Ezra Klein on MMT
I find myself disagreeing completely with Ezra Klein. This is very unusual and I feel compelled to blog about it (note you should not feel at all compelled to read this post which is self therapy).
I am commenting on a twitter thread here.
I am going to cut and paste a lot (because I hate Twitter and don’t want you to go there (as I do many times a day)).
It began with Larry Summers who wrote
“There are things MMT says that are true and things it says that are new but unfortunately there is no overlap.”
(I know of no things that MMT says which are new and true, but that may just be because I am ignorant).
Klein wrote
“So I’m not enough of a macroeconomist to know if it’s true that what MMT says that’s new isn’t true, and what it says that’s true isn’t new.
But I’ll say that MMT has absolutely changed the things that MMT’s critics will say are true.”
(I am believe that he is absolutely wrong about the cuase of the change of the things that MMT’s critics will say are true. More importantly, he and I are speculating about the causes of other peoples’ statements and we could just ask them. I proposed he do so and I will right now. I just asked Larry Summers (odd I haven’t dared to bother him for years and now over this ?) OK now I just asked Paul Krugman (also someone I do not lightly ask for attention)).
Klein goes on
I’ll give an example: MMTers really like the Keynes quote “anything we can actually do, we can afford.” Their critics say: It’s a Keynes quote! So it’s something the Keynesians knew. But in years of reporting with Keynesian economists, it is definitely not how they talked.
Klein reported on Krugman. He has talked with him (I realize that I never have). I do however, read pretty much everything he wrote (until the NYT paywalled it). It is definitely how he wrote from 2008 on. I do not at all understand Klein’s claim.
“There was *far* more discussion in the 2010s of debt-to-GDP ratios and Reinhart/Rogoff than of the real productive limits of the economy, and where we were in relation to them.”
I note a sudden shift. Klein was writing about “Keynesian economists” then he wrote about “discussion in the 2010s”. My sense is that Keynesian critics of MMT (DeLong, Krugman, and Noah Smith spent a lot of time back then talking abuot how Reinhart and Rogoff were totally wrong). This is getting close to my point (if I have one). There was a huge gap between the discussion among policy makers and the discussion among academic Keynesian economists. There was a consensus in official Washington that the national debt was a huge problem — a news article described it as the nation’s biggest problem stated as a simple fact in the journalists voice. Some academic Keynesians agreed — Rogoff for example and, I think, Greg Mankiw for another. But many argued that concern about debt was nonsense given the facts that the US borrowed in its own currency and also that interest rates were at historic lows. EIther people said completely different things to Klein in private than they wrote in public or he is confused.
I google krugman debt currency -euro -deleveraging in the 2010s. He is undoubtably a harsh critic of MMT. Clearly, if he was influenced by MMT, then he was already influence by the 2010s.
Similarly Larry Summers was advocating increased fiscal stimulus pretty much as soon as he left the Obama administration, writing about secular stagnation, and arguing that there is a Keynesian Laffer curve. in the 2010s he absolutely didn’t agree with Obama, Reinhart or Rogoff. I google 2012-2018 (there are too many “whose afraid of deficits” hits in 2019 and Klein might mean he meant before then and 2010 and 2011 Summers was part of a team. I google (I see he argued in 2013 that the deficit should be reduced — I didn’t know about that.
googling to find proof that Krugman is a harsh critic of MMT I find this rather relevant tweet
“To be told now that it was only after MMT that we realized that deficits could be OK is annoying; and if the only way to make that argument is to dredge through decades of writing to find something wrong I once said, that’s a de facto confession of intellectual bankruptcy 3/”
back to Klein (who has I think been subtweeted)
So one debate about MMT is whether it should be understood as an economic framework or a theory of political economy. I deal with it more in its latter incarnation, and at least in that guise, it’s definitely forced the, let’s say, rediscovery of certain truths.
Now “definitely” to go with the “absolutely”. I definitely know of absolutely no evidence that these claims are true.
“Back at Vox, I hosted a discussion between @jasonfurman and @StephanieKelton that I think makes for very interesting listening now, on all sides.
What interests me about MMT right now is that they always warned inflation was the danger, real resources the constraint, but they did so when inflation was an abstraction. Now that it’s not an abstraction, I think they’re having as much trouble as everyone else responding.
And generally, the people I trust most are pretty critical of their macroeconomic models, so I’m skeptical there, too.”
(in fact, the people he demonstrably trusts do not criticize MMT macroeconomic models — they assert that there are no such things and that MMTheorists do not use models and, in fact, carefully avoid writing anything clear enough to test or clear enough that they can’t claim that their critics are ignorant about MMT. It simply isn’t true that it is agreed that there are any MMT models.
