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Modern Monetary Theory (MMT) is primarily motivated with achieving full employment. The entire theory seems designed with that goal in mind, and indeed proponents often describe unemployment in moral terms (alarm bells going off).
However, labor is one factor of production among many, and in fact there are many labor markets with different specializations. Full employment is traditionally seen as a fleeting occurrence that happens during the best of economic times, when for whatever reason the economy is constrained by labor supply. However the economy can be constrained by the supply of other factors of production besides labor.
It seems fantastical that we could fine-tune with a single knob the balance of these many different labor markets with the other factors of production that complement them. Because labor markets are so fragmented, and it can take years for a person to gain the skills that permit entry into one, it strikes me as foolhardy to think that unemployment is simply a problem of insufficient money supply.
Just like the postwar Keynesian system, MMT seems designed to be politically popular more than economically sound. It's great to aspire for full employment, but placing that one measure of economic health as the central principle of a theory seems like a fetish.
Modern Monetary Theory (MMT) is primarily motivated with achieving full employment. The entire theory seems designed with that goal in mind, and indeed proponents often describe unemployment in moral terms (alarm bells going off).
However, labor is one factor of production among many, and in fact there are many labor markets with different specializations. Full employment is traditionally seen as a fleeting occurrence that happens during the best of economic times, when for whatever reason the economy is constrained by labor supply. However the economy can be constrained by the supply of other factors of production besides labor.
It seems fantastical that we could fine-tune with a single knob the balance of these many different labor markets with the other factors of production that complement them. Because labor markets are so fragmented, and it can take years for a person to gain the skills that permit entry into one, it strikes me as foolhardy to think that unemployment is simply a problem of insufficient money supply.
Just like the postwar Keynesian system, MMT seems designed to be politically popular more than economically sound. It's great to aspire for full employment, but placing that one measure of economic health as the central principle of a theory seems like a fetish.
MMT is more like an internet hoax than a legitimate peer criticized set of theories or path to economic salvation.
I know Keynesianism very well, MMT is bucket full of rotten fish comparatively.
Modern Monetary Theory (MMT) is primarily motivated with achieving full employment. The entire theory seems designed with that goal in mind, and indeed proponents often describe unemployment in moral terms (alarm bells going off).
However, labor is one factor of production among many, and in fact there are many labor markets with different specializations. Full employment is traditionally seen as a fleeting occurrence that happens during the best of economic times, when for whatever reason the economy is constrained by labor supply. However the economy can be constrained by the supply of other factors of production besides labor.
It seems fantastical that we could fine-tune with a single knob the balance of these many different labor markets with the other factors of production that complement them. Because labor markets are so fragmented, and it can take years for a person to gain the skills that permit entry into one, it strikes me as foolhardy to think that unemployment is simply a problem of insufficient money supply.
Just like the postwar Keynesian system, MMT seems designed to be politically popular more than economically sound. It's great to aspire for full employment, but placing that one measure of economic health as the central principle of a theory seems like a fetish.
"Full employment" has been an illusion for several decades now.
There are different measures of unemployment, with U-3 and U-6 being perhaps the best known. But even U-6 is arguably not inclusive enough. What about people who would like to work but are not considered unemployed because they are too old or too young to be in the demographic that society believes "ought to" work? If we include those plus U-6, let's call it U-7. And then you have people who have jobs only because they have enough lobbying power to make their competition illegal. An example of this is when you have states requiring people to have licenses to cut hair, which artificially protects the licensed barbers. Same thing with taxi medallions which are artifically limited in number. And the tax preparers that for over a decade have lobbied the IRS to not do it for you so they can keep a job. I'll call those plus U-7 by the name U-8.
Now you can consider waxing and waning immigration restrictions which are always arbitrary. By the stroke of a pen, someone who is not a citizen can be removed from the unemployment statistics by making it illegal for them to work. We are now up to U-9!
As automation increases, more and more classes of people will become out of work, but the government will always find a way to keep the nominal unemployment rate low by creating more classes of people that are not allowed to work or have artifically suppressed competition.
"Full employment" has been an illusion for several decades now.
