http://radiofreemarket.files.wordpress.com/2012/12/andy-katherman-and-robert-murphy.mp3I am rather astonished to say it, but I was pleasantly surprised by this interview.
Murphy’s understanding of MMT has improved; some points are constructive (e.g., on the sustainability of the trade deficit).
Nevertheless, on the whole, the interview does not really refute MMT. In fact, we hear again and again that MMT is “technically correct”! Then when Murphy goes on to dispute the usefulness or validity of MMT analysis (despite many things being “technically true”) his counterarguments are rather feeble.
The interview mostly focuses on Warren Mosler and his book Seven Deadly Innocent Frauds of Economic Policy. Murphy puts the emphasis on Warren Mosler as the leading figure of MMT. While one cannot deny that Warren Mosler is a prominent exponent of MMT (and I do not wish to downplay his role), nevertheless, if we were to consider MMT as a macroeconomic school, Murphy fails rather spectacularly to notice that MMT has some other important academic economists as its intellectual leaders: the outstanding Bill Mitchell and L. Randall Wray.
Other problems with this interview:
(1) At one point the interviewer seems to think that MMT advocates spending without limit or without taxation. That is obviously false.
(2) I see Murphy revisits his “government-debt-will-rob-our-children” debate. On this issue, Murphy is unconvincing. His comments on how retired people would sell their bonds in the future to people with money they have saved does not refute the idea that bond repayment in the future simply redistributes wealth.
First, curiously, Murphy ignores inherited wealth that people hold and do not wish to spend on consumption (there can be no foregone wealth involved in saving if a person never wanted to spend his/her inherited wealth on consumer goods). Secondly, his argument could be used against all private sector saving! We could show how any process by which someone chooses to save for retirement and sells private sector financial assets to other people in the future involves making some people poorer by their acts of saving. We could actually show how any private sector financial assets to be sold in the future must rob some people in some sense!
(3) On the issue of government deficits adding to savings, here Murphy says it is technically true. Then he resorts to the “government-taxation-is-fraud!” argument (falling back on ethical objections rather than strict economic or national accounting objections), an issue that is dependent on dubious ethical theories and, anyway, begs the question, for Murphy never explains what moral theory he uses. His attempt to dispute the MMT accounting view of saving by using Google as an example is utterly unconvincing, for Google is nothing like a government. The whole point is precisely that the government is a unique entity, unlike any private sector agent.
(4) On social security, Murphy’s contention is that the program is insolvent under the standard rules of private sector accounting. That is vacuous, precisely because the standard rules of private sector accounting do not apply to government programs like this (despite the fiction created in the 1930s that they do). Furthermore, government obligations under social security are not due all at the same time, but over many decades.
On the issue of demographic change, I think we have increasing evidence that in the course of this century we will see some rather spectacular productivity growth, owing to automation, robotics and artificial intelligence. The imbalance between retired people and workers will not be a problem if huge productivity and output growth happens. I suspect that even if merely moderate productivity and output growth occur, it still will not be a problem.
(5) On the trade deficit, Murphy in essence agrees with Warren Mosler! There is no refutation of MMT here.
(6) On the issue that investment adds to savings, this is not even a new argument. It is essentially standard Keynesianism, and it is true. I do not see any real refutation of it by Murphy. Investment does bring forth savings.
Furthermore, with fractional reserve banking and negotiable credit instruments it is obvious that any economy not at full employment (that is, with idle resources) can engage in investment without prior monetary saving. Loanable funds theory is a misleading model of the modern financial system anyway.
(7) At the end, I am surprised how Murphy seems to not really even understand the core of MMT. As far as I can see, MMT has always said that there are real constraints to government spending, but that the conventional financial constraints (deficits are funded by borrowing from the private sector) are a myth.