolution.
  5. Henwood: “Wray’s explanation of the Weimar hyperinflation, one of the most dazzling of all time, is odd. The deficits, Wray explained in his book, were caused by the inflation, not the other way round.” Yes, that is true; Henwood adopts the Monetarist explanation that “too much money” causes inflation. He confuses causation and correlation. Severe supply constraints can push up prices, increasing the amount of money that needs to be created both publicly and privately to finance purchases. Tax revenues fall behind spending so a deficit opens up as spending tries to keep pace with inflation. The money stock is a residual and it will grow rapidly with hyperinflation. That does not mean it is the cause. Mitchell has closely examined the hyperinflation cases from the MMT perspective; the argument is not at all odd and has the advantage that it is fact-based, unlike Henwood’s Monetarist linking of money and inflation that has been so thoroughly discredited that even central bankers have dropped it.
  6. Henwood proclaims: “MMTers like Mitchell and Wray write as if borrowing abroad is just a bad choice, and not something forced on subordinate economies” and then goes on to argue that Mosler is “wrong” when he says that Turkey can buy capital equipment in its own currency (lira). Henwood does not understand foreign exchange markets—anyone (including Henwood) can exchange Turkish Lira for either dollars or euros in foreign exchange markets—including at airport counters around the world. Turkey can exchange lira for dollars to pay for imports of capital. (Might that affect exchange rates? Possibly. That is why floating the currency is important.) Nor does MMT argue that “borrowing abroad” is a “bad choice”—if that means issuing domestic currency debt held by foreigners. What we argue is that issuing debt in a foreign currency is a bad choice for any country that can issue its own currency. I’d go even further and argue that any country with its own currency should prohibit its government from issuing debt in a foreign currency, or from guaranteeing any such debt issued by its domestic firms. However, if private entities want to issue debt in foreign currencies, I do not necessarily advocate preventing that. What about the special case of a country that issues a currency that cannot be exchanged in forex markets (remember, Henwood wrongly proclaimed that Turkey is such a country—here I’m not talking about Turkey or any of the other many countries which do have currencies listed in forex markets; for a list of exchange rates of the 150 or so convertible currencies from the Aruban Florin to the Zambian Kwach, go here: https://www.oanda.com/currency/converter/)? I think it is most likely a mistake to issue debt in a foreign currency unless there is an identified source of the forex that will be needed to service the debt (for example, dedicated forex earned from exports). If you cannot exchange your currency in forex markets, and cannot earn forex, your best bet is international charity. Indebtedness in foreign currency will be a disaster.
  7. Henwood claims: “MMTers will sometimes say they want to tax the rich because they’re too rich, but Wray said at a recent conference that he sees no point in framing the issue as taxing the rich to expand public services — presumably because government doesn’t need to tax to spend” and has “has written that taxing the rich is “a fool’s errand” because of their political power”. The first part of that is correct—we do not need to tax the rich in order to expand public services. The second is dishonest reporting. He does not include a citation but what I actually argued is that trying to reduce inequality using taxes is not likely to be successful—because the rich influence the tax code and get exemptions. Like Rick Wolff, I argue for “predistribution”—prevent the growth of excessive income and wealth by controlling payments of high salaries in the first place. Eliminate the practices that lead to inequality—such as huge compensation for top management of public companies. I do like high taxes on high income and high wealth. I have argued they should be set so high as to be confiscatory. Not at a marginal income tax rate of 70%, but at 99%. Or even 125%. Or 1000%. Take it all. I am not confident that the effective tax rate will ever be that high—due to the exemptions the rich will write into the code—but we that doesn’t mean we shouldn’t aspire for better. It is amusing that Henwood refers to the barriers of “political power” when it suits his purpose (for example when he talks about the political infeasibility of the job guarantee) but objects if I notice that it is politically difficult to tax rich folks. All I’m arguing is that a) we don’t need tax money to pay for the programs we want, and b) high tax rates on the rich, alone, will not be sufficient in our struggle to reduce inequality.
  8. He writes “Tymoigne and Wray’s response to Palley barely addressed any of his substantive points” and Henwood objects to our mention of a video where Palley argued against the job guarantee because if poor people in South Africa got jobs they’d want food and that might increase imports and even cause inflation. First, we responded to Palley’s critiques in 43 different places in that paper, including responding in detail to nine long quotes where we let him speak for himself (unlike Henwood, who loosely—often wrongly—paraphrases our arguments, often with no citations at all). The video is not an outlier—it is Palley’s often repeated position. Given a choice, Palley prefers low inflation over jobs and income for the poor. He is perhaps the only Post Keynesian who still uses the ISLM framework augmented by a Phillips Curve. (For those who don’t know what that framework is, it is the “bastardized” version of Keynesian economics that helped open the door to Neoliberalism.) I have been at meetings where Palley urged the AFL-CIO to forget about arguing for full employment because of the danger of inflation. That was not in 1974 or even in 1979 when there actually was some inflation. No, it was a generation later. Like the Neoliberals, Palley is still fighting the inflation battle decades after the danger disappeared. Henwood is free to defend that Neoliberal position if he likes, but it is disingenuous to criticize us for linking to a video where Palley makes his own case for the position he is well-known to hold.

Henwood and Jacobin align themselves against the new wave of activists who have embraced MMT and the Job Guarantee as integral to the Green New Deal program. These new progressives want to tax rich people, too, not because Uncle Sam needs the money but because the rich are too rich.

Henwood wants us to believe that Government needs inequality. We’ve got to cater to the rich. They get to veto our progressive policies. If there weren’t rich folk, we’d never be able to afford a New Deal. We only get the policies they are willing to fund. If we actually did tax away their riches, government would go broke.

As Kelton puts it, people like Henwood think money grows on rich people.

For far too long left-leaning Democrats have had a close symbiotic relationship with the rich. They’ve needed the “good” rich folk, like George Soros, Bill Gates, Warren Buffet, Bob Rubin, to fund their think tanks and political campaigns. The centrist Clinton wing, has repaid the generosity of Wall Street’s neoliberals with deregulation that allowed the CEOs to shovel money to themselves, vastly increasing inequality and their own power. And they in turn rewarded Hillary—who by her own account accepted whatever money they would throw in her direction.

Today’s progressives won’t fall into that trap. “How ya gonna pay for it?” Through a budget authorization. Uncle Sam can afford it without the help of the rich.

And, by the way, they’re going to tax you anyway, because you’ve got too much—too much income, too much wealth, too much power. What will we do with the tax revenue? Burn it. Uncle Sam doesn’t need your money.

In reality, taxes just lead to debits to bank accounts. We’ll just knock 3 or 5 zeros off the accounts of the rich. Of course, double entry bookkeeping means we also need to knock zeros off the debts held by the rich—so we’ll wipe zeros off the student loan debts, the mortgage debts, the auto loan debts, and the credit card debts of American households. Yes, debt cancellation, too.

The new breed of progressive politician—represented by Bernie and Alexandria—doesn’t need corporate funding, either. And they certainly don’t need Henwood’s scolding.

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  1. skippy

    Sorry to be first and all, but consider this episode to flesh out Wrays umbrage.

    So yesterday I posted Lars on an Oz blog – https://larspsyll.wordpress.com/2019/02/26/krugman-vs-kelton-on-the-fiscal-monetary-tradeoff/

    This is the response I got from a long declared Keynesian – Tobin sort that does not have much time for AET sorts, although finds Joan Robinson questionable.

