MMT: Often imitated, never duplicated*
*From a Tweet by Stephanie Kelton.
Today’s topic almost qualifies for the “you just can’t make this up” category. But first we need a bit of context.
Some years back a guy named Cullen Roche came across our writings. (Disclosure: I still have no idea who he is but he apparently has had a blog for quite some time.) He thought MMT was the best thing since sliced bread, and apparently wrote an MMT manifesto that many readers have praised for clarity. Read it here: https://www.dropbox.com/s/hgq1poyf8c5olfm/Roche%20MMT.pdf Indeed, there were even commentators on my blogs who proclaimed that Roche’s explanation was better than mine. So far, so good. I’m happy to cede the exposition to a better writer. Indeed, readers here will recall that I ran an excellent 3 part series by Michael Merrill precisely for that reason.
Indeed, I just looked at Cullen’s original paper, and it’s pretty good. Here’s his abstract:
But Cullen gradually realized that MMT is not just a description of “how government really spends”, but also leads to a range of policy options. And he did not like what he saw. MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose.
Cullen hated that conclusion. Above all, he hates the idea of full employment, once remarking that unemployment works for him (presumably he meant that unemployment of others works for him). Hence, he tried mightily to separate MMT from the Job Guarantee. To no avail—it is the JG buffer stock that logically provides the anchor to sovereign currency so that we can run continuous full employment without setting off inflation.
So Cullen and his merry band of Neocons jumped the MMT ship in a huff and formed something called MMR, which is supposed to be MMT but without progressive ideas.
Come to find out, it is MMT without any ideas. The only thing MMR has put forward is a simple equation: S = I + (S – I).
Right. And from that we can further derive: S+I = S + I. With a bit more mathematical manipulation we can determine that S=S or I=I. And we finally reach the brilliant observation that 0=0.
And so like rats that jumped a floating ship in the mid-Atlantic, MMR sank into oblivion.
Meanwhile, MMT goes on from strength to strength. Witness Brad DeLong using Chartalism to do battle with Bitcoins: http://equitablegrowth.org/2013/12/05/978/bitcoin-the-south-sea-bubble-and-chartalism. But you know all that.
OK, with that background take a look at these two exchanges from Twitter last night.
First Chris Hayes welcomes Matthew Klein from Bloomberg aboard the MMT ship. Cullen immediately interjects that Sovereign government is a user, not an issuer of the currency! He then claims that MMT’s description is actually wrong! (A description that Cullen actually embraced.) In the next exchange, Klein has to remind Cullen of what he’s written.
Cullen then admits he’s gone “anal” and needs to “get a life”. Amen to that!
57 Responses to “MMT: Often imitated, never duplicated*”
[…] http://www.economonitor.com/lrwray/2013/12/11/mmt-often-imitated-never-duplicated/ (sobre o cullen roche) […]
"MMT quite naturally supports progressive policy. Freed of “budget constraints” and the myths of “Uncle Sam is running out of money”, we can get on with using government to serve the public purpose."
Perhaps my view of MMT is incomplete but doesn't it describe a model where fiscal deficits/surpluses can be used to stabilize AD and keep output close to its optimum levels ? Why does this naturally lead to progressive policies ? If MMT maximizes the size of the pie (say by adjusting tax rates to keep AD steady) isn't the question of how that pie is distributed (the size of the pie the govt controls , and what it does with those resources) a separate political decision ?
Ah… the stupidest equation in the world.
Also, Cullen has descending far into political propaganda since I last encountered him ("The government will never beat the private production line!"). I think that is basically the end of him. He's beginning to look like an Austrian ranter or something. Maybe we should hook him up with Bob Roddis or something…
Roche has twisted himself in knots trying to avoid admitting that government has a role in the economy. He's even gone so far as to claim that workers want to maximize free time. So why worry about the unemployed? They're clearly better off than anyone else!
