Thursday, January 26, 2012

First MMT Now Monetary Realism?!! Cullen Roche

      I was just thinking about how what I'd like to see is a real smackdown between Market Monetarism and Modern Monetary Theory.

      I've spent a lot of time lately on MM with Sumner and his interminable attacks on "fiscalism" and Lars Christensen's claim that 'there is no such thing as fiscal policy' though what he actually means is there is no such thing as fiscal stimulus.

      So I thought to maybe get into this smackdown we should begin with reminding myself of MMT as I haven't read much about it lately.

      I find Cullen Roche a pretty good expositor of MMT theory-Scott Fullwiler is another. So I was checking Cullen's Understanding the Modern Monetary System.

       What first stands out is that he has changed it since I last looked it over. Turns out there's been some kind of "schism" where he now calls his own school of theory "Monetary Realism." I was just getting use to MMT now it's MR?

        In any case I like a lot of what I see. I appreciate this understanding of the relationship between the government and the private sector:

        "The government is an entity created by the people and for the people. It exists to further the prosperity of the private sector – NOT to benefit at its expense. If this entity is allowed to exist for its own benefit or becomes corrupted by a concentration of power or abuse of its monopoly supplier powers it will become susceptible to dissolution via the populace’s rejection of that government."

        "Governments should be actively involved in regulating and helping build the infrastructure within which the private sector can generate economic growth. The economy is a complex dynamical system with irrational participants. It cannot be expected to regulate itself or behave rationally at all times. Therefore, some level of government intervention and involvement is not only beneficial, but necessary. But ultimately, it must be the private sector that is the driver of economic growth. While government can aid in this process it cannot be expected to be the primary driver of innovation, productivity and growth – the primary drivers of living standards and ultimately the most important linkage in currency viability."

        Here the difference between MMT-and Monetary Realism, on most of this MR is still MMT; as to what makes them different more below-and any libertarian economic systems, be they Market Monetarist, traditional Monetarist, or Austrian could not be more stark. Whereas libertarianism systems all see the government and the market in some sort of Manichean struggle between good-the market-and evil-the government-MMT's understanding of the two of in a kind of partnership-I would argue a kind of dialectical partnership-is for me a vast improvement. In reality I don't believe the government is all knowing but neither is the private market.

      So where exactly is the deviation in MR? According to Roche,

       "Monetary Realism is similar to Modern Monetary Theory (MMT) in many ways and utilizes many core aspects of MMT, but instead focuses on operational realities of the monetary system and attempts to eliminate the theoretical aspects of MMT that generate substantial political divisiveness and confusion."

       Hmmm. What are these theoretical aspects that generate "political divisiness and confusion?"

         "Monetary Realism doesn’t view large current account deficits as sustainable as they require ever larger global imbalances, larger budget deficits and potentially result in a reduced standard of living as the society turns increasingly into a society of consumers as opposed to producers."

        "MMT lacks emphasis on the idea that producers matter as much, if not more than consumers in the effort to create better living standards in the world.   This is not to imply that Monetary Realism doesn’t appreciate consumption, but we view consumption and production as two sides of the same coin rather than a tug-of-war.  Maintaining a balance and focus on each is important."

         "We do not view taxes as being entirely sufficient in justifying the monopolist argument.  Although important, taxes and enforcement alone are not enough to maintain a stable monetary system.  We instead focus on the living standards of the people within that monetary system with the understanding that any monetary system is only as stable as the living standards of those who create it.  Money might be a creature of the state, but the state is a creature of the people.  Resources precede taxation so while taxation plays a crucial role in binding the monetary system they are by no means the only link (or even the most important link) in the chain.  The monopolist argument that MMT uses is often taken to an extreme in justifying government interaction in the private sector."

         "We reject the MMT idea that a Job Guarantee (JG) is a necessary component of any monetary system.  The JG could create unintended consequences which reduce the potential living standards of the society over a multi-generational period. In addition, since the JG is unlikely to be demand supportive or an effective inflation buffer, it will rely heavily on other policies as a supplement.  We believe the government should focus on other policy measures to establish an environment of full employment and price stability."

         I must admit that none of these differences on the face of them are much to my taste. Cullen seems to think that apoliticalness is what is important about MMT-more so now in MR.

        "One important element of Monetary Realism is its political agnosticism. There are components of Monetary Realism that tend to be left leaning, however, there are also components of Monetary Realism that are right leaning. For instance, Monetary Realism is agreeable to many right leaning economists because it favors lower taxes, reducing (or ending) the Fed’s role in the monetary system and focusing on efficiency of government (reducing wasteful spending and malinvestment). Monetary Realism is also agreeable to left leaning economists because it favors government deficits, tighter bank regulations and a focus on full productivity (hence full employment). Importantly, it is neither an offshoot of Keynesianism, Monetarism nor Austrian economics, though there are components of each involved to some extent. Rather, Monetary Realism is an offshoot of many different theoretical frameworks with GF Knapp, JM Keynes, Abba Lerner, Hyman Minsky, Friedrich Hayek and Wynne Godley playing central roles in helping to craft the thinking behind it."

     While for the most part I must admit that I can't say that any of these changes from MMT to MR at least at first glance seem to be for the best-a major attractive aspect of MMT is that it rescues us from deficit hysteria. Cullen seems to be suggesting that in MR it makes a comeback. The last thing I want to here about is that "we are on a road to unstainable debt" which is hogwash. It seems that MR might be a little more concerned about inflation and trade deficits too. A major selling point for me of MMT is that it is so provocative in claiming that trade deficits don't matter.

     I don't like the idea that producers are even more important than consumers-this seems to me to be the back door to favoring supply side fiscal policies.

     Still, Cullen remains one of the best expositors of the overall all theory. He is right that the important thing about MMT is its descriptive rather than prescriptive aspects-though let's face it as much as I am interested in economics if there were no prescriptive implications it would not be a subject of such immense interest.

      In any case we'll see where the Great Schism of MMT goes-if it will be on the line of Martin Luther...


  1. Have you seen this series on the schism here:

    In addition, you might want to take a look here:

    Also, there's a great set of comments making the conflicts clear here:

  2. TK for that Lets. Right now my gut tells me that the Monetary Realists don't do much for us. I don't see that we gain anything. Most of the changes strike me as being for the worse though I certainly admit I have to read more about it.

  3. Some of the changes that Roche has tried to make are just whacky. He drops the idea of utility maximization for free time maximization. So in his world the unemployed have it made! He also often misrepresents the MMT view. MMT is, after all, not defined by a single person or committee, yet he thinks he can define all MMT thought.

    Roche is just an opportunist. He presents many MMT ideas as his own, and he tries to create distinctions in an attempt tp appear as if his ideas are unique.

  4. Agree with Dismayed from what I've read of Roche, which isn't much.