Wednesday, January 11, 2012

MMT and the Job Guarentee

I don't like to do Meta posts, but there's a debate raging in the MMT world that offers some insight into MMT and it's Job Guarantee(JG) policy proposal.  Modern Monetary Theory is a relatively new school of economic thought and I think it is experiencing it's first growing pains as more and more people accept it's fundamental points.  So what is the debate?  There is a debate raging on whether or not the JG proposal is central, peripheral, or even part of, MMT.

On the one side is the "old guard" who come mostly from academia.  This group includes the founders, their students, and their large following on the internet.  They argue that the JG is central to MMT.  The two were created at the same time.  On the other side of the debate is savvy investors who understand MMT.  This group is mostly represented by John Carney of CNBC fame and Cullen Roche of Pragmatic Capitalism fame.  They argue that there are core tenets of MMT that are undeniable, and that the JG proposal is just an idea that some might advocate and show is possible once you understand MMT.

Cullen has been making several posts questioning the wisdom of the JG proposal.  There of course have been counter blog posts firing back.  I come down firmly on the side of  "I see both sides".  Technically, I think Carney, Roche are right in their assertion that the JG does NOT have to be a part of MMT.  In my view is a policy proposal, not an explanation of how a macro economy works.  However, the JG flows directly from the MMT understanding of the way the world works.  Once one understand MMT, the JG proposal becomes a very obvious and desirable policy.

To suggest that the JG isn't a part of MMT is like saying that "Aggregate Demand Management isn't part of Keynesian Economics" or "Gold Standard isn't part of Austrian Economics" or "Market Promotion isn't part of Neoliberalism" or that "Socialism isn't a part of Marxian economics".  In all of these cases, the policy isn't *technically* part of the economic framework.  However, once you understand and accept that economic framework, the policy normally associated becomes obvious and desirable.  To reject the policy strongly (but not definitively) suggests that the person either doesn't understand the framework, or rejects it.  After all, I suppose it wouldn't be unheard of to find an Austrian that doesn't advocate for a gold standard or a Marxist Economist that rejects Marxist politics.  But those exceptions are extremely rare because the policy idea is so strongly suggested by the economic framework.

While I admit that Carney and Roche may be "technically" correct, I am beginning to think that they either don't fully understand or fully accept the entire MMT framework.  I know this to be the case of Carney because in his writings he seems to reject aggregate demand in his analysis.   See Letsgetitdone's third post on this topic for Carney's assertion and why it's wrong.

For Roche, he mostly seems to reject it on political terms.  Perhaps Cullen will be that one guy for MMT  that just reject the JG because he wants to.  See Letsgetitdone's first post on the topic for more on that.
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