10 responses to “MMT and Ideology

  1. Pingback: MMT and Ideology | Modern Money Mechanics | The...

  2. The descriptive aspect of MMT is as value-neutral as economics can be, which is “only to a limited degree.” See Joan Robinson on this, for example. MMT’s approach to economics is based on the system we now have, which is capitalism. Capitalism is by definition right-wing as opposed to socialism as left-wing. But within that context, MMT seeks to set forth the operational realities and their implications.

    The implications of operational realities bear on policy formulation. Macro is a policy science, and some have claimed that it is more properly named “political economy.” Politics is about power, and policy is about distribution, institutional arrangements, and welfare. Policy is based on politics and is inherently performative rather than descriptive. Differences in prescription are often based on normative factors.

    With respect to policy, MMT can be viewed as left-wing, since it takes full employment in the sense of a job offer being extended to all willing and able to work as a goal in determining policy efficiency and effectiveness, as well as meeting the welfare requirement of public purpose. In that sense it is “Keynesian,” in the way that the right defines the left since they equate Keynesianism, socialism and communism.

    However, in that MMT’s approach is within capitalism and seeks to make capitalism work more optimally wrt distributed prosperity and public purpose, it cannot be called socialism, which is about public ownership of the means of production. MMT does no advocate public ownership of the manes of production.

    We can conclude then that wrt to policy recommendations, MMT is toward toward the left of an essentially right wing paradigm called “capitalism.” So we could say that MMT is centrist wrt to the left (socialism) and right (capitalism) dichotomy, but being in the capitalist camp it is center-right.

  3. MMT is agnostic politically but it’s strongest advocates are left wing and believe it’s a tool to use to that end…..

    But, many of us believe MMT simply explains how are fiat money system works not what it should be used for which are political considerations that retard the spread of it…..

    Let’s not ever think that everyone agrees that the government is our friend and knows what’s best for us! Or that giving everyone a job and become beholden to a political party in gratitude will ever pass, for that matter….

    Molon labe

  4. If you want to aggressively cut taxes (especially VAT) far more than spending cuts implemented, but would implement far more cuts than the Coalition (except for a few things like flood defenses) would you be a right wing MMTer?

  5. As an amateur MMTer, I’ve arrived at the stage where I regard the economy
    somewhat from a holistic point of view. Briefly (heh, heh) I focus on an equation that concerns the level of money in circulation (not ‘existence’, folks), that is, money readily available and being used in exchange transactions of goods and services for money. It’s not the ultimate equation of everything economic, but it gives us a perspicuous view of an important part of the economy.

    ΔC = INF – EXF


    C – quantity of money in circulation
    ΔC – change in quantity of money in circulation
    INF – quantity of money flowing into circulation
    EXF – quantity of money flowing out of circulation

    We can expand INF and EXF somewhat along lines of equations
    for GDP, but not the same as these equations.

    INF = [X + G + I + L]
    X – quantity of export money coming into circulation
    G – quantity of money entering circulation from government
    I – quantity of money entering circulation as investments
    L – quantity of money entering circulation from bank loans

    EXF = [M + T + S + P]
    M – quantity of money leaving circulation in buying imports
    T – quantity of money leaving circulation as taxes
    S – quantity of money leaving circulation as saving
    P – quantity of money leaving circulation in payback of bank loans

    In other words,

    ΔC = [X + G + I + L] – [M + T + S + L]

    This equation is inspired by a basic equation in hydrology concerning
    the change in level of water in a reservoir as a function of the difference
    between inputs and outputs of water into and out of the reservoir. Or you
    can think of swimming pools and beautiful girls…. and various sources of
    water coming into the pool and draining water from the pool.

    If ΔC is positive, the quantity of money in circulation is increasing. If ΔC is negative it is decreasing.

    Note that because money is fungible we can substitute different amounts of different sources of money flowing in and flowing out of circulation and get
    the same change in the quantity of money in circulation. For example
    an economy may be heavily deficit spending (beyond taxes taken in) and
    one could counter that imbalanced effect on the level of money in circulation
    by liberalizing importing with low or no tariffs so that M = D where D is the deficit component of G, i.e. D = G – T.