For not knowing who I am, you sure do seem certain of my political beliefs and monetary understandings. Next time you decide to attack us so personally, you could start by at least getting the name of our approach right (it's just MR – Monetary Realism). It might bolster your argument.
Phil, I never said that. I said the the "printing press is not more powerful than the private production line". After all, money has no value if there is no output for it to be used to purchase. I don't think this is "austrian" or even that controversial….
Bod/Dismayed, I never said govt has no role in the economy. In fact, I've been in favor of greater govt regulation, deficits, and I am not even against the JG (despite MMT's misinterpretations otherwise). You regularly read my work and comment at PC so I know you're aware of this.
Is this what MMT has resorted to now? Petty blog posts, personal attacks and blatant misrepresentations and personal defamation? I sure hope not. I am sorry I disagree with some of your positions, but calling people "retarded", "anal" and telling them to "get a life" in your blog post is not helping your cause. Feel free to call me all sorts of names now and misrepresent everything I say….
"fiscal deficits/surpluses can be used to stabilize AD and keep output close to its optimum levels"
That is a progressive policy. Using government to do something that benefits society.
A regressive policy would be to say 'no you can't do that, we need to maintain high unemployment for x y z stupid reason'
Cullen Roche is just an idiot with a chip on his shoulder. He has no idea what he's talking about.
S = I + (S – I)
is simply the sectoral balances equation used by MMT, written in a slightly different way.
The sectoral balances equation used by MMT is:
S = I + (G – T) + (X – M)
(S – I) = (G – T) + (X – M)
which can be re-written as
S = I + (S – I)
S = I + (S – I) says nothing original that is not already explained by the sectoral balances equation used by MMT.
Most of the people who read Cullen's blog know absolutely nothing about the subject.
[…] MMT: Often imitated, never duplicated Economonitor […]
S-I=S-I can be derived from absolutely everything, therefore its information content is zero.
cancel E=mc^2 => -E+mc^2=0
Whoa! I derived it from General Relativity. Deep.
There's a link to Cullen Roche's support of MMT, where's the link to MMR and all the stuff they got wrong?
I = I + (S – I)
is straightforward if you think in computer code.
It's X = X + 1
What they are saying is that you have to offset last year's excess savings of the private sector with more private investment this year.
It's nothing sophisticated and is exactly what Steve Keen has been saying in his dynamic equations for years.
It's *not* a mathematical equation. It's a time progression.
The MMR problem is that they are ideologically wedded to American Style Capitalism and a dislike of government action. That is the frame in which it sits. This 'we're not political' stuff is very much a case of 'you protest too much'.
What it is trying to do is find a way of dealing with the paradox of productivity (It is irrational for the private sector to hire everybody in a productive environment) and the excess of savings generated by the private sector in an endogenous money environment *without* requiring a 'Deus Ex Machina' action from government (which has to be restrained in a straitjacket and lots of words written to pretend it is just another actor in the economy – lest it reveal its superpowers).
In other words the same wild goose chase that has been going on since Keynes's time.
But ultimately all solutions always boils down to giving some money to people nobody wants to hire so that the machines get a spending signal to make stuff that wouldn't otherwise be made.
The JG just does that in a way that makes it slightly more likely that somebody will want to hire the individual.
Watching an ideology desperately trying to avoid giving money to people they don't really like is mildly amusing to watch, but shouldn't distract from the issues at hand.
tgw: EXCELLENT IDEA. Well, the silly equation! And Cullen’s statement in the tweet that sovereign govt is a currency user, not issuer.
Neil: logically impossible. Saving is the accounting record of Investment (plus Def+NX). There’s no excess to be used.It is all “used up”. Saving in the next period will be the accounting record of Investment in the next period (plus Def+NX).
not sure what you mean. That's not what they are saying.
S = I + (G – T) + (X – M)
(G – T) + (X – M) = S – I
S = I + (S – I)
It's just a rearrangement of the sectoral balances equation that tells you nothing in particular.
