Tag Archives: capitalism

Technofeudalism – Some Thoughts to Add to the Argument

Yanis Varoufarskis’ book, Technofeudalism: What Killed Capitalism, draws heavily on two books that I began this blog series discussing: Shoshana Zuboff’s The Age of Surveillance Capitalism and McKenzie Wark’s Capital is Dead: Is This Something Worse?. Given this background, I was more than interested to hear Varoufarkis talk at Adelaide Writers’ Week, and to read the book.

In my reading, Varoufarkis takes from Zuboff an understanding of the economic importance of digital data and the ability of corporations to nudge (or more) consumer behaviour to reshape the market and profit. From Wark, he takes the idea that this is more than a new phase of capitalism and is a different form of production.

My goal here is not to properly review the Varoufarkis’ book. Rather, after a brief explanation of the central thesis (skip to here you are familiar with it) I want to add some thoughts from my own theoretical journey in political economy which I think add credence, or at least possibility, to the concept of technofeudalism.

Book cover: Technofeudalism: What Killed Capitalism? by Yanis Varoufarkis

The Technofeudalism Thesis

To me, Varoufarkis takes the best of Zuboff and Wark, but goes beyond this and builds a more convincing argument by showing how control of data enables its owners to accumulate wealth (and political power) – essentially via rent drawn from the production and exchange which takes place in privately defined and owned spaces in the online cloud.

Just as feudal lords enclosed the commons and extracted a portion of the surplus for the right to live and farm on their estates, so too those who own the cloud fiefdoms (Amazon, Google, Facebook, etc) collect rent from all those whose business models require the public access to those virtual fiefdoms and the information generated within them. Capitalists seeking a profit are trapped in these new tech fiefdoms (because of the high price of exiting in loss of exposure, customers, and profit) in the same way that feudal serfs were trapped on the landlords’ estate.

But others have questioned whether this is really happening at scale and whether it is really not capitalism?

Varoufarkis has a variety of answers:

  • the fact that goods and services are still being produced in capitalist firms does not mean that capitalism is dominant, any more than the rise of a capitalist class in earlier centuries meant that agriculture and land rents disappeared.
  • the data that drives the system is formed from the capture of the thoughts, desires and needs of “cloud serfs” (all of us – knowingly or unknowingly) who provide the data for free.
  • This data capture can be expanded exponentially with little new investment, so financial return is not a return on capital, but rather a rental charge for others accessing this information and operating in this (privatised) space.

It is a dominance of rent over profit as the primary centre of accumulation that signals that capital has been supplanted.

Thoughts

1. Dominant Sectors

Weirdly, thinking about technofeudalism replacing capitalism took me back to historical debates I studied as an undergraduate many years ago. The question was how to characterise the Australian economy in the late nineteenth century. From memory, the traditional view of a predominantly pastoral economy (“riding on the sheep’s back”) was challenged by NG Butlin and others who, armed with Kenyesian economics and new national accounting tools, argued that manufacturing contributed more to economic production. However, those arguing in a Marxist tradition insisted on the need to look at the centres of accumulation and capture of state power as the defining dynamic, rather than the share of the economy. In this light, pastoralism and pastoralists remained hegemonic long after the rise of manufacturing.

I have no idea where these historical debates are at now, but the point here is that how we characterise the economy is theory-dependant, and that simple shares of GDP or workforce are not necessarily conclusive.

In this context, when the world’s richest people are those who own the largest slices of cloud capital, it is not unrealistic to question whether the cloud (and the rent from it) is the new centre and the dominant system, even while traditional profit-making industry is more widespread.

2. Cloud serfs and the definition of production and consumption

Varoufarkis’ technofeudal economy is inhabited by “cloud prols” and “cloud serfs”. The former simply appear to be super-exploited workers in an algorithm-dominated, but nonetheless capitalist production process (hence the proletariat label). However, it is the cloud serfs who take us beyond capitalism. The data collection by search engines and digital platforms is a direct appropriation of productive resources – not a market sale of labour power or other productive inputs which characterise the capitalist production process.

