Responses on MMT, Part 2

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Printing some responses from readers to my post from yesterday about the slippery politics of MMT. From TPM Reader A

Hi, Josh. I’m an economist and Prime member (hoping to upgrade soon but have to convince hubs of necessity of expense first…). I read you every day, and the work you and your staff do is indispensable.

I just read your MMT post, and it is spot on. I would go even further. I consider MMTers to be the left-wing equivalent of Hayek/gold standard acolytes. Both of them defy what we know about how the economy works, theoretically and empirically.

That being said, deficits don’t concern me too much. I tend to agree with Olivier Blanchard, whose research shows that as long as overall economic growth outpaces the interest rate paid on the debt, we’re fine. That doesn’t mean we don’t have to be watchful and stay in certain limits, but we certainly have plenty of room, particularly in an environment of sustained low interest rates coupled with economic growth, to make much-needed investments in our infrastructure and educational systems.

Here’s my spiel, me on my expert soap box:
I think the idea of a GND is great in theory, but what concerns me more is the trend of economic concentration we’ve seen across industries over the last couple of decades. Usually, conservatives like to talk about “the free market,” and that if the government got out of the way, we would all prosper. Well, it’s true that the “free market” increases prosperity for all, but the “free market” is not what conservatives think it is. In economic theory, a free market (or what we call “perfect competition”) means that in every industry, there are tons of sellers, tons of buyers, the product/service being produced/sold is identical, and–KEY, in my opinion–there is something called “perfect information”: every buyer and every seller knows everything about every potential and actual transaction. Obviously, perfect competition is about as common as a unicorn. But the idea is that we want to get close.

Sometimes, the way to get to perfect competition is to get government out of the way, but sometimes, we actually need government intervention to get us closer to perfect competition. A lot of markets suffer from “information asymmetries” such that the seller knows more than the buyer, or the employer knows more than the employee, and can take advantage of that. Think of the opacity of hospital pricing, or companies that can restrict employees from revealing salaries to each other.

In other cases, the government should get out of the way. Consider that Medicaid and Medicare are barred by law from negotiating lower prices with pharma companies. Examine the US airline industry– only three truly national carriers (United, Delta, American). This is by design, in the form of anti-cabotage laws, and they ban foreign airlines from flying between domestic airports in the US. (Similar to the Jones Act, which deals with shipping and was suspended during the last big hurricane). If BA or Air France or KLM can meet our safety standards, why shouldn’t they be allowed to serve domestic US customers? This lack of competition is why tickets are expensive and passengers can get beaten up and otherwise abused on flights–they have no choice.

For far too long, conservatives have claimed the mantle of “the free market,” when what they actually mean is “whatever businesses want to do, unchecked.” As I said, I like a lot of the ideas in the GND, but I would much rather see the Democrats really take on these structural issues of concentration and info asymmetries to change the rhetoric surrounding the (incorrect) ideas that the body politic currently holds toward markets. I would like the Dems to look at every part of the economy and ask: What’s keeping us in this market from getting as close to perfect competition as we can? Do we need more or less govt. policy to move in that direction? I believe that thinking in this way could change things fundamentally, for the better.

The GND and MMT to pay for it…. well, it’s just looney tunes, practically and politically, and there are more basic issues to deal with.

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