THE POLITICS OF MONETARY REALISM

There have been some interesting discussions over at Heteconomist (an excellent MMT blog which I highly recommend reading) regarding the politics of MMT.  Peter, the blog’s author, has argued that MMT has two components – a descriptive component and a prescriptive component and that the descriptive component (the real core of MMT) is apolitical and not to be confused with the more political prescriptive component.  I very much agree here.   But some readers have highlighted the fact that the MMT “leaders” are often seen as having liberal prescriptions which gives the work a heavy liberal bias.

I wouldn’t refer to myself as one of the “leaders” of MMT, but I think it’s safe to say that I’ve played a relatively important role in helping to spread the word thru my big megaphone at Pragcap, Business Insider and Seeking Alpha.  One of the things I am most proud of at Pragcap is that I eliminate politics from most of the discussions and instead try to focus on real facts and good economics (yes, you can separate the two if you try hard enough).  And I think that one of the reasons why I’ve been fairly successful in teaching and spreading the MMT message is because I have attempted to eliminate the politics of MMT.  The readers here are enormously diverse.  Many conservatives and many liberals.

When I first confronted MMT I found it excessively liberal. It’s not unusual for a new reader of MMT to (incorrectly) describe it as “Keynes on steroids” or “socialist”.  This is because the founders place enormous emphasis on the prescriptive aspects of MMT. If you read Bill Mitchell’s work for instance, it’s hard to go more than a few paragraphs without getting redirected to the full employment program. But as Peter noted, this is very much a prescriptive aspect and not a descriptive aspect.  This is why I formed Modern Monetary Realism as an offshoot of MMT.  To try to reduce the focus on politics and create a truly apolitical perspective.

I am generally a fiscal conservative. I’m also generally a social liberal.  So I guess you can call me a centrist.  But these definitions are largely useless because, the devil is in the details.  The world, to me, is not as black and white as most people will have you believe so I find it useless to tow some party line just because some old rich white guy defined “conservatism” as this or that 100 years ago.  I very much approach each aspect of policy as its own independent variable in a very complex equation.  If you apply the same conclusion to each variable then you inevitably end up with a lot of wrong answers.  In other words, there’s a lot of gray area in politics despite our efforts to break it down into two easily distinguishable boxes.

When it comes to MMT  the difficult component for fiscal conservatives to overcome is the idea of the necessity of the currency issuer.  I’m not generally a fan of government allocating funds on behalf of the private sector. So, I haven’t adopted some of the more intense MMT policy prescriptions (such as the Job’s Guarantee, though there are elements I find attractive such as replacing unemployment benefits with real work and implementing a buffer JG program). But the kicker with MMT is that once you realize how the system works you realize that the whole idea of Crusoe island is a fairy tale. Separating a fiat currency, which is merely a social construct (as all money is) from its government is like trying to separate white from rice.  Once you understand this core component, your conclusions about policy and the way you think about our monetary system are forever changed and in my opinion, more likely to veer towards a centrist policy perspective.

The emphasis here is on the two parts of Modern Monetary Realism.  The descriptive aspect is merely an accurate portrayal of a modern sovereign fiat currency issuing nation.  In my opinion, arguing that this is “wrong” is like arguing that 1+1 does not = 2.  The prescriptive aspect, however, is entirely up for debate.  How we utilize our understanding of the descriptive aspects is entirely up to the body of voters.  This is not the say that the MMT “leaders” are wrong or that their policy prescriptions are incorrect, but I think they would all agree that policy, unlike MMT’s operational aspects, are largely up for debate.  Copernicus may have discovered that the Earth revolves around the Sun, but that doesn’t mean Copernicus was capable of building the space shuttle that would eventually put a man in space.  Not a perfect analogy, but the “leaders” of MMT have created a Copernican moment in the world of economics.  MMT forever changes the way we think about the monetary system.   But that doesn’t mean its leaders have found the holy grail of economic prosperity.

As ingenius as the core MMT descriptive aspect is, the application of this understanding is still far from perfect.  Like any economic model, it relies on its irrational and fallible users.  The “perfect monetary system” is an oxymoron.  The pursuit of consistent full employment and price stability is perhaps, as much a myth as Crusoe Island.  But one thing is for certain – without understanding the descriptive aspects of our monetary system (the core of MMT) there is no chance in the world we will even come close to achieving the prosperity that the MMT “leaders” envision.  And that’s the greatest strength in MMT.  If we can eliminate politics in trying to better understand how our monetary system works, only then can we begin to agree on how to work towards greater prosperity.  That’s where Modern Monetary Realism comes in.

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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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