MMT is becoming to be generally well regarded on the political left. Part of that acceptance is due to MMT’s insistence that unemployment isn’t an insoluble problem and that deficits don’t matter, or at least not in the way the neoliberals claim they do. There’s an obvious way for the left to find their spending money, once basic economic principles are grasped, to fund their social programs and at the same time fix the unemployment problem which plagues nearly all western economies.
That may not have quite the same appeal to the right, but nevertheless, there is something in MMT for them too. MMT in itself isn’t a prescription for what Governments should do, but rather an economic theory which explains how real economies function and therefore how they react to applied fiscal and monetary policies. So, if MMT is right, and the evidence is very much in its favour, it would make sense to look at how it could help all shades of the political spectrum.
One of the major questions to answer , from all political viewpoints, is ‘how big should the State be’? Hardly anyone is saying 0% of GDP. Hardly anyone is saying 100%. So there is really no correct answer. Everyone has their own opinion. I’d be happy with a State sector which was about 40% of GDP. Others, on the left, may prefer 50% or more. On the right they may prefer 25% or less.
So, using MMT how should anyone argue for a State sector of only 25%? Typically that would be only half the size of the State sector in present day European countries. For a start, considerations on the size of government should be decoupled from considerations of deficit reduction. It’s possible to have any combination of small or large government, and small or large government deficit or even surplus. If there’s an argument for smaller government then the political right just needs to make that argument.
This should run along the lines of ‘Yes, we are going to cut government spending by removing or reducing various services, but we are also going to cut taxation too to help everyone to pay for those services which will no longer be provided by Government.’ A sort of Super- Reaganomics! The Government deficit shouldn’t be mentioned. A high deficit did not seem to unduly worry President Reagan, who was astute enough to realise that money to expand the economy had to come from government. He just favoured leaving it in the economy longer by taxing less rather than spending more.
Any attempt at a forced reduction in the deficit is likely to be counterproductive from a rightward perspective. It would lead to not only increased unemployment but also a failure of many businesses in the private sector. It would lead to increasing claims that capitalism was failing. There would be increased calls, as there are in the UK now, for more nationalisations to fix the problems of a failing system.
The Governement’s deficit, which incidentally has to equal the non-government’s surplus, as shown in the previous posting, has also to equal the level of the net savings of the private sector plus the payment for net imports into the economy. These are largely outside the direct control of government in a free society and the equation is just as true for an economy with a smaller government sector as it is for a larger one.
PS If you have a political representative who is of a rightish persuasion, please, if you agree with it, forward this article to them. These days that could include Labour MPs and Democratic Congress persons too! I’ll retract any comments if they can prove any flaws in the argument.
Modern Monetary Theory: Real Economics 
Peter,
You’ve not mentioned MMT’s Job Guarantee in this post. In fact, you haven’t mentioned it at all in any previous posting. Is this something that can be left out of MMT in your opinion?
The idea of a Job Guarantee could be attractive to those on the right who would rather the unemployed be required to do useful work rather than do nothing at all. Maybe just at a slightly higher rate? Would this be acceptable and what is the difference between that and workfare?
Yes you are right. The JG is something about which I do have some reservations. The alternative approach is known as a Basic Income Guarantee. (BIG). With both these options the devil is in the detail.
In practice we’d still need an element of BIG even if a JG were introduced. A true job has to pay a wage and that wage is not dependent on the personal circumstances of the worker. If it only pays a minimum wage, that would not be enough for someone with a number of dependents.
I’d support a move towards a JG if it were voluntary. An optional extra. However, in practice I would think we would get this:
http://www.labour.org.uk/labours-compulsory-jobs-guarantee,2013-01-04
I’ll come back to this in a future posting.
As “stuey” above notes, the Job Guarantee would be attractive to at some strains of conservatism. (Note that what passes these days as “conservatism” is right wing anarchism, which earlier generations of conservatives viewed as crazy.) Putting people on welfare is viewed as socially problematic, yet realistic analysis of the system shows that some form of counter-cyclical policy is needed, as having large bands of unemployed males is not conducive to social stability.
As for the size of the government, MMT is fairly neutral on that topic. (Warren Mosler mentions that every so often.) A Job Guarantee could theoretically replace a good portion of the Welfare State (there would always be a need for emergency support), and it could largely be administered outside the government, such as by charities. It could actually shrink the overall size of the government.
Other areas of government intervention (education, health) can be structured as either being done by government or the private sector, with similar outcomes. This is largely a question of how the activity is packaged and defined for the purposes of national accounting. This is why I tend to not look at the government as a percentage of the economy, as I think that the percentage is actually somewhat arbitrary,.
Thanks for the comment. Yes I’d largely agree. On the question of the JG, I’d say it only needs to be included in MMT as and when the JG becomes economic reality.
A scientific theory, and economics has to become more scientific in its approach, is a description of what is rather than what should be. I’ll develop on this theme in my next posting.
Let’s not forget that the really innovative thing about the JG is that it turns the NAIRU on its head: instead of the central bank using the unemployed as involuntary tools to protect the savings and profits of the wealthy, a JG uses the bufferstock of unemployment to help price stability in addition to undertaking socially useful work.
If the JG was promoted as some kind of “briar patch” for the indolent, I’m sure it would engage the inherent cruelty of the Right and get their enthusiastic support. That after all, is the politics behind “work-for-the-dole” schemes.
” a JG uses the bufferstock of unemployment to help price stability”
Yes, that’s the rationale. I think Bill Mitchell has likened the JG to the Australian government’s wool buying scheme.
Human beings are more complex than bales of wool though. Inevitably, if they end up on a JG scheme they’ll find themselves doing pretty much the same work, and putting in the same amount of effort as other workers who’ll be paid better. Those other workers will likely be in a union. The JG workers will want to be in the union too. They’ll want union rates for the job.
I, personally, couldn’t help but support their entitlement to equal pay for equal work. So, as I see it, the JG is an element of MMT than is of more appeal to the political right. At least until these qestions are answered.
The JG wage is fixed. They could be in a union but it would only negotiate conditions.
Would it be? That’s something we can all have an opinion on, but I personally would be unhappy for any group of workers to be told that.
Either the JG provides real jobs, in which case JG workers should have the same rights as all other workers, or they’re just made-up jobs and so we say they haven’t.
I’d like them to be real jobs.
If they don’t like the JG they can quit it and get a job in the private sector. Because if there is stimulus and inflation then the JG faces real wage cuts and prevents inflation.
Similarly, with deflation the JG fixed wage is attractive.
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