John Carney has written a series of excellent articles pertaining to Modern Monetary Theory and why he believes there are many similarities between Austrian economics and MMT.  I’ve previously described some of my issues with Austrian economics (see here and here), but I must admit that the Austrian school makes many significant contributions to the field of economics.  For instance, I have previously expressed my displeasure (or uncertainty) regarding the MMT Job Guarantee due to praxeological elements.  This is a component of Austrian economics that is particularly strong.  When it comes to understanding the uncertainties surrounding human behavior the Austrians make many excellent contributions.  Most mainstream economists don’t appreciate the fact that human behavior can’t be modeled in pretty equations that lead to best selling textbooks.  Unfortunately, it’s this lack of provable mathematics that often leads to criticism of Austrian economics.  But while there are certainly elements of Austrian economics that MMTers agree with there is one large hurdle….

I agree with John that there are more overlaps than most presume.  But the largest hurdle is substantial.  MMT is based on the state theory of money.  We acknowledge that anything can be money.  Gold can be money, pieces of paper can be money, credit cards can be money, a simple promise can be money.  But what MMTers are very precise about is the fact that a sovereign nation with endless supply of currency in a floating exchange rate system names that which is money as defined in economic terms within that particular nation.  In the USA, the US government deems “money” to be the US dollar.   You might claim that gold is money (and it certainly is in some regard), but if you take a bar of gold to the IRS on April 15th they will request that you exchange that gold into US Dollars before they can extinguish your tax liability.  In other words, while gold might be money to you and your neighbor, it is not money when it comes to extinguishing your liabilities to the Federal government.  When it comes to transacting within the US economy, this is the crucial distinction when it comes to “money”.  But there is a more complex disagreement in these schools of thought.

MMTers understand that “money” is always a social construct (whether it be gold, pieces of paper, social agreements, etc).  In the same regard, money is always a debt that helps fulfill some particular social construct.  And since “money”, in a modern society, is always a creature of the state (as described above) then the “money” that a government creates is merely a social construct of the society that creates that government.

As human beings we have evolved to the point where we reside in these incredibly vast and complex societies.  We are, after all, the ultimate pack animals.  We like to think we’re these independent creatures, but we’re actually incredibly dependent on one another for our survival and success.  And as a society, we choose to maintain some semblance of order, rules, law, social structure, nationality and economic coordination through a centralized government.  We can quibble over the size of that government (I tend to prefer less government than most other MMTers), but we cannot ignore the reality that governments exist for very practical purposes and will likely always exist in some form (if for no other purpose than to provide a legal system and a coordinated military).  Austrians tend to veer towards the misconception that governments are these exogenous entities that infringe on our personal liberties when the truth is that we create governments for some public purpose.  We do not create governments to impose hardship on ourselves.  That’s not to say that governments can’t become corrupt or excessive, but it’s rather naive to claim that a moderately sized government cannot provide some level of services that benefit the society as a whole.

The most hardcore of Austrians take this myth to another level in believing we can reside in these “Crusoe Islands” where no government is necessary at all.  Never mind that no such fantasy island exists in reality….The problem is, this totally misunderstands the evolutionary aspect of society, government, money and why we have the social constructs and infrastructure that we do today.  Austrians want to attach “money” to a shiny rock or the detach it from the reality where humans reside in complex social structures which require complex entities to help these societies achieve goals.  Both ideas are misguided as they misinterpret the intricate link between money and society.

Ironically, the greatest strength of Austrian economics is also the cause of its broadest misconceptions.  Ultimately, they misinterpret human nature and the very nature of the societies in which we reside.  The idea that the human being can survive and thrive entirely independent of complex social constructs is a sheer myth.  Even worse, they assume that small factions of the society can regulate and behave rationally and responsibly enough to eliminate the need for government.  As I often say, government becomes corrupted when the power of the many falls into the hands of the few.  This applies to the small factions on Crusoe Island as well.  The point being, in trying to prove this ideological argument they create myths that lead people to believe that we do not need strict social constructs to survive.   In doing so, they try to separate a society from the social constructs (thereby breaking the links between society and money) that make up its very essence.

This idea of money being a creature of the state is a substantial hurdle that some Austrians like John Carney are willing to overcome.  But I fear most Austrians cannot overcome their political biases that lead them to conclude that government is always bad and therefore, the state issued fiat money is always bad.  And in doing so they misinterpret the nature of society, the role of government in society and the “money” that governments create.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. You make some good points. At the end of the day, there is debate over the nature and extent of public goods and whether incentives are structured to create them. Some Austrians would say there are few public goods – some even say a common currency is not a public good – although MMTers would disagree. Others would argue that, even if public goods exist, there is little incentive to economize on public spending. In some senses, the euro situation is a classic example, where some countries abused their privileges and the resultant damage could potentially outweigh the positives of a single currency.

    MMTers, while recognizing public goods, do not seem to have a good theory on why government should ‘do the right thing’ and not abuse its monetary power. Yes, bad things will happen if they don’t but that has never stopped the elites in the past. Why do some countries display prudence and others profligacy? How do we recognize it when it occurs (I.e. not in hindsight)?

    • The other big failure of Austrians, besides their contempt of group survival traits (public goods are a form of that) is their disingenuous use of the fact that human behaviour is complex.

      Instead of embracing complexity and analysing aspects of it scientifically (which is very much possible and desirable), Hayek just throws up his arms, declares the human economy unknowable and goes into crazy metaphysical speculations while being freed from the burden of scientific rigor and being freed from the obligation to provide … proof.

      This type of sloppy thinking is the common cop-out of cults and sects.

      • You can measure certain aspects of human behavior in certain circumstances. However generalizing it on every circumstance and on a group as a whole, then putting it into calculations for calculating economy is nonsense.
        That’s exactly what economists do, they approximate human behavior through one parameter in a linear function and then they make projections for next 10 years.
        The inability to calculate humans in terms of macro economic environment and society is a fundamental mathematical problem which we encounter in every complex system. Once things get out of linear range, you feel the pain. That’s what most economics don’t understand, since their math skills are modest, to put it gently.

        As for the article. I agree with the author that it’s a naive perspective that government can’t do any good at any given moment. But in the long run, government will always suffer from poor competence of people governing it.

        • Most modern economic models are neither linear nor do they pretend to be able to extrapolate 10 years into the future. They are more like climate models: they need supercomputers to run and have increasing inaccuracy into the future.

          Weather systems are immensely complex as well, still objective science is able to do a pretty good job with it.

          But even linear, simplified models tend to do better than Austrians when it comes to predicting (hyper-)inflation. Austrians will be worth listening to once they have the predictive track record of Roubini or Krugman – their current track record is worse than that of a random coin toss.

          • Your comparison shows your lack of basic understanding of the nature of the problem.
            I’ll assume that you’re talking about weather forecast for couple of days. If you’re talking about global warming models in next 100years, then the comparison is good, both economic and long term climate prediction models are not scientific, and their predictive power is zero (and it has nothing to do with computing power we have available, but with our lack of knowledge about the system).
            When giving a short timed weather forecasts data you have is almost exact, the physical processes governing those systems is exact. So when modelling the short timed forecasts, you’re solving physical equations, based on scientific method, measurements, fundamental knowledge about the world, where the parameters that you don’t know don’t know are less important on short time scale. And even then, since you can’t measure every parameter exactly nor can you measure them all, your long term prediction powers are close to zero.
            When you solve economic models, you assume that your parameters represent the real knowledge of the world. And that assumption is very problematic. Imagine for example if you would tried to predict weather and your temperature measurement are off by 10°C. The predictive power of such nonlinear model would be zero. That’s what you get when you associate your parameters to humans. I bet that Gadafi and Mubarak also have supercomputers but they couldn’t predict when people would take them down.
            Something it’s not science only because it has cool equations. One needs to know when it is valid to use an equation.