    This is just a silly straw man as per usual.
    Once again Keynes did not argue that the rate of interest has no effect on aggregate demand. He argued:
    1. That the rare of interest is a monetary variable, balancing public’s demand for cash and CB’s willingness /ability to supply it. So it is wrong to see it as a real variable determined in the goods market independent of monetary forces per Marshall
    2. The rate of interest does not balance desired saving / planned investment. Per Keynesian cross the level of income/employment does this. However for each equilibrium of planned saving/investment corresponding to that level of employment there was a corresponding rate of interest. This rate of interest may be higher at a full employment equilibrium rather than a low employment equilibrium so it was useless to say the rate of interest is the equilibrium variable.

    Secondly neoclassical theory does not say equilibrium is secured by interest rate adjustments. On the contrary the CB pushes the economy out of equilibrium through interest rate adjustments.

    That was a poor article.

    Skip here – so today its now this ….

    Read it. To put it charitably it’s wrong.
    In fact since I was able to open the empty box of word games I can even answer Krugmans last 2 questions he posed to MMTers to save them the trouble (without the didactic detour into why the natural rate doesn’t exist):
    1. Yes
    2. Amazingly, Yes

    And I saw in the other thread you raised the loanable funds thing.

    Where in Krugmans entire retort did he refer to loanable funds?

    He was talking about the aggregate demand schedule. That adjustments in interest rates see a movement along an aggregate demand schedule to achieve full employment. Does MMT now say the aggregate demand schedule doesn’t exist?

    The only coherent explanation of MMT I’ve read says it does exist it’s just vertical. ie. employment is completely determined by fiscal policy.

    The disheveled one again – so after linking this post …

    Is it an accident that notable high priests of MMT have a background in banking and finance rather than academia?

    Hows that Randy …. better yet … not long ago on the same blog a AET Rothbardian said he does not care how squeaky clean Mosler is … he worked in finance and banking [burn the witches thingy].

    Don’t know if these sorts loosing the plot on such a scale is a good or bad thing, but, after the last 8 years this is a substantial increase in chaff and smoke blowing. Some are coming unhinged in my observations.

    Cheers mate …

    1. ChrisAtRU

      I tweeted about Krugman’s response to Kelton. I don’t think he actually read it beyond a cursory glance at certain sentences. She literally did the following:
      – reiterated that i was a policy variable, i.e. set by the central bank
      – laid bare the ridiculous nature of the suggestion than any central bank would (need to) set i > g
      – used Japan as a example where interest rate remains low while deficits are easily accommodated.

      Krugman ignored it all to come back with a lame defense informed by loanable funds.

      FWIW, I still think Krugman will claim he “agreed with MMT all along” once the framework gains wide acceptance. We will all be screaming “Shame!” from the sidelines while waving screen shots of his uniformed takes over the years.

      1. skippy

        The same commenter I reference had the cheek to ask me where Krugman talked about loanable funds and said he read the Lars post, and had the temerity to say Lars was bastardizing what Keynes had said.

        Same bloke that has issues with Joan ….. and now teaming up with a Rothbardian to attack MMT.

        These people start with ideology and then reverse engineer everything to suit it and if anything up sets that apple cart they – all – go feral over the interloper.

    2. diptherio

      Yowza. Let’s try to clarify a bit, shall we? Since you’ve decided to comment on an article that isn’t this one, I went off and read the ones you’re referring to.

      First off, Krugman and the vast majority of economists don’t seem to understand much about business. Interest rates are not the deciding factor for (non-FIRE) businesses when deciding whether or not to invest. If a 1% difference in APR makes an investment a no-go, it was a no-go to begin with. Investment decisions are made based on things like demand for your product and discovering an unfilled niche, not the interest rate you’ll be paying on a loan. In the real world, trying to reach full employment by fiddling with interest rates is a fool’s errand…unless you just define full employment as wherever the rate happens to settle, which seems to be the go-to solution.

      Secondly, Krugman’s argument with Kelton does in fact rest on the loanable funds theory, though he never uses those words:

      The question then becomes one of tradeoffs: would the things the government could buy with a higher deficit be worth the lost private investment due to a higher interest rate? Often the answer will be yes. But there is a tradeoff.

      Why does Krugman assume a tradeoff between gov’t deficit and private investment? Why does he assume that increased fiscal spending will necessarily lead to higher interest rates? Because he assumes that gov’t spending and business investment are both coming out of one pool of available funds, i.e. loanable funds.

      As for Kruggie’s questions, no MMTer I’ve ever heard has claimed that there is one deficit number that will lead to full employment. That can only be determined ex post. Fiscal and monetary policies are not substitutes for one another, as one can directly effect demand while the other is a “let’s hope this works how we want it to” approach. And finally, there is no necessary connection between fiscal and monetary policy. CBs can set their rates at whatever they feel like, without regard for fiscal variables.

      1. skippy

        Dip …

        Seen too much mate and have watched people like Henwood muddy the waters and attack MMT based on ideological grounds and not the mechanics MMT points out. This is the same avenue of “attack” used by orthodoxy to belittle MMT so it does not have its dominance in shaping the social construct challenged – for years …..

        It was one of the first dialectal approaches in engaging MMT: so whats your overly simplified ideological agenda in “applying” MMT e.g. always starts off if MMT is grounded in group think with some antiquarian baggage. Worst part is this is how the acceptable framework moving forward is established and anything outside it is automatically unacceptable.

        Now as MMT gets more public air I’m watching past antagonists circle the wagons, not unlike say religious mobs have in the past just to keep market share in the public sphere. Years ago I watched as some that took all the far right to task lost the plot over Trump and dismissed any information that put Hillary in a bad light, completely ignoring Sanders imo. Quite ready to embrace third way if it had the right social ID political signage.

        Just the idea that a past affiliate would charge Lars with taking Keynes out of context or twist his meaning is like ground hog day – above. I mean what part of “Is it an accident that notable high priests of MMT have a background in banking and finance rather than academia?” as a stand alone reply to the post above is confusing, especially from someone calling themselves a Keynesian – it just becomes farcical …

        1. rob

          It doesn’t seem like an accident the high priests of MMT have a banking and finance backround. It seems perfectly logical that people who make their money in the current system would espouse a shell game that in fact supports the same means of their backround. People whose expertise lies in the status quo, are the very people I would expect to be unable to see there is a better way for the rest of the population.
          MMT in what it describes, is trying to put a progressive face on the old (100 year old in fact) system that the bankers put in place to keep all the money created in this country(except for coins); meaning actual cash or the money created when those same private banks make loans, something that they in fact create and the government is indebted to whomever, to pay them back. In other words they create the money, and the government goes around begging and borrowing to pay them back.Ad infinitum….
          So yeah, the fact that the high priests are in the banking business and finance(there are a lifetime of fees there too), shouldn’t be a surprise to anyone.
          If the government actually created the money used in this country,and didn’t owe a debt for it’s creation; those people’s knowledge would be shown to be perishable and past it’s sell by date.And their golden goose will have died.

          1. skippy

            The actual argument is … what – is – money and its origins … which then opens up debate about its political applications contra to what the ideologues will tell you.

            The – is – part makes the potential a political discussion outside hoary monetarist [quasi or otherwise] monsters under the bed scare stories e.g. Debt.