But are people using digital platforms (consumers of those digital services) really producing wealth or enabling the capture of surplus to drive a new economic system? It defies a most fundamental distinction in economics between producers and consumers. However, as I argued in my PhD, this distinction was always artificial – a product of a particular neoclassical theory which conflated work, production, the market and the economy, while households and non-market spaces become consumers.

This distinction is hardwired into our definition of the economy and the national accounts which describe it. Yet around half the goods and services produced in Australia are produced outside the market and market production itself consumes labour power which is produced in the household. In this circular flow between households and market production, the split between production and consumption is arbitrary (or at least theory-dependent).

Marxism draws the production/consumption line differently by positing much activity in the market economy as social reproduction or distribution/consumption of surplus, rather than production. However, it is feminist economics which mounts the strongest challenge to the neat distinction between consumers and producers – both because of the non-market production in the household, but also because much of women’s emotional labour is embodied and not alienable as labour power sold in a market.

In short, we should not simply posit payment and the market as the arbiter of what constitutes production and economic processes. We should be able to analyse the appropriation of personal information and data as a systemic part of the accumulation process on its own terms, not bound by the conceptions of theories based on different economic relations. In this context, the term “cloud serf” may be clunky, but it is consistent with the analysis of the basis of accumulation as rent rather than profit.

3. The mode of production and the metanarrative

Much of the debate around the nature of the new digital economy, whether it is surveillance capitalism, cloud capitalism or technofeudalism is based in narratives around modes of production – the description of the economy as a whole and the metanarrative of the transition from feudalism to capitalism to socialism (maybe, eventually!). But as JK Gibson-Graham point outs, this metanarrative is problematic. The whole idea of “the Capitalist system” leaves no outside, no vision of the other in a perspective which limits political and transformative action.

The alternative, within a Marxism perspective, is a more micro focus on class processes – the different ways in which goods and services are produced and how surplus labour is appropriated. These processes are not economy-wide: there is production and surplus appropriation within households (also, in Resnick and Wolf’s analysis, feudal – bound by ties of family, loyalty and tradition rather than market exchanges), in owner-operated enterprises where there is no direct surplus appropriation, and in government and not-for-profit enterprises where any surplus goes to a common good rather than private profit).

In this analysis, any given person, household, community or economy is characterised by the particular intersection of a range of these class (appropriation) processes as well as non-class processes of power and privilege.

The point here is that, even if one was not convinced by Varoufarkis’ argument that technofeudalism is a new and dominant mode of production (as per point 1 above), it is at least fairly obviously a different set of class processes (by virtue of its non-market appropriation of raw materials and its potential expansion based on data rent rather than capital investment). Free of the question of whether it is the dominant/defining mode of production, there is more scope to analyse the technofeudalist processes on their own terms – and to develop an opposition to them specifically, without it being predicated on the overthrow of society as a whole.

I have vacillated for more than 20 years on the usefulness of the analysis of a “capitalist system” verse a focus on specific production relations and appropriation processes – but either way, it seems to me the technofeudalism argument is challenging, important, and a little petrifying.

Revisiting Energy Supernormal Profits – A Tale of Two Graphs

In a previous post I highlighted the work of Simon Orme and the Institute for Energy Economics and Financial Analysis (IEEFA) exposing the supernormal profits reaped by monopoly energy networks. They define supernormal profits as the actual profits made by these statutory monopolies over and above that which was allowed for under regulation. (Under national energy laws, the Australian Energy Regulator [AER] regulates the total amount of revenue that can be collected by energy transmission and distribution networks to avoid profiteering from their monopoly position).

