Richard Murphy Critiques MMT

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Continued from here.

It is actually only in part a critique, and otherwise in large measure a reminder to put MMT in the right context. The author is perhaps underemphasising, in fact, ignoring that MMT implies a fundamental critique of mainstream economics that is entirely destructive of its target.

[... M]odern monetary theory does not apply, and cannot be used, when the government does not have a fiat currency, or has to borrow in the currency of another country, or lets the currency of another country be used in common circulation within its economy; then the preconditions for modern monetary theory to work do not exist. There is no point pretending that they do when they do not. A failing tax system also prevents MMT functioning in practice. 

Second, modern monetary theory does not eliminate exchange rate risk. It still exists. That is in large part because most exchange rate risk has nothing whatsoever to do with government economic action. It is created by political risk, as has been the case with the substantial down-rating of sterling since the Brexit referendum took place; or it is created by external price shocks, as for example are commonplace with regard to energy and other raw material prices; or it can arise because of short-term speculation, which is only sustainable if economic fundamentals of the type previously noted have changed. But, and I do make this clear, if a government that thinks it believes in modern monetary theory believes as a consequence that it can create money without limit, then it is fundamentally wrong. Likewise, if it thinks it can spend without taking into consideration the limit of available resources within the economy itself and ignores entirely the impact upon imports then the use of MMT can, and usually will, have a downward impact upon the balance of payments and the long-term value of the currency. This may not be a problem if the process of change is gradual: many economies have and will sustain themselves despite such long-term declines in value, but it is pointless to pretend that the risk does not exist. 

Third, there is absolutely no necessary relationship between modern monetary theory and a jobs guarantee, or any other left of centre economic policy come to that. They are, in my opinion, completely unrelated, even if it is obvious that modern monetary theory does permit the government to pursue a policy of full employment at fair wages if that is its wish. But the last words are critical: this may not be a government’s wish, although few parties are honest enough to say so. To presume MMT requries [sic] a left-wing agenda is just wrong: it is a description of actions, not an agenda for left wing governments, albeit that it can usefully inform the decision making of those who want such a thing. 

Fourth, there is also no relationship between modern monetary theory and anti-neoliberalism. Modern monetary theory is not a theory or a philosophy, which is why it was so badly named. It is simply a description of a process that, as a matter of fact, happens, even if that is not widely appreciated. In that case there is no conflict between modern monetary theory and neoliberalism and the neoliberal could, in my opinion, as readily prescribe to this idea as anyone of left of centre persuasion. 

Fifth, there is also no link whatsoever between modern monetary theory and Brexit. If you believe in MMT you do not have to want out of the European Union. The simple fact is that there are far more factors to consider when discussing such a complex issue than how the government funding cycle works (which is what MMT addresses). It’s true that some aspects of EU policy appear antagonistic to MMT, but as quantitative easing showed, most things can be worked around where there is the political will to do so within the EU. And that is the important point: it’s creating the political will to change the international environment that matters and MMT can only be one factor in that process of change, at best. 

Many MMT adherents do not now seem to appreciate these points, which I think are facts. I have found myself at the sharp end of their comments as a result. I find that just a little bit ludicrous. Those less persuaded than I am by MMT simply take offence when such comments are directed at them, and in many cases I can see exactly why they do that. 

MMT is a fact. It does not require aggression to explain it.
Nor does it require the presumption that a person not yet persuaded is a neoliberal. Or a Blairite. Or any other term of abuse that comes to hand. That just alienates people. And that is not the way to change the world. 

And a little humility about MMT would also be good. As Frances Coppola said the other day (and she was right on this, in a twitter exchange where I otherwise disagreed with much of what she said), MMT has not got its head around tax. That is true. It largely ignores its social functions, the tax gap, why it is important, and why tackling tax abuse is a fundamental task of government. That is because far too many MMT proponents think the government can simply print money instead of taxing. And that is not true. MMT cannot, in my opinion, function without an effective tax system. 

So I am making a twofold plea. The first is that MMT understands tax. The Tax Justice Network and I are discussing how we might assist in this process. There will be more to follow on it. 

The second is that MMT proponents do not think that espousing politics that are supposedly the consequence of MMT (when they are not) and which are unlikely to be unacceptable to most in the electorate is necessarily good for MMT. It isn’t, and will simply alienate the vast majority, including many of those who are utterly opposed to neoliberalism and all it stands for. 

To put it another way, however good MMT might be as an explanation of an aspect of the economy, it does not answer all questions and is no substitute for sound political judgement.

The source.