Tuesday, May 7, 2019

Bernie and AOC are Functional Finance (and Socialists) but not necessarily MMT

Might not be MMT, but it isn't Socialism

So there has been a lot written on Modern Money Theory lately. There is this piece by The Economist, Jerry Epstein's paper, and Lance Taylor's one, more on the Democratic Socialist ideas than MMT per se (here). There was also this op-ed by Robert Shiller in the NYTimes, and the two posts by Tom Palley, that I reposted here on the blog. Finally, Christine Lagarde also commented on MMT during the World Bank/IMF Spring Meetings.

I can and I will not comment again on my views on this. As I said before, I'm a fellow traveller in the sense that I do agree with MMTeers on functional finance (even though Randy Wray, at the Easterns, presenting Stephany Kelton's slides suggested that functional finance was a late addition to MMT,  coming from Matt Forstater and Stephany in the 1990s; my take on that here, where I say that Ed Nell is the likely source), endogenous money, and with minor disagreements on the origins of modern money (by which I mean early transitions to capitalism) on some version of Chartalism. I also, noticed that I depart on certain tendencies to believe that capital mobility and flexible exchange rates make MMT applicable to developing countries, and about taxation (on the latter, I was criticized, and received both emails and tweets suggesting I misrepresented MMTeers views on taxes).

Here is where I think the dual nature of MMT as a theoretical school derived from Minsky and some strands of Post Keynesian economics* and a political movement connected to progressive parts of the Democratic Party becomes relevant. The thing is that MMT has been now associated with Democratic Socialism, with Bernie Sanders and Alexandria Ocasio-Cortéz (AOC). Stephany after all was and is Bernie's advisor, and he has embraced certain proposals beyond what I would call a pop-functional finance stance on fiscal policy. For example, his job guarantee proposal** (again I hope he wins, and I do hope Stephany plays an important role in a Bernie administration; one can hope).

However, it's worth noticing two things that are relevant in this more political context. First, Warren Mosler has posted his presentation at the New School (Mosler's slide pictured above) in which he defends the elimination of personal and corporate income taxes, and sales taxes (here). Mosler is in many ways the more public face of the non-academic face of MMT. Note that Warren plays a crucial role in the political movement associated with MMT. Also, Randy noted in this piece that he was "'a bit disappointed' that Ocasio-Cortez connected tax hikes to the Green New Deal." And no, please, I do not need to be lectured on how causality goes from spending to taxes (as much as from investment to savings; same effective demand logic). The point is that even if taxes are not necessarily to fund spending, taxes do allow for important changes in the economy.

And the way one taxes is as important for functional finance as the way one spends. Sure the limits what can be done are political. In that respect I should say that functional finance suggests that the limits to fiscal policy, beyond the productive capacity (which might be endogenous and demand driven, and hence difficult to reach unless the economy is growing really fast), are essentially political. But exactly for that reason how one taxes, and is a central political question.

Taxes on the wealthy are central for social democratic (Democratic Socialism) policies. At any rate, this establishes in my view were I depart from MMT, which would be on the willingness to tax the rich. I'm not for eliminating income taxes (I'm happy to reduce sales taxes on some things, but increasing on others), and I would be in favor of a wealth tax too. And I'm happy that a higher tax on the well to do is discussed and tied to a popular cause like the Green New Deal (I was for that back in 2012). It should not be a surprise then that MMT finds support in Wall Street, since they would certainly like no personal or corporate income tax.

* I assume that is correct; Randy said in that roundtable mentioned above that they were kicked out of post-Keynesianism, and they didn't leave. I assume that explains the renaming MMT, which I never quite understood. See this old post in which I was surprised about the new label, which I associated back then to endogenous money.

** Here I should note that while I'm not against a job guarantee (JG), I have nothing against regular fiscal spending, like, for example, infrastructure spending to get the economy going. Again, on the panel, when I asked Randy, suggesting that Wynne (Godley) had asked the same in the past (according to my recollections), he said that conventional fiscal policy (what he calls pump priming) was inflationary, and the JG would be better. I'm even less afraid than MMTeers on demand inflation, it seems.

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