Supernormal Profits

The context and how supernormal profits are realised is highlighted in the earlier post, which was based on IEEFA’s 2022 report. They have now published a new report which updates and refines the first report and includes figures for the 2022 financial year. The headline finding is that in the last year the energy networks reaped a massive $2bn in supernormal profits (on top of and eclipsing their regulated “allowed” profit of $1.4bn). This was a significant increase on the approximate $800m supernormal profits across the networks in 2021 and brings the total supernormal profits reaped since 2014 to over $11bn. Overall, this added an average of $185 per customer to energy bills in 2022, although there were significant differences between states and network providers.

The industry attacked the report, claiming the IEEFA analysis is flawed because it treats every variation from the AER’s allowance as a potential supernormal profit, and because consumers benefit from the incentive schemes which contribute to the extra profits. Unsurprisingly, I disagree with the industry critique, but I also have a different approach to that of the IEEFA.

As per my previous post, I think this work on supernormal profits is really important. It is a welcome focus on and quantification of profit-levels, particularly when the issue of profit-taking is largely ignored in energy debates dominated by prices, reliability and emissions. However, I also suggested that, despite the industry reaction, the IEEFA approach is fairly conservative – a critique (deliberately) from within the regulated monopoly framework which utilises a neoclassical concept of profit that is limited and problematic.

Two Graphs – Two Theories of Normal Profit[i]

This neoclassical conception of profit as a normal and unobjectionable cost of production (and hence the target of attack being “supernormal” profits) is clearly evident in the graph below from the 2023 IEEFA report.

Figure 6 from IEEFA report showing FY22 network cost and profit outcomes, on two lines: 1. Revenue = $8.7bn cost + $1.4bn profit + $2bn supernormal profit. 2. Cost = $8.7bn cost base + $1.4bn profit

The second line of the graph clearly includes the normal profit allowed by the regulator as a standard part of the cost. Indeed, the fact that they use the same cost base for both actual revenue and allowed costs is a nod to what it theoretically should cost in a properly regulated (perfect?) market.

The detail of the report goes further in allowing up to a 30% increment on allowed profits before the supernormal profits are viewed as “excessive”. This is to allow for the asymmetry of information (where the regulator has less information on network costs than the network businesses). In this context, I pity the poor consumer advocates in underfunded NGOs being asked to comment on billions of dollars of expenditure and financial engineering! The concern around lack of information reflects traditional economic literature on imperfect markets, a concept which not only implies and centres a “perfect market”, but also adopts the orthodox economic interpretation of profit as a cost of production. Indeed, the distinction drawn between normal and supernormal profits inevitably normalises a certain level of profit as a return on capital.

However, it is possible to draw the graph differently using the same IEEFA data, but with a different theoretical starting point.

Alternative model of the IEEFA data on network costs and profits, showing two lines of the same length: 1. Allowed = $10.7bn costs + $1.4bn normal profits 2. Actual = $8.7bn costs + $3.4bn profits.

This graph more clearly shows that in both the projected (allowed) and actual cases, the customers are paying the same ($12.1bn), and that $3.4bn of that is going in profits to the network owners. I argue that this is a better reflection of the dynamics at play because the goal of any capitalist enterprise is to maximise profit. With total revenue set, the only way to grow or maximise profit is to cut costs – which is clearly shown in the second line of my graph. In this sense, IEEFA’s “supernormal profits” are simply the outcome of normal business operation.

Side note: given this normal business operation, there appears little justification for the additional funding provided to network providers under efficiency incentive schemes. Those schemes cost rather than benefit consumers, and are unnecessary when the networks already have normal business incentives to improve efficiency/cut costs. I note that the IEEFA report (pg 26) comes to the same conclusion, despite the differences in our theoretical frameworks.

Conclusions

Again, there are caveats to the above discussion (see endnote), but the differences in the two graphs reflect not just different theories of profit, but different purposes and outcomes.

The IEEFA analysis is an argument for better regulation, so the analysis of supernormal profits in the first graph shows a revenue-take and profit above a theoretical optimum cost-base that would apply if regulation had been better.

