Looking At Some MMT Criticism

Work is proceeding on my "MMT primer" manuscript. One chapter I am working on (in parallel with the labour market analysis) are a discussion of what I view as serious objections to MMT as a theory. Although I want to finish off that chapter later, I am adding to it as I run into interesting criticisms. I discuss a couple of recent entries in this article. Although I do not want to derail my book with lengthy discussions of MMT critiques that are coming from every random direction, I also want to have at least some quotations of critics so that my comments are not viewed as attacks on straw men.

[Update: here is a link to this Daniel de Voss article on Twitter wars. The complaints about MMT are weak, providing examples for my complaints about low quality criticism. I certainly will not want to crowd my book with low quality targets like that, but it is fun to read.]

Robert Murphy Review

 Robert P. Murphy wrote a review of Stephanie Kelton's the Deficit Myth (Amazon affiliate link). The part of the review that catches the eye is that Murphy warns the readers at Mises.org that it is a mistake to dismiss the book, which was the usual response.

This matches my view -- the strategy taken by mainstream economists was to follow the line of Paul Krugman and attack straw man versions of MMT. Although this has a signalling effect -- if you want to be part of the mainstream club, you cannot take MMT seriously -- attempts to police the boundaries of acceptable discourse fall flat on those outside the neoclassical bubble. In the case of free market advocates who are the likely readers on mises.org, the usual dismissal was made largely on ideological grounds -- "MMT is socialism!" Although this might work to police the ideological boundaries of libertarianism, one runs into the reality that most major parties outside the United States are also viewed as "socialist" by libertarians. With opponents counter-attacking purely on the basis of affiliation signalling, MMT has expanded with almost no serious critical scrutiny (other than a handful of post-Keynesians).

I am not going to attempt to discuss Murphy's criticism of MMT here -- the review is long, and contains many points. The differences revolve around the underlying economic "models" (which are verbal, not equations), and it will not be a surprise to the reader that I disagree with Murphy's models. A longer discussion will follow at a later point, I just wanted to highlight this review to my readers.

Some Comments on Matthew C. Klein's Articles

Matthew C. Klein wrote two articles on MMT, one a primer, and a review of the Deficit Myth. They outline MMT from an outsider's perspective. The articles are not deeply critical, rather they lay out the issues.

The observations on MMT policy proposals are interesting. Klein's discussions of MMT policies is one of the few available that is not written by MMTers (who unexpectedly support the programmes) that is based on what MMTers have said themselves about the proposals. As such, there is a clearer idea of the trade-offs of the proposals (i.e., a less sunny view than the advocates).

However, my focus is on getting my own primer done. Right now, there was one criticism that caught my eye, and I believe that I can work into a section on complaints about MMT rhetoric. It overlaps an earlier criticism I discussed by John Quiggin. The rest of this article is an unedited draft of my comments on that topic. I think the text is too long, but I will worry about cutting it down once I work in the Quiggin material as well.

Rhetorical Tricks?

Matthew C. Klein writes in the article “MMT's Stephanie Kelton Advocates for Permanent Wartime Economics” (which is a review of The Deficit Myth):

Kelton sometimes relies on sleight of hand to make her case. She rightly notes that the government is financially unconstrained when it comes to paying Medicare beneficiaries, for example, because it can’t run out of money. But that doesn’t tell us whether Medicare is sustainable as currently structured. Population aging, trends in obesity, and the persistent increase in the relative cost of healthcare all mean that Medicare will, on its current trajectory, end up eating more of the rest of society’s resources. Elsewhere, Kelton suggests the answer is to shift more and more of the workforce into medicine and elder care. But that’s quite different from saying that “the biggest challenges facing these programs have nothing to do with affordability.”

I see two legs to these statements: the substantive policy concerns, and then the narrow question is whether there is a rhetorical trick.

With regards to the substantive policy issues around Medicare in the United States, I do not see a reason to disagree with Klein’s assessment. The sustainability debate around Medicare does not really fit the Canadian situation; the expensive parts of medical care are under government control, and governments already grasped the political nettle of the decisions associated with the ageing population. Adjustments will be made as needed – but there is no constituency in Canada that expects otherwise.

The problem with the United States is that the ruling elites have a hard time dealing with adjusting policies. If we assume that the current structure of medical provision in the United States is extended forward – itself a dangerous assumption – Klein’s assessment seems to capture the challenges faced by the system. It seems exceedingly likely that Medicate will take increasing amounts of real resources as the population ages. Meanwhile, the “persistent increase in the relative cost of healthcare” is a direct result of the design of the system.

As a fan of the economist Herb Stein’s dictum that “if it can’t go on forever, it will stop,” I expect that the assumption that something will change. Given the high cost of American health care versus developed country peers, it is clear that there is no inherent law of nature that medical costs must spiral out of control. In summary, I do not see that there is a substantive policy dispute (other than the possibility that the situation is better than suggested).

Instead, the disagreement is whether saying this has “nothing to do with affordability” is a “rhetorical trick.”

I will first note that the substantive issue is that this is a question of real resources, and Klein’s description of the problem matches this. I would argue that there are many linguistic precedents for treating real resource constraints as not being an issue of “affordability.”

Since everyone loves household analogies, I will use one. Imagine that we have cooked supper for our family, but. I then discover that one of my children has invited friends over to eat at the last minute. There is a definite concern that we might run out of prepared food, but there is no question of our being able to “afford” the extra food – unless these friends have extremely large appetites.
So why is discarding “affordability” seen as rhetorical trick? I would guess that this is the result of conventional economists framing what are really real resource limits as being about “affordability.” So by denying “affordability,” people who do not understand the distinction will believe that there are no constraints on spending – including real resource constraints.

Although it is unfortunate that people draw the wrong conclusions, I also do not have a lot of sympathy for the conventional economists’ position here. All they need to do is use language properly and admit that floating currency sovereigns do not face nominal constraints, rather real constraints. In the meantime, all that can be done is to correct over-exuberant activists and point out that real resource constraints still exist.

(c) Brian Romanchuk 2020