"In glowing tones, it describes Kelton’s clothes, her office, her house, her neighborhood, her blog, her manner of speaking, her personal story, and so on, calling her 'the star architect of a movement that is on something of a victory lap.' Very little is written about the background of the macroeconomic policy debate, and what does appear is highly questionable: 'In economics, there’s a school of thought sometimes called “freshwater.” It’s the set of ideas that became popular at inland universities in the 1970s, when they began to embrace rational markets and limited government intervention to fight recessions. There’s also “saltwater” thinking, an updated version of Keynesianism that argues that the government occasionally needs to jump-start the economy. It has traditionally been championed in the Ivy League and other top-ranked schools on the coasts. You might call the school of thought Ms. Kelton is popularizing, from a bay that feeds into the East River, brackish economics.' The brief description of freshwater and saltwater economics is fine, but to describe MMT as being 'brackish' — i.e., some sort of fusion of freshwater and saltwater, or a middle ground between the two — is absurd."
From "The NYT article on MMT is really bad/The fringe ideology's star is falling, and puff pieces will not resuscitate it" by Noah Smith (Substack).
Here's the NYT article: "Is This What Winning Looks Like? Modern Monetary Theory, the buzziest economic idea in decades, got a pandemic tryout of sorts. Now inflation is testing its limits."
I'm in no position to judge any of this, but who cares about the metaphor? And my feminist alarm went off: A man is irked by an article by a woman about a women — in a field that's traditionally male and featuring details that seem like the stuff of women's magazines — her clothes, her office, her house, her neighborhood.... And why is it called "Is This What Winning Looks Like?" Looks?!
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To be fair, I was often critical of Milton Friedman's ties.
Fresh water economics--from out in the cornfields among the rubes; Salt water economics, for the wokerati.
But our host's reaction to the article suggests that the writer is in hot water.
Women have no intuition about system dynamics, which would include economics. Women are more parrots in that field. Economics is not the sort of complexity that interests women. They like social complexity.
There's nothing wrong with parrots. They famously confound philosophers.
"[T]he human resentment of parrots, especially all the talk about their having devils in them and so on, springs not from their startling ability to utter human phrases but from their aggravating refusal to let you choose the topic. You know how it is. You go up to a parrot, and he's probably in a cage and you're not, so you feel pretty superior, maybe you even think you can feel sorry for the parrot, and you ask the parrot how he is, and he says something gnomic like, "So's your old man," or "How fine and purple are the swallows of late summer." Then the parrot looks at you in a really interested, expectant way, to see if you're going to keep your end up. At first you think you've been insulted, but a parrot is too cool to throw insults around, unlike a blue jay, and once you notice that, you start trying to figure out what the parrot means by it, and there you are. You haven't a prayer of reintroducing whatever topic you had in mind. That's why philosophers keep denying that parrots can talk, of course, because a philosopher really likes to keep control of a conversation."
- Vicki Hearne, _Animal Happiness_ p.4
MMT to me has always looked like it was invented to justify horrible government policies that would otherwise have no reasonable justification to implement.
Noah Smith does a good job hashing it out. He calls MMT a 'guru-based theory'
Does guru-based policy sound familiar to anyone? How's that working out?
Formal Models vs. Guru-Based Theories
These days, most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself. You don't have to go ask Mike Woodford what New Keynesian theory says. You don't have to go ask Ed Prescott what RBC theory says. You can go read a New Keynesian model or a Real Business Cycle model and figure it out on your own.
MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT's policy recommendations. But that's different than having a formal model of the economy.
... formal models have important advantages. For one thing, a good formal model can be compared with quantitative data, to see whether it works or whether it fails. Formal models can make testable predictions.
A second advantage of formal models is that you can figure them out for yourself, without having to ask any gurus. If you have to run to the gurus to ask them what the theory says any time you think you've found a flaw, it becomes almost impossible to skeptics or outsiders to evaluate the theory objectively.
" And my feminist alarm went off:"
Not for the first time, I might add.