By contrast, my graph, based on the same data, draws attention to the overall cost to consumers of the privatisation (or corporatisation) of these natural monopolies. In this context, I note that some energy networks remain in public hands, but the regulation and mode of operation of such government businesses is the same – with the important distinction that what energy consumers pay in profits to state enterprises has benefits in lower taxes or better public services. This is not the case for private companies. But either way, the quantum impact is clear: this network model added $3.4bn in total to energy consumers’ bills in 2022.

Economic orthodoxy and business interest would suggest that this cost to consumers would be more than balanced by the greater efficiencies of capitalist production which result in lower prices in the long term. However, this is ideology rather than analysis. The data shows that very little of the increased profit is driven by improved technology and processes.

According to AER data, in 2022 capital structures and cost of debt were the two biggest contributors to cost savings, while the IEEFA report (pg 26) explicitly rejects the idea that increased productivity is the source of supernormal profits. It points out that networks with average and even below-average productivity have still been getting very substantial supernormal profits.

Given this, and the $3.4bn cost last year for the privilege of privatised/corporatised energy network provision, I again wonder if it is time to think about whether there are better ways to supply energy.

Endnote

[i]              The depiction in the graphs is obviously over-simplified. In reality, the picture of energy profits is more complicated than either of the graphs above. The total revenue figure is more flexible than shown as projections for allowed revenue will inevitably be imprecise even if all assumptions are correct, and the amount of revenue allowed to be collected each year is varied by the regulator to take account of some financial changes (e.g. interest rates and inflation), allowed cost pass-throughs and other factors. Allowed revenue is also reset every 5 years, based in part on previous outcomes.

Further, as the IEEFA report (Appendix 1) notes, there are limitations on the AER’s published data, and definitive profitability data for each of the 18 network providers is not publicly available. Partly this is because these regulated networks often operate as part of larger financial entities with regulated and unregulated revenues and expenditures. In this context, I am grateful to IEEFA for piecing together the available data and providing both data and analysis that is accessible and understandable by “energy outsiders” like me.

Inflation – what to do depends on your starting point

I have a T-shirt that I am wearing as I type this. On its front, in mock Gothic text are the words:

The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,” its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.

These are the opening words of Marx’s epic work, Capital. As openings go, it is not as memorable as “In the beginning God created the heavens and earth” (Genesis), or “Man is born free, but everywhere is in chains” (Rousseau), or even Marx’s own “There is a spectre haunting Europe”.

However, it was only after reading Anwar Shaikh’s Capitalism and listening to his lectures that I realised the importance of this opening to Capital.

T-shirt with the opening words of Marx's Des Capital.

Comparing starting points

Marx’s words here are a recognition that to analyse capitalism we must start with the production of commodities, and their expression/capture of value. In capitalism, production does not happen as a charitable act or even as a provisioning of society in response to demand for goods and services (because we know that many people are not provisioned and some demand for necessities is unmet). Rather, production is organised and happens in the expectation of profit. From this starting point comes an analysis of:

  • how the production process is structured and contested,
  • the extraction of value beyond the cost of inputs into that production process, and
  • how this surplus is shared through the community – initially the distribution between capital and labour, but subsequently through flows to different parts of capital (e.g. financiers, technology owners) and finally through tax and transfers to different parts of the economy and society.

By contrast, much mainstream economics tends to start from exchange in a market – the price at the meeting of supply and demand. The production process is almost assumed (at least in the first instance). The return to capital is naturalised at an equilibrium rate determined by the market, while at the macrolevel, equilibrium can be obtained (or at least approached) by management of supply and demand – because what governs the economy is not a pursuit of profit but a market whose “natural state” is equilibrium.[1]

At one level, the different starting points mean that we are simply asking different questions and one may choose a theory depending on what question you want answered. However, it is more complicated than that, partly because the above is over-simplified, but also because, as I argued long ago, such theoretical starting points do not just ask different questions, they actually create different objects of inquiry – “the economy” is a different animal in the different theories.

But beyond that, the different starting points may have very different policy outcomes. Take for instance our current problem of persistent inflation.