            1. rob

              Yes , the actual argument IS “what is money”
              That is really it in a nutshell. The fact is in the US , our money can be a legal construct. It need only have the sanction of the american legislative branches, to be real US dollars.
              That is it right there. There doesn’t NEED to be debt associated with its creation. And after it is created without any of this debt, it is as useful for every purpose under the sun as it is today.
              The bogeyman of debt, IS the peoples problem. There is nothing in our system, that saves the people from being accountable for the debt created by the current system AKA federal reserve system. They crete the money, and we in the US own the debt. That is a fundamental problem. One that all the mechanics of the current system, can’t undo.
              That is why MMT falls short, The claim is that by understanding the mechanics, the debt doesn’t matter….. It may not matter because we won’t be cut off… but hell why would we, as long as we keep racking up this debt, the banking system will always have money created for it , in money it creates when it makes loans, and in fees for all the “mechanical” distraction they engender.
              It is all just a sham….You have drunk the economics kool-aid, and believe these ideologies actually exist, and what a person says, means anything in the real world.
              Now , you may have seen a lot…. but your eyes grew tired, and now you are jaded and blind to the truth…. The truth is that debt you don’t care about, is an opportunity cost to THIS country.It costs us the opportunity to do more than we can right now.

  2. paul

    It was a typically sour piece from henwood and, as he announced it last year, must have taken a fair old effort to scrape together all those bad faith ad hominems, a small army of strawmen (

    Enacting single payer, for example, isn’t just a matter of a few billion extra keystrokes.

    transforming the price-gouging business model of the drug industry

    Correct, but then these are policy decisons, ones which MMT seeks to explain are possible if liberated from the abstract shackles of ‘sound’ finance) and hyperinflation scare stories while studiously avoiding the fact that MMT is a description and JG is one prescription.

    He seems very annoyed that the description turns his ‘sound’ finance outlook upside down and suggests it is a damaging orthodoxy,one that had great utility to the larger cult (as he slyly suggests ‘MMTers’ and their ‘acolytes’ are) of neoliberalism.

    His radio show is still often worth a listen.

    1. Allegorio

      @ Paul “MMT is a description and JG is one prescription” Excuse my ignorance, but what is JG? I hate abbreviations! It jargonizes discussions.

      1. Mel

        Job Guarantee.
        The idea that the government will fight unemployment by providing a job at a (low but) liveable wage to anybody who applies for one. The Job Guarantee wage would wind up becoming the de facto minimum wage. Presumably a wise government would have these employed doing socially useful things that private businesses didn’t consider profitable. It’s a core policy in Modern Monetary Theory. There’s still a lot of room to argue about specific implementation details.

        1. skippy

          A JG is intrinsic to removing NAIRU [inflation hysteria] for structural under – unemployment as a buffer stock, everything after that is just giving people a transitory space outside the markets disdain for humans with the potential to find purpose in life without a profit incentive.

          “There’s still a lot of room to argue about specific implementation details.”

          Some in the MMT tent with social democracy out looks clearly state it should be regional or locally administered to the specific needs of those areas e.g. its not some top down administration from far away to buff GDP or its ilk.

    2. Allegorio

      @Paul “MMT is a description and JG is one prescription.” What is “JG”? That is why I hate abbreviations. They jargonize every discussion. A few more keystrokes and everything is clear.

      1. paul

        JG=Job guarantee – a countercyclical insurance policy against
        1: Involuntary destitution
        2: Demeaning ‘charity’
        3: Social isolation
        4: Shit employers

  3. horostam

    why is it that whenever i read about marxism i actually love it, but whenever i meet a marxist i want to punch them in the face?

    money is a way of allocating resources, and when the rich hold too much of it, what results is simply bad allocation

    its not even a moral argument

    marxism and mmt overlap on roughly this territory… there’s really very little to fight about

    1. jsn

      Marx was a great analyst and theoretician who over time developed and evolved his views.

      Then he died and his views ossified.

      Ossified to deified is a small step for “disciples” (which someone in comments yesterday brilliantly defined as “ass****s looking for a body to attach to) who then flog their own excrement through the reified Portal.

        1. Baby Gerald

          Thanks pretzelattack- I’ve always wondered the source of that quote. It appears as a sample in an ambient/dub track that I’ve had in my collection for a while now:

          Ott – One Day I Wish To Have This Kind Of Time

          The Wilson sample comes in around 5:45. Listeners will also find a sample from British-American philospoher Alan Watts layered into the track a little later, as well.

    2. Summer

      Should be careful to remember that MMT is all about monetary theory and not budgetary priorities.

      I’m listening to the MMT theory and it’s not hard at all seeing it more mainstream.
      It’s got formulas with curves and everything.
      But there is a long way from that and the reallocation of wealth to benefit the majority.
      It’s debatable how much resistance to reallocation of wealth has to do with deficit concerns.

      1. Barry

        Indeed, deficit concerns are a tool for resisting the reallocation of wealth (or more precisely, resisting efforts to change the direction of wealth reallocation).

    3. Joe Well

      I’ve met Marxists in person who are very charming and committed to real world activism even if just to achieve modest goals. They’re not all waiting for The Revolution. Their writings, however, tend to be remarkably strident. It’s almost a shared rhetorical style rather than a worldview or ideology.

    4. Michael Fiorillo

      Tactically, I think the Left should dial back on the primacy of moral arguments, and focus more on interests and cui bono. The liberal/Left has led with (mostly/often righteous) moral arguments for decades, which have too often devolved into chest-beating and shaming. The are frquently divisive, and are a real turn-off for many people.

      While at root every prescription rests on some kind of religious/ethical/moral philosophical foundation, the material interests of working people (health care, education, housing, etc.) should be front and center. Likewise with monetary and fiscal policy, there should be more focus on the what (hyper-inequality as entropic and dysfunctional, rather than “bad” or “wrong”), and less on the why.

  4. Darius

    Neoliberals do employ MMT. But only for national security spending. We need to finance universal healthcare and the Green New Deal the same way we finance the F-35. Just appropriate it.

    1. Carla

      I would say “only for funding the never-ending wars,” which is actually the opposite of “national security.”

      But yes.

    2. Barry


      MacLean covers James Buchanan’s inverted definition of corruption in Democracy in Chains. He said that politicians are corrupted by the urge to pander to the masses for votes. By this neoliberal definition, fighting corruption is fighting against government concerning itself with the well-being of its citizens.

      Financing universal healthcare and the GND is, in the neoliberal playbook, corruption. It horrifies them to think that people that The Market has deemed undeserving might get ‘rewarded’.

      Their economics arguments, presented as Science and Iron Truth and more real than nature, despite all the evidence-based unmasking, is best understood in terms of what they deem to be correct outcomes.

  5. Rodger Malcolm Mitchell

    MMT is absolutely correct with its description of financial reality (federal taxes not paying for federal spending, hyperinflations not caused by deficit spending, etc.).

    But MMT is absolutely wrong with it’s favorite solution to economic slowdowns: Jobs Guarantee. It is a bureaucratic nightmare solution to the wrong problem: Joblessness.

    The U.S. seldom offers too few jobs. It can offer too few of the right jobs. Look on any jobs site and you will see many thousands of jobs, but they are the wrong jobs, the very jobs JG would provide.

    The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer. JG does nothing to solve that, but in fact solidifies it.

    1. Grant

      “The U.S. seldom offers too few jobs. It can offer too few of the right jobs. Look on any jobs site and you will see many thousands of jobs, but they are the wrong jobs, the very jobs JG would provide.”