It's simply a rhetorical device used to say something like 'private saving mainly equals private investment plus a little bit extra on top which is the net saving part'. The idea is to try to rhetorically reverse the MMT position, which presents 'net saving' as central to private saving.
"Neil: logically impossible."
Within the notation system you use and the limitation of accounting perhaps. But that is a static notation, not a dynamic one.
X = X + 1 is similarly logically impossible, but I execute it all the time on a computer – because it is actually a statement of the state change from one time instant to the next.
Yes, I know its an attempt to quantify a belief in some sort of different causality using fairly lame and incorrect mathematics.
However causality always has a time element. For something to be before something else it has to precede it in time.
It would be so much more understandable if the time elements were made specific. Then perhaps everybody would be able to determine what the underlying beliefs actually are and be able to analyse them.
Neil sorry neither of those explanations work. (Not blaming you, of course). From the 1950s, some mainstream Keynesians tried to make their simple models “dynamic” along these lines. They fail logic and accounting. Don’t forget that identities are identities. Always. Every point in time and over time.
Neil and of course the Keynesians did use proper notation, putting in time subscripts. But then the equations don’t hold. In any event, investment is forward looking, not backward looking to what saving was last year. I expect a couple of years of college economics would help straighten all this out for them.
The equation is stupid. Let's get that straight. It's an attempt to be really clever that falls flat on its face (hence X=X+1 which similar is completely understandable by me but nobody else has a clue what I'm on about. The difference is I will drop that device now because it didn't work).
But balance sheet accounting has limitations in that it is a historic snapshot, and is based on policies, and it doesn't show the causation from one snapshot to the next very easily.
And it holds all the time because of the logic of double entry that makes sure it does – tortuously sometimes!
It's really the delta from one snapshot to the next that is interesting, and then coming up with a way of expressing why that change occurred.
"In any event, investment is forward looking, not backward looking to what saving was last year"
It it outside the balance sheet within the causality structure. Within the balance sheet what you call investment relates precisely to what you call saving within that balance sheet. And that's because if you call expenditure on something investment it instantly creates the equal and opposite saving – because that's what double entry requires.
The whole problem with the S=I+(S-I) approach is torturing residuals to try and express something that would be better expressed in a different way.
If you say capitalists are dirty profit hoarders and that's why things never clear, then there is something to go on. Probably pointing out that the capital debates established that about 40 years ago, and are (I presume) implicit in the MMT analysis.
Have you read this 2007 paper by Wynne Godley and Marc Lavoie? It supports MMT conclusions and also suggests that the real rate of interest doesn't need to be below the real rate of growth for government deficits to be 'sustainable':
"This paper deploys a simple stock-flow consistent (SFC) model in order to examine various contentions regarding fiscal and monetary policy. It follows from the model that if the fiscal stance is not set in the appropriate fashion that is, at a well-defined level and growth rate—then full employment and low inflation will not be achieved in a sustainable way. We also show that fiscal policy on its own could achieve both full employment and a target rate of inflation. Finally, we arrive at two unconventional conclusions: first, that an economy (described within an SFC framework) with a real rate of interest net of taxes that exceeds the real growth rate will not generate explosive interest flows, even when the government is not targeting primary surpluses; and, second, that it cannot be assumed that a debtor country requires a trade surplus if interest payments on debt are not to explode."
Neil I pretty much agree but you can get both the flows and stocks in the accounting, as shown in the original Ritter piece (which I am pretty sure is what Wynne originally used to derive his approach). There is an identity for both flows and stocks, obviously. Again, so much time would have been saved if instead of trying to derive the silly and flawed equation, the developer would have taken a couple of economics classes.