            I would give you an example of a more simple system then economics one, but still out of the reach of calculation. All the data, from all the games, from NBA is available online, and when I say all the data… I mean, the coordinates from where which player shoot the ball to the basket, the usual statistics etc… much, much more then you’ll ever have then for economics. Why don’t you make a model that would predict who will be the champion? The best you can do is get the following result:
            Miami Heat 24%,
            Oklahoma Thunder 15%
            NY Knicks 14%
            Dallas Mavericks 10%…
            Based on what do you think that your prediction is better then if one fan who follows the game for years gives his prediction (no mathematics at all)?
            Is that science? How do you know what are the real probabilities? Maybe the real probability is that Chicago will win the championship with 92%.
            You could still make a model that would give better predictions then betting houses, but that only means that your prediction on average is better then their prediction on average for the games you bet, it has nothing to do with predicting the results of individual games and the data available is by far much superior then it is for US or World economics.

            In any case, Austrians may not know the reasons why equations don’t work, but they are right about them not working.

    • “Why do some countries display prudence and others profligacy?”

      governments tend to abuse their power to do public good and act in the interest of a subset of the public when that subset has undue (undemocratic, opaque) control of that government.

      that doesn’t make the concept of government flawed beyond redemption it only calls into the question the correctness of that particular state’s government.

    • MMTers, while recognizing public goods, do not seem to have a good theory on why government should ‘do the right thing’ and not abuse its monetary power. Yes, bad things will happen if they don’t but that has never stopped the elites in the past.

      MMT does not propose to fix human nature. The elites we have today are already abusing the system we have now. Why would you expect MMT to solve this problem? Does Austrianism propose to fix it? The very same elites would trample all over an Austrian system, perhaps with even greater ease because there would be no democratic safeguards over private control/hoarding of resources. It seems Austrian economists love to ignore the obvious dangers of corporate hegemony and point solely at government. Which accounts for Austrianism’s popularity among corporate types.

      MMT has descriptive elements (how the monetary system works) and prescriptive (what we should do with it). I think you’re ignoring the difference.

  2. This idea of money being a creature of the state is a substantial hurdle that some Austrians like John Carney are willing to overcome. CR

    Actually, government money (inexpensive fiat) is absolutely essential for a true free market in private money creation else whatever money or money forms that are accepted by government will have an enormous advantage over those not chosen.

  3. Cullen
    Is your version of MMT moving away from those who developed the theory in the first place? My understanding is that the JG or full employment is essential to the theory.
    We should be told.

    • It has never been my intention to move away from the “MMT Theorists” as Bill Mitchell refers to them. Carney very clearly stated that he learned MMT from me and Bill says he very clearly disapproves of the “source” Carney mentions in his original post. I don’t know why Bill Mitchell is so upset about my contributions. He made the same vague inferences when Paul Krugman responded to my primer. I’ve generated SUBSTANTIAL attention to MMT thinking as my audience is by far the largest in the MMT group. So even if Bill disagrees with my work I have no idea why he’s so upset about people understanding his life’s work due to my contributions. I’m not expecting a thank you (I don’t even talk to Bill Mitchell at all), but I’m a little surprised at how closed off he is to young economists and analysts adopting some version of his work. You’d think he’d be more open about it. I know Warren and Scott quite well and they’ve been nothing but huge supporters of my contributions.

      I do have some disagreements with the “founders”. Primarily the idea of currency demand (via production, currency mgmt AND taxation – as opposed to just taxation) and the JG. I’ve learned a great deal from the “MMT Theorists”. But even they admit that their theory has holes in it. After all, it is being developed by a hand full of people. It’s not perfect and I believe that one of the reasons why people like Krugman and Carney are citing my work is because my work is much more agreeable to their thinking (for whatever reason). If Bill Mitchell is not going to be open minded about young economists (and people with huge megaphones) adopting their work (or some version of it) then they’re better off writing an MMT manuscript and burying it in a hole in Afghanistan.

      • Cullen,
        The biggest reason you are a great MMT source is that you are readable. Billy’s posts are too long for non-academics. You have broken down MMT to a few very learnable lessons. It wasn’t until I absorbed your stuff that I was able to take on Mitchell’s. BM has given you credit in some of his posts. I would surmise that he has a very favorable opinion of what you are doing for MMT. Don’t go by what you read today. There is always a difference og perspective between academics and the real world.
        Keep doing what you’re doing!

      • Primarily the idea of currency demand (via production, currency mgmt AND taxation – as opposed to just taxation)

        For some reason this pinged back your hyperinflation paper in my brain. Could ’0 currency deamnd’ be considered a synonym for hyperinflation- where (domestic) currency demand is a binary.

        • The thing is, you don’t have a fiat currency system without productivity and demand for goods and services. This is a simple point of logic as Zimbabwe proves. but some MMTers will take the extreme view that all that state needs to do is impose a system of taxes….Of course, if there’s no productivity to tax then do the math….

          • I can think of a significant reason why Cullen seems to have the largest MMT following on the internet:

            He engages the followers of this website! He doesn’t just post material and then let others comment. He takes the time to PARTICIPATE in the discussions. This is crucial. Take a look at the comments section at New Economic Perspectives. There’s great material on that blog, but the crew at UMKC doesn’t engage the commenters. I think if they did then they would see their viewership and followers increase.

            • Ding, Ding, and MF’ing Ding.

              @Cullen- If you ever retire from the markets (yeah I know it won’t happen, you’re a junkie) & blogging (please don’t) and refuse to go into politics, please become a high school teacher.

      • Maybe I am misreading the MMT founders about demand for currency. I’ve always thought taxes drove the initial demand for a script and then became part of an array of different factors of demand for the script.

        • Warren has told me that taxes are the equivalent of holding a gun to a man’s head. Ie, we have no choice but to use the currency. I don’t really agree there. I think if the people decide to say “fuck this currency” then that’s it. Game over. Govt guns don’t matter at all unless you have productivity. So, in a strict sense, productivity leads the tax regime because it makes taxes possible in the first place….You don’t create a fiat currency without productivity so the natural progression of things is for productivity to supercede taxes. After all, monkeys don’t use fiat, but they use debt. And if they started using fiat they’d have to then create a tax. But that doesn’t mean they weren’t already productive and using “money”….

  4. Bill Mitchell makes the point today that the buffer stock anchor of the Job Guarantee is central to MMT. It is not just an add on.

    So if you’re not with the Job Guarantee idea, then you’re not talking MMT. You are talking about some other economic theory that lacks a stabilising nominal price anchor system.

    • Someone needs to inform Bill Mitchell that he didn’t invent the state theory of money. MMT is Knapp’s work modernized. Mitchell’s only real contribution has been to apply the JG to it. No one needs to understand the JG to understand the state theory of money. The fact that Mitchell thinks MMT is all about the JG and that you can’t understand or be a MMTer without the JG is purely playing politics.

