There's A Difference Between Economic Theory & Fact

THERE’S A DIFFERENCE BETWEEN THEORY & FACT

11 January 2012 by Cullen Roche

* This originally appeared as a comment on Mike Norman’s website regarding this silly Job Guarantee (JG) disagreement among the MMT crowd as a response to questions raised by Tom Hickey.

Tom, you said:

“If Cullen doesn’t write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously.”

I’m not in this to validate or invalidate “theories”. I am not an economist and I have zero interest in winning awards or taking credit for MMT (as some MMT economists are clearly self motivated in this regard based on their reactions to my receiving publicity at times).

I am here to offer the public a way to understand modern money and the world we live in. That was the ONLY reason I started pragcap. In 2008 I saw a world in total disarray and entirely misunderstood. Meeting Warren Mosler changed that perspective and the message here at Pragcap to an even greater degree than before as he gave me a unique understanding of inside operations within our monetary system (and I am eternally thankful to him for everything he’s taught me). My goal has always been the same though. To help educate, provide a better understanding and provoke ideas and discussion. I am not trying to solve the world’s problems or fix the politics involved. My only goal is to provide people with a better understanding of the world they live in so they can make better decisions. If they want job guarantees or no government or an end to the Fed or anything else then that’s their right as private citizens to decide. That’s the beauty of this country. You get to decide. My only goal is to help provide people with the understanding that is required to digest information and make better decisions. That’s all.

It is my opinion that the JG is not an essential component of understanding modern money, the economy or anything really. It is not my responsibility to prove MMT wrong and I am not interested in trying to discredit MMT because it would be a self inflicted wound. It is also not my responsibility to publish papers validating positions (though I do so at times). It is my responsibility to stick to what my message has always been and that is offering readers a clear understanding of the world we live in. There are parts of MMT that do that and there are parts that are slapped on as nothing more than policy fixes. The latter is a clear theoretical part. And yes, the JG is ENTIRELY theoretical (which could be ENTIRELY right – I don’t know).

If the MMT economists want to sell MMT and “modern money” as part of a massive government labor program then that’s fine. It’s my opinion that no one in the world needs to understand large government labor programs in order to understand modern money. Instead, I think we should focus on giving the world a better understanding of modern money by focusing on the proven factual pieces of MMT (monetary operations, monopoly supplier function, etc). If we offer policy proposals then that’s fine, but that’s secondary. I would expect the MMT economists to do that and it should be encouraged that they use their expertise in doing so! But the JG is a very clear case of embedding a policy proposal on top of operational aspects of MM(t) – JKH has rightly noted this on several occasions. In this regard, it really is entirely theoretical and I appreciate and understand that the economists have built it this way. But there’s a difference between reality and theory and educators have a responsibility to very specifically differentiate between the two so as to avoid misleading those they are teaching.

I had long been under the impression that there were two components to MMT – the descriptive and the prescriptive. Readers had always been perplexed by the name “Modern Monetary Theory” because what I taught them (by removing the JG) did not appear so theoretical at all. MMT has always been described to me as having a descriptive and the prescriptive component, but it is clear that this is not the case. There is only the “theoretical” under the MMT umbrella. And that’s great. I think it’s a fantastic theory (even though I disagree with parts of it). But there’s a big big difference between the theory and the truth. Parts of MMT are entirely factual (the operational aspects, monopoly supplier, etc) and then there are parts that are entirely theoretical (like the JG). I guess the name alone makes that clear enough (though it never occurred to this idiot)….

In my writing I like to stick to the facts even though I am guilty of veering from that goal at times. What you want to do with those facts is entirely up to you. It is not my job to force you to use that understanding in a certain way even though I might, at times, interject my opinion on policy. But what we need to be very clear about in the future is that MMT is in fact theoretical in its current form. I won’t spend my time shooting down MMT because I respect those involved in it far too much. But I won’t be spending my time selling it to readers as though it’s fact. It is in fact theoretical and I hope to use the parts of it that are factual to further the public’s education.