There are different measures of unemployment, with U-3 and U-6 being perhaps the best known. But even U-6 is arguably not inclusive enough. What about people who would like to work but are not considered unemployed because they are too old or too young to be in the demographic that society believes "ought to" work? If we include those plus U-6, let's call it U-7. And then you have people who have jobs only because they have enough lobbying power to make their competition illegal. An example of this is when you have states requiring people to have licenses to cut hair, which artificially protects the licensed barbers. Same thing with taxi medallions which are artifically limited in number. And the tax preparers that for over a decade have lobbied the IRS to not do it for you so they can keep a job. I'll call those plus U-7 by the name U-8.
Now you can consider waxing and waning immigration restrictions which are always arbitrary. By the stroke of a pen, someone who is not a citizen can be removed from the unemployment statistics by making it illegal for them to work. We are now up to U-9!
As automation increases, more and more classes of people will become out of work, but the government will always find a way to keep the nominal unemployment rate low by creating more classes of people that are not allowed to work or have artifically suppressed competition.
"Full employment" is obsolete.
Indeed, printing money to employ people would likely result (in the short term) with lots of make-work jobs rather than upskilling. Are those employed people still then underemployed? Then you have the delta between U3 and U6 rear its head again.
MMT seems designed to minimize U3, which makes me think it's just politicking masquerading as an economic theory.
"Full employment" has been an illusion for several decades now.
There are different measures of unemployment, with U-3 and U-6 being perhaps the best known. But even U-6 is arguably not inclusive enough. What about people who would like to work but are not considered unemployed because they are too old or too young to be in the demographic that society believes "ought to" work? If we include those plus U-6, let's call it U-7. And then you have people who have jobs only because they have enough lobbying power to make their competition illegal. An example of this is when you have states requiring people to have licenses to cut hair, which artificially protects the licensed barbers. Same thing with taxi medallions which are artifically limited in number. And the tax preparers that for over a decade have lobbied the IRS to not do it for you so they can keep a job. I'll call those plus U-7 by the name U-8.
Now you can consider waxing and waning immigration restrictions which are always arbitrary. By the stroke of a pen, someone who is not a citizen can be removed from the unemployment statistics by making it illegal for them to work. We are now up to U-9!
As automation increases, more and more classes of people will become out of work, but the government will always find a way to keep the nominal unemployment rate low by creating more classes of people that are not allowed to work or have artifically suppressed competition.
"Full employment" is obsolete.
You are an unusually smart person but your post needs some work.
1. Every first world society has child labor laws. Do you really want a 10yo pumping gas?
2. Older people who are actively looking for work and otherwise meet the, "rules" are included in both U-3 and U-6.
3. Doctors enjoy benefits from exclusion by licensure.......are you lobbying for non-doctors to practice medicine? Non-engineers to design bridges etc.?
Something near full employment among those who want to work and are eligible to work is a legitimate goal.
Indeed, printing money to employ people would likely result (in the short term) with lots of make-work jobs rather than upskilling. Are those employed people still then underemployed? Then you have the delta between U3 and U6 rear its head again.
MMT seems designed to minimize U3, which makes me think it's just politicking masquerading as an economic theory.
You hit on the real reason MMT can't work and shouldn't be taken seriously and in fact isn't taken seriously by any economist that I know of............MMT pays no attention to inflation.
Modern Monetary Theory (MMT) is primarily motivated with achieving full employment. The entire theory seems designed with that goal in mind, and indeed proponents often describe unemployment in moral terms (alarm bells going off).
However, labor is one factor of production among many, and in fact there are many labor markets with different specializations. Full employment is traditionally seen as a fleeting occurrence that happens during the best of economic times, when for whatever reason the economy is constrained by labor supply. However the economy can be constrained by the supply of other factors of production besides labor.
It seems fantastical that we could fine-tune with a single knob the balance of these many different labor markets with the other factors of production that complement them. Because labor markets are so fragmented, and it can take years for a person to gain the skills that permit entry into one, it strikes me as foolhardy to think that unemployment is simply a problem of insufficient money supply.