    • How is any debate on a JG as policy prescription going to gain traction when the other side is still saying we can’t do it because we’re broke?

      Framing the contest of ideas in terms of MMT monetary descriptions is the essential prerequisite. Accomplish that and the rest becomes much easier as poverty and unemployment quickly become indefensible policy goals without TINA to hide behind.

  5. “…Even worse, they assume that small factions of the society can regulate and behave rationally and responsibly enough to eliminate the need for government…”

    Small means less than big, but more than zero, that is local very small government structures. Some form of government is essential, otheriwise we have complete anarchy.

  6. To emphasise Neil’s point above – from Bill Mitchell:

    ….Those who haven’t come to MMT from a solid background in macroeconomics can easily just think the JG is a tacked-on “leftist” or “social democrat” policy aimed at providing jobs to those who cannot find them. So I often get the view expressed in E-mails etc that the JG is all very nice but peripheral to the deep financial and monetary insights that MMT provides and should be culled from the writings or de-emphasised so as not to alienate the hard financial market types……
    The reality is that the JG is a central aspect of MMT because it is much more than a job creation program. It is an essential aspect of the MMT framework for full employment and price stability.

    I would note that the “MMT school of thought” is different from the various blogs that have developed since the academic material emerged in the 1990s which draw on that conceptual material. There are many “blogs” now that are sympathetic to MMT or suggest they espouse MMT which have been derived from the early academic work that a few of us (Warren, Randy, Stephanie, Scott, Matt, myself and a few others) developed. I always agree with the contributions of the early MMT writers but often disagree with some of the statements that the blog writers outside of this group make in the blogosphere.

    I consider the early MMT writers to be the MMT theorists.

    As Neil says above: “if you’re not with [inclusive of] the Job Guarantee idea, then you’re not talking MMT”. Bill Mitchell suspects John Carney has never read his works and says why!


    • Bill Mitchell is the man when it comes to MMT. I think a point to be made is the job guarantee is a prescriptive aspect as opposed to the descriptive facts of our monetary system. The JG does not yet exist, but all the other MMT points that describe how a central bank coordinates with the reserve banks do exist. Banks do not lend reserves. Government spending is not revenue constrained. We do not have to borrow from China. Etc.

      • Right and the most efficient fiscal policy tool, adjusting the payroll tax rate, is already federal policy! Its much more practical to argue for converting the existing payroll tax holiday into an automatic counter-cyclical tool than to argue (and wait) for a new federal jobs program that will be killed on “anti-big government” grounds before anyone even gets to the merits of of buffer employment stock arguments.

        The way to back into it is by calling it workfare and point out that it would replace welfare. But even that would take a while to enact (ironically, just by reframing it as welfare reform, much of the conservative opposition would dissipate but would be replaced by pushback from liberals who think “workfare” is a form of slavery). In the meantime, adjusting payroll taxes quarterly– automatically cutting taxes when U3 goes up and raising them again when U3 goes down– could be enacted almost immediately within the existing tax infrastructure simply by revising the existing payroll tax holiday law.

        • I’m with you, beawulf. I’d actually go one step further and consolidate the payroll tax into the existing FICA structure (including removing its income level cutoff), as the payroll tax was formed on the basis of Greenspan’s regressive policy prescriptions in the first place. Do away with it, and THEN implement automatic counter-cyclical adjustments in income taxes across the board.

  7. G’wan – keep repeatin’ the MMT lie…one of these days you’ll be invited on CNBS.

    It hurts so much you can taste it!

    • Please don’t ever change. I’ve said it before and I’ll say it again- if you do some sort of stage show or stand up I’ll be the first in line to buy a ticket.

      “Angry because I’m wrong” could be the name of the show.

      • +10, and that doesn’t even include the extra points for good taste in beers.

  8. Not sure who died and made Bill Mitchell king. The logic of MMT certainly permits a JG program but I think it can be coherently argued that lowering and raising taxes (modulating fiscal deficits)will also regulate the economy.

    • I don’t think he is just talking about regulating the economy in general, but preserving price stability. He argues that there are only two broad approaches to setting a nominal anchor for prices, and that the job guarantee/employment buffer stock approach is more efficient and more beneficial than the alternative mainstream aproach.

    • From Wikipedia (source prestige is irrelevant when content is correct):
      “Bill Mitchell, from the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, Australia, refers to modern Chartalism as Modern Monetary Theory in the body of work he has developed in the field.”
      “Cullen Roche, a California based investment manager, published one of the most widely read pieces on MMT titled “Understanding The Modern Monetary System.” [29] Roche has become one of MMT’s most vocal proponents and has engaged Paul Krugman in several debates on the subject of MMT. “

      • Chartalism was developed by GF Knapp. I think it’s funny how MMTers think they created some totally new. All they did was apply Knapp’s theory to the modern economy. And Bill Mitchell is using it to push his socialist agenda.

        • I know that, but MMT is credited to Bill Mitchell.
          Political implications are not in the scope of the article or the discussion.
          I also agree with Chewitup that Cullen is readable. Mitchell is hard to swallow.

          • I’m not getting into an argument, just answering Jason’s question.
            Whether or not the MMT = JG is above my level of understanding.

            • I don’t intend to be argumentative. The facts speak for themselves. Unless Mitchell believes the JG explains a modern fiat monetary system then it’s abundantly clear that his post today is contradictory to past statements. He is trying to do precisely what causes most people to reject MMT – he is politicizing it by trying to connect its descriptive aspects to its prescriptive aspects. And it’s one of the reasons why his message is not being disseminated to the extent that mine is. I’ve been writing about MMT for 3 years. He’s been writing about it for 2 decades. And yet people like Carney, Krugman and Weisenthal are constantly referring to my work. Why do you think that is? It’s not only because I am “readable”. It’s because my work is politically unbiased.

              • Bill Mitchell’s lifework is predicated on the JG so of course he is pushing its connection with MMT. The only problem is that you seem to have caught him in a stone cold lie. Unless he wants to base his economic work on the idea that a modern fiat monetary system can only be understood by understanding that a government needs to employ everyone who is unemployed. No one would believe that and you’d be totally discredited if you published academic work, but that’s what socialists do. They push their political agenda on other people and try to pretend that it’s fundamental to understanding the world we live in. Bull sh$t.

                • I don’t think anyone owns the rights to MMT, and there is no definite gospel that is the MMT scripture. But there are definitely some canonical texts. One of those texts, for example is Randall Wray’s Understanding Modern Money: The Key to Full Employment and Price Stability – and that text certainly contains both descriptive and prescriptive elements. Is MTT a purely descriptive account of the fiat money system? Or does it contain prescriptive elements as well? I think either answer can be justified, but there is no call for saying that one of the main formulators of MMT is a “liar” because he happens to think some of the prescriptive elements inherent to MMT.

                  • So answer me this. BM says: “(MMT) is a statement of the way the system functions and what opportunities (and consequences) are available to a government that issues the currency as a monopoly.”

                    Do we need the JG to understand how a modern fiat currency system works? Obviously not. BM is just pushing his personal political agenda. No one needs a government job program to understand how modern fiat monetary systems operate.

