Great Leap Forward

Bill Black Blasts Lazy Critics of MMT

Annie Lowrey’s lazy piece in the NYTimes riled Bill Black. You don’t want to mess with Bill. He takes a lawyer’s scalpel to thoroughly dissect facetious arguments. See his latest at New Economic Perspectives. It is a masterful takedown of Lowrey, Thoma, Krugman, and Cochrane—whose dismissive attitude toward MMT only reveals bias. I’m just going to select a few tasty paragraphs to whet your appetite.

Here’s Bill’s reaction to Lowrey’s false quote of Stephanie Kelton, in which Lowrey falsely had Stephanie saying that MMT is never published in academic journals:

My colleagues, Randy Wray, Stephanie Kelton, and Mat Forstater, at the University of Missouri-Kansas City (UMKC) are among the leading theorists who have developed Modern Monetary Theory (MMT). MMT has been the subject of hundreds of academic papers and presentations. MMT has all the usual elements of an economic theory. It emphasizes the history of the monetary system, it provides a technically accurate description of how money is created, it distinguishes between nations with sovereign currencies and those like the Eurozone nations that have abandoned sovereign currencies, and it distinguishes among nations with sovereign currencies who remove the benefits of sovereignty by taking actions such as fixing the foreign exchange ratio or borrowing in other currencies, it allows predictions to be made that can be tested for accuracy, and it suggests which policies.

MMT has had a very good run. Its predictions have proven far more accurate than the austerians and my colleagues’ policy prescriptions have proven superior. Paul Krugman has noted that the greatest error he made in his predictions about the crisis arose from his failure to understand how vast the difference is between nations with sovereign currencies (who borrow in their own currency and employ freely floating exchange rates) and other nations. He hasn’t credited my colleagues and other MMT scholars for their insight about that point, but he has acknowledged that the MMT scholars proved correct.

Of course, MMTers welcome scholarly debate on the theory and predictions made by MMT. Instead what we get is the same old, tired, attributions to us—things we never said and would never say:

What is not acceptable is what actually happens. There are minor variants on a theme – they attribute positions and beliefs to MMT scholars (and heterodox economics in general) that MMT scholars, and UMKC economists in general, do not hold. The dismissals demonstrate nothing about MMT and heterodox economics, but they reveal a great deal about the dominant biases of neoclassical economists. Their revealed biases are intense and crippling. Their dismissal of rival views is so extreme that the neoclassical scholars gleefully emphasize that they are ignorant of MMT and other heterodox scholarship such as my work on microstructure – and proud of their ignorance. Because they do not read our work, but rather wish to dismiss it as unworthy of being read they need to invent a basis for dismissing our work. Because they do not know what we believe they have no constraints on what they falsely attribute to us. Journalists love “good copy” and chose not to ask how it is logically possible for those dismissing our work to do so without reading our work. The more outrageous the comment dismissing our work, the better the journalist likes it.

Bill points to the quote Lowrey used from blogger Mark Thoma:

“They deny the fact that the government use of real resources can drive the real interest rate up,’ said Mark Thoma, an economics professor and widely followed blogger who teaches at the University of Oregon. After delving into the technical details of modern monetary theory for a few minutes, he paused, then added, ‘I think it’s just nuts.’”

Here’s Bill’s clinical dissection of Thoma:

A preliminary caution is in order – given Lowrey’s attribution of a faux quotation to Kelton we need to keep in mind the possibility that she did equal violence to Thoma. Two facts stand out if Thoma was quoted accurately. First, his “delving” into MMT consisted of “a few minutes.” What scholarly work of my colleagues on MMT did he read? What passage did he find in his “few minutes” that he concluded was “nuts?” That’s how one makes a scholarly argument about another scholar’s work. “Dr. X writes ‘[insert longer quotation here that demonstrates X’s views and the context in which X expressed.]’ X’s claim that ‘[insert key phrase from the longer quotation quoted here]’ is in error because [provide rationale here].” The reader will note that this is what I have done in critiquing Thoma’s dismissal of MMT as “just nuts.” “Just nuts” is just ad hominem.

If MMT were really “just nuts” Thoma wouldn’t have had to rely on an ad hominem attack. He would have quoted, for example, a passage from Wray’s new book discussing “the technical details” of MMT. He would then explain why Wray’s version of the technical details was wrong, with a supporting citation. It’s easy to show that people that get basic facts (“technical details”) wrong are wrong.

Thoma does not do that. He invents a claim that MMT scholars do not hold. Putting aside a technical non sequitur (discussed below), the claim Thoma invents is actually a direct, unattributed, steal from Paul Krugman. Krugman drives us to distraction because he attributes, always without quotation from any MMT scholar, a claim that no MMT scholar has ever made. The claim is that MMT scholars do not believe that the government’s consumption of real economic resources can contribute to inflation. Krugman and Thoma have never cited any MMT scholar making such a statement because the MMT scholars have not made such a statement. Wray and Kelton have repeatedly written and presented their explanation of why MMT does not predict that the government’s consumption of real economic resources cannot add to inflation. They have also explained why the proposed stimulus programs in response to the Great Recession would not lead to material inflation….

Thoma’s invented claim implicitly demonstrates that he does not understand a series of “technical details” – the nature of the “real interest rate,” how the Fed sets interest rates, and the relationship of interest rates to governmental spending. Wray explains these points in his response to Thoma. It is ironic that Thoma makes a series of technical errors in an attempt to dismiss MMT as “just nuts” based on invented technical errors.

Bill concludes:

It’s certainly good to have MMT discussed in the New York Times. We now need to have it discussed with a focus on the scholarly work and predictive successes. We need debates on the merits that focus on the ideas rather than personalities (or yachts and race cars). We look forward to having our critics quote from our scholarly works and explain what specific positions they disagree with and why. Such a debate would be a great service to the Nation and the Eurozone.

Here’s the deal – it is intellectually dishonest to create and repeat these strawman arguments based on inventing positions that one ascribes to MMT scholars that are often the opposite of MMT actual positions. We were willing to assume in the interests of comity that the initial positions falsely ascribed to MMT scholars were the product of not having read and understood the MMT scholarly literature. Krugman and Thoma had, at best, spent “a few minutes” reading MMT scholars’ work and they misinterpreted it. At this juncture, dozens of MMT proponents have written to make clear to Krugman and Thoma that they are misrepresenting the position of MMT scholars. There is no excuse for any repetition of the strawman claims.

Well, what can you say? Q.E.D.

3 Responses to “Bill Black Blasts Lazy Critics of MMT”

RonTJuly 8th, 2013 at 1:47 pm

Not sure if this is not a multiple posting but here goes:

In the meantime Krugman claims again that it was deGrauwe who grasped the importance of having a sovereign currency. This seems nonsense, Godley knew this clearly in 1992 and I guess he wasn't the first (btw, who was? Knapp, Lerner?). It is appalling how neoclassicals narrow the debate by not ever mentioning heterodox people. Care to straighten Krugman out?

Calgacus1July 11th, 2013 at 5:38 am

the importance of having a sovereign currency. This seems nonsense, Godley knew this clearly in 1992 and I guess he wasn't the first (btw, who was? Knapp, Lerner?)

Fichte is a good candidate. His Closed Commercial State ( Der Geschlossene Handelsstaat (1800) ), just translated into English, proposes replacing gold and silver by a national fiat currency and guaranteeing the right to work.

Isaac Nakhimovksy's The Closed Commercial State: Perpetual Peace and Commercial Society from Rousseau to Fichte is an accessible introduction, aptly comparing his ideas to Keynes'.