So funny- my 1st thought was: Althouse must be getting tired- sick and tired- of these new feminists that are all glittery, gooey sweet, w/out much depth. Vanity. I guess I was wrong. Not criticizing. Just observing.
Mark Blyth is a charming leftist Scots MMT guy, an economist who will tell every other economist that their theory is garbage, denies it's inflation. He talks monthly to a leftist friend at Brown, Carrie, and she learns from him. It's an enjoyable friendly bubble of misinformation and mansplaining.
Cochrane also points us to a working paper from Sebastian Edwards...
Modern Monetary Theory: Cautionary Tales from Latin America
According to Modern Monetary Theory (MMT) it is possible to use expansive monetary policy – money creation by the central bank (i.e. the Federal Reserve) – to finance large fiscal deficits that will ensure full employment and good jobs for everyone, through a “jobs guarantee” program. In this paper I analyze some of Latin America’s historical episodes with MMT-type policies (Chile, Peru. Argentina, and Venezuela). The analysis uses the framework developed by Dornbusch and Edwards (1990, 1991) for studying macroeconomic populism. The four experiments studied in this paper ended up badly, with runaway inflation, huge currency devaluations, and precipitous real wage declines. These experiences offer a cautionary tale for MMT enthusiasts.
The problem with the "salt water" Keynesians is that they never embraced both parts of Keynes:
1. In recessions, deficit spend to jumpstart the economy
2. When the economy is sound, pay down the debt.
I tried reading her book and tossed it away after the second chapter. Not because of the material, but because it was so awfully written that it annoyed me. I don't share the visceral hatred that some conservatives have towards MMT. I think it's mostly uncontroversial ideas, a few interesting thoughts, and a bunch of leftwing policy proposals with only a tenuous connection to the underlying theory.
A man is irked by an article by a woman about a women — in a field that's traditionally male and featuring details that seem like the stuff of women's magazines — her clothes, her office, her house, her neighborhood.... And why is it called "Is This What Winning Looks Like?" Looks?!
You really have to go way back, to prehistoric times actually, but you see it was women who first articulated MMT.
"CHARGE... IT!!!"
If you randomly create money for any purpose, you get inflation unless production of goods and services keeps pace. See colonial Spain, Weimar Germany, Zimbabwe, Venezuela, and any other place that does something similar. It is called “debasing the currency”.
This is not what winning looks like.
Keep in mind MMT is only 'buzzy' amongst lefty politicians and other policy 'experts' AOC is of course a big advocate of MMT and she's often pointed to as some kind of economics authority. However, she only had a concentration in economics at an institution that doesn't require micro and macro or other core curriculum to do so.
She likely skated by with courses like the 'The Economics of Racism' or 'Climate Science Econ 101'. (You know, crap. Basically...)
From what I read it appears that MMT deals with the problem of scarcity of resources by declaring there is no scarcity so long as you can keep spending. Yet there is only so much asphalt, there are only so many construction workers. If those resources are doing a project over here, then other projects cannot be done, unless you want to get into a bidding war over those resources, which is sort of inflationary - too much money chasing too few goods.
Basically, the current crop of journalists is incapable of engaging with ideas and explicating them. That's left to bloggers. The journalist's job is to explain which group the subject affiliates with and to let the reader know whether they should be trusted or distrusted based on that group affiliation.
Now inflation is testing [Modern Monetary Theory's] limits
If by "testing its limits" the Times means "tearing it to shreds," then, yeah, I guess that's right.
I read the article, and I agree with Noah Smith, the Times article is a puff piece, and inflation seems not to have been expected by the MMT theorists, of whom Stephanie Kelton seems to be a proud member.
And, Althouse, if your "feminist alarm" has been set off because you want only to pay attention to the sex of the people involved and not at all to their real-world results then I hope that your UW-Mad pension does not have a cost of living adjustment built in so that you get to appreciate the shortcomings of MMT. (My pension doesn't have a COLA, so I am seriously pissed at Prof. Kelton's bland assurances about inflation.)