      The private market ignores, obviously, any impact that doesn’t have a market value. Things that result in large non-market benefits are then under-produced, things that have large non-market negative impacts are produced too much. There are many things in the world now that are being created that are environmentally and socially harmful, because of the particular way we have created our economic system, and these non-market impacts are now dominating our lives. Government can, however, take these non-market impacts into account, and government can also spend on things that are not be spent on enough because they aren’t profitable, even if they are key to dealing with things like the environmental crisis. I see no reason why a jobs guarantee couldn’t be created that provides jobs doing things the private market will simply not do enough. Benefits of a non-market nature, like working on reforestation, jobs in renewable energy (I always hear cost comparisons with renewables and things like coal or natural gas, but again, non-market impacts aren’t taken into account. Fact is, renewable energy became cheaper than carbon based forms of energy decades ago, regardless as to what the market says). I also think that we have to be serious about the power differential between capital and labor, which is one of the many reasons I support single payer. It isn’t only that single payer is far more humane and efficient, it also makes it so that employees are no longer reliant on employers for their healthcare, which strengthens workers relative to capital. A JG can help with this. I also think that the government should get serious about public enterprises. Elizabeth Warren has a plan to create a government enterprise that would produce generic drugs at cost, which is a great idea. I think the logic could and should be extended to other parts of the economy, although I wouldn’t want a government monopoly in many parts of the economy. A JG can go hand in hand with the growth of public enterprises, which could be owned by the national government or state and local governments. The city of Chattanooga owns the system that provides internet services, and it does it well. I see no reason why a JG couldn’t go hand in hand with funding the growth of things like that.

      To me, the biggest challenge with a job guarantee is matching the skills of people seeking work with work needed to be done. Skills training will obviously be needed and we should be careful about realistic time lags that may arise.

      1. Skip Intro

        Excellent comment, thank you.

        It occurs to me that your formulation has basically defined the a critical role of a post-neoliberal government: to use the power of the state to convert externalities or non-market impacts into effective market forces. This works not only for obvious externalities like anthropogenic climate chaos and other plundered commons, but hopefully also (via JG+UBI) for the dignity of labor and the ‘deaths of despair’.

        The concept of using government owned enterprises for, e.g. drug development or internet provision has a certain political elegance, since it could work to ‘keep the private sector honest’, by providing simple honest competition immune to the cartel-formation pressures that are concentrating ‘free market’ players into that which they all long to be, rentier monopolies. They could also make explicit the benefits that the industries have been extracting from public infrastructure – from roads to research. The beauty part of it though, is that it is a real ideological crisis for neoliberal propagandists, in that they have always claimed that the government is inefficient but the private sector, through competition is optimal. How could they then fear competition from publicly owned enterprises. Naturally they will try to continue to sabotage the public programs, but if the political power is there to create them in the first place, then effective guards should be put in place at that time. In areas where the private sector can’t compete with a basic at-cost offering, or where that cost makes a beneficial service ineffective or unaffordable (rural mail delivery, courts), we have an obvious case for a natural public monopoly.

      2. nihil obstet

        Over 20 states have passed laws to prevent municipalities from offering broadband as a public utility. Note that the North Carolina law was entitled “An act to protect jobs and investment by regulating local government competition with private business.” Neoliberal ideology holds that government is incompetent to provide good, efficient services, and therefore government must not be allowed to compete with private businesses. Logic doesn’t enter into most politics.

        1. Grant

          “Neoliberal ideology holds that government is incompetent to provide good, efficient services, and therefore government must not be allowed to compete with private businesses.”

          Yeah, and the logic in that claim is silly. It is one thing if a government entity sets up a monopoly in a market. However, if a government entity has to compete with private entities, wouldn’t their actual performances and the respective demand for the competing public and private enterprises determine which of the two was better? They want to claim something, then run from having to prove it.

    2. Kent

      Looked at your post and tend to agree with your assessment. Much of the economic success of the ’50’s and ’60’s was federal spending in favor of the 99%, the so-called golden age. The weakness of that program, IMHO, was political. It hid federal spending behind a private sector veneer to support capitalism. That, unfortunately, left the impression among the public that government spending was a problem to be addressed instead of a benefit.

    3. Joe Well

      We have an enormous jobs shortage in the US today. Job advertisements are in no way a reliable indicator of openings.

      Here are some common job advertisements:

      1. Temp agencies advertising fake vacancies to build up a file of “talent.”
      2. Low wage service employers also advertising fake vacancies to have backups in case of last minute departures.
      3. Outright scams often of the “buy our work from home opportuntiy” or “wire us money for uniforms.”
      4. Employers, especially government and nonprofits, that are legally required to advertise vacancies and do a public search when in reality someone’s friend or nephew already has a lock on it.
      5. Gig economy non-jobs.

      A job search in the US is a long Kafkaesuqe humiliation. A jobs guarantee would do amazing things for mental health in the US.

      1. MyLessThanPrimeBeef

        You and Mitchell both state that there not enough right jobs.

        From there, for him, JG will not do, and for you, it will do.

        It’s seem the debate about the difference is just starting.

        1. paul

          For those who do not have jobs, or ones which trap them at poverty level, the JG must seem attractive.
          Those that value their freedom to be exploited above this, I imagine, are quite thin on the ground.

          I derived my self worth more from walmart short hours and jp morgan foodstamps than a fair days pay for a fair days work from our elected government

          is not something you will find on many headstones.

          1. MyLessThanPrimeBeef

            Is JG enough, or we need to do more about wealth inequality, etc, (JG not sufficient to do that), the point Mitchell made?

            1. paul

              I would say yes,but the best way would be to make wealth inequality as irrelevant as possible, starting with:

              Similar to the state Libya was in before flyover development was imposed.

              Of course, we would have to forego some national security in exchange for (and to guarantee) social security.

        2. Joe Well

          No, I am going beyond what Mitchell said to say not only are there more jawbs than jobs but there aren’t even as many jawbs as one might think. Life is much worse at the bottom than even most leftists realize. True Dickensian desperation where not only can you not support a family you cant even support a single person living in one bedroom of a shared apartment.

          1. deplorado

            >> “not only can you not support a family you cant even support a single person living in one bedroom of a shared apartment”

            Agree. Painfully true. Have a dear brother in this situation in a major world city.
            “JG” would be good for many millions, right job or not. And why is it unimaginable that those JG jobs can evolve and improve too?
            But of course, more needs to be done and we should try for more.

          2. burlesque

            @Joe Well “Life is much worse at the bottom…”
            Help Wanted sign at a Texas state hospital yesterday:
            Psychiatric Nurse Assistant, $11.35 per hour

            1. rob

              Yeah, and I wonder what that persons labor would be billed at to whomever is paying…… $100/hr…. for the middle man, not dealing with anything except the profit…

              1. burlesque

                That “$11.35 per hour” gave me a little sick feeling considering this is TEXAS which has been sucking up Eagle Ford and Permian profit for these last few years: lots of middle men here, methinks…

            2. Joe Well

              @burlesque I bet whoever takes that job had to spend some not insignificant amount of money on some kind of credentialing to get it :(

  6. Alex Cox

    Why does the author say Henwood disappeared a few decades ago?
    I subscribed to his Left Business Observer until 2008, when his support for the bankster bailout made me give up on him.

    Henwood never advanced a coherent argument in favour of the bailout – he just kept printing the same picture of a naked man in a barrel!

    1. chuck roast

      Altogether, an interesting exchange.

      While I had heard of Henwood, I would have been entirely unable to label him. Interesting that the otherwise estimable Jacobin would send such a poor swimmer into the deep end of the pool. And I do really hate it when Marx”ists” demonstrate their absolute inability to tread water.

      On Henwood’s disappearance…apparently, Henwood has had a rather desultory relationship with the web-world. Surfing around I find that Henwood’s last LBO web-post was in 2012.

    2. R

      I wouldn’t say Henwood has ‘dissapeared’ – he has a weekly radio show, also has been publishing books and articles.

      The last one I read was ‘My Turn’ – a reasonably vicious take down of the Clintons.

  7. Frank Little

    Thanks for posting this, as I had just read Henwood’s piece earlier and this provided a lot of helpful context to the history of MMT. I’m not an economist or a finance person, just a humble librarian trying to understand this stuff better, so maybe I am missing something important but I still struggle with understanding how MMT would work in practice in someplace that’s not the US.