                    • Precisely. He’s mixing up the theoretical prescriptive aspects of MMT with the fundamental truths in the descriptive aspects. I don’t have a problem with prescriptions, but boy is it misleading to imply that one can only understand a modern fiat currency system by understanding potential govt policies. This is the sort of stuff that detracts from MMT going mainstream. Anyone with a bit of common sense sees right through it and says “well, that theory is pure ideology”. And if it’s not in-line with your own personal ideology then you reject even the factual parts of MMT (because the policy prescriptions have poisoned the fundamental truths). It’s really destructive and explains in large part why MMT has had so much trouble being accepted. We’re shooting ourselves in the face with this sort of commentary….

              • This all goes back to why many people hate the term “modern monetary theory.” Maybe the theory part comes from an inclusion of the prescriptive with the descriptive and the latter should be broken out specifically: either as chartalism, state theory of money, modern money analysis, etc.

              • In our current political environment there’s only one way for MMT to become widely accepted, and that’s to amputate any elements that might actually benefit the average citizen. This will be done mostly without conscious thought, in the same way that fish don’t have a word for water.

                Even if we quibble with the form of Mitchell’s objection, his recognition of this is natural and timely.

                I still think a widespread understanding of MMT is beneficial. But JG proponents need to understand that anything about MMT that might benefit the middle class will be nuked from orbit. The middle class have been losing ground for 40 years. Can MMT slow the eroding tide? Not if mainstream academics can help it. Know this, and let the fight begin.

          • Cullen:

            I don’t know that Bill “clearly disapproves”. He stated “I always agree with the contributions of the early MMT writers but often disagree with some of the statements that the blog writers outside of this group make in the blogosphere”.

            We have to be able to have room for disagreements in order to have dialogue.

            Bill has also praised the non-academic blogs for spreading the MMT message in earlier posts.

            He also makes it clear that the Job Guarantee (JG) is a “central plank in the MMT policy framework that seeks to maintain full employment with inflation control.” So, it is a policy component that derives from an objective to maintain full employment and low inflation.

            What this represents in theory is the notion of buffer stocks applied to labor markets. I would say that is one of Bill’s major contributions to MMT theory.

            A macro model that does not incorporate labor markets is a poor one indeed.

            This is NOT saying that the JG is a “statement of the way the system functions”. I think you are unintentionally mis-characterizing Bill’s point.

            Perhaps because labor markets are so personally close to the non-academic blog readership, it is not surprising that financial blog sites accepting considerable parts of MMT might avoid discussion on labor buffer stocks and the impact on price stability and monetary policies.

            You have to ask the question: What if (by a miracle) somehow the public and government got their act together and decided to truly embrace MMT. That would mean the government would have to spend a greater amount than it currently does.

            What would it spend on that would not put excess pressure on prices and yet still lead to full employment?

            The US has a tradition of government spending on high-end labor, that is expensive labor (programmers, engineers, overpaid managers) or labor requiring large capital expenditure (space programs, military).

            This tends to create inflation at the high end of the wage market and implies some kind of “trickle down” effect to generates jobs at the low end. Most importantly, it does not create an effective buffer stock, which is a required method to manage price stability for any commodity.

            You really need to dive into this a bit to understand the implications.

            I think that Bill does a great job of pulling all the various pieces together into a coherent package.

            I also think that the Job Guarantee would do a great job eliminating two sources of moral hazard: 1) work instead of government unemployment payment, 2) force the financial sector to clean up its mess faster – the “natural” tendency towards a slower economy after a crisis would be mitigated – a slow economy provides more excuses for government to bailout financial firms and allocate its money creation capabilities to the financial sector.

            But I am willing to have a reasonable discussion and debate on the JG.

            Bill’s job is not to win over the masses, that is your job. His job – with great success – is to win over the influencers who win over the masses.

            • It’s no one’s job to win over the masses. We’re not ideologues pushing some belief on unwitting fools. We should be honest and informative members of our society whose job it is to provide rational and unbiased explanations based on our expertise. When you start implying that you can’t understand the monetary system without understanding a govt jobs program then you are being politically biased. There’s no two ways around that. No one on the planet needs to understand modern fiat monetary systems by understanding large scale employment programs.

              Bill and other MMTers have been very explicit about the fact that MMT has descriptive aspects and prescriptive aspects. Scott’s primer, probably the best one out there, is very precise about this:

              “At its core, there are two parts to MMT. The first is a description of how the monetary system actually works, mostly focusing upon interactions between the central bank, the treasury, and the financial system, though this part also requires a very thorough understanding of the Minskyan-related literature of many MMT’ers (I note this because so many critics of MMT ignore or not aware of the vast MMT literature on financial instability and reforming the financial system). The second is a set of policy proposals that arise from this description and is largely outside the scope of this particular post but which can be found in any number of MMT publications and blogposts (and, again, including the sizeable MMT literature on reforming the financial system).”

              When you try to imply that the prescriptive aspects ARE the descriptive aspects then you’re politicizing the conversation. You’re doing exactly what I accuse other schools of thought of doing. No one in the world needs to understand large govt programs to understand how the state theory of money works. And if MMT = 30 million govt employees then that’s something I am certainly hesitant to be associated with. We’re mixing politics with fact and in doing so we are marginalizing our own strengths.

              I haven’t had huge success in spreading the MMT word because I don’t understand all of this extremely well. I’m not going to tell other MMTers how to talk about MMT, but I’ll tell you one thing – this theory isn’t going anywhere if you start trying to claim that you can’t understand the state theory of money without understanding the JG. And if all MMT amounts to is a huge govt job’s program then good luck selling that to anyone. Cause I certainly won’t do it….

              • Keep in mind Cullen that Mitchell (and Randy Wray) are unapologetically “progressive”. As academics and ideologues, they cannot separate out their politics. I think you and Warren are very good at understanding all of the political perspectives. That is why you are “readable”. Most of us that follow your blog know the JG will not be a plank on any political platform anytime soon.

              • Cullen

                “It’s no one’s job to win over the masses.”

                Sure it is. Getting more people to question the “answers” they have been hearing for decades is a big part of this and other MMT blogs. Once more people understand they will demand different answers.You are trying to educate all of us better (and doing a great job) so you may not like the term win over but it is what you are doing.

                “When you start implying that you can’t understand the monetary system without understanding a govt jobs program then you are being politically biased. There’s no two ways around that. No one on the planet needs to understand modern fiat monetary systems by understanding large scale employment programs.”

                When the answer to the question about why there are so many unemployed people is that 1) They arent trained enough or 2) They are choosing leisure or 3) They are overpaid (sticky wages)….. there is a problem. The majority of people know they were laid off for one reason…… their previous employer couldnt justify keeping them because whatever product or service they sold was in less demand….. PERIOD!. So once we get past the notion that we dont have enough money to employ everyone who would like a job people will start asking why cant they do something to earn a paycheck?! Sure a removal of payroll taxes (without a termination of SS payments) and other private sector taxes will get us part of the way there (maybe ALL the way) but the fact remains that after reducing the taxes( as is suggested by Bill, Warren, Randy etal), we still must have a JG of a sort in order to get to a place where all INVOLUNTARY unemployment is eliminated.

                If one is in favor of having any level of involuntary unemployment, I have to ask why? Why should a society wish to have people who wish to do something….. anything…… productive, unable to do so, except as out of mean spiritedness?

                Once you lose the unaffordability/dont have the money argument you have no reason not to have such a program in place.