And my feminist alarm went off: A man is irked by an article by a woman about a women — in a field that's traditionally male and featuring details that seem like the stuff of women's magazines — her clothes, her office, her house, her neighborhood....
In other words, it's worthless garbage that has nothing to do with the actual subject, aimed at mindless women who know nothing about the subject, and don't want to learn anything?
I would expect your "feminist alarm" to go off at the "women's magazine" writing, not the criticism thereof.
And why is it called "Is This What Winning Looks Like?" Looks?!
I find the "?" at the end more interesting that the "looks" part.
Esp. combined with the subhead that claims that the current inflation is blowing MMT all to shreds
MMT is to economics as Santa Claus is to Christmas. Both are very nice theories that grown-ups know are not based in reality. Sigh.
Most economists don't know shit. If they really knew anything useful about the economy, they'd be rich.
I'll remind everyone of the MEN of Long Term Capital Management hedge fund who levered up and nearly crashed the entire economy in 1998. Myron Sholes (white, Canadian and male) was at the center of this debacle.
The Fed put together a $3.65B bailout package.
The profits were privatized, but the losses socialized.
And I read somewhere that LTCM alums raised more money after the bailout and got back into the game.
Murray Rothbard, well known liberal economist claimed to be a "no water" economist based on his affiliation with university of Nevada.
Liberal economist Milton Friedman was long affiliated with university of chicago
He was probably the best known and leader of "fresh water economics". He may have even coined the term
Freshwater economics used to be about free markets and limited govt involvement in markets and in general.
Saltwater economists tended to be more keynesian, lots of govt control. ("in the long run we are all dead")
Is this woman trying to "vaccine" the term "freshwater economics"? Redefine it as the opposite of its long understood meaning.
John LGBTQBNY Henry
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I remember back in the early 90's that all the Ma-and-Pop computer shops would distinguish their products with the word TURBO. It had nothing to do with computing, but it made the buyer feel better about their purchase. It usually referred to a button on the front panel to increase the CPU clock speed.
I have the same sense about Theory. It has nothing to do with economics, or race, but generally fools the marks into thinking there investment will pay-off.
And my feminist alarm went off: A man is irked by an article by a woman about a women — in a field that's traditionally male and featuring details that seem like the stuff of women's magazines — her clothes, her office, her house, her neighborhood.... And why is it called "Is This What Winning Looks Like?" Looks?!
Your feminist alarm is set to "easily triggered." Smith's point is that the piece focuses on everything except economics. He was looking for equations, not the Hollywood celebrity puff piece.
"Freshwater" = "Flyover."
Turn down the sensitivity on that feminist alarm. It's responding to noise in a similar way to Stacey Abrams' racism alarm. That an influential booster of MMT is a woman is incidental to the point of the critical article: MMT is a fraud or worse, and no amount of sales puffery about one of its influential boosters is going to change that. Milton Friedman will have his revenge.
Aside from the minor problem that Modern Monetary Theory -- the idea the government can simply create all the currency it wants, and there will be no economic consequences. -- is largely BUNK, as well-demonstrated by recent inflationary pressures.
"Freshwater" is not a descriptor of where certain policies were popular. It's shorthand for University of Chicago-inspired as opposed to Harvard/MIT/Stanford-inspired. The reality, if not the term, goes back considerably further than the 1970s. One of the major freshwater economics departments was UCLA.
I read through Mr. Smith's post, and his criticism of Kelton and MMT is substantive, not ad hominem. His main criticism is that MMT advocates, including Kelton, refuse to write down their theory, with assumptions clearly stated, in a falsifiable model. This leaves them free, after a fashion, to interpret any and every event in the real world as proof of MMT. That's not economics, that's not any form of social science.
I think your feminist alarm might need re-calibrating!