    Wray’s treatment of the situation in Turkey seems a little simplistic. I’m not trying to defend Hendwood’s treatment either, but my understanding is that countries like Turkey don’t issue sovereign debt in dollars instead of their own currency just because they feel like it or because they like us so much, but because they need to attract investment from economies where rich people have money to invest (e.g. the US) that is usually denominated in dollars.

    The fact that the currency could technically be converted doesn’t change that fundamental inequity. By the same logic, things on international markets being priced in dollars shouldn’t stop the EU from doing business with Iran because they could use euros or renminbi or any one of the other currencies that could theoretically be exchanged for each other on forex markets. In practice, they don’t and even though they’re trying to set up a way to evade US sanctions, the fact that it has taken so long to do so speaks to the challenges that go beyond just converting currency. I’m also reminded of something I read in Bloomberg a while back about the role of the dollar internationally which talks about how the US can mint a $100 bill quite cheaply but other countries must exchange the equivalent value in goods and services to get one.

    I know there are people who understand this stuff better than me who read NC and I’d be happy to be corrected/educated on what I’m missing here. I’m in total agreement that concern about deficits is way overblown (and usually not sincere) in the US and I support a lot of the things that MMTers have advocated spending money on, but I’d like to see more discussion of how this would work in a country that doesn’t have such stable demand for its bonds.

    1. larry

      re in a place that isn’t the US: MMT works for any sovereign state with its own currency along with a flexible exchange rate. This is known as a fiat currency system. This leaves out the countries in the Eurozone. This means that there are no financial contraints on how much currency they can place into circulation. This does not mean that there would be no contraints. These are the real resources that the government has available to it, e.g., labor and material resources along with the ability of the economy to absorb what the government is spending. A country might need foreign currency in order to purchase an item that is external to it, like oil, which is priced in dollars but this need not pose insuperable difficulties.

      A government selling its bonds is a way of taking spending out of the system, a safe investment in that you can’t lose what you put in. Of course, it is possible that you may not gain much or anything at all. It is always possible for a government to manipulate its bond sales even when take up is low. This is not its only tool for doing this.

      The notion that government debt and spending are bad things has been around since the latter 19th c. The British have been the worst about this, the UK Treasury even contending in the 1920s that balanced budgets were necessary for economic stability and convincing government ministers that they should follow their advice. They did this even when the government was operating a fiat currency system which was not tied to gold, which, when operative, did limit how much the government could spend — Churchill took his country back to gold in the late 1920s against Keynes’ advice. Most countries have been operating a fiat currency system since Nixon took the world off the Bretton Woods system, a pegged currency system, in 1971.

      You can check out the work of Randy Wray, Stephanie Kelton, and Bill Mitchell.

      1. BillC

        Larry, I think your reply misses the crux of Frank’s question. We seem to agree that question amounts to, “How do you obtain goods and services you can’t get domestically assuming debt in foreign currencies?”

        You respond, “A country might need foreign currency in order to purchase [foreign goods or services] but this need not pose insuperable difficulties.” However, your recourse to the MMT truism that you can’t go insolvent in a currency you issue does not seem to me to answer Frank’s question. Will Blackrock go for letting Turkey “take its [Dollar] spending out of the system” if it is promised only Turkish Lire in repayment? Probably not.

        I don’t know enough to answer Frank’s question, and I’ll be quite pleased if someone can come up with a more concrete response than your 2nd ‘graph. (And I apologize if I’m just too ignorant to recognize that it really is a comprehensive answer.)

        1. BillC

          Editing fail: my 2nd sentence, 1st ‘graph should read: “How do you obtain goods and services you can’t get domestically WITHOUT assuming debt in foreign currencies?”

          1. larry

            I didn’t say you couldn’t. I was answering Frank’s first question. I may not have answered it very well. I don’t think I know enough of Turkey’s situation domestically to effectively answer his question about Turkey.

      2. DetroitDan

        @Frank Little

        MMT describes how modern monetary systems work. For smaller countries that need a high percentage of their basic products from other countries, the value of the currency is much more volatile. So these countries are much more susceptible to crises caused by devaluation of the currency. I think this is the point you are trying to make, and it is consistent with how MMT describes modern monetary systems.

        The best approach in such situations is for countries to support exports at the expense of imports. If you need stuff from other countries, there is no alternative but to make stuff that other countries’ want. Governments can and should direct investment accordingly, as opposed to trusting the free market and taking loans in external currencies that they do not control. This sort of mercantilism is how many small countries have become economically powerful.

        1. Frank Little

          Thanks for your comments. This makes a lot of sense, although I can’t help but wonder what that means for countries which export a raw material (e.g. oil or minerals) through some extractive process rather than industrial production of finished products or parts for manufacturing elsewhere. Assuming a country is able to do so (i.e. isn’t sanctioned and has a stable, non-corrupt government), they would still be subject to whatever the price of that commodity is on the global market. Maybe they could invest in refining that commodity or doing the assembly domestically?

          I think some of my confusion stems from looking at MMT in the broader context of geopolitics rather than as a strictly economic set of ideas since I’m a little more familiar with that and have only recently tried to improve my understanding of economics. That is obviously outside the scope of what MMT proponents are dealing with since they are economists so I don’t mean that as any kind of knock on them or their work, but it’s hard for me not to consider what it would look somewhere outside the US, since there are usually other political or historical influences on their decision-making.

        2. José

          There are essentially 4 ways for a country to get foreign exchange: net exports of goods and services to abroad, net dividends and other factor income received from abroad, net remittances received from abroad – these 3 items are part of the current account balance – or net lending from abroad (that is, either direct investment, portfolio investment or loans), which is included in the financial account of the Balance of Payments.

          Let’s take a concrete exemple from Brazil. In the last 15 years the country accumulated a deficit on the current account balance of more than $500 billion dollars, yet foreign exchange reserves at the central bank increased from a paltry $40 billion dollars to more than $380 billion dollars today.

          How was this possible? Well, Brazilian firms received lots of dollar investments and loans from abroad in the last 15 years, part of these dollars were bought by the central bank (in exchange for Reais) and so the Brazilian public sector as a whole is now a net creditor to the rest of the world even if the country’s overall position is that of a net international debtor.

          Now let’s suppose that one day the country decided to engage in stimulative, MMT-inspired economic policies that increase the budget deficit; and suppose also that foreign investors and speculators, not happy with said policies, reacted by selling reais – causing the exchange rate of the Real to drop and imported prices to rise, thus putting a lot of pressure on the country’s economy.

          The central bank would have enough ammunition to intervene in the foreign exchange market, selling dollars for reais in order the revert the depreciation of the currency and also hurt the forex speculators, especially short sellers who can lose a lot of money if the central bank unexpectedly intervenes to raise the price of the Real in terms of dollars.

          Thus, one could perhaps conclude that any country able to attract foreign currency either via the current account or the financial account of the BoP can have enough ‘space’ to engage in MMT-like economic policies to have the economy near full employment.

          1. Frank Little

            This example is really helpful, thank you. So the Brazilian central bank would have enough ammunition to counteract any deflationary pressure if they did embark on some MMT-inspired policies that add to deficits because it has purchased some of those dollars (invested from abroad in Brazilian businesses) from those businesses in exchange for reais so that it could hold those in its reserves.

            Your last comment maybe gets at what my concern is. You say that if a country can attract foreign currency (I would assume usually USD) through some kind of economic activity they would be able to afford public spending in the manner described by MMT because their reserves could counteract any deflationary pressure coming from foreign investors selling their domestic currency. But at the end of the day they still need those reserves. Often countries are prevented from getting dollars for political reasons (say by US sanctions) so MMT wouldn’t really be much use in those cases even if they are monetarily sovereign and they had room for expansion in their domestic economy at least in terms of labor and resources.

