Yves here. Economics was called political economy before its practitioners adopted scientific pretensions. And I am not sure I agree with the proposition that MMT practitioners regard their role solely or mainly as didactic. People have to have a new approach presented to them for them to consider it; given that macroeconomic policy and Federal budgeting are rooted in orthodoxy, no one is going to accept MMT just because someone said so, particularly when the “someones” aren’t parts of big brand name economic faculties. The fact that they’ve spent a lot of time blogging, writing op eds, speaking on TV, is consistent with engaging in advocacy.
I also think MMT practitioners know their views threaten rice bowls; anyone who has read Kalecki’s classic essay on full employment understands full well why most businessmen would oppose a Job Guarantee. I suspect that they would contend that their largely-below-the-radar approach has been quite successful. It’s only recently that big guns in the mainstream have gone on the attack.
By Thornton Parker. Originally published at New Economic Perspectives
The way a problem is seen can determine how or even if it gets solved. When the French engineer, Ferdinand de Lesseps, was picked to build the Panama Canal, he saw it as another excavation problem as his Suez Canal had been. But Egypt was flat and Panama had a mountain.
When the United States took over the job, John Stevens, who was put in charge, saw it as a railroad problem. The biggest task was to move ninety-six million cubic yards of rock and earth, as fast as the fifteen giant steam shovels cut them out of the mountain, from the Pacific side of Panama to the Atlantic side for building a dam and raising a lake that would be part of the canal.
The MMT Problem
Developers and promoters of MMT have seen their task as a teaching problem; explaining how America’s sovereign money system works to those who still believe that money is a scarce commodity that restricts what the country can do. Their assumption has been that when more people, particularly political leaders, see that scarce money is not a true constraint, a new world of possibilities will open up for building a brighter future.
But what if those who seem impervious to the new knowledge are resisting because they see very clearly how it can lead in directions counter to their interests? Evidence that they have wanted to keep money scarce and under their control goes back at least a hundred years. (And longer if you consider the Civil War.)
In The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace, the historian, Eric Rauchway, tells how Keynes saw that under the terms of the treaty ending World War I, Germany had no chance of rebuilding the healthy economy it would need to become a stable democracy. He proposed that Germany should float a large bond issue. Seventy percent of the proceeds would be used to pay the victors reparations, ten percent would be used to retire outstanding German bonds, and twenty percent would be used for rebuilding the country. The bonds would be made attractive to investors because Britain, France, and the U.S. would underwrite them.
England and France agreed, but Woodrow Wilson did not. His letter rejecting the proposal said that Congress would not approve of the proposal and that reconstruction should be funded through “the usual financial channels”. Rauchway’s research turned up the fact that the letter was written by Thomas Lamont, a J. P. Morgan partner who was helping Wilson. In short, the banks wanted to dominate and profit from funding Germany’s recovery.
As a passing note, those who oppose MMT because money printing by the Weimar Republic led to its runaway inflation, probably don’t know that the catastrophe resulted from actions by their banker counterparts a hundred years ago.
Rauchway goes on to tell how bankers fought Roosevelt and his New Deal for the rest of his life. Two of his major economic accomplishments were ending the use of gold for international settlements, and having the U.S. Treasury take over and manage this country’s currency. Both were keys to ending the depression and winning World War II which he saw was coming before he became president. MMT promoters are continuing Roosevelt’s fights and I commend Rauchway’s book to them.
From what I have read, MMT promoters have not discussed the role of banks very much. But the number of dollars they create by making loans is many times greater than the number of new dollars the government creates by paying out more than it takes in with taxes. Banks see large government public funding operations as competitors. Except when they needed bailouts, banks have fought government intervention in what they thought of as their economy for more than a century. This will continue until the next recession when they may get in trouble again and will be in weak positions to bargain. Until then, fighting them is probably not a good use of MMT promoters’ time.
Many explanations of MMT include arguments with economists who have opposing views as if their views could be changed. But the case for MMT is being tried in the court of public opinion and there is no judge. The opposing economists are acting as counsels for Wall Street, banks, and other big money interests. It is not in their natures or job descriptions to abandon their clients and agree with the MMT challengers. This is particularly true where the clients have deep pockets and have helped the counsels get to where they are today. Books and dissertations are waiting to be written on how money has contaminated academic freedom and open discussion of economic issues on their merits.
Seeing MMT as a Political Problem
If the preceding is correct, how should MMT be seen, and how should it be promoted? I think of MM as an enabling, leadership tool for situations where resistance does not prevent its use. If early experiences are successful, it should be expanded where the political cases can be won. Thus, I see MMT as a political problem, both for those who promote it and those who resist it. Others may see it differently, and there should be brisk discussion of alternative views.
In the second part of this series, we will consider where this view can lead.