Just like the postwar Keynesian system, MMT seems designed to be politically popular more than economically sound. It's great to aspire for full employment, but placing that one measure of economic health as the central principle of a theory seems like a fetish.
MMT is hard to understand, because of the confusing ways its proponents describe it. But I have tried to understand, so here is my confused understanding:
It's more than just full employment. MMT says the US government never has to pay its debt, and therefore the debt can be run up to infinity. The US government can spend as much money as it wants on whatever it wants, and debt is not an excuse. If it needs more money, simply ask the Federal Reserve to buy more US gov bonds -- the Fed creates the money it uses to buy the bonds (this is known as "quantitative easing").
This means the US gov can provide everything to everyone -- free medical insurance, higher education, food, housing, clothes, cable TV, internet, UBI, athletic shoes. I mean, the sky is the limit, because the ability to create money is infinite.
Does it sound too good to be true? MMT advocates insist that everyone who believes there have to be limits to debt, and creating money doesn't actually create wealth -- they are all called stick in the muds, old fashioned. MMT is new and based on truth and evidence, and what's more wouldn't it be fun for everyone to have everything they need without even having to work for it?
You hit on the real reason MMT can't work and shouldn't be taken seriously and in fact isn't taken seriously by any economist that I know of............MMT pays no attention to inflation.
Their simple answer to inflation is that the government can raise taxes if it sees inflation coming. The trouble is, there is no way to see inflation coming. By the time it gets started it could already be runaway. But MMT isn't necessarily in touch with reality. Not to mention the fact that politicians don't like to raise taxes, especially when the economy sucks.
Their simple answer to inflation is that the government can raise taxes if it sees inflation coming. The trouble is, there is no way to see inflation coming. By the time it gets started it could already be runaway. But MMT isn't necessarily in touch with reality. Not to mention the fact that politicians don't like to raise taxes, especially when the economy sucks.
Good post. A damning technical problem using tax increases to quell inflation is that monetary actions decreasing effective money supply would be far too slow. So the feds. would have to, "see" inflation coming, raise taxes to decrease the money supply/slow the velocity of money and then wait for the decreased money supply to take effect. That would be utterly ineffective. (I've omitted a number of other issues for clarity).
You hit on the real reason MMT can't work and shouldn't be taken seriously and in fact isn't taken seriously by any economist that I know of............MMT pays no attention to inflation.
MMT pays a lot of attention to inflation however I agree that the economy limits could be reached well before literal full employment.
Quote:
As automation increases, more and more classes of people will become out of work
Automation is not an enemy of unemployment (see the industrial revolution and the rapid automation of post WWII)
Like one of the MMT founders wisely said "Unemployment is an unspent income story, not to be confused with robots which are a productivity story."
Quote:
You hit on the real reason MMT can't work and shouldn't be taken seriously and in fact isn't taken seriously by any economist that I know of............MMT pays no attention to inflation.
The MMT folks are among the few with some other non mainstream people, that were able to see the 2008 train wreck from a distance where the vast majority of pompous useless mainstream economists were totally blind.
While I take some issues with some areas of MMT, they are intellectual giants compared to the garbage that has been pushed down econo students throat in the last few decades.
A nice piece today from Bill Mitchell, the last in a long series of articles making fun of mainstream economists and their GIGO models.
"Comical claims by mainstream economists that the facts have changed"
MMT is very easy to understand. Currency sovereign are not households, level of nominal public debt (it is not debt at all) is a moot concept for such countries, the real limit is resources availability and inflation.
Currency sovereigns spend first and tax/issue bonds later to mop up excess money (taxation is actually what gives a fiat currency value, the government monopoly on the use of violence and coercion).
All the institutional framework and architecture of the financial system (Separation between Fed and Treasury and, consequently, monetary policy and fiscal policy, the Treasury that cannot run an overdraft at the Fed, market based interest rates, debt ceiling, etc..) it full of smoke and mirrors. The US government can run unlimited deficit if it chooses so.
I take operational issues with one of the pillars of MMT, the Job Guarantee (JG), Where it is sound at the theoretical level (it is a buffer stock) it can become a nightmare to implement and potentially rife with inefficiencies and make work schemes.
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