                Not to put words into Mr Mitchells mouth but I believe this is part of the sense in which he means that a JG is a necessary part of understanding MMT. The people will demand it if they understand MMT and the private sector cant “afford” them.

              • Cullen:

                I misunderstood your statement: “And it’s one of the reasons why his message is not being disseminated to the extent that mine is”. I wouldn’t expect an academic to have the impact (or audience) that someone commenting on the markets. Very few Krugmans out there.

                At any rate, this post and comments has generated a lot of good discussion in the JG with few “damn guvmint” invective. Nice to see that we can have a civil discourse on controversial subject.

                It might very well be possible that a government following fiscal spending based on MMT understanding would generate enough demand to get to full employment without a JG. Certainly unemployment would be lower.

                I still prefer the policy of a job vs. unemployment benefits. And if it were implemented as a permanent JG, you could eliminate the minimum wage law, as the JG would set the floor. And for high school graduates, it would be a good transition into the private sector. As long as the vast majority of jobs were administered at the local level, I am not in favor of huge federal programs (although it would have to be funded federally). Also has the potential of reducing local taxes.

                So there might be 30 million working in state and local agencies, the alternative of 30 million on unemployment benefits is more attractive? That 30 million could help to generate enough demand to kickstart the private sector such that their time in the public sector would be relatively short.

                • I’m all in favor of the replacement of UE benefits for a small scale temporary JG. So, it’s not like I am oceans apart from anyone else here. But I don’t think the founders envision a small scale JG….They envision permanent full employment. Tough sell. Especially given the millions of unknowable variables that will result….

                  • Cullen

                    As I understand most of your objections to the JG aspect from past posts, they seem to center around a fear that the size of the pool could get “too large”,that we might not really be able to find enough truly productive work, that not getting the wage right might be inflationary and that we might be creating a permanent underclass that is happy to be unproductive, which will make the rest of us work harder to provide for them.

                    So lets compare that to today. Isnt the size of our unemployed pool too large? Arent we having trouble finding productive private sector work for these people? Arent there some, who even in our low inflation or deflationary environment, arguing to lower minimum wages or remove child labor restrictions (Yes Im talking to you Newt!) because they think high wages are a problem? Hasnt our current system already created a sort of permanent and growing underclass?

                    My point is that our current design already has the bugs you worry about from a new approach to employment. The privates sector never will have work for everyone who wants a job. By design our private sector firms are moving towards doing more with less people, thats how we make profits. So some entity must provide income for those not needed by the private sector.

                    Once people understand MMT, they will not take the “we cant afford to pay you” as an answer.

                    Maybe you dont like the phrase “job guarantee” . Maybe income guarantee is better.

                    I fail to see how providing the equivalent of 8$/hr for 40 hours a week (about 320$) can be inflationary? What products are these folks going to be bidding up the prices of? 320 a week will get you in the market for a low income apartment, basic food needs and maybe a used car. These folks will not be bidding up the prices of things that most of us gainfully employed people are seeking.

              • The people employed within JG are the ones otherwise unemployed. Just to be clear – you prefer 30 millions unemployed before full employment and better price stability?

                • I have directly stated otherwise. I am simply not in favor of the govt hiring people to perform unproductive forms of work for the sake of improving macroeconomic statistics like the UE rate. This says nothing about the true success of the economy. For instance, Japan’s UE rate has been low by any standards over the last 20 years yet their economy is still cited as having suffered two lost decades. How come this is never cited in all the discussions on Japan by MMTers?

  9. This is the number one reason why I love this blog! Brilliant piece TPC. If Karl Popper has taught us anything, it is that there is no one paradigm that adequately explains everything. In science, even math.

    This is especially true in economics, when so much is dependent on the unknowable quantity of human behavior. Personally, I like a blend of MMT and Austrian theories.

    It is folly to ignore the current monetary system and the advantages and flexibility it offers the currency issuer. It also is folly to pretend that being the reserve currency and a currency issuer allows one to go completely off the reservation of fiscal sanity.

    If someone would just step into the void, demand real regulatory reform, keep our deficit wide over the next few years with REAL government spending, i.e., infrastructure, and reform long-term entitlements and take a REAL shot at reforming the healthcare system, we could come out of this much much stronger.

    Alas, I think our politicians shall take us down the road to serfdom. Hayek was brilliant in that he recognized one thing: one cannot use socialism/government planning to run something like an economy. That ends in tears. All the government can do is what it is supposed to do in the first place. As TPC pointed out, the government is supposed to enforce the rule of law and ensure, as best as possible, a non-corrupt playing field. It can also incentivize risk taking and investment. It also can return a lot of money to the economy via stimulus/tax cuts, etc., to fill the void as the shadow banking system continues its inevitable collapse.

    Then, apart from that, the government needs to let the economy get back to work and get the f out of the way.

    Nice piece Cullen.

  10. FYI- I don’t know if a lot of readers here follow Mosler on a regular basis-

    Next edition of The Economist is supposed to have a piece on MMT.

  11. Government is a necessary EVIL, with the emphasis on the evil part. For this reason, it should be always watched and kept within its bounds, with as little power as practical. Otherwise it goes corrupt and slowly corrupts the whole society. The corrupion process is irreversible, if one looks at the history. I think the US govenment progressed a little bit too far too fast on the road to corruption in the last 100 years. Yet US is still the least corrupt of big countries in the wolrd, which is not very comforting.
    MMT , which recognizes the important role of the government in economy, crosses into poltical economics from pure economics. And this is where people have trouble with it, I think. Does MMT have a solution for controlling the government corruption and mismanagement through economic means, or does it assume “perfect govenment” model ? ))

      • Of the big countries, I said. Generally, the northern European countries are pretty good, but they are very small and that helps to manage corruption. Germany, Canada and Australia are also OK.

  12. Job guarnatee is an interesting idea, and it ill become even more widely discussed in the “age of the machines” that we are entering. Sadly, a major slice of the poplutation doesn’t have the education,the skills, and the parental persistence to get them where they need to be in order to work the “machines”. Plus, as machines get more productive, even with education there simply migyht not be as many jobs needed. See an example of South Korea with its overly educated population and all kinds of scums, because the educated people don’t have the jobs.
    In the end we habve 2 options: 1. pay them to do nothing 2. pay them but force them to do something superficial, just to make them to do something.

    First option has been tried in the US and Europe and while it contributed to stability of the society as a whole, it created a whole welfare underclass with no survival skills .
    Second option was sort of tried in USSR, where everyone of legal age had to have a job, regardless of their skills, motivation, ethics etc. That created a whole set of problems in the workplace where you had to deal with people who simply didn’t care, yet couldn’t be fired. So, those who cared had to cover for the rest and with average results. Because very few people contributed, they didn’t get the recognition they deserved or the results.

    Is there a third option? Because both options have shown to be unworkable.

    • A job guarantee is best done as a temporary measure during big credit busts. These Depressions create an opportunity for the Federal Government to do big things on the cheap, as there is an excess of workers available for a decade or more. I think the USG should implement a big long term program to colonize the Moon and Mars in a serious way, and establish absolute US military supremacy to the entire space domain. The problem is that the political elites in the USA don’t think big anymore, and those that do just want to funnel maximum cash to specially favored client groups, instead of actually doing something.