            Again I don’t view this as any kind of problem with MMT as such since it’s kind of a separate issue, but I think that’s why I see it as more germane to a US context since the US is unlikely to face these kinds of challenges.

  8. R

    The things I took away from Henwood’s article were:

    – Job guarantee / full employment enabled via MMT is adverse to class interests of those who have a very firm grip on power (capitalists, plutocrats, oligarchs, etc), so MMT can be ‘theoretically right’ but what’s the strategy to take power (ala Marx, organizing working class opposition, etc)?

    – MMT is an economic model for state spending, but what about the rest of the private economy that makes up most of what people engage with in their daily lives?

    Maybe MMT does account for these things? Or maybe MMT is really just a very small slice of a bigger (possibly undefined) political program?

    Which is I think where some of the skepticism arises.. some seem to approach MMT with a level of enthusiasm that suggests it is a magic bullet.

      1. Anarcissie

        I don’t think that answers R’s questions. I agree the magic-bullet aspects of MMT rhetoric are annoying but don’t trouble me all that much because I assume they’re a riposte to the absurdities of other theories, but questions like organizing the transfer or dissolution of centralized coercive power remain appropriate to the discussion. The jobs guarantee looks like a poor substitute for outright communism or at least socialism — it costs money / uses wealth to create instances of useful work, especially those constituted as long-term social roles, so it’s quicker and cheaper to just give money / wealth to those who don’t have enough (rather than go through some mummery about employment, which, let’s face it, is the destructive industrialization of human life. It’s not for nothing that employment is or was often referred to as one’s ‘place’ as if people were bolted to the factory floor.

    1. Skip Intro

      MMT is just an accurate description of the double-entry bookkeeping that corresponds to the empirical reality of a sovereign currency issuer. It does not have policy prescriptions, but it does account for private economy completely, as every private dollar is a government liability.

      I think the enthusiasm and policy prescriptions come from the insight that so many of the political cudgels used to limit government to helping oligarchs were pure fictions, and easily demonstrable fictions no less. This also accounts for the vehemence and desperation of MMT critics who carry water for the cudgel holders.

      As a purely descriptive empirical theory, MMT does not need a strategy for taking power, since it already has power (just ask the Pentagon). But as an accurate description of the way a sovereign economy works, it is a prerequisite for any successful, reality-based strategy.

      1. Left in Wisconsin

        It does not have policy prescriptions

        So what is the MMT job guarantee? Is that not MMT?

        Also, if it’s just about “cudgels used to limit government,” why is this current intellectual war between MMT, the “leftist,” Doug Henwood, and the “Keynesian,” Krugman? I don’t see any disagreement among them on the importance of government spending. Something else is going on. And I don’t think it’s good. In the past, I have found Henwood to be generally reliable. But this Jacobin piece was clearly a hit.

        That said, I found this (in the original post) uncalled for:

        He has apparently suffered the fate of many aging Marxists—after years of fighting the good fight against capitalism they realize they’ve accomplished little and decide to instead engage the progressives on the argument that all is hopeless.

        Unless Wray has particular people in mind, whom he should name, that comment seems designed to stoke factionalism on the left, not transcend it. Also, reading Henwood, his argument is hardly that all is hopeless.

        1. Skip Intro

          So what is the MMT job guarantee? Is that not MMT?

          I don’t think it is MMT. It is just a popular policy available when fiscal constraints are lifted, as is a Universal Basic Income (UBI), which in a number of ways would be superior to a JG. I think a combination of the 2 would be good, personally. When the left ‘gets’ MMT, JG is one of the things that seems to emerge. When the right gets it, we get F-35s and huge tax cuts for oligarchs… I believe it was Dick Cheney who said “deficits don’t matter”.

          As far as the cat fight between Henwood who, judging from this article alone, is a hack who has libeled Wray and Wray, it is not surprising that Wray would tar him, even if it weakens the tone of his article. Krugman is a demonstrated hack who is more useful as a weathervane than anything else. I imagine he is just trying to tack over to MMT in such a way that he can get in front of the crowd (at the NYT) and say he is leading the parade. His pandering triangulation is not worth the virtual paper it is virtually printed on.
          Mocking old Marxists is silly; I expect most people who have spent a lifetime fighting losing wars will eventually get cynical and hopeless. You see it among environmentalists a lot too. I’m not sure I’ve ever actually met a qualified Marxist, but it would not surprise me if they were bitter after having Marx proven spectacularly right in front of the whole world, and still being studiously ignored.

          My comment was an answer to R, not a defense of Wray’s tone or content.

        2. Yves Smith Post author

          Had you bothered reading Wray, and it is disappointing to see how many don’t (I hate to sound like a scold, but this is what happens when people rely on second and third hand accounts, and worse here, often by people who are hostile to the material), he argues that a Job Guarantee sets a floor for the price of labor (which includes working conditions) and is a much more efficient and effective way of influencing economic activity than monetary policy. One of the advantages of a Job Guarantee is that it is automatically countercyclical: when private sector activity is hot, they will provide better wages and will bid people away from JG jobs.

          1. WobblyTelomeres

            Do you think a Job Guarantee program would sell better if it was called something that recalled the successes of the WPA and/or CCC?

          2. Left in Wisconsin

            I’m familiar with the MMT JG (and, for what it’s worth, I read the post and even quoted from it). That is why I asked the question of Skip Intro. SI says the JG is not MMT. You seem to be saying it is. That was my point: MMT is either “the ways things are” or it’s more than that. I’m not hostile to MMT (at least “the way things are” part of it) and certainly not hostile to a job guarantee, though I do think the one I see proposed by MMT’ers has some major flaws (cost not being one).

            To state as clearly as I can the general policy position that would seem to align MMT with others on the left that do not identify with MMT but are increasingly supportive of “deficits don’t matter (as much as we used to think they did)” (which I think includes Palley but perhaps not Henwood) without the intra-left warfare I see brewing, it is that the critical thing is not how much government spends but what it spends it on. In my view, all the economists are enamored with the monetary and financial accounting, trying to prove this or that, when it seems pretty apparent that if fiat money is well spent then good things happen whereas if it isn’t they don’t.

            1. Yves Smith Post author

              This is not a matter of reading the post; the rationale for the Job Guarantee comes (much more fully fleshed out than the postcard version I provided) in Wray’s Understanding Modern Money. Saying you read the post and not his book confirms my charge.

            2. alan2102

              “the critical thing is not how much government spends but what it spends it on. In my view, all the economists are enamored with the monetary and financial accounting, trying to prove this or that, when it seems pretty apparent that if fiat money is well spent then good things happen whereas if it isn’t they don’t.”


              Truly the elephant in the room. WHAT the money is spent on.

    2. Mel

      MMT is an economic model for state spending, but what about the rest of the private economy that makes up most of what people engage with in their daily lives?

      This seems to be asking for an analytical theory of the Private Sector, that is, a way to deduce from principles just what the Private Sector will do under any particular circumstances.
      I don’t think there is such a theory, within MMT or anywhere else. It would be like an algorithm for winning at poker. Would you be happy knowing that somebody (Cambridge Analytica, maybe) was deducing what you were engaging with in your daily life?
      Microeconomics tries to articulate causes and effects in private sector activities, but I doubt they’re ready for detailed forecasts. Above all, we deny that central planning is effective; we hope that private activity will come up with creative solutions to problems in life.

    3. deplorado

      Thank you, R – that was my takeaway too.

      I was surprised that almost no one else expressed such understanding of Henwood’s article – but it seems that we are not privy to a lot of interpersonal background, inaccessible to a regular reader but helpful to the initiated towards accurately understanding Henwood’s intent.