PJ: No surprise there. Wynne was at the Levy Inst when I was writing the book. He was in a study group (that included Forstater and Kelton) that went through the draft chapters as I produced them. He was completely on board with MMT. Despite what the MMR crowd claims. He wanted to write a textbook that began the first chapter with a “government centered” approach. However, it took so long to finish the book he was writing back in the 1990s (Lavoie came on board in the 2000s to help) that he never got to that textbook. In 2007 Bill Mitchell and I began that textbook! It might see the light of day in 2014.
PJ sorry that won’t be clear. I meant my 1998 Understanding Modern Money book. It was the draft we were using in the Levy study group. Of course, we did not call it MMT then. It was UMM. The Modern Money approach. Later we think some commentor on Bill’s blog called it MMT. So many Mmmms: UMM, MM, MMT, MMR, MR. Reminds me a bit of MM enterprise from Catch 22. (that’s for the old folks who remember Milo Mindbinder)
I've been reading a few post over at Heteconomist and this one
I think is on point here.
"Finally, the average rate of profit becomes:
r = (CP + I + BD + NX) / K"
Derived from Kaleki's models.
Where K is essentially the cumulative value of the underconsumption of capitalists over time and will cause the rate of profit to fall unless offset by a Budget Deficit (BD) or Net Exports (NX).
The paper I linked to above references your book and Bill Mitchell's work too.
Neil sorry I’m not going to get to look at that post as I’ve got 28 term papers to grade. I’m skeptical. What capitalists don’t consume doesn’t exist. That might sound mystical but think about it a minute. It is a nonactivity. Recall Keynes’s complaint about abstaining.
Dismayed: yes gets even worse than that. He claims Unemp made him the Man he is today:
“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”
Cullen: Sorry, I think you misunderstood. You called yourself Anal and told yourself You Need To Get a Life.
I thought you were funny. I quoted you. I didn't call you anything. There's no personal attack.
"Retarded"? Where? All sorts of names? What? You called yourself names. I just agreed with you–but it was tongue in cheek. If you've been too harsh on yourself, I'll take it back if you will.
"you could start by at least getting the name of our approach right (it's just MR – Monetary Realism)"
"I believe few schools have been more helpful in recent years than so-called Modern Monetary Theory and its offshoot, Modern Monetary Realism."
"This is why I formed Modern Monetary Realism as an offshoot of MMT."
"The main reason why we started MMR was because we didn’t agree with the fact that a set of policy proposals were directly embedded as a “central” piece of a theory that claims to be a “macroeconomic reality”."
"One of the primary stances MMR takes versus MMT is with regards to currency demand."
"In this paper I will explain why Modern Monetary Realism best describes most modern fiat monetary systems… Modern Monetary Realism (MMR) is a description of the monetary system applicable to nations who are autonomous issuers of their currency."
PJ: Nice finds. I guess he won't pull the wool over your eyes!
Phillip and Neil: Someone sent to me this about a current discussion over on an MMR/MR site:
JKH on his “contribution.”
bottom line: investment enables saving
and later, from cullen, “Your analysis is even more eye opening that we first believed….I is the backbone. And I is driven primarily though private credit!”
also, JKH says he has a degree in “pure mathematics.” then a guy with a degree in mathematics and a ph.d. in computer science shows up and devastates JKH and MR.
JKH HAS DISCOVERED THAT INVESTMENT IS A DRIVING VARIABLE. AND IT IS NOT FINANCED BY SAVING. WHO WUDDAV EVER THOUGHT THAT!!! BRILLIANT!!! THAT IS WHAT THE EQUATION HE’S BEEN PUSHING FOR 2 YEARS IS ALL ABOUT!!!!!! UHHMMMMM: ANYONE WHO EVER TOOK FIRST YEAR ECONOMICS! –)
Cullen: "I am not even against the JG (despite MMT's misinterpretations otherwise)"
"I simply don’t believe the JG is the optimal usage of [the government's] powers and in fact could come at substantial long-term cost. Instead, I think there are better options which can also lead to price stability and full employment."
