Nov 5, 2020
Welcome to episode 53 of Activist #MMT. Today is part two of my two-part conversation with one of the original developers of Modern Money Theory, L. Randall Wray. Today we talk briefly about the differences between the words sufficient and necessary, and the concept of desired net savings.
(In part one, Dr. Wray spoke about his personal history before meeting Warren Mosler and Bill Mitchell in the PKT email forums, and then we discussed his November, 2019 Congressional testimony, partially in response to the February, 2019 Republican resolution to denounce MMT.
The heart of our conversation today, however, is in two parts. The second half is an overview of MMT from the Kansas City point of view, as documented Dr. Wray's new paper, The 'Kansas City' Approach to Modern Money Theory. The Kansas City version of MMT differs in one important way from the broader version as agreed upon by all its original developers: and that is, the influence and inspiration of Hyman Minsky, and the importance of his concept of financial fragility. His paper and our discussion on it inspired this MMT-reference post: What specific components make up MMT?
The first part of our conversation, though, focuses on the true meaning of the word productivity. This was in response to strong criticism I received regarding the job guarantee, and more specifically, to the April 2018 Levy paper called "Public Service Employment: A Path to Full Employment, of which Dr. Wray is a co-author. For the morbidly curious, this part of our conversation was inspired by a sprawling and unpleasant debate I had on Twitter, with someone whose wife's dissertation advisor was Janet Yellen (he told me this proudly, more than once), and who I later discovered lobbied the Virginia DNC to keep the JG out of its platform. Scroll up from here. He believes MMT is not scientific enough and therefore is trying to foist a job guarantee onto society that would be more harmful than beneficial.
Before I go on, I want to be clear, these are my own words, not Dr. Wray's or MMT's. It's my best interpretation of what I learned in my preparation for and conversation with Dr. Wray. Although I'm confident I'm much closer than I was before talking with Dr. Wray, I'm not pretending to be an expert or that what I'm about to say is perfect MMT. Just like you, I have more to learn. I'm also obviously taking the knowledge of MMT and applying my own progressive values to it.
That said, I'd like to take a step back and start with an analogy:
Something cannot be removed from a container until something is first put into that container. A leakage from the economy cannot happen until something is first injected into the economy. The only institutions that can make injections are commercial banks and the central government. Savings therefore cannot cause bank lending, and taxes cannot finance (federal) government spending.
Regarding productivity and the job guarantee, in a similar way, jobs can create skills but skills cannot create jobs. As Dr. Wray explains, washing my own dishes is not considered to be officially productive, but paying someone else to do it is. Why? Because they were paid, I wasn't. In other words, productivity as officially measured is substantially a reflection of, not the production itself, but how much workers were paid in exchange for it. Despite consistently increasing output, wages have remained stagnant since around 1970 – nearly half a century. Have workers really been less and less productive? Or have they been more and more screwed?
Currently, the only thing that's considered officially productive is what makes somebody else richer – who, by the way, is someone that seems to never be me. Productivity is essentially equated to profit because business owners are essentially the only ones who get to decide who is to be paid, what they will be paid for, and how much to pay them.
Instead of only paying people for making some business owners profit, perhaps we can also start paying people for making our world a better place. For helping other people. For cleaning our environment, for holding the hand of the dying, for recording the history of the old, for helping a child with homework, or a teacher in the classroom, or a youth soccer coach on the field.
Wages are not created by productivity, productivity is created by wages. How do you increase productivity? By paying workers more. By paying them at all. We don't have to measure productivity with maths and models, we don't have to equate productivity with only profit, and we definitely don't have to leave these decisions and definitions to only business owners. We can redefine productivity to whatever we want it to be – and then we can start paying people to do it.
This discussion on productivity with Dr. Wray inspired this MMT-resource post: The real meaning of the word "productivity."
#LearnMMT
For an overview of Modern Monetary Theory (MMT) with many reliable sources to learn more, here is a good place to start:
- My large set of resources is a gateway to every known academic paper written by those who have developed MMT over the past quarter century, and is framed around my layperson takes. It is essentially a long-form FAQ, addressing many basic concepts and criticisms, and more.
- On Facebook, the pinned post on Modern Monetary for Real Progressives contains a wealth of information.
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