Gerard MacDonell discussed pragmatism in "No avoiding having a 'philosophy', so choose wisely". He linked to the Internet Encyclopedia of Philosophy entry for pragmatism, which includes this useful summary:
Pragmatism may be presented as a way of clarifying (and in some cases dissolving) intractable metaphysical and epistemological disputes. According to the down-to-earth pragmatist, bickering metaphysicians should get in the habit of posing the following question: “What concrete practical difference would it make if my theory were true and its rival(s) false?” Where there is no such difference, there is no genuine (that is, non-verbal) disagreement, and hence no genuine problem.
He argues that we should not argue about essences -- what something really is -- rather, focus on its effects in the real world.
As an example, he writes that I was wasting my time arguing whether money was an asset or a liability; what matters is how money behaves in the economy. Although I agree that labels should not matter too much, I would point out that it does make a difference in this case. We know that people rebalance portfolios, and that this can be viewed as a driver of economic activity. (Particularly in the stock-flow consistent models of Tobin.) Jumping sides of the balance sheet means that we would not be able to properly analyse money in the context of portfolio rebalancing. (On the other hand, someone could argue that money is somehow an equity instrument; although far-fetched, it would be on the correct side of the balance sheet and portfolio rebalancing would operate as expected. As a result, an equity/liability debate would be largely a semantic debate.)
An Example - Government Debt And Central Bank Purchases
J.W. Mason has an article "How should we count the debt owed to the Fed?" He runs through the numbers, discussing how the Fed has ended up being a major Treasury security owner. Those holdings are considered to be part of "debt held by the public," when in fact the Fed is a subsidiary of the Treasury. Should we net out those holdings (some countries do)? (I should note that J.W. Mason ends up with roughly the same conclusions as I do, but I found it was an example of how we can cut down the length of analysis using pragmatism. I chose his article solely because it was interesting and recent. There are presumably better examples, but that would require digging through the archives.)
He invokes the analysis of Kotlikoff, who had the bright idea of capitalising one set of Federal cash flows (Social Security payments) but ignoring other cash flows. Why not stick random capitalised cash flows on the government balance sheet, and call it "debt"?
This is where we need to ignore labels, and look at what the concrete effects on the economy are. There is no convincing reason that the debt-to-GDP ratio is a meaningful quantity, using practically any coherent analytical framework. Even in mainstream macro, there is no reason for the level of debt to matter, except for the matter of the Fiscal Theory of the Price Level. (People may invoke the "governmental intertemporal budget constraint," but said people cannot actually say why it matters. Very simply, it is essentially impossible for any reasonable economic model to violate that constraint; it implies that the debt-to-GDP ratio goes to infinity, which implies a completely implausible consumption function.)
Since we cannot isolate any meaningful effect of the economy by the debt-to-GDP ratio, whether or not we include Treasury securities held by the Fed within the "debt" total is a decision that has semantic results, but with no real world implications.
(Of course, not all fiscal ratios are meaningless. The fiscal deficit is an income injection into the non-government sector, and so it has an effect on economic outcomes.)
There has been a fair amount of rumination in the online MMT community recently.
Firstly, there was this post by Alexander Douglas, in which he announces that he is returning to focus on philosophy.
Secondly, there was this article by Tom Hickey, triggered by comments of "JWM" (
presumably J.W. Mason UPDATE: that presumption was incorrect).
So how do things look when we all talk MMT? Are we talking about a complete revolution in the way politics, allocation of resources, taxation policy, etc. are determined? Which probably sounds like hard work to that audience. Or is it simply adopting a different viewpoint as to where the constraints really lie? Which at the moment, for practical minded people (that audience), would be no significant difference at all.From my perspective, this is a good point, and can only be described as pragmatic. What are the advantages of MMT as an analytical framework? Although I believe that they exist, I think the advantages lie more in the direction of avoiding bad analysis, rather than creating brand new good analysis. (And policy options will follow from the analysis.) Although that may not be as exciting as a brand new paradigm that has completely revolutionised economics, it's better than nothing.
JWM ends with:
"I’d like to see MMT collaborate with other disciplines: political science, sociology, microeconomics. Out of that, develop a modern monetary practice. Something practical minded people can engage with." [end J.W. Mason quote]
That would require people in different disciplines agreeing to talk to each other and then reaching out to do so. This would need some unifying purpose.
I doubt that developing a modern monetary practice would provide it other than in a limited way. Is Bill Black making a big difference in law, for instance.
Btw, Mat Forstater has written on Adolph Lowe, for instance, and Randy Wray on Kenneth Boulding.
I would suggest that this unifying purpose be developing a practical philosophy of living a good life in a good societies a basis for liberal policy. Philosophy is about using reason in the most generally way and so it underlies all intellectual fields and disciplines.
This reason-based approach is traditionally not one the instruments but also the purpose of liberalism socially, political and economically. Liberalism is reason-based. It is basically secular and humanistic, although it is tolerant of other approaches, too, to the degree that they do not assert themselves over reason.
This means integration of social, political, and economic liberalism, addressing the paradoxes of liberalism, and unmaking the faux liberalism of elites that fear actual liberalism as an integrated social, political and economic paradigm.
Without beginning with philosophy the project is likely doomed owing to unexamined assumptions that will lead to incompatibilities down the road. As Aquinas stated at the outset of De ente et essentia, paraphrasing Aristotle, “A small mistake at the beginning becomes a great one by the end.
Tom has a lot of good practical points in the body of the article, although I would be concerned about such grand objectives that he discusses in the quoted section. Creating a new practical philosophy for life is a rather difficult objective; just trying to clean up our understanding of fiscal policy has much higher odds of succeeding.
Furthermore, I do not see a strong linkage between the success of political Liberalism and economics. I see a crude pro-business philosophy being quite successful, because it is supported by deep-pocketed corporations and individuals. The intellectual underpinning of this philosophy has been around for centuries now, and is not really getting any deeper. Changing economics textbooks is not going to make this pro-business faction suddenly disappear.
Take the internet Austrians as an example of the gap between academia and political success. No major university has taught Austrian economics in the last few decades in anything other than a "History of Economic Thought" course; pretty much all of the academic Austrians are long dead. (There are a few Austrians left on the fringe; there are probably outnumbered by Marxists.) Even so, there are far more Austrians working in Finance than there are people who believe that DSGE models are even slightly useful. Austrian economics is extremely attractive to its target audience, and that is completely independent of what academia thinks about it.
(c) Brian Romanchuk 2016