"if the JG is passed who do you think will pick up the tab for their free lunch? It will fall on the rest of society via a reduced standard of living (compared to what you might have had instead). There is no free lunch."
"So what really is the role of the JG? This all circles back to Marx’s “reserve army of unemployed” statements and while I hate to get political I can’t help but wonder how the JG is not a highly politically motivated move towards a more socialist agenda, given the facts above"
"corruption puts a nail in the JG coffin as far as I am concerned. MMTers can either bury themselves with this program or accept that it’s not a core piece and give the world the gift of understanding modern money. But modern money need not involve massive govt labor programs"
"America is a Constitutional Republic, a government of the majority. Not a government of everyone for everyone. As such, it’s not natural for Americans to promote policies that involve social work. This makes the entire JG debate very hard to pass and perhaps entirely incompatible with the ideals that the country was founded on."
"regarding the MMT JG I keep saying that the idea of full employment and price stability miss what our real goal as a society should be… So I say we should use the MMT understanding to implement policy approaches that get the economy operating at full productivity rather than trying to fill in an economist’s model by putting a “100%” in the full employment box."
"MMTers do not believe in having a buffer stock of unemployed. So they are in favor of using the government to ensure that there is ZERO involuntary unemployment… I do not think this is a rational perspective due to the many unknowns that would arise from the largest government bureaucracy in the history of man."
It's an old discussion from 2012.
I am flattered that you guys are keeping an archive of every comment I've ever made.
But seriously, what's up with all the name calling? Liar, idiot, etc? What is the point?
And what – are my opinions and understandings not allowed to evolve? I am sorry I read Soft Currency Economics before I read Monetary Economics. I am sorry I ever thought I was doing "MMT" and attached my name to it. It's obvious now, that I was never really all that close to MMT. So my views have evolved with time.
I think I've learned and evolved. You guys just attack that and call me names. I am sorry I disagree with MMT's points. I am. But calling people names and archiving old and irrelevant quotes doesn't really change what my current opinions and thoughts are…..
Cullen: I agree that “idiot” is not a fair characterization. I think we should stick to your own characterization: “anal”. At least until you want to retract it. I think that “idiocy” or “stupid” is a fair description of JKH’s equation. It would not be fair to call JKH an idiot. However, I do think it is “fair” to hold you accountable for what you’ve said. You cannot just flit about taking whatever position you feel like taking at a point in time. Yes, we all “learn”; we all “evolve”; we all change our minds. It would be best if you did a bit of “learning” in private before you made pronouncements that you later have to retract. That’s just friendly advice, of course.
I find it frustrating that "MMR" is presented as a whole new discipline. It's just MMT with the obvious policy prescriptions removed.
I appreciate underconsumption doesn't exist (after all, that's the problem. No spendy; no makey)
I'm desperately trying to avoid the term 'saving'.
Clearly we need more words. Everything in this game has a dozen definitions.
All we need to do is get these pesky capitalists to spend what they are planning to save and everything would be ok, or get people to borrow more to offset what others are saving.
Then its all sorted out in the private sector.
See. All very simple. Not a government in sight.
You just have to live alongside Alice in Wongaland, where these sort of things are possible.
Neil, ok now we are getting somewhere: "All we need to do is get these pesky capitalists to spend what they are planning to save and everything would be ok, or get people to borrow more to offset what others are saving".
JKH just needed to run his idea thru someone who actually knows some economics. That makes sense. Even Better: Get the capitalists to spend MORE than they were planning to save. Geez. We don't need a stupid equation. We need a sentence: If we can get people to spend more than they did this year, GDP and National income will be greater next year. If you really want to use the word saving then what you say is: We want people to spend more and save less next year. Of course, that does not mean they'll save less, but by trying to save less, they spend more.
Let’s call that Neil’s Law.
