Where MMT is a Huge SuccessThe title of this piece refers to an article by Professor Simon Wren-Lewis: "Why is MMT so popular?" That article is interesting, and I largely agree with Alexander Douglas' response.*
He argues that MMT is popular because of dissatisfaction with the pseudo-Monetarist mainstream consensus ("the Consensus Assignment"). That argument may be true for some MMT-ers, but certainly not everyone. I came to MMT from a background as a market macro analyst, and I have met many people who have roughly the same story to tell. (There was a market practitioner session at the MMT Conference, and we compared notes.)
The answer for me is rather straightforward, and not particularly complimentary towards other schools of thought. The reality of financial market economics is that is a hodge-podge of jargons and random concepts taken from old mainstream textbooks and some central bank research. It sort of sounds like "mainstream economics," but it can only be described as a theoretical mess (that even Professor Simon Wren-Lewis complains about, I believe).** It is possible that some or even most bank economists have a coherent world view, rather it is the analysis in aggregate that is the problem.
Some market participants get tired of listening to analysis that is continuously wrong. Sooner or later, you start spending your free time trying to find an internally consistent economic theory. I am not going to assert that MMT is necessarily correct, but it is certainly not obviously wrong. And with all due respect to followers of other schools of economic thought, they are either in the "obviously wrong," "highly political," or "not well marketed" categories. As a result, MMT gains followers like myself by default. (In particular, I am pretty sure there are more followers of Austrian economics than MMT in the financial markets, but it is very political.)
Of course, there can be people from outside of finance who are interested in finding a coherent economic theory, and these people face the same set of options.
How Far Can This Spread?As I discussed in my earlier article, with the addition of a MMT textbook, MMT will be much better positioned to capture its market share of people who are interested in economic theory. However, there is no reason to believe that everyone interested in economic theory will become MMT-ers. This is not enough people to qualify as a mass movement. To become a mass movement, MMT needs to be tied to a policy agenda.
From my perspective, there is some tension between the political objectives of MMT, as I see them.
I would put the objectives into three categories.
- Change the way that politicians and the media discuss fiscal policy. The phrase "the government budget is like a household budget" would never be heard again.
- Make technical changes to the way that budgets are analysed, or economic data collected.
- Implement policy changes, in particular the Job Guarantee.
This is where my peculiar political background comes in. I am a Western Canadian Prairie Populist (even though the last time I lived on the prairies was in the mid-1980s). To give a quick summary, Canada's western provinces were explicitly managed as colonies to benefit the established eastern provinces -- Ontario and Québec. Periodically, the mismanagement by the Eastern establishment triggered broad-based popular revolts. Protest parties were formed, and reforms demanded.
From this perspective, the first objective listed above (change how the establishment discusses economics) is questionable. To translate it into the historical perspective, it would be akin to launching a campaign to stop Eastern Canadian politicians from being tribal and corrupt. The prairie populist movements were dominated by religious and charitable people, but even they were not that charitable. Concrete policy objectives trumped nebulous hopes of moral or intellectual reform of the governing elites.
Imagine that you are a political hack for the Democratic Party, and that a Republican President brings forth a tax cut that is almost entirely aimed at the ultra-rich. The sensible economic analysis is that such a move will have almost no economic impact. The tax cut would be largely saved, so there would be no economic stimulus or inflationary impact. All that would happen is that government debt levels would rise, matching the increased wealth of the upper income tiers. This is not a promising analysis to lead the charge against the tax cut. Instead, the most effective strategy is to just turn your brain off and scream: "We cannot afford this tax cut! Our debt levels will be unsustainable! The bond market vigilantes will come for us in our sleep!"
The second objective -- make technical changes to how policy is conducted -- is less problematic. It would be nice to have a more sensible policy-making environment, but that environment reflects political realities. Furthermore, it is going to be hard to simultaneously push for partisan political goals (the third objective) and make technical changes to operating procedures. The existing bureaucracies are likely to resent being hit on both those fronts. Also, such technical changes are unlikely to arouse great popular interest.
If your objective is to enact policy changes, you need to be able to form some political alliances. The Canadian prairie populist movements were alliances of groups with wildly different politics; the East-West dividing line trumped class differences. Since there was no way that Westerners could form a permanent Federal ruling coalition, these alliances would always be temporary. In which case -- why care what the other coalition members think about economics? The less you talk about theory, the better.
For example, if I were an American and wanted to get the Job Guarantee enacted there, I would think long and hard how to get at least some Republicans to support the idea. The marketing is going to be quite different than that aimed at progressive law students.
Concluding RemarksMy main interest in Modern Monetary Theory is theory for the sake of theory. This puts me into a small niche. Success in policy reforms is more important for wider popularity.
* There were two parts of Wren-Lewis' arguments that were curious. Alexander Douglas addressed them, but I will as well in case the reader has not read Douglas' article. Wren-Lewis complained that primers aimed at mass audiences did not include equations. If I wrote a primer discussing robust control theory aimed at a mass audience, it would not include equations. That does not imply that robust control theory is mathematics-free. The other issue was his statement "you will hardly ever see the government’s budget constraint which makes all such semantics seem silly." MMT-ers regularly argue that the infinite horizon governmental budget constraint does not exist (only real constraints exist), hence it would not be discussed in a primer. If Professor Wren-Lewis is referring to the one period accounting identity, all transactions are assumed to clear simultaneously, which is a step away from operational reality.
** Readers who disagree with that assertion are free to attempt the following exercise. Somehow get your hands on a few years' worth of bank economist research reports, and try to build a textbook out of the principles behind them. Good luck with that.
(c) Brian Romanchuk 2017