William K. Black

March 11, 2019 Bloomington, MN

First Article in a Series

The massive, coordinated assault on Modern Monetary Theory (MMT) scholars by the most elite forces of orthodoxy represents a watershed moment in economics, but we must not lose sight that the real attack is actually on progressives, particularly the newly elected progressive members of Congress plus Elizabeth Warren, and Bernie Sanders. Even that statement is incomplete, for it is the combination of the rise of these progressive elected officials, the 2020 presidential election (and nomination battle), and the exceptional embrace of progressive policies by the general public and Democratic Party candidates for the presidential nomination that prompted the coordinated and personalized assault of overwhelmingly neoliberal economists on MMT scholars. This first column in a series provides an overview of why the progressives’ embrace of MMT spurred the terrified assault on MMT by orthodox economists. That desperate assault reveals how much orthodox economists fear the voters’ increasing embrace of the progressive core policy issues on the environment, health care, and restoring the rule of law to the markets. Later articles in this series will flesh out that overview.

The polls showing enormous public support for the key progressive initiatives terrify the neoliberals. Sanders’ 2016 policy initiatives have transformed the Democratic Party candidates’ policy proposals for 2020. Imitation is the sincerest form of flattery. Warren’s policy proposals are having a similar effect. Polls show broad support for the Green New Deal, Medicare for All, a jobs guaranty program, a tax system that would reverse the current race to plutocracy, a campaign to reduce gun slaughter and massacres, the restoration of the rule of law (including antitrust laws) to business (particularly banking and Silicon Valley), and a meaningful minimum wage.

The emerging progressive policy core enjoys far stronger public support than do the neoliberal policies of the self-described Democratic Party ‘moderates.’ That professed ‘moderation,’ has become code for extreme opposition to the policies that the public overwhelmingly supports. The progressive policy core is centrist in terms of the electorate’s preferences. The progressive policy core is not “socialist,” “extreme,” or “left.”

The Democratic Party “moderates,” on two key economic issues, their embrace of austerity and willingness to cut the safety net, are to the right of Republican conservatives. Republicans only pretend to embrace austerity when there is a Democratic president. The New Democrats, Blue Dogs, and “Problem Solver” Democrats actually believe in inflicting self-destructive austerity and cuts to the safety net regardless of the President’s party. Neoliberal Democrats’ big club to bash progressive policies is the typically mythical catastrophic effects of federal budget deficits. MMT scholarship disarms neoliberals, removing the legitimacy of their deficit hysteria ‘club’ in the vast bulk of circumstances where federal deficits do not cause significant shortages of real resources.

Fox News, President Trump, and neoliberal economists mounted a desperate attack on the progressive policy core precisely because the public overwhelmingly supports it. Their attack makes three claims. First, the policy core represents bad economics. Second, the policy core represents ‘socialism.’ Third, even if the policies are desirable, the world cannot afford to adopt them. These three points form the all-encompassing neoliberal meme that the government cannot and should not act to protect the public. They think the government should serve and fund the plutocrats, kleptocrats, and the “chicken hawks’” massive military expenditures and wars. Neoliberals try desperately to convince the public to adopt their ideology that democratic government is fundamentally illegitimate while the reality of a rigged kleptocracy represents the fiction of ‘capitalism.’

This is the place where MMT scholars became involved. MMT is not inherently ideological, but a number of prominent MMT scholars are progressives. To no one’s surprise, the coordinated orthodox assault on MMT scholars focuses on progressive MMT scholars. The orthodox economists’ aimed the schwerpunkt of their assault at Stephanie Kelton, the world’s top female MMT scholar. The lead orthodox assault corps was exclusively male. (They will soon move to cure that obvious ‘tell.’)

There are five primary reasons why increasing numbers of progressive elected officials have embraced MMT scholarship. First, progressive MMT scholars are among the economists who have demonstrated that the progressive core policies are good economics and the opposing neoliberal policies are bad economics. For example, it is insane to keep adding to global climate change. It is insane economics to claim that we can afford to cripple our planet’s climate but cannot afford to prevent the catastrophe.

Second, MMT scholars have blown up the effort to smear the progressive core’s policies as ‘socialism.’ Laissez faire economics is terrible economics. It is literally suicidal with regard to global climate change. Similarly, neoliberal policies have eviscerated the rule of law, producing the “criminogenic environments” that produce the epidemics of elite fraud and predation that drove the Great Financial Crisis (GFC).

Absent an effective rule of law, it is easy for elite fraud and predation to create a “Gresham’s” dynamic in which bad ethics drives good ethics from the markets, professions, and sports. Effective government is essential to effective markets. MMT scholars come not to destroy honest markets, but to make them possible. Sound regulation constitutes a large part of the “rule of law.” Effective regulation is essential to allow honest business people to prosper. MMT scholars documented how and why elite fraudsters and predators “rig the system” and the horrific harm that “control fraud and predation” cause.

We did not design this branch of our work, which began in 1984, to help any candidate. It is remarkable that Warren has not yet used this strand of MMT research to bolster her central policy positions. Our multi-disciplinary scholarship draws on the best of white-collar criminology, economics, law, accounting, and psychology. Our proposed regulatory policies are immensely popular among voters, including many Trump voters, but progressive support is near universal. Our scholarship demonstrates in detail why Warren is correct – our most elite predators have systematically rigged huge areas of the economy. We also explain why “control fraud and predation” cause such devastating harm to the public, our overall economy, and honest business people. Our research and theories also explain why this predators target people of color, women, the elderly, children, and the elderly (and the ‘intersection’ of these characteristics). For any economists wondering what this branch of our scholarly work has to do with macroeconomics, the answer is that it provides part of MMT’s devastating critique of the ‘microfoundations’ of “modern macro.”

