I was inspired to ask the above question after reading this 2021 essay titled “The Modern Monetary Trick” from economist Michael Roberts, where he critiques Modern Monetary Theory (MMT) from a Marxist perspective. I have also read critiques of MMT from mainstream liberals (Paul Krugman, Noah Smith), and other leftists (Matt Bruenig).
My understanding of Modern Monetary Theory is somewhat surface level, since I haven’t read Stephanie Kelton’s book, “The Deficit Myth.” Furthermore, I don’t know if succ-dems like AOC and Bernie even pedal it these days (compared to a few years ago), so I am not sure it’s even a relevant discussion. My one-sentence summary is: MMT posits running large government budget deficits for long periods of time to ensure full-employment won’t inherently lead to price instability/inflationary crises.
In particular, Roberts’ critique of the theory is that it does not have much to offer the Marxist left since it’s an inaccurate explanation of where the value of money comes from – MMTheorists claim it comes from a state (assuming they have currency sovereignty, like the US). Roberts, via Marx, identifies money’s (in particular, credit/paper/fiat money’s) value as being tied to the aggregate value of all commodities produced in an economy. Money is thus a precursor to the state, not the other way around (something Austrian-style economists would also say). It seems to me Roberts’ issue with MMT is that it posits the state in a capitalist economy can print money to stimulate demand and provide a government job guarantee and ultimately alleviate crises, but it really can’t–exploitation of labor is still paramount to commodity production, and therefore drives the valuation of money in the limit. It won’t be able to address the issue of falling profit rates. He cites Keynesian policy failing during the period of stagflation in the 70s, which the ruling class used to justify the rough austerity that followed it.
The reason I bring MMT and its critiques up is because I think I am confused about deficits and socialist-oriented economic policy. Using China as an example, users @xiaohongshu@hexbear.net and @FuckyWucky@hexbear.net have discussed China’s deflationary spiral and how it could be solved via deficit spending at the national level to drive greater domestic consumption. China has currency sovereignty, and a massive oversupply of many commodities to the point of products like solar panels becoming too cheap, with companies constantly undercutting each other. Profit margins in sectors like the automotive industry are extremely thin. So would this high deficit solution work in this case because China’s economy is producing an inordinate amount of use value with their commodities? Since they have a really productive economy already, then the solution is just to pay people more via the central bank? Am I getting this right? How does this relate to MMT or Roberts’ critique of MMT? And lastly, how does this fit into a world where the US is a massive net importer and most other nations follow export-led growth strategies?
Sorry for the long post. TL;DR: My big question is, if we want to construct an economy that works for the many and not the few, how should we understand deficit spending?
USSR and most (all?) socialist countries ran persistent deficits even when some of the Soviet leaders were trying under the influence of sound finance bs to balance the budget.
The amount of deficit doesn’t tell you anything. Much of the deficit depends on the state of the economy, so when the USSR was in crisis in late 1980s and oil prices crashed, fiscal deficits blew up.
But such fiscal deficits doesn’t mean USSR was on an expansionary mode. The amount of deficit alone cannot tell you much.
Fiscal deficit is an ex-post identity. It doesn’t tell you whether the economy is expanding too fast or slow. You can have an expanding economy even with a fiscal surplus, this is especially true for exporting countries or during a private debt bubble.
The 1970s crisis was a real resource crisis, one that is acknowledged by MMT, stemming in large part from an external shock.
The fact that money’s value at aggregate level depends on what it can buy isn’t contradicted by MMT. It still works just fine.
Money can be hoarded (main reason why Says Law was never true), people can be forced to hoard money as well through price controls, rationing, forced savings.
You can reframe many of things MMTers say. For example, “Governments must run deficits because of private sectors tendancy to net save” can be reframe as “Governments must run deficits because of capitalist tendancy to hoard money and to much lesser extent due to worker tendancy to save”.
There is no downwards price flexibility under capitalism. Prices are only flexible upwards, deflation eats into profits. In a command economy, prices are downwards flexible so state can just let prices fall when supply rises without worrying about profits.
I recommend Kalecki’s works, he was for permanent fiscal deficits way before the term MMT was coined.
https://delong.typepad.com/kalecki43.pdf
http://digamo.free.fr/kalecki54.pdf
Edit: I would say MMT is a modern reinterpretation of things most Marxian and Keynesian economists already knew before late 1970s.