      Somehow though I think Jacobin’s intent is to elucidate and make readers think and Henwood’s article is not indicative of a negative editorial tilt, or carelessness, on MMT on Jacobin’s part.

  9. Synoia

    Can we add a Trade Section to MMT, where a trade deficit is denominated in a Foreign Currency, and what pressure that put on the country with such a debt in at least two scenarios?

    1. The Current WTO trade regime
    2. Policies by the country to encourage “Local Manufacturing”

    And the implications of reverting to (2), as was extant up to the Neo-Liberal revolution of Thatcher and Regan.

    Without that discussion MMT is relevant only to the US, and Countries with trade surpluses; which is an tragically a short list, populated by many Oil Exporting Countries.

  10. Wukchumni

    Didn’t rather unlimited fiat money lead to unlimited growth, and is that a ‘good’ thing to want more of?

    1. paul

      It certainly hasn’t lately, as all the growth had gone to asset classes and those that own them.
      Growth in leisure time/engagement in society might well be good things.

    2. jsn

      Money is a political construct, it doesn’t exist in nature outside human agreements.

      Abba Lerner said something like, “economics made itself queen of the social sciences by choosing as it’s subject the domain of solved political problems.”

      An honest economics would take as its subject the psychology of the power relations inherent in the twin ideas of debt and credit: the growth you lament is the id enabled by money, a reified power relationship, and our ego’s ignorance of the inherent politics therein.

  11. Susan the Other

    I used to work for a woman who, when the news was full of chaos, would lament that we should get rid of the bad – but keep the good. That’s how I see MMT. It’s very rational, positive and logical. I haven’t read Mr. Henwood, but he looks confused. He could have lost his marbles… that happens and nobody ever posts any retractions – like “Jacobin would like to inform its readers that Mr. Henwood is not longer in possession of all his faculties.” I think maybe Nancy and DiFi are also losing it. (DiFi was cringeworthy scolding those kids.) I hope they read this post by Randy Wray. It is so good. Rich people are freaked out over more than taxes. If the ghost of the gold standard and deficits requiring high interest payments (to them) is abolished – busted – then what’s a rich person to do? Their taxes might come down all by themselves. I think Marx was a frustrated Prince. He himself was pretty reactionary. Unlike some modern socialists whom I admire – like Wolfgang Streeck. There are open-minded socialists out there still. Love Kelton’s “People like Henwood think money grows on rich people.” Because the rich, whether socialist or capitalist, would rather see a bloody revolution than disabuse themselves of the fantasy that gold has value beyond its use as a commodity. We need a mass epiphany for everyone to wake up and realize that society, not gold, is the wealth standard. Like the environment, the value of society isn’t an ism, it just IS. And MMT sees this clearer than any.

  12. Sound of the Suburbs

    ZeroHedge is really ramping up the material against MMT.

    I would take it as a good sign, you are gaining ground and they are worried.

  13. Steven Greenberg

    I have been reading Michael Hudson lately. He is unabashedly Marxist and a proponent of MMT. So I cannot see any reason for advocates of MMT to disparage Marxist economics.

    In his book about Junk Economics, Hudson has a nice section near the end describing the roles of Capitalism and Socialism in a mixed economy. He has opened my eyes in many ways.

    Today i listened to David Harvey’s “Does Socialism Affect Freedom?” and came away with the nice thought that Socialism is the idea of providing basic necessities through the public domain. That fits nicely with Michael Hudson, and you might also see how the JG fits with that.

    So seemingly Marxists can see non-basic necessities as being provided through the private market mechanism. There are some things on which you can put a price on the value, and those are suitable for markets. The value of basic necessities should not be thought of in terms of monetary value, but should be provided by the government without concern for the private market.

  14. Mikerw0

    I would like to offer a different take (I read most but not all of the comments, so apologies if someone else made this point).

    Economics likes to call itself a science, which of course it isn’t. That said, it should act more like the sciences and when a prevailing theory doesn’t adequately or properly describe phenomena you go find a better theory and toss out the old. Netwon lasted centuries until Einstein proposed a better theory that better holds up to testing.

    Our predominant economic theories failed spectacularly. The fact that people still adhere to them suggests an agenda for many other than getting things right. The continuing domination of neo liberal economics tells me it’s as much a political tool to achieve an ends that works spectacularly.

    True economists would admit their theories failed and either search for one that works better or something totally new. From what I can tell MMT just does a way better job.

    1. Plenue

      However we aren’t dealing with some mystery of the universe here. We’re talking about money, a human invention, and where it comes from. Economics is such a dumpster fire of a profession that most of them can’t be bothered to actually go to a bank or the Treasury and ask how it all works. MMT is first and foremost an objective description of a man made process.

      That it gets so much push-back when at its core it’s literally just describing how account flows operate, step A. to B. to C., things it can and does verifiably prove, says absolutely nothing good about mainstream economics.

  15. John

    Pot. Kettle. Black.

    For Wray to accuse Henwood of strawman arguments is absolutely ridiculous. He spends paragraphs complaining about Jacobin wanting to shut MMTers out of the discourse, when they published Tcherneva’s reply the same day (it was more cogent than Wray’s). Then he accuses Henwood and Jacobin of “align[ing] themselves against the new wave of activists who have embraced MMT and the Job Guarantee as integral to the Green New Deal program” and then claims that Henwood “scolds” the “new breed of progressive politician—represented by Bernie and Alexandria.” Henwood and Jacobin are huge supporters of Bernie, AOC, and the Green New Deal and have written at length about those topics. Furthermore, he can’t claim Bernie and AOC to be MMTers. They are learning more about MMT and have MMT proponents as advisers, and AOC seems to be friendly to it, but they have not publicly endorsed MMT.

    While Henwood’s critique was not perfect, and Wray has made some good points here, there are very valid arguments that he made that were completely ignored by both Tcherneva’s and Wray’s short responses. And only one or two of the commenters here have responded directly to any of his arguments. The ad hominem attacks by Wray were worse than anything Henwood wrote…he thought that Henwood died? He doesn’t spend as much time on the internet as Wray does, but from a quick Google search I got that he has a radio show and has written books recently. The bit about the “aging Marxists” was also immature. MMT is finally getting some attention, but it has been nowhere near as influential historically as Marxism, so it’s a statement that rings pretty hollow.

    Wray’s bit on Turkey is pretty much comical: “I think it is most likely a mistake to issue debt in a foreign currency unless there is an identified source of the forex that will be needed to service the debt (for example, dedicated forex earned from exports). If you cannot exchange your currency in forex markets, and cannot earn forex, your best bet is international charity. Indebtedness in foreign currency will be a disaster.” It is very difficult for developing countries to issue debt in their own currency, and every developing country that I know of has a lot of (private and public sector) debt in foreign currencies. It’s unavoidable. MMT has very little to say about these countries. Henwood brought up the salient point that it is very US-centric, or at least that its very focused on monetarily sovereign countries. Tcherneva’s response was along the lines of “Bill Mitchell was barely mentioned in Henwood’s article and he’s Australian! Plus there was one other British economist that wasn’t mentioned.” MMTers are overwhelmingly American, and the few that aren’t come from a few other Anglo countries that are also monetarily sovereign. Even if MMT is correct and the US plus five or six other monetarily sovereign governments can run whatever kind of deficits they like, it means that the firms from those countries gain a sort of subsidy at the expense of their competitors in other countries, who do not have the fortune of being in the few countries that don’t have a lot of debt denominated in foreign currencies. Not really ideal from a social justice perspective. An exception to this would be fiscal stimulus in the US, which actually just subsidizes Chinese firms because of our trade deficit, something which MMTers seem to ignore.