“But also: those same people will eventually admit to you that most macroeconomic models are pretty bad. If you can really figure out macroeconomic modeling, I want to invest in your hedge fund.”
Pretty bad is not the same as nonexistent (although I do think that standard DSGE models are bad enough that they should be abandoned and we should start over). It is also true that Krugman has a remarkable record of accurate predictions.
“But I’m annoyed at the gatekeeping response to my colleague @jeannasmialek‘s interesting piece, and the lack of self-reflection on why the MMT critique found traction, and what in it proved important. So I think you should read the piece.”
Reading that, I was convinced that I had guessed that Klein’s thread was an act of New York Times solidarity. I have to admit that I didn’t say this to anyone.
I have some thoughts
First I think Klein tends to conflate two groups of people. One is the set of “MMT’s critics”, “Keynesian economists” who Klein knows from “years of reporting” : I think I can name names. This groups includes Larry Summers (the thread is a reply to a tweet by Summers), Paul Krugman (who finds something he recently read “annoying”, Brad DeLong, Noah Smith, Christine Romer, Larry Mishel, OJ Blanchard, and (OK) Kenneth Rogoff and Greg Mankiw. Of thse the first seven definitely were talking in the 2010s about how one should not be alarmed at all by deficits.
The other group is the group of Democratic politicians and top appointees. I will name a name: Barack Obama. He definitely talked about reducing deficts through a grand compromise. He argued that the US federal government should tighten its belt. He definitely could have learned something from say Paul Krugman, Larry Summers, Brad DeLong, Noah Smith, Christine Romer, Larrry Mishel and even from Stephanie Kelton. But the mainstream view of left of center policiticans was completely different from the mainstream view of prominent Keynsian academics who are covered by Ezra Klein and who are now harshly critical of MMT.
My second list has only one name. I guess that other important people on that list include economic advisors (who in fact tell journalists what the policy makers tell them to tell journalists whatever they say to the politicians) and bankers. The view in official Washington was that the national debt was a terrible problem. The view in official Washington was also that this was the view of mainstream economists. Official Washington was wrong (macroeconomists are so divided that there really isn’t a mainstream).
The second thought is about “gatekeeping”. Klein explains in the end that he doesn’t like the recent gatekeeping. I understand that this has become a pejorative term (evidently related to gamergate even). However, gatekeeping is necessary. I’d ask about say failing to close the gate on Mehmet Oz. There can’t be a rule that anyone who thinks that he has something useful to contribute to the discussion gets covered in a full article in the New York Times. The question which Klein answers differently that “the people I trust most ” is whether MMTheorists have anything useful to contribute to the discussion. They all say no. He doesn’t claim that he can evaluate their claim. And he condemns it.
I like the idea of the post as ‘self therapy”. Perhaps you could consider my ruder than intended first reply to your previous post self therapy on my part also.
Stephanie Kelton has apparently compiled a number of Krugman quotes that might cast some doubts about your assertions here.
I guess you could check them out if you are so inclined.
You are not the only one who has read Paul Krugman (or other economists) for decades. But our recollections about that seem to differ significantly. Mine are more in line with Ezra Klein’s.
I note a key part of Klein’s thread as quoted in my post “2010s”.
That is the period under discussion. Things written by Paul Krugman before January 1 2010 are off topic.
He did indeed change his mind about deficits and the social security trust fund some time around September 2008.
However, Klein chose to write about the 2010s and I chose to write about Klein’s thread.
I understand that using fancy math to scare people is not valid debate, but I do not think I am going too far when I note that 1996< 2010.
I trust you are willing to concede that 1996 is, in fact, a smaller number than 2010 and that the evidence you present is not relevant to our discussion.
I concede the point that 1996 is a smaller number than 2010. I have already conceded, or pointed out, that many of the more ‘liberal’ economists have moved towards what MMT says on your previous post. The point is that they have changed their views to a certain extent since the 2008 crisis. It is certainly different from when I was an econ student in the late 80’s. That is a good thing of course- changing your views when the facts change is not a dumb thing to do. But maybe it would have been better to have the correct understanding to begin with.
Beyond tired of this MMT nonsense. I do notice that its’ advocates never mention the effect on the US economy if the dollar is no longer the world’s reserve currency, but my favorite is how they plan to control inflation.
Tax increases. Now, for that to work, tax increases would have to be written into the mix as an automatic stabilizer of some sort. Inflation goes up, taxes must go up in a fairly short period of time.
Ignored is that there is no government in existence that would ever put into place a system where taxes increase automatically dependent on the inflation rate. Can’t happen. Won’t happen.
