Liberals Reject Too-Convenient Theories; Why Don’t Conservatives?

Posted in: Tax and Economics

For the past few months, here on Verdict as well as on Dorf on Law, I have been arguing that the conventional narrative about Democrats having moved to the “far left” is, in a word, nonsense. The press likes that framing because it fits into a simplistic storyline, and centrist and conservative Democrats (especially those who are panicking about Bernie Sanders) like it because it vilifies their intramural opponents.

My recent two-part Verdict column (here and here) specifically challenged the idea that the Democratic Party has trended too far to the left as a matter of political viability. I argued that the policies embraced by Sanders and many other candidates—especially Medicare-for-All and new taxes to fight inequality, but in fact including virtually everything on the progressive agenda—are not only sensible in terms of being workable and tested but are also highly popular.

There is, as I have argued over and over, not really a “left” in US politics. Britain’s Labour Party has a genuine left wing that exerts major influence on policy decisions, but the US does not. I might at some point argue that we would actually be better off if we had a viable left to offset the extreme right turn by the Republicans over the past four decades, but that is a matter for another day.

What I am interested in today is what happens within the two American political parties when they are confronted with genuinely radical ideas that deserve to be rejected. The short answer: conservatives embrace radical right-wing ideas, logic and evidence be damned, whereas liberals are willing to reject radical left-wing ideas.

I will use the current contender for the crown of “dangerously alluring bad idea” on the left, known as “modern monetary theory,” as an especially revealing example of how liberals are willing to police themselves, preventing wishful thinking from causing them to adopt bad ideas.

Modern Monetary Theory’s Fifteen Minutes of Fame Are Upon Us

The two names that are most closely identified with the Democrats’ more-left wing—again, these people are not “the left” in anything but the most crudely comparative terms—are Bernie Sanders and Alexandra Ocasio-Cortez (AOC). They pointedly call themselves democratic socialists, which causes some people to freak out, but in fact their agenda is simply a collection of tried-and-true policies that are very familiar (and not at all threatening) to the vast majority of Americans.

There are two areas, however, in which I do worry about the Sanders-AOC crowd, even though I think that their energy and commitments are quite good for America. First, as I noted in a Dorf on Law column two weeks ago, Sanders (who is being compared to Donald Trump by many of his opponents in utterly unfair ways) does seem willing to suggest that he could not possibly lose a fair nominating contest. That is, if he loses, he and his supporters seem primed to believe that—almost by definition—the political process was rigged against him.

There are plenty of ways in which the American system is rigged, of course, and the people with real money—not just the Koch brothers, but even supposedly progressive billionaires like Michael Bloomberg (who recently sneered that taxes on wealth are “Venezuelan”)—do want Sanders to lose. But it is truly dangerous when people begin to believe, as Trump encourages his supporters to believe, that no election is fair unless their candidate wins.

The second area of concern on the left-ish end of the Democratic Party, however, is not political but economic, and that is Modern Monetary Theory (MMT). I will stipulate up front that I am not going to provide readers here with a full description of MMT, its assumptions and internal logic. Normally, that would be a major shortcoming for a column like this, but the fact is that I have never seen a coherent explanation of what MMT is, even (especially!) from its proponents.

Indeed, virtually every column that I have seen that attempts to discuss MMT ends up saying something like this: “It is all a bit hard to straighten out, but it goes something like this.” As but one example, the genuinely progressive economist Heather Boushey recently wrote this in The Washington Post: “The debate between MMT advocates and other economists gets arcane very quickly; it’s a technical subject, and the two sides often speak past one another.”

For those intrepid readers who want to get into the weeds of MMT, New York Times economics reporter Neil Irwin has offered a very fair primer (even though he is not a believer). He describes MMT’s bottom line: “[A] government able to borrow in its own currency need not be constrained by budget deficits and debt—meaning that it can act more boldly than economists have assumed, without negative consequences.”

Boushey also offers another summary of MMT’s central claim—“Countries that borrow in their own currency can finance as much real government spending as they want by creating money”—and points out that this theory has been roundly rejected by even the most liberal non-MMT economists.

Still, AOC has publicly said some very nice things about MMT, and it does have the same allure that draws Republicans to simplistic theories (“Tax cuts pay for themselves!”) in making all of our difficult choices suddenly seem to be quite easy. I think the so-called Green New Deal is a fine framework for setting future policy-making, but it is (fortunately) unnecessary to believe in MMT to support that framework, and the downsides of MMT (especially the possibility of high inflation) make it a truly bad idea.

MMT Manages to Unite the Center and the Left: They All Hate It

It perhaps would not be surprising to learn that establishment economists on the left, especially Paul Krugman (who accurately described MMT proponents as “messianic”) and Larry Summers (who likened MMT to “voodoo economics”), have been harsh critics.

The response by MMT people is to say (over and over again) that people like Krugman and Summers are part of the problem who simply do not understand the genius of the theory. This actually is possible, because even though Krugman and Summers are among the smartest people on the planet (and neither one would be bashful about saying so), they do have their own blind spots and professional biases.

A few years ago, for example, Krugman ended up in a nasty dispute with Thomas Palley, an economist formerly at the AFL-CIO who is absolutely not part of the economics establishment. They disagreed about an important theoretical point that Thomas Piketty’s blockbuster book had brought to the fore. I summarized their debate in a Dorf on Law column, coming down solidly on Palley’s side.

