I have been taken to task for my recent post on some of the difficulties of Modern Monetary Theory’s (MMT) conception of international trade by Professor Bill Mitchell, in a post headed ‘There is no internal MMT rift on trade or development.’
Apparently he has been “bombarded with E-mails (and DM Tweets) … The specific article they have held out was published in the so-called Progressive Pulse“. ‘So called’, it appears, because Progressive Pulse “tends to regret Brexit”. He goes on “Europhiles are not known for their reasoned judgement.”
In contrast, I’m sure we all agree, to the clearly argued and well thought out plans of the Brexiters for the UK leaving the EU. Or perhaps he just had in mind the Brexiters personal plans such that Farage is applying to become a German and Rees-Mogg is moving his investment funds to Dublin.
Whilst I can poke a bit of fun at this, this is going for the man not the ball and not in the least worthy of academic criticism, which he presumably considers he is making, when he continues:
It is obvious that the original writer hasn’t read our work or if they have they haven’t grasped it (including the nuance and subtlety) but still feels privileged to hold themselves out as experts to wax lyrical about the technical flaws in the said work.
One thing I have never held myself out as is an expert! I am, rather, on a shared voyage of discovery.
And if only experts are entitled to comment on MMT, as the economy affects us all, then I suggest you do not have to be an expert before commenting – but I can only apologise if both the nuance and subtlety have escaped me.
He asks ” where, pray tell, have I ever written or said that “exports are like a household” and concludes, correctly, that he hasn’t. Nor did I anywhere suggest he had. But Warren Mosler has.
He takes me to task for saying “what you export is going to make you poorer simply because they used to be your resources.”
But then his response is “Exports mean that we have to give something real to foreigners that we could use ourselves – that is obviously an opportunity cost.” Which has to amount to the same thing.
Later he explains “The ‘cost’ is incurred to generate benefits – to enhance the material prosperity of the nation.”
This looks to be terminology disguising a circular argument. When the Cornish exported tin to the Phonecians they did it because they had enough to do so. Was that a cost or was it a benefit? Or a more contemporary example would be that I don’t see too many Germans regretting every BMW they export because they would have so loved to drive around in it themselves. In short one man’s cost is another man’s benefit – and that is the point of trade.
We know that, concentrating on the money in MMT fashion, exports increase the private sector money supply of the surplus nation. MMT usually advocates government spending (so-called deficits) in order that the private domestic sector has spending power to enhance economic activity. Yet when exports also increase the private sector’s balance as well as potentially reducing the requirement for private loans, they are considered a cost!
And since, unlike the government, this sector is unable to create money at will, it would be safe to assume that these private companies rather like extra money – they do not even consider that they should or would be using themselves what they’ve sold to a third party, so how on earth can “Exports mean that we have to give something real to foreigners that we could use ourselves”?
The basic idea seems to be based on this paper which concludes (my bold) that:
Hence, in the world we actually inhabit, free trade is not the panacea its proponents propagate. If we are to advance the economic interests of the bulk of the citizenry in a decent and humane fashion, we must promote a full employment policy domestically, and couple this with a flexible exchange rate regime internationally. With these institutions in place (on a global scale), exports become a cost and imports a benefit, and the conditions under which free trade is beneficial will have been established.
As we do not have these circumstances in place on any sort of scale – never mind globally – then there is no comprehensible justification to suggest, as a general formula, that exports are a cost and imports are a benefit. The conditions that might make it so are not in place.
Unfortunately Bill Mitchell then goes for our integrity, not our ideas:
What the Progressive Pulse article indicates is that Mr May hasn’t read and/or understood what I was writing.
It thus bears on the editorial integrity of Progressive Pulse and the standards of their Op Ed articles that are published.
Perhaps Mr May should stick to food and drink for the time being.
Maybe I should, but I haven’t. And I have no interest at all – never mind the ‘zeal’ he mentions – in finding rifts in the work of MMT academics.
But I am interested in how the monetary and trading systems actually work.