Inflation

Regardless of the external factors that may have kicked off inflation (e.g. COVID, war, energy shocks), if your economic starting point is a supply and demand equilibrium, you are likely to see the need to reduce demand in the economy to ensure that demand is not exceeding supply and thus pushing up prices. At the most basic level, reducing demand at the macroeconomic demand can be done by:

  • fiscal policy, that is, increasing taxes to take money out of households and business, thus reducing their demand for goods and services), or
  • monetary policy – that is, increasing interest rates which in theory will increase savings (or loan repayments), similarly meaning there is less money to demand goods and services.

Fiscal policy is regarded as dangerous, partly because neoliberalism has convinced us that taxation is bad (and even undemocratic) and partly because surpluses lead to political pressures to cut taxes or spend more – which would be inflationary. So, we are left with the Reserve Bank increasing interest rates to try to dampen demand and bring inflation back to its target zone (2-3% p.a.)

However, if you start your economic analysis not from a theory of equilibrium supply and demand, but rather from a theory of capitalism and flows of value in an economy, then firstly, you might question the possibility of macroeconomic control by demand-management – as Shaikh does. Secondly, you might want to trace the impact of interest rates on flows in the real economy, where higher interest rates represent a bigger claim on surplus by finance capital. In this analysis, those seeking to make money out of non-finance capital are forced, to the extent possible, to increase their prices to maintain their return on capital.

This is most evident in the housing market where rental prices are increasing faster than inflation (September Quarter 2023 CPI: 5.4%, rent increases 7.6%). Higher interest rates increases costs and lowers the return to landlords with mortgages. They then put up rents to cover their increased costs, while landlords without mortgages can cash in on the higher rents attainable in the market. In this scenario, interest rates are driving rental inflation. Further, as the ABS has highlighted, rent increases are one of the major contributors to overall inflation. This is not to deny that there are supply problems in the rental market, but it does suggest that increasing interest rates may have a contradictory inflationary impacts.

Similarly, the conventional wisdom of higher interest rates taking money and demand out of the economy is challenged by the fact that around one-third of Australian households are not paying a mortgages or rent. For many of those households, higher interest rates translates as increased income from their savings. They have more money to spend and there is a growing recognition that this is promoting demand in those groups and undermining the demand-reducing purpose of increasing interest rates.

Conclusion

Put most simply, increasing interest rates to control inflation makes sense if your starting point is a conventional supply and demand analysis where macroeconomic outcomes can be regulated by demand management. But increasing interest rates to attack inflation makes less sense if your analysis starts by looking at how capital will respond to such an increase, and how that will impact on economic flows in the economy. In this scenario, increasing interest rates is possibly counter-productive (even in its own terms – and not even thinking about the human cost of the “desired” economic slowdown). At best it is a blunt instrument when more direct market interventions (such as price caps or taxes) could better impact on the particularly economic flows driving of inflation.

Or, to put it another way (in light of populist media attacks on Philip Lowe and Michele Bullock), don’t blame the person or personality of the Reserve Bank Governor – blame the economic theory.

[1]              In Shaikh’s analysis, this supply-demand-equilibrium applies as much to Keynesian and neo-Keynesian economics as to neoclassical economics, it is just that the former theories recognise that the equilibrium may, without state stimulus, be below a full employment of resources.

Did We Ever Have Full Employment?

Did we ever have full employment? It seems like a simple question – just a matter of checking the historical data and answering yes or no. But strangely, it is not so simple. And nor it is just a curiosity of history. It is a question loaded with contemporary significance.

The Long Boom

The golden era of full employment was the Long Boom (or the Trente Glorieuses in France – because everything sounds better in French!) which followed the Second World War and lasted until the 1970s. In Australia, with post-war construction and Keynesian economic strategies dominating economic management, the unemployment rate averaged 1.9% from 1941 to 1974 – with most of that accounted for by frictional unemployment as people changed jobs. Further, the employment model was largely full-time, under-pinned by a centralised wage-fixing system and industries protected by significant tariff barriers (as well as the expense of pre-containerised shipping – which also meant mass employment on the waterfront).

So, question answered. We did, for all practical purposes, have full-employment in that long boom. Since then, the world has changed. Unemployment has generally hovered between 5% and 8%, peaking in December 1992 at 11.2%, and a different policy mix is clearly required to re-establish full-employment in the modern economy. But the data clearly suggests that it is possible to have full employment in a capitalist economy.

Hmmm – not so quick. Firstly, given the historic record before and after the Long Boom, that period may have simply been an aberration – a one-off event caused by a unique coincidence of factors which can’t be repeated. More importantly, it should be remembered that these very low unemployment rates were obtained in part by culturally or legally excluding parts of the workforce.

Women who had been employed through the Second World War were forced out by cultural norms, or social pressures to give up their jobs for returning heroes or later for men who had families to feed, or women were simply barred from work. Indeed, the marriage bar in the Commonwealth public service (and in other major employers like banks) lasted officially until 1966, and probably informally in some instances for much longer. Women like my mother simply lost their jobs on marriage and were out of the workforce for years, but they were not “unemployed”.

Similarly, given the long history of Aboriginal exclusion, wage theft and the ambiguous labour force status of station workers and domestic servants, it is likely that the unemployment data did not capture the reality of Aboriginal employment and unemployment.

And many people with disabilities who are now in the labour force (but not necessarily employed) were kept at home and either not expected to work, or placed in sheltered workshop “employment”, both potentially hidden forms of unemployment.

So, on closer inspection the golden age of full employment was not – at best it was full male employment with caveats. To refer unproblematically to the full employment of the long boom is to take a gender-blind and privileged view of history.

Participation Rates and Full Employment

The crucial factor here is the labour force participation rate, that is, the proportion of the adult population in the workforce. The graph below shows the significant rise in participation rates since that golden age, from 60.2% of adults in the workforce in 1966 rising to 66.5% in January this year. This growth was driven largely by the increasing proportion of women entering the workforce, from 36.6% of adult women in the workforce in 1966 to the current 62.1%.

Line graph of labour force participation rates from August 1966 to January 2023, showing rate increasing the through the 1970s, dropping back to around 60% in the late 1970s early 1980s and then a long term secular growth since then.
Source: ABS Labour Force, Historical Charts.

This increasing participation rate is important because, if today’s participation rates applied in 1966, then there would have been 515,000 more people in the workforce (my calculation from ABS Labour Force data). If there were same number of jobs at that time, then the unemployment rate would have been 11.1%, not the 1.8% in the ABS data. Again, not exactly the “full employment” of legend.

Of course these counter-factual statistics are flawed because if the labour force participation rates were higher and those hypothetically unemployed people were actually “in the workforce” then the price of labour may have been lower (especially as this was pre-“equal pay” so women were cheaper to employ). Further, expenditure patterns would have been different if some of those people found employment (and the non-market production of cooking, housework and childcare may have been monetised sooner creating more jobs). All of which may have created more employment.

The counter-factual data therefore does not definitively give us a negative answer to the question of whether we ever had full employment. Rather, it reminds us that the statistics are not neutral. The statistic data, like the very notion full employment, is in part socially and politically constructed by the social patterns and expectations of the time.

Theory and Policy

This social construction immediately makes me suspicious of any economic theory that posits employment dynamics (full or un/under-employment) as being driven solely by market dynamics, for example aggregate supply and demand.

At one level, this is a critique of most macroeconomic theories, but the proposition that we possibly never really had full employment is particularly problematic for Keynesian and post-Keynesian theories. As noted in my previous post, such theories posit full employment as not just possible, but as the aim of macroeconomic policy. It is also those theories which tend to hark back most to the golden era of “full employment” for real-world legitimacy.

Of course, the historical record does not definitively rule out full employment (even if we did not have it in the past, it may still be possible in a theoretical future), but the long-term record is not promising.