"Modern Monetary Theory, the buzziest economic idea in decades, got a pandemic tryout of sorts. Now inflation is testing its limits." Tedsting its limits? Proving it wrong is more like it. Milton Friedman said "“A budget deficit is inflationary if, and only if, it is financed in considerable part by printing money”. He's right. Our government has, over the course of the Pandemic spent trillions and it was essentially all paid for by simply printing money. And here's the inflation that caused. No surprise. And no surprise that the congress grabbed on to the MMT fantasy so they could justify spending insane amounts on their pet projects. Well, the chickens have come home to roost and good luck to politicians trying to dodg their responsibility for this mess.
John Cochrane reviews her book on MMT in the link below...if you want to know what the argument is about. The review is dense, but clear for interested laypeople like me
https://johnhcochrane.blogspot.com/2020/07/magical-monetary-theory-full-review.html
John Cochrane reviews her book on MMT in the link below...if you want to know what the argument is about. The review is dense, but clear for interested laypeople like me
https://johnhcochrane.blogspot.com/2020/07/magical-monetary-theory-full-review.html
Does everyone have a 'feminism alarm' similar to mine?
https://duckduckgo.com/?q=woman+screaming+when+trum+is+elected&atb=v1-1&iax=videos&ia=videos&iai=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DwDYNVH0U3cs
rehajm said...
MMT to me has always looked like it was invented to justify horrible government policies that would otherwise have no reasonable justification to implement.
Noah Smith does a good job hashing it out. He calls MMT a 'guru-based theory'
---
"Guru-Based Theory" seems to be another way of saying "cult-like thinking", which makes it a perfect fit for other fantasy-based economies like Star Trek replicators and Marxism.
Leora at 1:32 PM wins the thread. And the week
MMT is based on the “I can’t be overdrawn because I still have checks” theory of money. My Alma Mater, University of Missouri-Kansas City, used to be a hotbed of Institutional Economics, I had to read Veblen. Now it is MMT. Ms. Kelton was chair of the Econ department at UMKC, but has since moved on to Stonier pastures.
"(My pension doesn't have a COLA, so I am seriously pissed at Prof. Kelton's bland assurances about inflation.)"
There you have it. At bottom, MMT is some words to say while the government takes advantage of the fact that many of the people who pay taxes have effective means of making their displeasure felt when those taxes are raised. Whereas, those who merely own dollar-denominated assets are widows, orphans and similar politically negligible types. They do not even realize their asset has been stolen, until they try to live on it.
With the debt at 30 trill and growing aren't we living in a beta test of MMT?
From "The NYT article on MMT is really bad/The fringe ideology's star is falling, and puff pieces will not resuscitate it" by Noah Smith (Substack).
Smith is certainly accurate in describing MMT it as a "fringe ideology" within macroeconomics. Nonetheless, it shares the same limitation as mainstream economic schools of thought: they can't explain economic activity. This limitation results from a limitation shared by all psychological theories: they can't explain human behavior.
MMT is salt mine economics. Thanks for the John Cochrane link.
Mark Blyth serves the function of a good faith socialist who is engaging, yet sadly wrong. Another charming Glaswegian. Also an Evertonian, hence a high threshold of pain coupled with an outsized sense of loyalty to a seemingly lost cause.
"I remember back in the early 90's that all the Ma-and-Pop computer shops would distinguish their products with the word TURBO. It had nothing to do with computing, but it made the buyer feel better about their purchase."
As it happens, I started Graham Greene's "Our Man in Havana" last night. The first chapter has an amusing riff on the "Turbo" vacuum cleaner (last year's model) and the "Atomic" vacuum cleaner (this year's model). I sense complications ahead.
When a leftist idea is panned by a leftist moron like Noah Smith, you know it has to be really, really awful.
I believe that the big merit of MMT scholars is to have opened a large crack in the “how do we pay for it” line of defense to economic policies by pushing a liberating narrative that promises a society where well-being, abundance, and social justice are finally possible for everyone. I admire and applaud their effort.
Nobody ever thought of overpromising before to trick people into giving you what you want.
From the first paragraph of elissa's link.
Modern monetary theory, known as MMT, erupted suddenly into the public consciousness when it won the attention of high-profile politicians including Bernie Sanders and Alexandria Ocasio-Cortez and their media admirers.
Not sure I can get any further after spitting my drink on the keyboard.
@Who-knew said: "good luck to politicians trying to dodg their responsibility for this mess."
If there is one thing politicians are good at, it is avoiding responsibility.
Freshwater in this case means University of Chicago, saltwater means MIT.
What Leora said at 1:32 was perfect.
I can visit a public park for free, I have nothing on my balance sheet to show for it. Multiply that by the number of users, and the benefit is great. But only the costs of the park are recorded, the gains are not. This is the logic of MMT, there is no accounting record for the benefit of public activity, so there is no objective measure for fiscal constraint, nor a duty to pay interest on debt. The gains are realized as public benefit, not interest. - Derek (commenter)
This seems to be the nut of MMT, that the govt creates value that nobody needs to pay for, but unfortunately, since the stuff is free, we can't measure what it is actually worth. I guess this is somehow related to the idea that Santa Clause is the richest fictional character because no matter how much he spends, he is always able to spend more the next year, and the government is Santa Clause, since it can print money, and as long as the children are happy, everything is cool.
I think that this goes along with the idea of the book, "1 Billion Americans." Of course, working opposite to this is Biden shutting down mines, like it just did in a huge nickel, cobalt, etc deposit in Minnisota, and shutting off energy supplies, clamping down on fracking, etc, all reducing the resources available, so inflation gets worse.
I think MMT will work when we have fusion power, massive desalination facilities, and are mining asteroids. We will need a new economics then
MMT is Dick Cheney's brain child. He famously said "deficits don't matter." He believed that the government can aggressively cut taxes and continue spending without any concern about the deficit. If things get out of hand, the government will print all the money it needs to pay its creditors (i.e., "monetization").
christopher steele was the real wormuld,
Repeating elissa's link in followable form…
MMT seems to assume that scarcity is not an issue. For digital products that can be reproduced at little or no cost, that's probably true. But most of my budget goes to things that are tangible or at least rely on tangible assets: housing, food, clothing, energy. I don't see that changing any time soon.
"who cares about the metaphor?"
People who care about describing things correctly.
"And my feminist alarm went off: A man is irked by an article by a woman about a women"
My male intuition got triggered: a woman being irked by a man saying something negative about a woman without engaging the point of the criticism.
"featuring details that seem like the stuff of women's magazines — her clothes, her office, her house, her neighborhood"
Used to puff her up. That didn't trigger a feminist alarm?
"And why is it called "Is This What Winning Looks Like?" Looks?!"
Looks! OMG! They only do that to women! They never say what winning looks like for a man! So sexist.
One of the comments in ellisa's linked article said that Japan proved MMT worked in the '30s, unfortunately spending the money on the military... So did Germany, BTW, but was Japan shutting down oil production? Were they shuttering mines, like the US is doing now? No. They didn't have the resources to absorb all of the money they were spending, so they went out and conquered almost half of the Pacific Rim and enslaved the people sitting on the resources they needed. Germany went on a bit of an acquisition spree to seek new resources to absorb their capital too. It's almost like it *only* works when you spend it on the military and then use the military you created. Without all of the conquests, inflation is inevitable.
The Achilles' heel of MMT is environmental impact and scarcity of resources, but they think that they can get around that by willing into being clean energy, of which they believe that there is an unlimited supply as long as their are still checks in the checkbook that never runs out of checks. If you could make wind turbines out of sand, air, and seawater, I guess, but unfortunately, they need other critical materials that can only come from mines, and only extracted at an environmental cost.
"(My pension doesn't have a COLA, so I am seriously pissed at Prof. Kelton's bland assurances about inflation.)"
I took a lower payout to get a COLA, so I was feeling pretty good about myself, until I found out it was limited to 3% max. D'oh!
3% per year, which means this year I lost still 3%, well, it's better than losing 6% this year.
Oh, is this the loon that thinks a country can solve all its problems by printing money, a tried and true method that has failed over and over again going back to the Romans. It is the economics equivalent of a porn star. No wonder AOC endorsed it.
