These days, MMT—modern monetary theory—is all the rage.
Most people, especially among those criticizing this (post)modern way of looking at money and government spending, have focused on the macroeconomic parts of the illusive MMT promise. The gist of the MMT framework is that we can all have nice things if only government officials would adopt the commonsensical view of MMT. (Yes, yes, there are real capacity constraints, but we’ll wave them away).
The ideas surrounding MMT have most noticeably been advanced by Stony Brook professor Stephanie Kelton. Her book out this year, The Deficit Myth lays out many of the fundamental tenets of MMT and includes a lot of unconventional discussions on those topics. Refreshing or revolutionary, you might say if you favor her cause; moralizing and unpersuasive, if you don’t.
What many astute observers have overlooked is the stark language she uses in the book, the overwhelming tendency to ignore individual choice and preference: the “we,” “us,” and “our” that are endlessly scattered throughout the book.
While flip-flopping between a notion of explaining the world as it really is and advancing highly partisan policies and value judgments, Kelton waters down her message. Dispassionate, accurate, real-world monetary and fiscal analysis or partisan collectivist paternalism—which is it?
Collectivism and Obvious Moral Progress
The big harm—ultimately the big constraint—for a world of modern monetary theorizing is idle resources. This goes by many names: spare capacity, output gap, or unemployed capital or labor. The big loss, says Kelton, is that these unused resources could have been employed “performing useful tasks for society.”
Set aside the spare capacity myth and ponder “useful tasks for society”—useful to whom? Value is subjective; and society is not an entity but a mish-mash of conflicting and ambiguous wills. What’s useful to Kelton is wasteful to someone else.
Keynesianism on steroids, not an inapt description of MMT’s policy proposals, completely butcher values. Value isn't what Kelton would like the world to be: value is what free individuals are willing to give up for some good or service delivered with certain quality. Determining what’s “useful” is not something that a central planner can do; aggregating what’s useful for a group of individuals into a nondescript “society” is impossible. Same goes for the “social programs in desperate need of funding.” Or Britain’s socialized healthcare system (the National Health Service, or NHS) that “desperately needs more public investment.” More value judgments for a collectivism run amok.
With this in mind, consider the troubles she gets into (I’ve numbered the questionable words):
We  just need to redefine what it means to budget our  resources  responsibly . Our  misconceptions about the deficit leave us  with so much waste  and untapped potential  within our  current economy.
That’s two sentences on a single page out of this 263-page book. That illustrates the magnitude of the MMT reasoning problem.
Your Choice Is My Choice
Kelton has the moral answer to what is “good” in the world: entitlements are human rights; tax cuts for the rich are “evil.” The inflation-combating tradeoff between unemployment and inflation that we call the Phillips curve in undergraduate macro classes, is a monetary policy that according to Kelton rests on “human suffering” and “human sacrifice.”
You think I’m putting words in her mouth, but I’m not; this is literally what she writes. We finish off the hyperboles and the collectivism with unbecoming sarcasm, ridiculing what Kelton sees as the Fed’s human sacrifice: “for those who are still without jobs, tough luck. Thanks for your service in the inflation war. There's nothing more the Fed can do to help you.”
The “forced idleness” of maintaining resources (workers) unused is costly, she thinks, not understanding the meaning of the word. It “depresses our collective well-being by depriving us of the array of things we could have enjoyed if we had put our resources to good use.”
There is no collective well-being—only individuals have well-being. There is no obvious, agreed-upon, clear “good use” to which commandeering academics or government officials can put “resources”—there are individual wants and desires and subjectively arranged ways for produced or inherited stuff to satisfy those wants and desires.
The memo that Keynesians of old and new flavors—and central planners of all kinds—never got is this: those wants and desires don't aggregate. Heck, we can't even observe them. We back them out from action. Infrastructure, defense, education, or social security are not “obvious good things.” They are only good if people want them, in the way they want them, with nothing better to use their scarce resource on.
A few pages later, Kelton discusses the job guarantee proposal, replacing the central bank as the economic equilibrator of last resort. In fickle capitalist markets “you might lose a job sorting boxes for a private retailer, but you could immediately secure employment performing a useful job in public service.”
Almost by definition it’s the other way around: market employment is useful, and we know that because it’s voluntary, agreed-on mutual gain and the firm is subject to profit and loss discipline. For public “service” work we have no such test (not to mention that it presumes that public service is always more beneficial than private service). The cherry on top is that an unemployed person’s individual capabilities will be miraculously matched by “the needs of the community.” A further problem: our “communities” don't have clear, unambiguous values and preferences that can be aggregated into one. Communities don't have any needs other than those acted upon by their individual members.
These jobs are supposed to “enhance the public good, while strengthening our communities through a system of shared governance.” Again, half the words in that sentence are meaningless and the problem of aggregating the wills of individuals in a nondescript “community” entirely passes Kelton by. It is taken simply as a matter of course that we just know what people want, what needs to be done, and who is best suited to do it.
What’s so stark about this is that the work proposed is by definition wasteful: here’s something that nobody wants done, performed by someone whom nobody wants doing it, at wages rates way above what anyone values the service at paid for by the government. But Kelton knows (or presumes that the community knows), so we conclude that it’s good. The hubris is fantastic.
In a sense, the value judgments Kelton invokes are a rejection of the entire market process. It is surprising, then, that in a footnote she seems to admit some semblance of subjective value in through the back door. Maybe—just maybe—people will be allowed to work for less than the high statutory price of labor set by the government, but only if that compensation came through generous paid leave or more job flexibility and career advancement. Why are these values important? And who are you to say, Supreme Overseer Kelton?
In a free and flourishing society, “we” don’t make decisions on what are individuals’ own lives; “they” do. And that problem isn’t solved by outsourcing it to unelected (or elected) central planners, whether they come they with the impressive credentials of established scientific elites or with Kelton's revolutionary and agitated language.
While Kelton is just the most eloquent and best known of the new brand of evangelists, they all missed the memo of subjective value: no, “societal” value is not what you want or think is good, and “we” are not a homogenous entity of observable, aggregated preferences.
MMT, or at least Kelton’s version of it, is collectivism gone haywire. Don't fall for it.
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