Given the enormous social and economic costs of unemployment, the idea that full employment may not be possible is hard to stomach. But simply wanting it does not make it possible.

By contrast, both the Monetarist-neoclassical and Marxian-classical schools of thought posit some level of unemployment as being inherent in the system – the former with a NAIRU, the later with a reserve army of unemployed. (Again, see previous post).

What is at Stake?

If the mainstream theory or the Marxists are right, then the post-Keynesian full-employment approaches create false hope and may be economically counter-productive, but of course if full employment is possible, then both mainstream economics and Marxist theories may be selling the unemployed short. That is what is at stake in the curious debate over historical full employment.

That said, I do not think that accepting that full employment may not be possible is giving up on the unemployed. Certainly, as I suggested previously, the idea that there is a natural level of unemployment has been deployed by neoliberalism to undermine progressive interventions in the economy (unions, minimum wages, welfare) and limit government spending.

However, the idea that unemployment is inherent in the economic system can equally be deployed to undermine the stigma of being unemployed (because someone has to be unemployed) and to create arguments for minimum income guarantees not attached to workforce participation.

The policy approaches here and are as debateable as the political economic theories which underpin them. I am simply suggesting that, at a minimum, we might want to have those debates without reference to an idealised era of full employment which was socially constructed at best, and fictitious at worst.

An Open Letter to MMT Followers

I find the need to pen this open letter in (hopefully) supportive criticism after attending one-too-many workshops on economics-related topics where a supporter of Modern Monetary Theory (MMT) takes the floor to “explain” (at length and often out of context) that all the social goods we want can be afforded because the government can print/create money.

In writing this, I am not addressing the MMT academics and thought-leaders whose political values I probably share and whose knowledge of economics exceeds mine. Indeed, in part, I write because I think this work is being undermined by some MMT followers.

As I listened at the most recent workshop to the MTT-for-beginners lines I was reminded of my early days of politics where Trotskyists would intervene at every meeting to tell us that the problem was capitalism and could only be solved by revolution (oh, and “do you want to buy our newspaper?”). They appeared not really interested in the issue or immediate problem being discussed. Their main intent appeared to be getting converts to the cause (and selling newspapers).

The content and values of MMT are very different, but at times the behaviour – or at least the vibe – appears eerily familiar. My concern here is heightened by my long frustration with “panacea economics” – which I defined previously as proposing a particular idea as a simple and singular answer to fundamental structural issues. I hate to see MMT, with its detailed analysis and rich post-Keynesian background, presented in this way. Moreover, as I have found in conversations with workshop/audience members after several of these occasions, the MMT intervention is a turn-off which alienates other activists.

Getting Better Informed

The reality is that political economy is complex. I could read Stephen Hawking’s A Brief History of Time, but would not feel confident in publicly arguing astrophysics. Similarly, reading Stephanie Kelton’s The Deficit Myth is not enough to make me an expert on MMT or economics. Both books are great, with much bigger theories simplified for public consumption, but that is also a limitation. For instance, Kelton’s book does not explain or justify many of the macroeconomic relations and assumptions behind the theory – because that is not its point. Similarly, (in my reading) Kelton’s book has no theory of class, power or social change – although I am less clear whether that is because it was just beyond scope, or because MMT has no such theory. Anyway, Kelton’s intro book made me want to dig deeper – not just more MMT, but also critiques from the left and right.

I read a range of critiques from both the right and the left.[1] Some criticisms were lame caricatures of MMT or simply name-calling rather than analysis. However, what emerged in the more serious arguments were pretty grave doubts about the MMT/Chartalist history of money (the state preceding and creating money), some complex theoretical differences around the nature of money, the scope of aggregate demand in stimulating the economy, the role of the state in economic management, and (as I argued in my previous post) what constitutes full employment and whether it is possible.

I am not sure how much the followers of MMT understand these arguments or accept the MMT position on these issues. And maybe a knowledge of academic nuances doesn’t matter, although I am always wary of unexamined political/theoretical assumptions. More broadly, it is always a difficult balance between crediting expert over amateur knowledge (think climate change or vaccines) and not wanting to bar people from public debate because they are not academic experts in a field.

