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Summary of Mosler (MMT) vs Murphy (Austrian) economics debate,

As someone who is an advocate of Modern Monetary Theory (MMT), it will be obvious from the outset that when it comes to determining the winner of this debate the few people who watched it will no doubt vote for their team, as I have. Such is the reality in economics these days, it is unfortunately heavily influenced and dictated by politics and ideology. Even Bob Murphy mentioned this “team phenomena” in his opening statement of the debate, which was one of the accurate things he said, and for the most part he was honest and very respectful. So kudos to Bob Murphy for being a great representation of the Austrian school of thought, these kind of debates should be the kinds of things that bring people to a better understanding of each other, and if we’re lucky a way to compromise with each other.

The winner and loser of this debate will not be determined by MMT’ers and Austrians, but by everyone else who doesn’t fall into that category. At the end John Carney, the gracious moderator, mentioned that one day down the road millions of viewers will hopefully see this debate as a momentous occasion for economics (paraphrasing here). And I sure hope for the human race that he is right, if only MMT does come out as the public opinion choice here.

So enough of the nicities, for it is time to dissect the meat of this debate. As a courtesy, here is an unedited version of this debate, I will later post an edited version in the video portion of this blog. The debate starts at the 22 minutes mark and goes on for about an hour and a half. I have listened to it three times and so I think I have a general sense for what both sides represent for their schools and I hope I don’t misrepresent Bob Murphy in any way here.

In the opening both Warren and Bob were asked what they would like to have seen done policy wise, right after the recession hit in 2008. Mosler was the first to reply and for those familiar with MMT it was not a surprise to hear what his policies were:

Full tax holiday on FICA

Government funded transition jobs

Health care proposal of 5k per person (4k for emergencies, 1k for general checkups) to be allotted to each US citizen yearly. If they didn’t use these funds, it would be refunded to them as a check at the end of the year. And if an emergency would cost more it would fall under Medicare coverage for all.

He did mention quite a few more policy proposals but these are the major MMT type programs that would generate aggregate demand to reboot the economy, or should I say “reduce the drag”.

When it came to Murphy’s turn, he took the odd stance of explaining what Austrianism is about (even though those watching it should know Austrianism quite well), instead of getting into great detail on what he would do. And in the end of explaining what Austrianism is, he left off with explaining how Greenspan’s low interest rate policies caused an unnecessary bubble that lead to a false economy. At 33:30 he says: “go back to the late 90′s… It was because of Greenspan fed keeping interest rates low…. Greenspan replaced the .com bubble with the housing bubble”

So in the end his solution was that the government should not have lowered interest rates in the first place to cause the recession, which is a debatable assumption on its own. So of course the typical Austrian answer was “government interference”, and in this part it was interfering with interest rates. Later in the debate he also mentioned letting the TBTF banks to just fail. Which is not really an unpopular idea among the MMT’ers as well since as Mosler stated, “the banks did fail”.

So as a summary to the opening question we get the gist that Warren wanted less government involvement in how we spend our money (by removing FICA and allowing medical expenditures to be paid by choice to the private sector) and some government intervention with a government funded transitional jobs program. And Murphy simply responded with the removal of government involvement altogether and only mentioned not messing with interest rates as a possible solution, and not going much further than that in the opening remarks. Even though setting higher interest rates in a floating exchange rate system is government interference. This beginning statement set the tone for the rest of the debate, as Mosler was very detailed and knowledgeable about our monetary system, and Murphy relied on rhetoric and Austrian theory as a way to describe what he ideologically wanted.

After the opening statement he admits that Warren’s, “Seven Deadly Innocent Frauds”, is technically correct. At 47:35: “It’s not that I think the stuff in his book is wrong…. I think its technically correct but very misleading.” How can something be technically correct, and also be misleading? MMT is a manual on how our economy functions, it is like calling a DVD manual technically right but then saying it is misleading.

Then later in the debate, at the 1:17:00 mark, says he disagrees with the book. This seems to be the typical cognitive dissonance experienced when someone has to recognize how things work but can’t shed previous beliefs to accept how things work.

Austrians are trying to use a VCR manual to determine how to use a DVD player.

In the same segment Murphy started to create an analogy of government spending and taxation (making fun in a way of MMT’s claim that spending is not constricted from printing currency), by comparing it to household budgets. He brought up the common fallacy of composition that the government ought to be run like a a household, by claiming that if a household can’t obtain currency that they ought to hold up a liquor store to get that currency, since the only constrain there is jail time. Again this is poking fun at the idea of what MMT claims that there is no financial constraint on printing money, even though we claim there is a resource constraint.

All in all I enjoyed the debate and think it is worthwhile to get into more detail on each side with further debates. What it comes down to is that Austrians want us to run our current economy in a way that doesn’t fit how it is set up. MMT’ers need to get Austrians and the politicians in office to understand this because it is harmful to our economy.

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