EMike,
The assumption seems to be that the Bretton Woods Agreement will last through eternity or at least for so long as the US has a viable economy. It is less clear though whether the viability of the US economy is a concurrent condition with or dependent condition upon the Bretton Woods Agreement – just more stories about chickens and eggs.
Of course most of what I read states that the Bretton Woods System was dismantled when Nixon rescinded currency convertibility (essentially the silver standard since the gold standard had already proved fatal half a century earlier). Those authors either do not believe in economic hysteresis or they think the Keynes (Bancor) international reserve system was finally implemented using IMF SDRs.
IOW, weaponized is not dismantled.
Why don’t we just use zombie Paul Volker to fight inflation?
SW,
“Why don’t we just use zombie Paul Volker to fight inflation?”
[Was that a serious question? OK, I will just pretend that it was. The inter-bank lending interest rate set by the Fed only directly affects the Fed window, but a second order consequence is the Prime Rate, which applies only to short term loans for select business customers and as an interest rate index basis for a limited set of consumers with really good credit ratings. That said then the market price for credit set by the trade of various asset backed securities channels watches the same indexes as the FOMC, but operates independently. However, similar to much of 70’s inflation, although rarely admitted, then the present unusually high inflation rate is far more cost push than it is credit-fueled demand pull inflation. However there is some latent demand pulling on prices along with some wage increases due to worker shortages after so many people figured out that wage slavery made too few dollars and almost no sense for them after work related expenses were taken into account.
The sad thing though is that what you asked is exactly what the FOMC plans to do despite that it will likely do more harm than good. FOMC members take no oath to either help nor do no harm to the patient, but instead swear to pander to the impatient. ]
sarcasm doesn’t show up well.
SW,
Actually, sarcasm shows up well if well executed. Volcker wrote the book on FOMC measures to curb inflation, executed it with plenty casualties, yet hard, quick, and short enough that it could have been much worse had he had been more hesitant. Raising taxes would have worked better than strangling the economy with government mandated usury, but not nearly so much fun for conservatives. So, unfortunately Volcker’s system for battling inflation is mainstream, rather than a authoritatively refuted idea that just will not die (i.e. Zombie). Sure, there are plenty critics of it, but no realistic alternative since raising taxes during the boom to pay off debt is the part of Keynes that only Abba Lerner and the MMT guys agree with and that will not fly is this air full of blowhards.
“Raising taxes would have worked better than strangling the economy with government mandated usury, but not nearly so much fun for conservatives.”
And we get to the point. Yes “Volker” works, but inherent in the concept’s mainstreaming is the underlying assumption is that it is the only thing that works. That once inflation gets started there is simply no alternative. This is the Zombie idea. It is rooted in political cowardice.
SW,
Political cowardice is generally confined to politicians. Deferring inflation handling to the central bank is way bigger than that. We have institutionalized a culture of sycophants for the wealthy and powerful. Denial of the role of public supervision via mechanisms of government that extends to rebellion against Covid-19 vaccination and mask mandates demonstrates just how far from reality that the ship of state and its rats have drifted. People that do not care if other people die or not then damned sure would care if they had a job, a roof, and meal.
https://www.businessinsider.com/paul-krugman-zombie-ideas-persist-stop-misinformation-pandemic-2020-4
“…Krugman defines zombie ideas as ‘things that people believe in the political sphere that are demonstrably false. They’ve been proved wrong by evidence over and over again. And yet they stay out there, shambling along, eating people’s brains.’…”
*
[The only thing that we are missing to make inflation Volckerism a Zombie is the evidence. Knowing is not evidence. “Proof is in the pudding” it is said. We are all out of pudding here.]
SW,
Also, that is still not what Zombie idea means. An idea cannot simultaneously be both Zombie and mainstream, regardless of how stupid and anti-social that idea may be.
The roots of institutionalized narcissism and its attendant fawning masses is much older than US.
The paleolithic age gave us clans and nomadic groups that selected for their leaders from their wisest and best hunters. The neolithic age gave us agriculture and horticulture. The bronze age gave us money and armies. With the power of money and armies at their disposal then leaders could become gods or at least warlords. What the Khans did for Confucian China, the Greeks and Romans had done for (or to) Europe. Even those that cannot be bought can still be terrified. The promise of democratic republicanism has yet to be fulfilled despite occasional glorious, but brief moments such as the New Deal. The average Joe knows who his master is and will not pee on his master’s rug even though he will pee all over mine if he gets the chance.
MMT makes people uncomfortable. We have been “conditioned” for many years to think that government deficits are bad. Pete Peterson and groups like Committee for a Responsible Federal Budget are always given top spots on media like the Washington Post. Does anyone remember Robert Samuelson? He pushed “entitlement” reform for decades, although Social Security and Medicare are social insurance programs, not entitlements.