    Anyone we know did this? What about Dick Cheney’s remark that deficits don’t matter. He was saying this in the context of heavy deficit spending on the war in Iraq while people were being encouraged to buy inexpensive imported goods from China at WalMart. No need to balance the budget
    fiscally, i.e. G = T.; what we need to balance is inflows against outflows from circulation.

    But when? We don’t want to force inflows of money to always be equal to outflows of money to and from circulation.

    It would be folly to seek the balance when the economy is in deflation. When that is the case INF should be greater than EXF, and INF > EXF held for some time until C rises to the level C’ where there is full production and employment at stable prices. At that point we should seek to make INF = EXF. But there may be many ways to achieve this with different mixes of the quantities in these expressions. So, this equation allows a government using it to have considerable flexibility in its policy on spending.

    The equation also shows what must be done to to avoid inflation once we
    reach full production and employment at stable prices. Essentially, we will have inflation when C > C’, that is, more money is circulating than needed to
    maintain full production and employment at stable prices. Prices will begin to rise as excess money is used by those who acquire it to outbid others for goods and services, which cannot be increased by more INF.

    Once we arrive at full employment and production and prices start to rise generally across the board, that is the time we must make INF < EXF so as to lower the level of money in circulation C. The goal then is to get back to C'. Increase buying imports (sending money out of circulation in the nation).
    Encourage savings and discourage investment by raising interest rates.
    Clamp down on bank lending and encourage borrowers to pay up. Have the Central Bank or Treasury sell more bonds to take money out of circulation into time deposit saving accounts known as bonds or securities. These can be the same kind of bonds or securities used to acquire money for deficit spending. But deficit money is going to increase money in circulation if spent back into circulation, while sequestered money from sale of govt. bonds and securities drains money out of circulation .

    So, this equation shows us that hyperinflation is not inevitable. No more is it than a reservoir not flooding when inflows are managed by adjusting outflows to keep the reservoir full but not overflowing. The CB does not have to always "print more money". There is a time and place for everything. And the equation shows us what must be done in each circumstance.

    • Your thinking aligns with mine. It’s a dynamic system where values flow between individuals, companies, and banks. Modeling MMT as a flow system makes more sense than as discrete events. Contrary to Austrians, as a dynamic system, micro behavior doesn’t fully explain macro, where agents act under uncertainty and risk has greater impact than reward.

      Driving is a good analogy to this problem. An individual’s intent to optimise his drive time, within a group, has unintended consequences: traffic jams, accidents, injury and death. Hence, the need for regulation to minimize driving risks at high volumes: stop signs, signals, speed limits, turn signals, vehicle standards, driver’s license, road quality. Note that a Stop Sign is a regulatory burden on you when you can clearly see no other cars approaching the intersection. However, as the volume increases the value of everyone complying with that sign to minimize risk for everyone, increases.

      A typical out of context argument against regulation— financial or driving, is to argue that regulation harms the individual. Yes it does when there are no other individuals interacting in a dynamic system. However, volume increases and agents interact, risks, unintended by the individual agents occurs. As you said, holistic thinking is needed.

      Marvin Minsky proposed a similar risk is inherent in capitalism if the quantity of borrowers and lenders in an asset (e.g. houses) is large. The interactions of the agents cause positive feedback to create the bubble and negative feedback to burst it. The impact is unintended by the agents but caused by their ignorance and their desire to optimize the values they are gaining from the interaction.

      I like this site because it intends to separate the ideology from the facts of MMT. First understand what a thing is, then evaluate where it’s good or bad.

  6. You are on the right track. Search on “keynesian hydraulics,” and “moniac.” This is the basis of stock flow consistent macro modeling based on accounting developed by Wynne Godley.

    I will put this up as a guest post at Mike Norman Economics if you like. You should get feedback in the comments there.

  7. Tom, I accept your suggestion. Put it up on Mike Norman Economics.

  8. David Chester

    The equating of input and output quantities of money is nothing new. It is in most text books on economics. However it deals with only one kind of balancing within the social system. Actually there are another 5 kinds of balancings (and their associated equations) for a total of 19 variables (see diagram: DiagFuncMacroSyst.pdf which is in Wikimedia and elsewhere). Thus MMT is a very narrow-minded way of looking at the Big Picture.

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