Thread by @RomanchukBrian

@joborg By popular request (OK, a request), this thread runs through the sequence of articles that are expected to turn into a chapter in an intermediate MMT primer.

The primer is supposed to answer the question "What is MMT?" but is aimed at readers with a background in economics.

This is meant to deal with the awkward situation where followers of other schools of economics attempt to critique MMT - and just make stuff up.

People need a compact guide to MMT, written at a high level, without being forced to pay pirate publishers big $ for journal articles.

The first article in the sequence is on Warren Mosler's White Paper. In it, he offers an extremely terse summary of some of the main concepts of MMT.

bondeconomics.com/2020/01/mmt-pr…

It covers what Warren Mosler (one of the co-founders) views are the big ideas behind MMT.

My concern is that it is too terse: people can read it, and not understand the thinking behind some statements. Very easily, they will run off and ... make stuff up.

The other issue is that MMT is part of a wider body of post-Keynesian economics. There's oodles of stuff in the academic literature that is very interesting. That deeper literature is hinted at via code words, but it is not covered completely.

If I write a longer primer, I need to at least sample the wider literature.

Anyway, returning the thread, there are interesting implications of Mosler's white paper.

Most of the hatchet jobs on MMT involve making stuff up about what MMT says about fiscal policy or the constraint. However, from a theoretical point of view, that is not that interesting in 2020 (unlike 2010): MMTers won, and everyone now pretends that was always their position.

(I wrote a digression on the fiscal constraint, but I will warn people it is based on an argument that is somewhat shaky. It is tangentially related to Mosler, as it is my riff on a comment he made when I met him years ago.)
bondeconomics.com/2020/01/the-de…

Returning to the article sequence, the MMT discussion of price level determination. This is a big thing, if you actually read what MMTers write, and not hacks writing hit jobs.

bondeconomics.com/2020/01/mmt-an…

That previous article was somewhat theoretical, and is not based on any particular model of the economy. The next piece is based on a toy mathematical model - the "Monetary Monopoly Model."

bondeconomics.com/2020/01/the-mo…

The Monetary Monopoly Model is implicitly defined in the earlier literature, but I ran into a mathematical model in a paper by @ptcherneva. I just reworked the notation, wrote it out, and explained in painful detail how to interpret it.

@ptcherneva The model is a toy model, but it has a key characteristic: the government is acting as a monopolist, requisitioning an open-ended quantity of a good or service at a fixed price. A tax creates a lower bound for the value of fiat currency vs. that good.

@ptcherneva This model is actually useful if one wanted to create a brand new fiat currency and fix a minimum value for it. Other modelling approaches rely on knowing the value to parameters that we have no way to estimate.

@ptcherneva The next article is somewhat of a theoretical diversion: what is a policy variable?

My definition of a "policy variable" is a variable that could be viewed as exogenous, but the government uses it as a feedback control variable.

bondeconomics.com/2020/01/mmt-an…

@ptcherneva (Now that I wrote that, I have no idea whether I worked in the "feedback" angle into the article. Somewhat embarrassing if I forgot, given that my academic work was in the area of control theory, which is built around feedback control laws.)

@ptcherneva The final article gets closer to the real world: the Job Guarantee.

I give a minimal description of the Job Guarantee, and then outline its use as a policy variable.

bondeconomics.com/2020/01/job-gu…

@ptcherneva I don't attempt to model the Job Guarantee, but explain how we can bolt dynamics on top of the Monetary Monopoly model to get something that resembles an economy with a Job Guarantee.

The Job Guarantee wage is the fixed price that it pays for an open-ended amount for labour.

@ptcherneva The current pool of unemployed would presumably migrate to the Job Guarantee pool, and people with downright bad jobs might just say "Take this Job and Shove It."

@ptcherneva Therefore, the Job Guarantee wage acts as an effective minimum wage. Firms need to offer a sufficient bid to get people out of the pool.

(Note that there other factors than just pay for evaluating jobs, so some firms could offer a lower wage for some positions.)

@ptcherneva However, so long as the pool of JG labour is non-empty, only a muttonhead would bid up wages for "unskilled" labour much beyond the JG reservation wage.

As such, the JG wage acts as price reference for wages at the bottom end of the distribution.

@ptcherneva The average markup of private sector wages would presumably move with the cycle. If the markup is stable, the government has a lever to control the average wages in the economy.

Key point: no central bankers required!

There is the (alleged) problem that the pool of Job Guarantee disappearing.

This "problem" is equivalent to 100% employment. Under usual assumptions, that is *maximal* output, and if we equate output=welfare, this is the globally optimal outcome.

However, I think that's all hogwash. Realistically, progressive tax rates will keep wages from rising too far away from the Job Guarantee wage, so long as fiscal policy settings are internally consistent.

MMTers like to point out that the neoclassical prescription is to keep people unemployed to fix the price level, MMTers want to give those people jobs. I leave which is better as an exercise to the reader.

The article notes the wackiness that hits utility functions if one wants to use one to model a Job Guarantee.

"Neoclassical Economists Hate It When You Do This One Simple Trick!"

[End of thread. Waiting for the reply anti-MMT rants...]