In a sense, MMT has pointed out that the Emperor has no clothes. A nation with a sovereign money system has a system to support economic activity within certain boundaries. This does not go over well with a political class that wants to “drown the government in a bathtub”, the Republican view. It also doesn’t sit well with a lot of Democrats who are ok with massive defense spending but really don’t want to increase the federal government role, ie. Medicare for All.
Kelton spent a short time at the Senate Budget Committee. It’s clear that she had some influence on Bernie Sanders. He wanted a $6 trillion social spending bump in the reconciliation bill. Biden cut it to $3.5 trillion, and now Manchin has it down to $1.5.
MMT has nothing to do with deficit spending. Printing money does not affect the deficit.
EMike,
The Treasury does not need to really print money. Rather it just borrows new money with Treasury notes, which sounds a lot like deficits to me. My guess is that you also have a lot more money in banks and securities than you do cash in your wallet.
That is not what MMT does, it prints more money to pay off its debt.
EMike,
[OK, sorry – but you made me look – so thanks.]
https://www.businessinsider.com/modern-monetary-theory
“
Modern Monetary Theory (MMT) is an economic theory that suggests that the government could simply create more money without consequence as it’s the issuer of the currency, according to the Federal Reserve Bank of Richmond. As part of this theory, the thinking is that government deficits and national debt don’t matter nearly as much as we think they do.
Instead of relying on tax revenue or borrowing to support federal government spending, according to MMT supporters, the government can simply create more money instead. This is a big departure from how many economists think about government spending and has become a popular alternative theory as discussions about debt and government spending hit the national stage…”
*
[Holy sacred cow of globalization and financialization, Batman. The big difference between the US and the Weimar Republic is that we would be able to pay off all our debts to foreign nationals with real pennies on the nominal dollar. It would crush our FOREX rate and end our trade with China and the RoW, collapse banks and global corporations, and effectively reboot something that most likely would bear little resemblance to capitalism. Nicely done, Bill Mitchell.]
EMike,
I had mistakenly believed that MMT was far closer to Abba Lerner’s functional finance that it was a brown acid trip, but I was wrong.
Sorry – thanks.
[The fun continues…]
https://www.businessinsider.com/modern-monetary-theory
…Another concern of MMT is the potential transfer of wealth from everyday people to the one percent if the theory turned into actual policy with real-world ramifications.
“Modern monetary policy is the most effective way to transfer wealth from the working class to the elite. When more money is created it generally goes directly to the largest investment banks, which have the closest relationship with the central bank and the Treasury Department,” says Shaun Heng, vice president of operations at CoinMarketCap. “This means that the wealth of the working class, generally stored in cash or bank accounts, loses its purchasing power. Meanwhile the purchasing power of investment banks grows exponentially.”…
Which raises an interesting question. When someone lets loose a brain fart in a blog comment, then does it have a virtual odor?
Ron,
And if the world decides that the dollar is no longer worthy of being the world’s reserve currency, that’s when we become the Weimar Republic. MMT nuts avoid that result.
EMike,
Understood and agreed, although I expect with some differences in the backstory. In either case though a moot point other than we discredit ourselves with our fantastical tales (or tails). In the middle of the 20th century industrial capitalism took its bride investment banking and raised their precocious children; corporatism, securitization, financialization, consolidation, and globalization. This family rules the US economy and essentially the entire economically developed world. I see no possible way to get inflation-indexed tax rates past them as you so astutely noted elsewhere with regards to MMT. That same dependency hogtied Abba Lerner’s functional finance since he first theorized it during WWII. This family depends upon the stability of reserve currencies used in cross border capital flows to maintain its status quo existence. Any reasoned look at the usage of resources, the availability of critical products, the usage of skills, and the distribution of income and capital both nationally and globally would not support this scheme.
If MMT were to become a realistic threat to the status quo, then I can just imagine the rallying call of the counter-revolution, “Rentiers of the world unite!”
Jim Hannon
your comment is completely off topic. I discussed what Klein claimed about what Keynesian economists he covers said in the 2010s. You discuss Peterson and Robert Samuelson. You neglect to consider the opinions of of Joe Rohan and Kim Kardashian.
You identify MMT with the claim that current US public debt is not a problem. By your definition Paul Krugman and OJ Blanchard are MMTers.
You simply have not addressed the post in which you claim to comment.
also BBB was cut from 6 trillion to 3.1 by negotiations in the Senate Budget Committee. Biden’s budgetary authority is sign or veto. The bill, being a reconciliation bill, was managed by Bernie Sanders.
I understand that Sanders listens to Kelton. Since my (vehement) disagreement with her is over her (very rudely stated) claim that there is a meaningful difference between her views on macro and mine, I don’t have a problem with that.