The Austrians Randall is talking about are not to be found on skiing trips in the Alps. We don’t have many of them in Ireland. But this is also a good intro to Randall’s next series of discussions on the Job Guarantee.
MMP Blog 38: MMT for Austrians
By L. Randall Wray….Anyone who tells you that economics shows that the invisible hand “works” is a fool or a liar or confused. Plain and simple, rigorous economic theory shows no such thing.(In 1926 Keynes wrote a great essay on “The End of Laissez Faire”; I won’t go through it in detail but what he argued is that no economist had ever accepted the notion that the free market “works”. He said that only political ideologues pushed that idea, an idea he thoroughly destroyed in his essay. However, in the last third of the essay he tried, and failed, to produce an alternative view. It took him ten years—until 1936—to create the alternative, what became The General Theory. It wasn’t until he formulated his theory of effective demand and addressed the “special properties of money” that he could counter the free market ideology.)Now, why did I devote so much space to a discussion of the invisible hand? Because so many “free market marketeers” rely on the notion, and on the supposed authority of Adam Smith, to push their ideological agenda.To be clear, the inability to demonstrate that an invisible hand “works” does not settle the issue. It does not in any way “prove” that “big government” is better than “small government”. It does not “prove” that the best way to ensure the public purpose is to rely on government rather than markets. And it does not demonstrate that we should adopt an expansive, progressive view of the public purpose. But it does make one highly skeptical of “invisible” handwaves about “free markets”.Yet, it must be admitted that in truth, economics, alone, cannot answer those questions.Let us now return to the topic at hand: can an Austrian adopt MMT?MMT for AustriansI am using Austrians as an example of those who prefer a narrow view of the public purpose and who believe that “free” markets can accomplish most of the public purpose. Hence, the role for the government should be quite limited. Obviously, Austrians are not the only conservatives who adopt these views. However, they provide a reasonably consistent and coherent alternative to both orthodox and heterodox approaches to economics. (Some include Austrians within heterodoxy, and there are some affinities—on topics like time, expectations and uncertainty. While I recognize similarities on those dimensions, most of the rest of heterodoxy accepts elements of Keynesian, institutionalist and/or Marxist thought that are anathema to Austrians. Hence I put Austrians in their own camp. For the purposes of the discussion that follows, this is not really important.)Austrian views on government are well-known. Further, Austrians are frequent commentators on MMT blogs, and many have asked whether Austrians can accept MMT.
I would assure Austrians that MMT is not just for advocates of big government. Indeed, I have always been surprised that some of the most vehement critics of MMT are some of the libertarians and Austrians….….So to sum up:1. MMT is consistent with any size of government. It can be a small libertarian government if desired. But it issues a sovereign floating currency. It supports the currency by imposing a tax payable in that currency.2. Job Guarantee/Employer of Last Resort is also consistent with any size of government. If you want a big private sector and small government sector, keep taxes and government spending low. That frees up resources to be used by the big private sector. But you will need the JG/ELR to take up the labor resources the private sector cannot fully employ.3. JG/ELR can be as decentralized as desired. I think there are massive incentive problems if you have federal government pay wages of for-profit firms. So I would have federal government pay the wages in the program but have the jobs actually created and managed by: not-for-profits, local government, maybe state government, maybe only as a final last resort the federal government. Argentina experimented with cooperatives and they looked to me to be highly successful.4. The problem with a monetary economy (you can call it capitalism if you like) is that from inception imposition of taxes creates unemployment (those looking for money to pay taxes). We scale this up to our modern almost fully monetized economy (you need money just to eat, watch TV, play on cell phones, etc) and we get everyone looking for money (and not just to pay taxes). It is sheer folly to then force the private sector to solve the unemployment problem created by the government’s tax. The private sector alone will never (never has) provide full employment. ELR/JG is a logical and empirical necessity to support the private sector. It is a complement not a substitute for private sector employment.
5. How can the belief that all ought to work, and contribute to society, rather than lay about and collect welfare be called socialism? How can the offer of paid work be called slavery or fascism? It merely offers paid work for those who want to work, to contribute to society. It enhances choice and freedom.
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