    • A social system in which moral hazard does not exist is not possible. People must have the incentive to avoid pain or society will devolve to the point that we are all sitting on the beach scratching our unmentionables. That is, all of us that are not raping and plundering.

      Your error is your assumption that (relative) poverty can be eliminated. Our own society has essentially eliminated poverty in real terms. (Even the poorest among us is vastly better off than most residents of, say, the Congo.)

      Yet still some people find it problematic that Bill Gates has many more dollars then they do. But Bill has made vastly greater contributions to the well being of all of us. He’s earned it.

      Technological advances will continue to amplify income disparity. However, at the same time, the actual economic circumstances of the “poor” will continue to improve. This is obvious in the ubiquity of cell phones among all Americans, among other evidence.

      Misguided attempts to eliminate moral hazard will ultimately destroy the ability of the productive to produce. Equal wealth for all will always in practice consist of equal poverty for all. (Except for the most violent and adept thieves.)

      • In general I agree about the necessity of moral hazard, but what you do in a society where the only means to survival is a job, and you have millions of people who cannot get one due to either lack of demand or lack of skills?
        If you don’t keep them gainfully occupied they start seeing themselves as separate from society, from its laws and that will eventually lead to major unrest and instability.

  13. Quote:”Austrians tend to veer towards the misconception that governments are these exogenous entities that infringe on our personal liberties when the truth is that we create governments for some public purpose. We do not create governments to impose hardship on ourselves.”
    I think this is the biggest misconception of MMT’ers.
    The greatest thinkers of Austrian economics, von Mises and Hayek, were never against governments per se. But Austrians see a potential cluster risk in big governments. Austrians will always favor small governments and (many) small companies over big governments and (few) big corporations. Austrians have more of a problem with cluster risks and limited competition. Thus Austrians see individual liberty at stake because the bigger a company or the bigger a government the more it can cover corruption, mismanagement and so forth.

    • the assumption being that humans grouped in smaller numbers are less prone to the human failings that lead to the diminishment of personal liberty?

      I would argue that smaller groups with power of some degree over that group pose a bigger threat to denying personal liberty to the individual.

      Examples being any and all cults, religious sects and outlier social groupings.

      The smaller the grouping the narrow the cracks to slip between enabling one to be oneself.

      • I didn’t argue that small groups of people are less prone to human failings. But the consequences and impacts of human failing in small groups will most likely to be smaller.
        And this is a very important point. Our world is highly leveraged in any way, not only in financials.
        Whenever it is possible one should always argue for the small government or small company. Legislations should be in favor of keeping governments and companies small or at least in competition.
        Highly interconnected government or company monopolies will most likely do always much more damage then many smaller entities in competition.

        • size, as we can see around us in many examples, does not always correlate with power which is the cause of much of today’s dislocations.

          the one exception being the size of one’s accumulation of wealth which always correlates with power.

          and power is always at the heart of economic theory, discussions and policies.

  14. The job guarantee seems to be a kind of low wage, mandatory and temporary military service for the unemployed.

    No wonder the idea isn’t attractive to many people, even within the MMT camp.

    Maybe we could put it this way, with a little help from the History of antiquity: pro- job guarantee types are Spartans, who approve of military type discipline. Athenians will simply stick to MMT without the JG add-on.

    • “The job guarantee seems to be a kind of low wage, mandatory and temporary military service for the unemployed.”

      No, it does not seem like that unless you search the most creative part of your mind for something that it ‘could’ sound like that is also horribly negative for no good reason.

      Its a jobs guarantee, as in, ‘We’ll pay you money to show today (TODAY ONLY) here and do work. You can come back tomorrow if you like.”

      If you think that JG program sounds like ‘mandatory military service’ you have made a horrid conclusion by making overtly-negative assumptions. There is NOTHING mandatory about the Jobs Guarantee programs many MMTers advocate. I do believe Warren Mosler uses something to the tune of ‘A program to provide work to anyone who is willing & able’ WILLING & able… If you (and for all I know you are simply trying to describe what anti-JGers think) really think what you wrote above then I doubt you have read anyone who actually advocates a JG program…

      For the record I don’t like the Jobs Guarantee program for the same Praxeological reason TPC doesn’t like it. I do think it could be altered, however, to make it more palatable.

    • There are all sorts of ways a job guarantee program could be implemented in practice.

      • I agree that the JG could be made “more palatable”. But the operative word is could.

        Under an unenlightened, authoritarian government it could also turn into the king of low wage, militaristic nightmare that no reasonable person should support.

        I’d rather scrap the whole idea and revert to good old demand management policies – extra public expenditures or tax cuts – in order to reach full employment.

        • We certainly agree about the ‘could’- this is the same reason I hate SOPA, laws are almost always used for ends that are outside the original spirit of the law (insert a bunch of links and stories from Beowulf here). We are in agreement, but to jump immediately to something that the JGers specifically support the opposite of (mandatory v of will) I felt was a bit much.

          My main work around for the jobs guarantee to make it more palatable is to make it non-permenant. Have it only come ino play when unemployment reaches X%. Once non-JG employment increases to Y% you start removing the JG program.

          That and the wage for the JG program should be slightly below minimum wage to make JG jobs less desireable than jobs at minimum wage that service real demand.

  15. Quote:”As I often say, government becomes corrupted when the power of the many falls into the hands of the few.”
    Unfortunately this is a misconception too. People like to float with the current and this might gain momentum.
    Look at North Korea, Hitler, Stalin or Mao. These individual people where able to win a majority of citizens for their beliefs and this made this fanatics to powerful men. Their power was always backed by the masses. Even though these masses were misguided by propaganda these fanatics had the support of many.
    It is a myth that a few people can control the rest without strong support of many other citizens.
    This is of course a two-edged sword. Look at the Arab spring. Governments lost control because more and more people changed their beliefs. Without strong support from the masses the Arab spring would never have happened.
    The Arab spring showed us, that for individuals it is much more complex and difficult to organize the masses then for any big government controlling media and military. This inequality changed only now with social networks.

    • The fact that Hitler or Stalin were supported by their people does not mean the power of the many had not fallen into the hands of the few. It just means that they were geniuses in promoting their views and manipulating the populace. The power of Nazi Germany was not based on the power of the people. It was based on the ideals of a mad man. The fact that the mad man was able to convince the people to jump off the cliff with him only proves that he was that powerful….Why do you think all of the countries you mentioned are associated with one specific person? Mubarak, Hitler, Stalin, Kim Jong Il….

      • Not to get too off track, but the way dictators come to power is by harnessing the herd power through “us vs. them” mentatlity. If you are not with us, you are against us. The best it was put as “divide and conquer”. The conditions have to be right to inspire hatred towards another group of people. This is why social instability and unrest have to be avoided at all costs. Only during times of extreme strife a dictator can come to power. Once dictatorship is in place it can sustain for a long time through elmination of any opposition. That is why in the end all dictators become so paranoid and bloodthirsty. They know they cannot allow the opposition reach critical mass.

      • The ‘bad guys’ in power are either supported or at least tolerated by the masses. This means there is no concentration of power without the support or tolerance of masses.
        So it is a myth to think that some man, or a few men, can concentrate the power and rule over a whole country.
        For people working for the government it is very simple to manipulate the masses. Therefore big government is always a cluster risk and to be avoided.