DISMAYED: that is what I understand that they used to claim. But then they decided they needed more product differentiation. Hence the stupid equation and the claims govt is no longer a currency issuer. Somehow Uncle Sam became a currency user, with BofA issuing the currency. All pretty silly so far as I can tell. But that is product differentiation for you. I think they are just into marketing, not economics. Sadly. Because it also means they have to argue MMT is all wrong. Otherwise they’ve got nothing but MMT without policy. Which, basically, means they’ve got nothing. No one wants explanation without policy. No one.
I would say MMT supports progressive policy bc it allows pursuit of what may be called the public purpose like universal health care, full employment and such.
It is mathematical nonsense too.
A time progression? Well why not say so? So if next year we invest what we should have spent the last five years of the recession we will be back to normal?
Full employment seems like one very real public purpose. If you oppose that idea then you wish to see people on unemployment insurance and hence, you need to make that permanent, or nearly so, unless you one day- in the distant future- have full employment. A sovereign currency with no restrictions like ours provides the means to ensure full employment through the JG. And it has no necessary connection to taxes. Not to avail yourself of that solution, after you understand how money is created, is wrongheaded. It boogles my mind to think otherwise. Poverty is good I guess. I can think of some politicians who think like that. Its all their fault.
Nonsense equations offer zero information towards policy. Who would really follow that sort of silliness?
I didn't know the government was in competition with the private production line. Imagine my surprise. What does he mean by that?
Jon: my best guess is that neither he, you, nor I have any idea. US govt is of course the biggest buyer in the world. I guess he might mean that private producers don’t want dollar sales if those sales are to Uncle Sam. They discriminate against dollars from govt rather than dollars from private buyers. Why? Who the heck knows.
I moved on from "MMR" when Mr. Roche claimed that workers want to maximize free time. I was also perplexed by his insistence that "MMR" was a whole new school of thought. Odd since it started as MMT for Republicans, but without proper attribution of key insights.
Anyway, I stumbled upon your own work, Professor Wray, when I started trying to understand why the economics that I learned at U Chicago was a complete and total failure. I've learned a lot. Thank you.
I think the whole idea was that it was a whole new school WITHOUT thought. It was supposed to be MMT without any theory; nothing but description. Which, as anyone who actually went to a College knows, is impossible. There is no description without theory. And no useful theory without policy. Science is ALWAYS progressive. Description without theory or policy is ALWAYS regressive. It is ALWAYS a defense of the status quo. Its purpose is ALWAYS to prevent progress. It will take you 3 minutes of reading on the MMR/MR site to confirm this.
>S = I + (G – T)
>which can be re-written as
>S = I + (S – I)
How come difference between goverment spending and taxation become difference between saving and investment? Is all taxed money invested for example? Nonsense I say.
Funny that some conservatives are working so hard to remove unemployment, by for example, these "work without pay" schemes in the UK without understanding that unemployment is caused by other conservatives arguing FOR unemployment.
Same lot is pulling in different directions. I wonder if those who want unemployment are happy if people are employed at no-pay schemes. What is your take on this, Roche?
(S – I) = (G – T) + (X – M)
S = I + (G – T) + (X – M)
this says that private saving = private investment + (government deficit) + (current account surplus)
yeah but that's just a theory.
Society must find a better way to distribute labor and the rewards of labor. This would give more people a path to finding real and fulfilling work. The cost of inequality is taking a toll on our culture. Robots and new technology have streamlined and increased productivity and at the same time eliminated many jobs. Big business is good for big business but not necessarily for the masses. Consolidation often means a gain in efficiency, but this often comes at the cost of losing diversity and a "robustness" to both society and the economy. The benefits of efficiency sometimes have a huge hidden cost, in the 1993 movie Demolition Man, "everything is Taco Bell". How the fruits of labor are divided is important, this includes not just the wage deserved by a common laborer, but how much CEO's, those in management, and those that can't, or choose not to work, receive. While we have become far more efficient in producing goods, all people should in their lifetime contribute to the good of society and the economic pie. the remainder of my post on this issue is below.