Saturday, July 6, 2013

doppelganger economics

I spent two hours yesterday watching a debate between Warren Mosler and Robert P. Murphy.  It was not the best of debates, but it did give some insights into a couple of approaches to economics that diverge from the Keynesian mainstream.  The main problem with the debate was that Mosler is a good deal more articulate than Murphy, so it was hard to compare their two positions based on just this one encounter.

Warren Mosler is probably the foremost proponent of Modern Monetary Theory (MMT), originally known as Chartalism.  MMT focuses on the fact that present-day economies use a currency which derives its value from being a government monopoly rather than having  a connection to some valued commodity such as gold.  Mosler is fine with the existance of this unbacked "fiat money", but he is critical of the way that economists, financial managers and politicians manage it.  He asserts that there is no need to worry ever about deficits.  When asked how he would go about fixing the current financial recession, Mosler says he would set the interest rate permanently at zero, have the government provide a minimum-wage job to every unemployed person who was willing to work, and he would place severe restrictions on public banks to do anything other than provide checking and savings services -- eliminating all the complicated financial manipulations that led to the current crisis.  While critical of the bail-out for the big financial institutions, Mosler is in favor of stimulus and feels that a much bigger sustained effort should have been undertaken.

Robert P. Murphy is a representative of the branch of the Austrian School of Economics which basically rejects the Keynesian approach with its emphasis on large, aggregate movements and their analysis through mathematical modeling.  Murphy sees the economy as essentially the sum total of all individual microeconomic decisions.  He would basically eliminate government control a virtually all economic activity, leaving it to be managed by private enterprise.  Prices are the only useful measure of economic activity in Murphy's view, and government efforts to ameliorate the effects of booms and busts only make things worse in the long run.  Murphy, unlike Mosler, worries about interest rates and inflation, and advocates a return to the gold standard as a way of encouraging economic stability.

It seemed to me, based on the debate content, that the theories advocated in both instances were essentially utopian.  Filling either prescription would require massive shifts in the management of government and society which are really unrealizable in the absence of a magic wand.  Mosler's approach basically takes liberal Keynesianism to its ultimate logical conclusions without much analytical underpinning.  The MMT approach doesn't contradict fundamental mainstream economic theory, but people like Krugman are uncomfortable with the idea that deficits never matter.  The fact that Krugman has not engaged in an analysis of MMT postulations in greater depth may be due in part to seeing it as something of a fringe movement, and in part to the fact that the commonalities of the Austrian School and the Chicago School make those approaches a greater real threat.  Both the Austrians and the Chicagoans, for instance, have long insisted that the Fed's monetary policy efforts will ultimately produce runaway inflation and that has added a lot of fuel to the current emphasis on austerity.  Krugman says that battle has been definitively settled, but nobody seems to being paying attention.

Critics of Murphy's economics point to an over-reliance on logic and a disregard for both rigorous analysis and historic evidence.  It does seem to me that Murphy is basically wanting to take us back to an age of gold-hording robber barons..  At the same time, there is little real reason in the absence of magic wands to believe that his propositions are going to be seriously entertained.  The real-world problem that flows from the Austrian approach, it seems to me, is that the simplistic approach to monetary and fiscal policy has some seductive appeal that is encouraged by the Right, and that it also is apt to discourage attempts to reform financial institutions while holding out hope for unrealizable utopian scenarios.

It seemed to me that the two debaters were mostly talking past each other, and the comments of the moderator and the audience were not helpful to me in achieving a thorough understanding of the two points of view. Toward the end, though, one of the final questions to the two men did give a revealing look at basically where they were coming from.  The were asked what political figures they saw to be advocating or promoting the proper economic solutions to the current economic disaster.  Mosler, the MMT guy, said he could not think of anyone at all that was making the right moves toward economic sanity.  Murphy, of the Austrian School, could only come up with Ron Paul.

No comments: