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IS THE JOB GUARANTEE CRUCIAL TO MODERN MONEY? by Pavlina Tcherneva
This post is primarily addressed to the MMTcommunity and whoever considers himself/herself a follower of Modern Monetary Theory. It deals with the question of what is in the purview of MMT.
A number of MMT supporters from the blogosphere have argued that MMT has a descriptive and prescriptive part and, more recently, that the Job Guarantee program (JG) falls in the category of prescriptions and that itis not as essential to the MMT project as the description of the operational realities of modern economies.
The argument is that once we have understood how sovereign governments fund themselves and how the banking system operates under different currency regimes, then we can pick from a menu of policy options that the monetary regime affords, depending on our individual political preferences. Some MMT followers have claimed that they would prefer tax cuts to spending due to their more conservative leaning, while others still seem unconvinced that full employment is possible or even desirable. By contrast, most first generation MMTers have made the full employment objective a salient feature of our work.
Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between the descriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy. Why are MMTers busy describing what governments can and cannot do under different currency regimes? Why have New Economic Perspectives, Mosler Economics, Billy Blog, Mike Norman Economics,Credit Writedowns,to name just a few, spilled so much ink about the flaws of the Euro, the difficulties with quantitative easing, or the impact of austerity policies in the U.S. and abroad? Because producing an adequate description of monetary operations in and of itself is a useless exercise, but when it sheds light on the policy options before us it is invaluable. And when we illuminate policy choices, we MMTers inevitably make a choice between one policy prescription over another.
The adoption of a currency board, a monetary union, orgold standard is a political choice and to claim that MMTers are mainly interested in describing the problems with the EU or dollarization or the gold standard without imparting any normative judgment or preference of one currency regime over the other would be disingenuous. I doubt anyone would claim otherwise.
When we discuss monetary policy we are not simply impartially evaluating the actual monetary operations, we bet, we trade, wemake claims, assertions and forecasts. Do we not hypothesize a monetary transmission mechanism different from that of monetarism? Do we not theorize about the multiplier effects from spending on primary/direct employment and in turn on secondary/indirect unemployment? Do we not have a theory about the Fed’s ability to grow the economy, about the impact of discontinuing the payroll tax cuts on the economy,or of imposing draconian austerity measures on any nation? Certainly we do. We are not just describing, we are also forecasting and ultimately prescribing.
All of this requires some theory about how all the pieces of the reality we’ve just described fit together to produce some economic results. And to our credit, MMT has been righton the money on pretty much everything from the impact of austerity, to the relative ineffectiveness of QE, to the movements in bond yields. This is the true test of our effectiveness as economists or pundits—it is how well our theory and our conceptualization of reality stand the test of time.
I realize that it is somewhat of a philosophical point to say that facts do not exist in a vacuum and that we need to have a theory to make sense of these facts. But it is important to make this point,because MMT supporters are doing a disservice to the MMT project by drawing flawed boundaries between what can be called objective and what can be called subjective in the MMT project.
http://neweconomicperspectives.org/2012/01/whats-mmt-about-anyway-and-is-job.html
This post is primarily addressed to the MMTcommunity and whoever considers himself/herself a follower of Modern Monetary Theory. It deals with the question of what is in the purview of MMT.
A number of MMT supporters from the blogosphere have argued that MMT has a descriptive and prescriptive part and, more recently, that the Job Guarantee program (JG) falls in the category of prescriptions and that itis not as essential to the MMT project as the description of the operational realities of modern economies.
The argument is that once we have understood how sovereign governments fund themselves and how the banking system operates under different currency regimes, then we can pick from a menu of policy options that the monetary regime affords, depending on our individual political preferences. Some MMT followers have claimed that they would prefer tax cuts to spending due to their more conservative leaning, while others still seem unconvinced that full employment is possible or even desirable. By contrast, most first generation MMTers have made the full employment objective a salient feature of our work.
Though clearly there is an aspect of MMT that is purely descriptive, I have always considered this division between the descriptive and prescriptive part of MMT to be a fundamentally flawed dichotomy. Why are MMTers busy describing what governments can and cannot do under different currency regimes? Why have New Economic Perspectives, Mosler Economics, Billy Blog, Mike Norman Economics,Credit Writedowns,to name just a few, spilled so much ink about the flaws of the Euro, the difficulties with quantitative easing, or the impact of austerity policies in the U.S. and abroad? Because producing an adequate description of monetary operations in and of itself is a useless exercise, but when it sheds light on the policy options before us it is invaluable. And when we illuminate policy choices, we MMTers inevitably make a choice between one policy prescription over another.
The adoption of a currency board, a monetary union, orgold standard is a political choice and to claim that MMTers are mainly interested in describing the problems with the EU or dollarization or the gold standard without imparting any normative judgment or preference of one currency regime over the other would be disingenuous. I doubt anyone would claim otherwise.
When we discuss monetary policy we are not simply impartially evaluating the actual monetary operations, we bet, we trade, wemake claims, assertions and forecasts. Do we not hypothesize a monetary transmission mechanism different from that of monetarism? Do we not theorize about the multiplier effects from spending on primary/direct employment and in turn on secondary/indirect unemployment? Do we not have a theory about the Fed’s ability to grow the economy, about the impact of discontinuing the payroll tax cuts on the economy,or of imposing draconian austerity measures on any nation? Certainly we do. We are not just describing, we are also forecasting and ultimately prescribing.
All of this requires some theory about how all the pieces of the reality we’ve just described fit together to produce some economic results. And to our credit, MMT has been righton the money on pretty much everything from the impact of austerity, to the relative ineffectiveness of QE, to the movements in bond yields. This is the true test of our effectiveness as economists or pundits—it is how well our theory and our conceptualization of reality stand the test of time.
I realize that it is somewhat of a philosophical point to say that facts do not exist in a vacuum and that we need to have a theory to make sense of these facts. But it is important to make this point,because MMT supporters are doing a disservice to the MMT project by drawing flawed boundaries between what can be called objective and what can be called subjective in the MMT project.
http://neweconomicperspectives.org/2012/01/whats-mmt-about-anyway-and-is-job.html