What is Wrong with the MMT Presentation?

Beyond the theoretical differences above, what was of particular interest in my reading was that many of the critiques on both the left and right agree with MMT’s description of how money is made, and the ability of currency-issuing governments to create money. MMT’s big trick is neither new nor unrecognised – but the use and implications of that trick are disputed. And that makes the issues complicated.

The table below is an attempt to summarise a few of the key simplistic MMT claims put forward at the various meetings I am referring to, and why I think they are problematic.

MMT – Simplistic ClaimWhat it sounds like at a community meetingWhy it is more complicated
When governments can issue currency, they can never run out of money.I know this thing about the economy that most economists, central bankers and governments all around the world don’t!The government can issue money, but can it control its value – or other economic variables which make that meaningful? And the MMT argument does not apply to Australian state governments.
Since the government creates money, and taxes it back later, we don’t need taxes to pay for services.We don’t need to pay taxes – hooray!If you need taxes to stop the inflationary impact of issuing money, then you really do need taxes if you are going to pay for services. It is just done in a different order. And as Kelton (and others) note, taxes are needed for other reasons – like redistribution of wealth.
Since we don’t need taxes to pay for services and governments can never run out of money, we can always afford to fund cultural, environmental and social programs.Problems of power and prioritising expenditure don’t matter because there is no scarcity problem and there is money for everything.(As MMT argues) there is a constraint in the full employment threshold, so the extra MMT money we are talking about is only the amount of government expenditure that would take us to full employment (if possible). After that, it is inflation or not funding services.
The government’s debt is simply the community’s surplus – no problem!Instead of taxing the rich, we are going to borrow money from them and create a revenue stream for them.Following Piketty: government debt (bonds) are owned by one sector of the community – the rich – while the interest paid constrains government expenditure on the services to the community more broadly.
Governments usually issue money as debt through the central bank, but they don’t have to. They can change the current institutional arrangements of how we issue money. MMT is right, the system can be changed (so the critique that MMT does not describe how the system works misses the point) . But issuing money as bonds and debt rather than as cash is seen (in theory) as a safeguard because, as Shaikh notes, many governments with the power to issue fiat money have ended up with hyperinflation. So change is possible, but is not without risk.
A Jobs Guarantee is a way to enact social programs, and it acts as an automatic stabiliser for the economy.A Job Guarantee is:
1. A brilliant panacea
OR
2. Just another doomed employment program
OR
3. A contradiction.		There are practical challenges in implementation, and a problematic history of political capture and mixed results. But in theory, is the JG primarily an economic stabiliser (which expands/contracts with economic changes) or a social program which provides jobs and services which would not otherwise be provided? If the former, the social programs disappear in the boom times, and if the later, the JG may not fulfill its stabilising function.

Conclusion

The point here is not what is right and wrong. There are certainly MMT arguments to address some of the complexities here, but there are also strong well-informed critiques from people who share similar values. In the end, much depends on the macroeconomic/philosophical framework and assumptions used. And this is why the simple assertion of MMT “facts” often does not carry much weight. Indeed, such assertions are likely to alienate rather than convince or encourage the audience – especially when people in the room have interrogated their own frameworks and/or have an understanding of heterodox economics.

My final plea to MMT followers is to keep advocating for state economic intervention, for investment in the things that make for a better society, and especially in support of unemployed and disadvantaged people. But don’t make the mistakes of Marxists of the past who tied all political change to a particular theory.

[1]              From the far right, there is this from the Centre for Independent Studies, and this from the Mises Institute. From the left there was a mix of lame and serious political economy critique from Booth, a broad consideration of assumptions and outcomes from Shaikh, plus an ill-tempered but interesting “debate” between MMT guru Bill Mitchell (blogs 1 and 2)and Marxist economist Michael Roberts (blog, reply to Mitchell).