Heterodoxy and the Mainstream(s)
Over the break an article appeared in The Economist spotlighting three “schools of macroeconomic thought”: Scott Sumner’s market monetarism, Austrian free banking, and neo-chartalism (MMT). In addition to noting the role of the blogosphere in refining and promoting these heterodoxies, the article elects to use Paul Krugman as a stand-in for the “mainstream” opponent.
If you step back, what’s slightly unsatisfactory about this choice is that Krugman is, right now, more in tune with the policy preferences of two-thirds of these “doctrines on the edge of economics” than he is with the reigning fiscal or monetary policy stance of the US government. Krugman has written extensively about the fact that our current debt and deficit levels present no serious current economic problem. (The dispute between Krugman and MMTers stems from disagreements about the long-term debt.) And as The Economist points out, Krugman is fine with nominal GDP targeting.
Figuring out where to draw the boundaries of “the mainstream” in the economics profession is one thing, but when it comes to the range of politically acceptable policy options (a different kind of mainstream, admittedly) Krugman stands shivering in the cold side-by-side with a lot of heterodox thinkers. With respect to both policy outcomes and policy rhetoric, our institutions seem to pay a great deal more attention to deficits, debt, and inflation than they do to unemployment and the threat of deflation (though one might argue that, at least with respect to fiscal stimulus, this has more to do with the fact that in the US political system the “opposition” party has the ability to see the government fail. Resistance to fiscal stimulus may all but disappear from Congress in the event of a Romney presidency. Explaining the preferences of the FOMC is a more complicated affair.) The mainstream policy space since 2010 excludes neo-chartalism, market monetarism, and Paul Krugman.
A handful of the Levy Institute’s working papers and policy briefs related to the neo-chartalist approach can be read here: “Money,” “Deficit Hysteria Redux?“, “Money and Taxes,” “Modern Money.”
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A more fundamental issue, that functional finance touches on but doesn’t really come to terms with, is what economics is trying to achieve. It seems to me that all the schools are interested in maintaining a system whereby people go to work to earn money to buy things that they need and want. Employment, production and efficiency are seen as intrinsically good.
If we rethink a bit what we might really strive to become, we might see a different system of different values that leads to different lives. We perhaps limit our production to meet our consumption. We limit our consumption allow more time for non-material endeavors and to preserve scarce resources for future generations. We go to work for fulfillment or to produce needed goods and services – not in order to consume. We see betterment not exclusively through competition, but also from cooperation.
What good is progress and efficiency if people don’t gain real benefits in happier, less tedious lives.