It's sexist if you comment on the clothing, decoration, etc. of a woman professional or academic. It's also sexist if you are annoyed when other people do so. Everything is sexist!
I thought the new idea was to mint 30 $1 trillion dollar coins and deposit them in the treasury..............
tim in vermont said...
One of the comments in ellisa's linked article said that Japan proved MMT worked in the '30s, unfortunately spending the money on the military... So did Germany, BTW
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If you read any actual history of the 1930s, you find out 1) that Japan was quite poor then, with a lot of real want and suffering being experienced by the population; 2) that to the extent Japan was relieving this, it was doing so by conquering a colonial empire in China, and exploiting the Chinese; 3) that Germany was doing a lot of it’s foreign trade by barter, and thus got paid for imported goods with exported goods; 4) that Germany did have a serious inflation problem, until it conquered much of Europe and exploited the conquered.
“Modern” Monetary Theory is nothing new. It’s been known for quite a while that printing up small amounts of fiat has no discernable effect on the economy, any more than adding a single glass of water has a discernable effect on the water level of a swimming pool. It’s also been known that when you add lots of water to the pool, faster than the loss through evaporation, the level rises visibly, and when you print large amounts of fiat, more than the increase in real goods and service, you get inflation. MMT is just the latest example of magical thinking in economics.
The fact that birds can fly is not proof that gravity is an illusion.
The "Spinal Tap" theory of economics: "But this one goes to eleven!"
There is no MMT. There are a handful of assertions, but no theory. Cochrane's review is far too kind. At his Money Illusion blog, Scott Sumner has tried repeatedly to try to make sense of it and failed, because the statements made by proponents are incoherent. As the physicists say, it is not even wrong.
Freshwater economics refers to the rational expectations models associated with University of Minnesota economists like Kydland, Prescott, and Sargent. The other big gun, Robert Lucas, started out at Carnegie Mellon and moved to University of Chicago. But Chicago macro generally refers to the older Monetarist writings of Milton Friedman. Saltwater economics is not a school; it just refers to everyone else. UCLA, MIT, and Harvard are not all that similar to each other.
There are no economists of any repute associated with MMT.
When the colonists started mass producing wampum, the value of wampum crashed to near zero. Can you imagine?
rhhardin, how long have you been looking for a way to shoehorn that Vicki Hearne quote in? It's brilliant, though, I'm ordering the book.
MMT is the theory for insane economists. It says the gov can just print money without limit. This has proved to be false so many times: Weimar Germany, several African countries (trillion dollar notes anyone?), Venezuela. It is a fantasy. It is an excuse for Leftists to expand gov and handouts to an absurd degree.
But indeed, what does all that puff stuff have to do with MMT? Nothing. If Kelton lived on a boat or in a cave or in a mansion, is pretty or ugly, has nothing to do with validity of MMT.
Oh, and during the US revolution, 1776, the brits knew about inflation and printed fake US money to devalue it. duh. 250 years ago MMT proved false.
A much more accurate name for it would be Critical Monetary Theory.
Critically illogical, like all the other forms of critical theory.
Didn't the Times just run a feature about one of the shortlisted candidates for the Supreme Court that similarly focused on her looks?
But it isn't sexism. It's the feminization of politics and the Times.
They ran an article decades ago about how Bernardine Dohrn had settled down to domestic life, happily making homemade jam. No mention of her maiming and killing cops. Of course, in that case, she was playing them.
For once, I am familiar with the article in question. My 91 year old MIL was visiting us at our winter vacation lair, and insisted on reading the NYT, which I was able to finally locate at a WAWA station here in Port Richey.
I perused said article, and found not much of substance. MMT sounds sketchy to me, but the article gave no solid evidence either way. Puss piece, indeed.
Just been reading N.S. Lyons. He has a fascinating one on Gnosticism. MMT might be Gnostic. A form of esoteric knowledge of the pure realm of spirit buried by the dead weight of the evil material world -- in this case, that world were people have to make things before they can buy them.
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