If neoliberals want to define as “socialism” an effective government that produces markets in which honest people prosper and we imprison or at least drive from the markets the elite cheaters, then we are all socialists. An economic system without an effective rule of law and with massive negative externalities such as global climate change is a suicidal kleptocracy. If neoliberals want to define that as “capitalism,” they should get used to the public rejecting it as an ideology that is as economically illiterate as it is inhumane and unethical. Kleptocracy and plutocracy invariably corrupt and ruin democracy. The truth is that honest markets and governments are complements and that the most effective economies are ‘mixed-economies.’ Using ‘socialism’ or ‘capitalism’ as swear words is a pointless waste.

Third, MMT has been of particular use to progressives in countering the bizarre claim that while we can afford to destroy our planet’s ability to support life we cannot afford to prevent that catastrophe. A significant strand of MMT scholarship focuses on understanding the true fiscal capacity of nations with fully sovereign currencies. The most effective means neoliberal opponents of vital public programs have found to dissuade Democrats from adopting such programs is the deliberate creation of the myth that the U.S. cannot afford to fund progressive programs. The express goal of the economists creating and spreading this myth was to deceive the public in order to prevent it from voting for social programs the voters viewed as highly desirable.

The most famous admission of this myth is by Paul Samuelson, one of the two Nobel Laureates in Economics who were Larry Summers’ uncles. Randy Wray made this point in his April 30, 2010 New Economic Perspective (NEP) blog (“Paul Samuelson on Deficit Myths”). [Randy Wray referred to] “an interview Nobel winner Paul Samuelson gave to Mark Blaug (in his film on Keynes, “John Maynard Keynes: Life/Ideas/Legacy 1995”). There Samuelson said:

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.

Notice the key logical error in Samuelson’s endorsement of economists deceiving the people by spreading a myth. MMT scholars stress that “there must be discipline in the allocation of resources.” MMT urges us to focus on the use of scarce real resources. MMT explains that dollars are never scarce for the U.S. government given our fully sovereign currency, but real resources can be scarce and that their scarcity can lead to inflation and significant “opportunity costs.” If we fail to adopt government policies that stop global climate change, we will not show “discipline,” but irrational idiocy.

Samuelson made this statement 24 years ago, but Ed Crooks, a top Financial Times editor, just praised the same myth. Note that he expressly adopts the statement that MMT is “obviously true” – and they must keep that truth from the public. He retweated with his highest praise this tweated text:

Modern Monetary Theory is reverse Santa Clause. It is something that is obviously true & and believing in it will cause lots of bad behavior.

Crooks then tweeted this text.

An underrated aspect of political economy, I think, is the extent to which obvious falsehoods – e.g., “the government’s budget is just like a household budget” – are worth maintaining because in the long run they lead to better outcomes than the truth would.

Orthodox economists and elite members of the financial press admit, in blunt terms:

MMT is “obviously true” Instead, of explaining the reality of nations with fully sovereign currencies, orthodox economists and financial journalists have consciously propounded what they describe as “obvious falsehoods,” “superstition,” and quasi-religious “myths” for the purpose of deceiving the public about the fiscal capacity of those nations, This is done for the express purpose of keeping a majority of the voters from adopting social programs they consider desirable, Orthodox economists and financial journalists spread their “obvious falsehoods” because they think it is essential to subvert democratic choices, which they view as certain to create ruin. Decisions on public programs must be left to orthodox economists, who are far more likely to oppose public programs based on their lust for laissez faire, and, Orthodox economists and financial journalists are proud of their lies, proud of their paternalistic elitism, proud of their efforts to suborn the democratic will of the voters, and proud that they – and only they – will decide policy on issues such as global climate change.

The fourth and fifth reasons why progressive elected officials find MMT scholarship so useful should apply to all elected officials. The fourth reason is that MMT scholars have a superb record of predictive success. Orthodox economists routinely claim that predictive success is the standard by which the soundness of theory is determined. MMT scholarship is one of the strands of modern economic research that reveals that twin orthodox lies about that assertion. One, orthodox economists routinely employ theories and models that routinely fail hypothesis testing. Two, orthodox economists routinely refuse to adopt theories with far superior predictive success and instead continue to embrace theories that fit their ideological priors.

Fifth, MMT scholars have a superb record in designing policies that prove effective when implemented. Orthodox macro and ‘microfoundation’ scholars have terrible records on policy. Orthodox policy on a broad range of fronts does not simply fail to cure severe problems; it is a primary cause of severe problems. Orthodox economic policy prescriptions are frequently so criminogenic that they cause “control fraud and predation” to become epidemic. The successful policies that MMT scholars have helped formulate such as restoring the effective rule of law to Wall Street counter that criminogenic environment. Such policies should attract overwhelming support from elected officials and economists of all stripes.

Is anyone surprised that progressives are horrified when they learn that orthodox economists and journalists know that MMT is “obviously true” and respond to that truth with lies designed to prevent the adoption of progressive core policies? MMT scholarship has exposed the campaign of lies and demonstrated that the progressive core policies are excellent economics and that the U.S. can implement them. MMT scholars are the initial target of the orthodox counterrevolution against the ascendancy of progressive core policies among the electorate. The ultimate orthodox target is blocking those policies.

The second article in this series provides an overview of MMT scholars’ superb predictive and policy successes. Orthodox economists teach that such successes are the standard for judging the soundness of economic theory and theorists. It is revealing that the orthodox assault on MMT scholars has ignored the standard orthodox standard for testing the strength of economic theory.