WASHINGTON, D.C. – For those familiar with economics, the name Milton Friedman is evocative. With his aggressive theories, his prominence in the Reagan Administration, and his influence in the opening markets of 1970s South America (most notably General Pinochet’s Chile), Friedman stands as the ultimate 20th Century economist. Possibly his most important achievement, however, is the insinuation of “the Chicago School” of thought into the federal government. Neoclassical economics have become so pervasive that when James Galbraith spoke at the White House in April 2000 at then-President Clinton’s request, his peers openly laughed at him for expressing a perspective which was already becoming known as “the Kansas City School.”
The title of this article is largely rhetorical, as the only true answer would be “nowhere.” Nowhere in the federal government are University of Missouri-Kansas City (UMKC) economists to be heard from or seen. This is so in part because Modern Monetary Theory (MMT), the backbone of Kansas City thinking, is such a U-turn from current mainstream thought that people like Galbraith risk their very reputation and influence proposing it.
In broad terms, MMT is a post-Keynesian economic model, which draws heavily on the works of Hyman Minsky and utilizes a floating exchange rate (as opposed to the fixed exchange rate utilized by the euro-zone), while assuming a monopolizing fiat currency distributor (such as the Federal Bank in the USA). MMT acknowledges that currency has no inherent worth–that a dollar is worth literally the ink, paper, labor, and capital used to produce it–and it observes that sovereign nations are constrained only by practical limits such as natural resources, not financial limits (the Fed, after all, can produce money whenever it pleases, so long as there is ink, paper, labor, and capital). This has the implication that government debt loses some of the negative stigma it has been affixed with by neoclassical economists, instead proposing that the government ought to take all actions necessary to ensure minimal rates of unemployment.
Even to a layman, MMT can seem too bizarre to accept. How can debt be good? If the Fed prints money endlessly, won’t inflation cheapen the dollar to the point of uselessness? The interrogations of professional economists are even more probing; and the UMKC crowd responds; and the academic debate continues. But, from one layman writer to laymen readers, there is an alternative, simple argument to make–the current model simply doesn’t work.
Dale Pierce writes that much of the discourse in mainstream economics is utterly detached from reality. The swamp that could be made with the failed predictions, irrelevant policy, and general ignorance or laziness of many economists, to say nothing of the high rates of global and national poverty and unemployment in part engineered by these economists, seems to confirm that. Short of being genuinely evil human beings, which is not the case, no economist would look at the state of the world and agree that everything has gone according to plan. Maybe MMT is too new for some people; but a paradigm shift is necessary.
Government legislators up to and including the President of the United States should visit New Economic Perspectives and educate themselves as to the tenets of MMT and Kansas City thought.
With the appointment of a new Chairman of the Fed imminent, it is in the country’s best interests for the Kansas City school to receive the scrutiny and opportunity it deserves. And if, as many believe, it will endure the scrutiny unblinkingly, then perhaps more will ask the question–where is the Kansas City school in government?
– Alex Pusateri
Photo: Urban Habitat