Thursday, February 16, 2012

Returning Economics to Reality

As I mentioned recently in the Quote of the Week, Hyman Minsky’s work on financial instability continues to play a major role in my own thinking and in several strands of heterodox economics. A dissertation advisee of Minsky’s, Randall Wray, partially founded Modern Monetary Theory (MMT) which falls within a similar realm of economic thinking. When I began exploring economic blogs nearly two years ago, MMT offered an escape from mainstream (neo-classical synthesis) thinking and provided a better fit with my perception of reality. Diving deeper into the theory, I continued to learn a great deal from the descriptive aspects but felt there lay an inconsistency with the prescriptive, political policy recommendations. Luckily Cullen Roche of Pragmatic Capitalism (who has played an invaluable role in my learning) has helped create a solution.

Just over one week ago, Modern Monetary Realism: Economics Without Politics... was launched. Attempting to remove the prescriptive aspects from MMT and basic economic thinking, “Modern Monetary Realism (MMR) is a description of the monetary system within a nation operating a fiat currency which involves an autonomous monetary system, monopoly supply of currency and floating exchange rates.” Only days after posting a primer, Understanding Modern Monetary Realism, a fascinating discussion broke out in the comments section involving Cullen and JKH, among others. Although I recommend reading through the entirety of the page, the general conclusion is that MMT relies upon a federal Job Guarantee program and corresponding nationalization of the financial sector. As with any grouping of individuals, there will certainly be some MMTers whom only align with certain aspects (myself included). Regardless, these policy positions are clearly at the heart of my concern in accepting the prescriptive measures of MMT. (I hope to elaborate on both the positive and negative aspects of MMT in a future post.)

The Great Recession has exposed many ways in which mainstream economic theories are devoid of any realistic application to our current social (human) environment. Modern Monetary Realism, in its limited time, has already made a significant impact in bringing economics back to reality. My hunch is that MMR will ultimately play an important role in defining the future direction of economics. Understanding the operational aspects of our monetary system is a critical first step in grounding policy discussions. Hopefully more widespread recognition of these descriptive factors will lead to better, more informed policy decisions in the future.    

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