        This just shows that your assumption that government becomes corrupted when the power of the many falls into the hands of the few might be wrong. It is quite the other way round. When a few fanatics may turn the masses around corruption and mismanagement (or even worse) will occur. The government installs a so called tyranny of majority.

        Therefore I understand the case of Austrians against big government and their often ‘well-intentioned’ interventions.

  16. Excellent, clear and concise statement of the psycho-social nature of ‘money’ (as opposed to the naive desire for it to exist as a Platonic ideal).

    I may be equally naive in believing a global system may be the only answer to otherwise intractable trade/currency imbalances, resource limitations, inter-state warfare, and climate change. However, such a system could only work with highly limited powers under a federal principle – with government, and also economic relations, at the local level playing a greater role. In that sense, I sympathize with Austrian/libertarian instincts (and if we don’t develop global solutions, we may have to fall back on much more local economic levels anyway, if not ‘Crusoe Islands’).

    Under current conditions, I also have some sympathy for the ‘Job Guarantee’ but (again with conservative instincts) believe that in general, theory always needs to be combined with practice and subordinated to reality. Hence, implementing a limited version (eg as part of a ‘national service’ program) seems the most sensible way to approach this.

    Thanks again for raising the broader issues.

  17. As far as what will help spread MMT among the general public, I can’t agree that downplaying or dismissing the job guarantee is the way to make the sale.

    Most people care about economic theories only for the sake of what you can *do* with the theory. The public policy prescriptions that are associated with a body of economic thinking aren’t distractions – they’re the selling point.

    Trumpeting the job guarantee might turn off a few conservatives who hate anything that sounds like government fiscal activism. But there are many millions of unemployed and underemployed Americans who might think otherwise. A lot of these folks – and a lot of folks who aren’t in trouble themselves but who care about the people who are – have been intimidated and duped into believing that we can’t afford to hire the unemployed because we are “broke” or “out of money.” They have also been taught to believe that the hyperinflationary bogeyman is right around the corner whenever the government’s spending exceeds its revenues. These folks will be *very interested* to discover these demagogic views are false. So I hardly think playing that JG aspect of MMT thinking is a case of shooting MMT in the foot.

    • “But there are many millions of unemployed and underemployed Americans who might think otherwise.”

      That’s a bad selling point. Pushing policies b/c people will support them for one reason – it benefits them now. You don’t want people on board b/c they have a need and some policy helps that need now – you want them on board b/c the policy is the best for the country, now and for the future. JG may fit the bill, I don’t know, but I know we don’t want that as a motive.

  18. > It isn’t until you can get yourself centered into a perspective where you suddenly realize that every frickin’ human being on this planet is YOUR brother that it begins to dawn on you (very much like Jesus, the Nazarene, articulated).

    I always felt that way , being a mix of many bloods, not really belonging anywhere. But in Russia where I grew up there was quite a bit of multi-national bickering – russians vs. jews, russians vs. azeri and so on. Now it is even worse ,after the collpse of the USSR all this rivalry is in the open. Europeans are the same.

    In the US I hear all the time about chinese and indians taking “our ” jobs. Having been in the shoes of said “indian” in the past, I always ask, why do you think an indian is less deserving of the job? An indian probably needs that job more since they have no welfare programs in place.

    Our “City of Sun” is many may thousands years away, unless we self destruct sooner.

  19. Great discussion here TPC.

    As a frequent reader here as well as Bill’s blog and others, I agree that Bill comes off as more overtly political in his writings than Cullen does. His contributions to understanding MMT have been substantial though, but the JG drum that he beats just distracts from his fiscal and monetary insights.

  20. Austrians? The guys who believe suffering through regular depressions is good for you? Nothing like a dose of old-testament style economics. If elected, Ron Paul will set the economic clock back to 1840. You’ll need to eat your gold bars when you run out of food, assuming your neighbors don’t shoot you first. Or the Africans don’t come and kill you in the race war.

    All kidding aside, Cullen you are the best point man for MMT going right now. Mitchell is way too cranky for the mainstream.

    As for the JG, I’ve never understood it. If you need to suddenly have 20 million American jobs running next week, who’s going to manage it? Some new giant bureacracy? What are the jobs? Digging holes and filling them back in? Some would say, “Work on our crumbling infrastructure.” While it’s true that it needs it, it also needs skilled workers, not Joe Schmoe who can’t get a job at the kwikmart and whose main skill is watching t.v. It also needs management of the type that private construction companies typically provide. I just don’t hear anything about how it would be implemented. It remains a sort of Shangri La in my mind, someplace we’ll get to if we just try it, but no one has presented a blueprint that I’ve seen that makes any sense. What do these jobs consist of, exactly?

    • Off the top of my head, in addition to

      Infrastructure needs:
      Home health/elderly care
      Child Care
      Tutoring (college grads who can’t get a first job)
      Youth recreation
      Natural disaster/climate change preparation/response (increasing need)
      Military Service broadened.

      Most of these are a good fit with a ‘national service program’ plus support additional economic activity; make regular employment more achievable, eg for parents of minor children, relatives of chronically ill/disabled/elderly; help bring healthcare costs under control; help immigrants develop language skills; spread military risk more equitably; promote social cohesion across lines of class and culture; help address other social needs/problems.

      • Add Farm work –

        establishing a living minimum wage here would have the added benefit of providing incentives for job creation in Michoacan (at a much lower, but living, wage there) so that the Tarascans could find work at home rather than making the arduous journey here to do this kind of work (the 13th Amendment did not end the breaking up of families to meet the demand for cheap labor).

        Also, for ES: a program combining jobs plus service could attract people qualified for child care; and training would be an essential part of a successful one (I’ve had relevant experience here as a preschool teacher, with ‘AmeriCorps’, and other nonprofit work).

    • Actually, affordable childcare is sorely needed. Especially, for the lower income families. But it can’t be run by unemployed since it needs trained, reliable people, who are good with kids and who are trustworthy.

      • Childcare programs could and should be ‘run’ by trained professionals. However, workers, who could become the future professsionals, could be drawn from a jobs/service program (My co-teacher/director and I, responsible for 30+ kids aged 3-6 in a low income area school supported by tuition, strained our budget to add paid interns – one now a lead teacher there – as she neared retirement age; we’d have made good use of a government paid aide or two).

    • ” It also needs management of the type that private construction companies typically provide.”

      I think your ideology is showing.

      The assumption that the public sector can’t do quality and efficient pick and shovel; dozer and backhoe; grade and pave; mix and pour concrete work is myth verging on slander.

      In fact the public sector regularly and routinely does better at quality and efficiency when compared head to head on a level playing field.

  21. If you look at the crazy quilt of linguistic relationships, it’s clear people have been traipsing around N & S America since the first homo crossed the Bering strait (here in Western NC, the ‘Mexicans’ are mostly Tarascans – whose native tongue may be related to ‘Penutian’ languages distributed from Alaska to southern Chile). That has been the natural human tendency, despite the establishment in the last few centuries of ‘national’ boundaries (which are even more a social construct than ‘money’).

    I think in spite of differences of terminology and perspective, our comments above are getting at much the same thing: a balance between integration and differentiation, as opposed to radical separation. I agree that the degree of transformation required for achieving this on a global level is daunting, but the survival of the species (or at least the large portion of it) may require it.

  22. “In other words, while gold might be money to you and your neighbor, it is not money when it comes to extinguishing your liabilities to the Federal government. When it comes to transacting within the US economy, this is the crucial distinction when it comes to ‘money’”.

