I had this letter in the FT this morning in response to a piece from Gavyn Davies, which continued the standard neoclassical economist's tradition of entirely missing the point about modern monetary theory
Gavyn Davies' review of modern monetary theory (“What you need to know about modern monetary theory”, April 28) is interesting because it is so fundamentally wrong. He argues that when an economy is operating “normally”, MMT is not required. He ignores the fact that no economy has operated “normally”, as he describes it, for more than a decade. As such, he makes a very basic error in defining what is normal.
More tellingly, in making this error, Mr Davies reveals what most macroeconomists think. They believe that macroeconomics should be about the delivery of monetary policy by independent central bankers with the aim of delivering financial stability in the form of low inflation so that the owners of financial wealth might maintain their asset worth, with all of this being managed in a process remote from democratic accountability.
MMT does not buy this model of macroeconomics. Instead MMT says that the economy should be managed with the goal of delivering full employment at a living wage with long-term environmental sustainability being guaranteed; hence the Green New Deal. And MMT shows that the money to deliver this objective can be created without inflation risk arising (about which it is most concerned) subject to appropriate tax being levied, which the evidence of quantitative easing proves.
MMT only fails if you look at it through the lens of conventional macroeconomic objectives. Looked at on its own terms MMT works, and is the long-term solution that the world's failing economies need.
Professor Richard Murphy
Dept of International Politics,
School of Social Sciences,
City, University of London, UK
Director, Corporate Accountability Network; Co-founder, Green New Deal
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‘Nuff said!
The absence of inflation risk relies on certain assumptions as to the behaviour of governments which will not hold in reality – as was the case with Keynesianism.
That is a meaningless statement
It is not meaningless – it is a comment that while MMT sounds great in theory it would never be in the manner planned and so it won’t work as theorised.
Actually, it works now. It’s what happens, now
It’s just not being used properly right now because this fact is not appreciated
Teflon, Richard is right. Another way of putting it is to argue that the theory, MMT, is descriptive of how sovereign governments, operating with fiat currencies with flexible exchange rates, work. Since such governments actually operate their currency systems in the ways that MMT says that they do, statements that such governments make that are inconsistent with the theory, such as those that argue that the government can run out of money and the like, are completely false, and MMT shows why such statements are false. MMT also has some normative elements but this does not detract from it being a descriptively true theory of how certain kinds of governments operating certain kinds of currency systems work.
Perhaps it is time that the FT gave space to an article on MMT/Green New Deal.
Davies is also likely to miss the point about money – to implement the energy transition will require vast amounts & private banking will not deliver either at a volume or price that is acceptable to wider society.
Modern Monetary Theory and Practice MMTP relies on science and facts vs academic theory and wishfulness. Bring in more engineers and less mathmaticians please would you not agree to economincs and the Bank of England!
I am a layman when it comes to economics but it’s pretty clear to me that the only thing most economists are any good at forecasting, is where their next pay cheque is coming from. Gavin being ex GS has probably got a good bonus forecasting record too.
It’s clear that classical economics and its pushers like Gavyn have failed our economies. Time for change starting with compulsory reading of the works of Nassim Nicholas Taleb and giving MMT and the green new deal a fair go.
That is all anyone here I think wants – to see us have a ‘fair go’ at MMT.
“[Gavyn Davies] argues that when an economy is operating “normally”, MMT is not required.”
There isn’t a choice in this matter. MMT isn’t a policy prescription. He clearly does not understand what MMT is about. It’s not something to be turned off and on at will.
And this from the FT ? God help us. !!
There is an important issue regarding the nature of economics, often overlooked by economists, that separates economics from the ‘hard sciences’; the standard that economics is so desperate always to emulate, but fails to do so in spite of decades trying to turn the subject into a computer-modelled econometric abstraction. This critical issue has, I think best been explored, developed and articulated by the forensic philosophical-mathematical sociologist Donald Mackenzie:
“The shaping of economies by economics can be viewed as a triumph for the truths discovered by the discipline, or it can be condemned as the damaging imposition of an abstract and unrealistic worldview; such matters remain fiercely controversial. At a minimum, however, what is made clear by the cases of Bolivia, Poland, Russia, and Chile, as well as by those discussed in the chapters that follow, is that economics is at work within economies in a way that is at odds with the widespread conception of science as an activity whose sole purpose is to observe and study, that is to “know” the world.
The issue that needs to be tackled in relation to economies and ecoÂnomics is not just about “knowing” the world, accurately or not. It is also about producing it. It is not (only) about economics being “right” or “wrong” but (also, and perhaps more important) about it being “able” or “unable” to transform the world. Economics swings between repreÂsentation and action, between science and policy, between academic inÂquiry and political intervention, both as a discipline and in the careers of many individual economists.” (from Donald Mackenzie, et al., ‘Do Economists Make Markets?’; (2008), Ch.1)
It is no small loss that in an earlier age, econimics was more candid about its mongrel, pragmatic nature: it was then, not without reason, called “Political Economy”. In my opinion the deep, deep failure of Gavyn Davies’ neoliberal approach to ‘explanation’ (I feel I am entitled to the inverted commas here); is the desire to operate economics as if playing a powerful, persuasive and bewitching musical instrument, to appeal to our emotions while telling us this is solely a matter of reason; to use a kind of ‘portamento’, sliding between description and transformation without any signal of the underlying change of purpose; the sleight of hand, sound or assumption that hides the fundamental equivocation. We cannot distinguish between description and transformation as we are seduced by the siren voice of neoliberal ‘economics’, just before it dashes our ship on the rocks.
@John S Warren.
Hmmmmm…..that’s a lot of words and I’m a bit confused…..Are you saying he’s a liar or an idiot ?
Economics will remain a pseudo science for as long as those who practice it, study it and pontificate about it believe it is only about money and doesn’t extend to the management of resources.
Richard, Dalio had your back…
https://www.linkedin.com/pulse/its-time-look-more-carefully-monetary-policy-3-mp3-modern-ray-dalio/
So I saw…