Palley, however, completely agrees with Krugman in rejecting MMT, offering two recent working papers: “What’s Wrong With Modern Money Theory (MMT): A Critical Primer” and “Macroeconomics vs. MMT: Some Unpleasant Keynesian Arithmetic.” Palley calls MMT “simplistic ‘printing press’ economics” and argues that “progressive politicians have enough of a challenge without handicapping themselves with MMT’s half-baked economics.”

To be clear, it is not necessarily the case that Krugman and Palley are both right, simply because they ended up agreeing here. They could, as the MMT people insist, be some combination of naïve or stupid. Even so, this is not a matter of the less liberal Democratic economists arguing with the more liberal Democratic economists over tactics or theory. Boushey, whom I quoted above, is another non-establishment economist who finds herself scratching her head about MMT.

This is not, in other words, another case of the centrists versus the leftists, or the establishment versus the insurgents, or the timid versus the bold. This is people across the board rejecting one peculiarly persistent fringe theory that happens now to have been unwisely embraced by a few prominent left-leaning politicians.

The Messianic MMT Movement

As it happens, I have some personal experience with the intensity of the MMT people. When I was in graduate school, economics had recently been overtaken—and I mean completely swamped—by a right-wing school of thought that built its conclusions upon the assumption that people are hyper-rational. (How rational? Supposedly, people will not spend tax cuts because they know that some day they will have to pay higher taxes, to take just one loopy example).

Based on that and other unrealistic assumptions, the new economic orthodoxy held that economic markets always “clear” in a way that makes all economic policy either neutral or damaging. It is, in other words, an extended argument to have the government do nothing that could comfort the afflicted or that might afflict the comfortable.

Where were Krugman and Summers during that time? They were having fun engaging with their conservative colleagues, writing papers that tried to tweak the theory but that merely reinforced the wrongheaded approach that they mildly critiqued.

Most importantly, the group that counted as “the left” among big-name economists joined with the right in driving out of economics everyone but those who were willing to play the game their way. Economics became methodologically one-dimensional, and people who wanted to use different methods and start from different assumptions about human behavior were laughed out of the room (in some cases literally mocked during seminars).

This homogenization of mainstream economics departments meant that those of us who were not willing to play what had become the only game in town were looking around for like-minded outsiders. That is when I met people like Palley and Boushey, and there was plenty to talk about in discussing how the Krugman/Summers approach had kneecapped the people who offered a more critical view of the mainstream theory.

In my second-to-last stop before giving up on economics as my main academic home, I came across the MMT people. At first, we had the bonding experience of wondering why we (all of us having been trained at top economics departments) were alienated from our field.

The problem is that, in a field so completely dominated by an oppressive orthodoxy, dissenting economists are drawn together when they have little in common beyond disagreeing with that orthodoxy for any of a number of unrelated reasons. Heterodox economists then begin to seem like residents of an island of misfit toys, thrown together without really knowing why they are stuck with each other.

In any case, when the conversation turned substantive, it became clear that the believers in modern monetary theory had an almost religious fervor when it came to their arguments. But they suddenly had one thing going for them that was unusual for heterodox economists. Starved of funds (having been cut out of the mainstream journals and top departments), they were delighted that a young rich guy had recently decided to support their work.

I am not disparaging academics who accept funds from sympathetic donors. Indeed, even though I rejected MMT, I did accept (in what—not at all coincidentally—turned out to be my last job as an economics professor before I enrolled in law school) a position that was funded by another rich guy with a quirky theory that would supposedly blow the lid off of mainstream economics. It turned out that he did not have a theory, but if he had, it would have been perfectly fine for him to fund research to support the development of that theory.

Meanwhile, backed by some money, the MMT economists became angrier and more insular. My last conversation with an MMT believer ended with him telling me that I had no idea what I was talking about because I was too stupid to understand his theory, which is “obviously correct.”

Or as Krugman recently put it, “arguing with the MMTers generally feels like playing Calvinball, with the rules constantly changing: every time you think you’ve pinned them down on some proposition, they insist that you haven’t grasped their meaning.”

I remember my incident with that MMTer not with bitterness but amusement, because it so perfectly captured why his group was going nowhere. Except that MMT now is having its moment, which is bad. But how bad is it, really?

Intellectual Honesty Is Not Bipartisan

Krugman concedes that “I really don’t want to spend time arguing with the Modern Monetary Theory people; after all, we agree on basic policy issues right now, and they are never likely to have as much destructive influence as the deficit scolds.” Note, however, that knowing that MMT will not have “as much destructive influence” as another particularly pernicious group is hardly comforting.

And that is where I think it is important to emphasize how this intramural dispute is so emblematic of the difference between Democrats and Republicans. Even though people like me find it easy to support the mostly sensible policies that Sanders and AOC espouse, we find it necessary to oppose too-easy solutions that would cause long-term damage. The MMT people will continue to despise us for doing so, but so be it.

And again, it is not that we do not want it to be true that the government could simply print money to solve all of our problems. It simply is not true.

Meanwhile, where is the intellectual honesty among Republicans? To take but one example, Donald Trump is set to nominate Stephen Moore—probably the most embarrassing hack on the right, which is saying a lot—to the Federal Reserve Board. This is huge, because the Fed’s independence from political meddling is absolutely essential.

I am not aware of more than one conservative economist who has spoken out against Moore, and among politicians, “so far not a single Republican senator has questioned Moore’s qualifications.”

I do hope that MMT is sent back to the fringes, where it belongs. In any case, at least economists on the left—even those who disagree with each other about so much else, and even when they agree with an overall policy agenda—have shown that they are willing to cry foul when reality demands doing so. Where are the conservatives who can say the same?