    This point may be seen as extraneous but this really jumped out at me in light of what is in play these days. Money—the US dollar—is also an essential clue holding us all together around one common thing we all agree on and value. Something that is becoming rarer by the day.

  23. Cullen

    I take all your points. I can see this from both sides but your success at attracting publicity for MMT seems to be as a result of taking the bits of the theory that describe the functional and operational realities of the monetary system. Fair enough.

    So that leaves the obvious question. Is that all that MMT is?

    Warren, Scott A view?

    • There is also the prescriptive component of MMT. Ultimately, MMT’s theoretical component is all about how to utilize the state’s money to help achieve some sort of economic and/or societal goals. But the distinction is very important.

      • Precisely and it appears you are uncertain that JG or Full employment should be one of those social/economic goals (and you have given your reasons) but clarifiation is crucial here surely for all our sakes.

        How do we promote MMT? As an accurate description of how things work, as a reassurance we are not about to enter total meltdown, or as a opportunity to advance public purpose not to mention utilising productive capacity to the max by bringing about full employment?

        • Well, my approach has always been to focus on its core descriptive components and show people how we can use our understanding of the core components to prove that MMT is an accurate description of our reality. It’s why I said austerity would be a disaster in Europe. Why I said int rates in the USA would remain low. Why the USA would not have a sovereign debt crisis. Why I said QE would fail. And on and on. I think one of the reasons why people are attracted to pragcap is because I get a lot of macro calls right. I help people see how you can use an understanding of the monetary system and connect it to reality. I connect the dots that academic economists often fail to do.

          I use the descriptive component of MMT to show people how understanding the monetary system can lead to better decisions. Once people understand the descriptive component then we’re ready to have the prescriptive debate (whatever that might be). But we should not poison the waters of the descriptive component by trying to convince people that the prescriptive component is somehow a vital component of the descriptive aspects. That’s simply not true. The state theory of money has been around for a very long time.

          If Bill Mitchell and the others are intent on proving that MMT = Job Guarantee then good luck to them. Their theory will go no where in the USA. Mark my words. Americans didn’t build the greatest economy in the history of man kind on these sort of extreme ideals and there’s no way they’ll be accepted any time soon (as in, the next 500 years). If, on the other hand, the “founders” are willing to sacrifice immediate acceptance of the prescriptive component in order to get people on board with the descriptive component, then the theory has a fighting chance of making it in the mainstream. But alienate people like me who are skeptical of the JG and I guarantee you that this theory will go nowhere. And if they don’t consider me an MMTer because of my JG beliefs then so be it. I haven’t succeeded in life by riding other people’s coattails.

          • I just finished the Mitchell article. It reads like a bitter old man whining that you’re getting the attention again. Forget Mitchell and keep on doing what you’re doing. You’re not making waves in the MMT world because you aren’t providing anything unique. In fact, I’d argue that if you really wanted to you could rebrand MMT as your own “theory” and sell it much more succesfully without the other thinkers watering down your work with stupid things like job guarantees and bog government programs.

          • No need to add to the rhetoric, Cullen. Bill Mitchell has been writing seemingly 24hrs/day for over a decade (publishing/teaching/conferences/consulting even before his blog). His post re Carney simply implies that he’s never read your work, nor ever talked to you. That’s simply honest, and not at all surprising knowing him.

            Best thing to do is not escalate invented slights. There’s simply no point in it. Jealousy, like currency, is fiat. Difference is that there’s no jealousy tax to pay at years end. We sometimes just fear there is. :)

            That only amounts to a self-imposed paranoia tax. Ignore it. Occupy the paranoia! :) [with magnanimity]

          • Mass unemployment results in huge permanent losses every day in foregone output and income. Add to that the depreciation of human capital, increasing family breakdowns, child abuse, crime, medical costs, skill loss, psychological harm, ill health, reduced life expectancy, loss of motivation, racial and gender inequality and loss of social values and responsibility. The personal, family and community losses are enormous and persist across generations.

            This is what Americans prefer? 30 millions in unemployment (to use your example figure above) before full employment and better price stability?

            Of course, introducing a JG program may have unknown consequences – agreed. No theory can be perfect. Is that why you prefer the current system, using mass unemployment to stabilize prices? The consequences may be far worse, but at least they are known?

            Yes, to say that “I understand the theory behind JG – how it can achieve full employment and price stability – but I prefer mass unemployment” can be consistent with MMT. But I suspect the theory is in fact improperly understood.

            And in any case, it’s unfair to say that proposing JG amounts to a political argument, while preferring mass unemployment somehow be politically neutral.

  24. Something that recognizes people exist and screw things up is a refreshing change. Recognizing that human beings need a social existence is brilliant insight. Why do the Republicans not believe that this is so. As Bachmann declared today she will stamp out socialism. There you go any social construct is bad, bad, bad.

    I did enjoy reading this article.

    • @ Dave

      I had a look at Fekete a while back but got the impression he was a very strong “return to gold standard” proponent.
      I did not follow up with further investigation.
      Do you have any insights into what his philosophy for economy includes?

      • @ LRM

        Yes he is for a gold standard. But he does not favor a gold standard in any case.

        He basically just demands to open the mint to free coinages and let the market decide whether people want and accept silver and gold as currency and legal tender or not.

  25. Cullen
    Thanks for your response.
    In truth I don’t know enough about the JG proposal to form a view. My natural instinct is to side with Bill because most of what I’ve learnt has come from him. I will now look into it in detail and review your reservations.

    I think you, Bill, Randy, Warren need to have a conversation because if you can all get on the same wavelength then I think the sky’s the limit. It feels to me like MMT is about to go mainstream. In the light of that these spats are nothing more than clearing the air and good for everyone in the long term.

    Keep up the good work.

  26. Great discussion; it’s nice to use my brain between pig out sessions, football/bball etc.!

    I agree with TPC that the two issues (MMT operations/descriptive & JG) are separate. (Of course, someone could have the debate whether “MMT operations” is the “right name”, but that’s a nomenclature and ego/historical issue.)

    (1) MMT operations is what actually happens *right now* so it’s clear that the JG need not be part of that framework. (2) Social policy can clearly exist in any monetary system so again, is separable.

  27. I think of it like writing a musical score or painting a picture. Brush stroke upon brush stroke (adding, modifying, deleting) riff upon riff. That is MMT in Bill Mitchell’s mind and that is MMT in Cullen’s mind (or anybody else s mind for that matter). The work is a whole. That is how economics changed collectively through primitive tribal, slave, feudal and capital societies – because people changed and their way of conceiving things changed. Regardless of those who wanted everything to remain the same!

    I just think we should be clear about who’s painting we are talking about, and discuss the perceived merits and demerits of each. In the case above, I happen to like and appreciate the efforts of both!

  28. Somewhat offtopic, but praexology is a failure from a epistemological point of view, pure non-sense methodology. But there are some ‘austrians’ (for the lack of a better term) which don’t adhere to this epitestemological ‘school’.

  29. Sigh. When MMT divides into political factions?

    I just can’t get through Bill’s “wall of text”. Yes, that’s a me problem. And I wish Warren used MORE text. As such, I don’t really follow either. For me, Cullen is the Goldilocks of MMT. And contrary to what some people may think, he’s also very approachable on this site.