Modern Monetary Theory Economists are Crazier Than You Thought; Class Struggle Price Inflation?
It is prepared for the:
AEA Meeting, January 2020 (San Diego)
Session: Is United States Deficit Policy Playing with Fire? (H6)
Saturday, Jan. 4, 2020, 2:30 PM – 4:30 PM (PST)
Chair: Laurence Kotlikoff, Boston University
Mankiw is extremely careful in his critique but from his neo-Keynesian perspective he touches all the problems with MMT, you just have to read between the lines.
In the end, my study of MMT led me to find some common ground with its proponents
without drawing all the radical inferences they do. I agree that the government can always print money to pay its bills. But that fact does not free the government from its intertemporal budget constraint. I agree that the economy normally operates with excess capacity, in the sense that the economy’s output often falls short of its optimum. But that conclusion does not mean that policymakers only rarely need to worry about inflationary pressures. I agree that, in a world of pervasive market power, government price setting might improve private price setting as a matter of economic theory. But that deduction does not imply that actual governments in actual economies can increase welfare by inserting themselves extensively in the price-setting process.
Put simply, MMT contains some kernels of truth, but its most novel policy prescriptions
do not follow cogently from its premises.
Translation: He thinks they are nuts.
MMT proponents advance a very different approach to inflation. They write, “Conflict
theory situates the problem of inflation as being intrinsic to the power relations between workers and capital (class conflict), which are mediated by government within a capitalist system.” (MW&W, p. 255) That is, inflation gets out of control when workers and capitalists each struggle to claim a larger share of national income. According to this view, incomes policies, such as government guidelines for wages and prices, are a solution to high inflation. MMT advocates see these guidelines, and even government controls on wages and prices, as a kind of arbitration in the ongoing class struggle. (MW&W, pp. 264-265)
Gently, Mankiw makes clear in his reserved way that nowhere else in the economics profession is the theory held that inflation is caused by a class struggle:
Mainstream theories of inflation emphasize not class struggle but excessive growth in
aggregate demand, often due to monetary policy.
And just to show you how all over the place MMT is, in addition to the class struggle theory of inflation, MMT apparently holds another view with regard to inflation.
Its proponents admit that “all spending (private or public) is inflationary if it drives nominal aggregate demand above the real capacity of the economy to absorb it.” (MW&W, p. 127).
The advocates of MMT, however, make this possibility seem more hypothetical than real.