    Keynesianism economics is entirely based on consumption. Any time the economy is not growing the way that it should, we need government spending to boost consumption. This model is completely unsustainable ecologically. Sure, MMTers might believe in climate change and a Green New Deal, but they ignore the massive amounts of emissions that are involved in such a transition. Massive amounts of energy will be needed to build the new infrastructure, from power plants to electric cars, not to mention the mining, waste, and other environmental impacts (and what are we going to do with all of the cars already on the road?) If we want to actually become sustainable, we’d need to drastically reduce our consumption, and that would lead to a huge loss in GDP and, subsequently, employment. Of course some MMTers would argue against the use of GDP, and I’d agree with them, but as long as we continue to exist within a capitalist framework, GDP will matter. As long as private corporations still control the means of production, they will have more than enough wealth and power to fight back against any liberal progressive capitalist government that tries to impose such constraints.

    There are plenty of valid critiques that Henwood has made that are ignored by Wray, Tcherneva, and the commentariat here (who haven’t really engaged with Henwood’s piece at all). MMT has little to say about the social relations that underpin capitalist economies and the class struggle necessary to impose the policies it prescribes (invented by a small group of academics); it simply tells us that through fiscal stimulus, we can solve our problems because we don’t need to worry about debt. What about Japan? In the past decade, they’ve undergone amounts of fiscal and monetary stimulus never seen before in the developed world, and the Japanese economy has barely nudged since. For an economy to grow, there needs to be private investment, and where government spending can encourage that, stimulus is effective (for example when the New Deal created the infrastructure in the West that enabled the settlement of people and businesses there, or when there was a lack of consumer demand and it put more money into the economy). But does replacing old train tracks with new ones create more jobs and growth in the long term, besides the temporary construction jobs? And what about when consumption has already been maxed out (huge levels of household debt?) Is more consumption through government debt really the solution? Keynesianism has little to say about the problems plaguing the real economy that brought us into this mess in the first place (namely, a falling rate of profit in the manufacturing sector).

    While it’s not good for the left to cannibalize itself, I do think that these discussions are very useful. There should be more dialogue between the different elements of the left; we will all gain from a better understanding of theory and the policies we wish to advance. Both sides of this debate, for example, agree on the need for a Green New Deal. Marxists have been around for a long time and are used to persecution; many throughout history have been barred from employment, imprisoned, or killed. The small, insular group of academics that comprise the MMT circle are less accustomed to criticism and appear to not handle it very well. Even NC, for instance (which is probably my favorite site on the internet), is supposed to be a “heterodox” economics blog, but only MMTers and Post-Keynesians appear to be allowed (I’ve only seen two or three posts from Marxists in the entire history of the blog). It seems that every critique against them is made “in bad faith,” as Yves claims at the beginning of this post. How exactly was Henwood’s critique “in bad faith?” He might not have been the most equipped to write such an article, but I don’t see anything wrong with his attempt to start the discussion.

    1. Yves Smith Post author

      Henwood’s attack is in bad faith because he clearly has not done the work to understand MMT. He falls back on depicting things as confusing because HE is confused, not that the MMT material is unclear or internally inconsistent. You have to turn your brain inside out from what is taught in school and what you read in the press. It took me a lot of work given my finance training.

      I’ve been on panels with Henwood. He is a deficit hawk despite nominally being a leftist. MMT makes a very compelling case not only that deficits by a currency issuer like the Federal government are not harmful, but that they are critical to the economy operating properly and will occur most of the time, as in fact has been true throughout US history. If you are a deficit hawk, you cannot acknowledge this line of argument. It’s like a religious fundamentalist endorsing gay marriage.

      Publishing a rebuttal particularly if the author of the rebuttal pointed to factual errors in the article, as Pavlina did, is NOT being evenhanded. It’s a way to avoid having to make a correction or retraction. It is clear that Wray asked for an opportunity to respond and was rebuffed. Given that he was mentioned most in the article, it’s bad faith for Jacobin not to have agreed

      In addition, I am getting tired of the misuse of the expression ad hominem. Ad hominem is attacking an argument by saying, “Oh this person wrote it so you should ignore it.” Henwood did that EXPLICITLY by trying to dismiss MMT by saying that Mosler and Ruml having strong finance backgrounds tainted the idea. That’s nonsensical and a classic ad hominem

      Wray’s eight points rebutting Henwood are a refutation bu

      1. burlesque

        @Yves Smith
        “It took me a lot of work…” This admission gave me more encouragement to keep slogging on through MMT materials for greater understanding. The only finance/economics training I have is from this blog and a few books. Thanks.

      2. Paul L.

        Yep, the “work” to understand MMT is why it is a useless construct for a political movement.

  16. Mike

    Very late to the game but I found Henwood’s essay persuasive and useful in connecting economic theory with political power. Wray’s response is a little too handwavy when addressing less powerful economies.

    One question I’ve struggled with: what is the role of debt in MMT? Since cash can be created and destroyed relatively easily, does that have any affect on how debts are created, paid, or forgiven?

    1. Yves Smith Post author


      Don’t misrepresent what Wray said. His response is not a handwave and you not liking it doesn’t make it so.

      This is not a matter of “less powerful economies” being made to borrow in foreign currencies. They do this voluntarily. No one put a gun to their head.

      The problem is smaller economies are too often tempted to borrow in another currency, almost always dollars, when they could fund or deficit spend in their own currency until they start creating too much inflation. Borrowing in another currency is very likely to lead to a currency crisis sooner or later when the country finds its desirable to lower its currency to increase exports or cool off domestic demand. Turkey borrowed massively in dollars (as BTW did Argentina) and analysts all attribute its currency crisis to its dollar debt overhang.

      Borrowing in a foreign currency is the government version of maxing out on your credit cards. They could still fund in their own currency but it has higher immediate costs and so they go for a cheaper-looking fix that will really mess them up later.

      In other words, your remark is a projection. You accuse Wray of doing something (a handwave) when it is you, not he, who is engaging in that behavior.

      1. Mike

        Thanks for the response, Yves. Henwood treats foreign borrowing as an inevitability that necessarily leads to political subordination and I went along with him, but you make clear that it’s a choice.

  17. Joe Well

    Re: a jobs guarantee,

    I just finished reading the near-future science fiction story by Greg Eagen “The Discreet Charm of the Turing Machine,” which is not great writing but I think a lot of people here would enjoy it.

    Spoiler alert: Eagen’s prediction is that if UBI and JG prove politically impossible, and most work is automated away, our tech overlords will find a way to manipulate middle class people into accepting a subsistence income and then spending it uselessly. For instance, one character magically wins a generous settlement in a class action lawsuit. Another gets a mysterious commission to write romance novels for an anonymous patron.

  18. Coffeebucks

    Randy Wray,

    Why avoid real assets that are included in double entry bookkeeping?

    It seems much better to just use correct double entry bookkeeping. Rather than, leaving tangible things out of the accounting.

    In some of Wynn Godley´s analayses, we learn, that the sum of net worth of all the sectors of the economy is equal to tangible/real assets. That seems too significant to ignore? This is because financial assets sum to zero if all sectors are added together. MMT seems to only talk about financial assets, that net to zero when sectors are added together. [1][2][3]


    1. Second to the last paragraph of http://evonomics.com/economists-dont-know-think-wealth-profits/

    2. Godley and Lavoie, Tangible capital and Net worth in Table 2.7 on p. 44
    First tow lines of the table are tangible assets and the rest are financial assets (paper).

    3. Godley and Lavoie, Fixed Capital in Table 11.2 on p. 360

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