Friday, November 15, 2013

Robert Murphy at Sea on MMT

The Austrian economist Robert Murphy was recently interviewed on MMT:
“Tom Woods Talks MMT With Me,” Free Advice, 14 November, 2013. (You can access interview from this post).
Like most of his other efforts, it ends in disaster.

Murphy tells us that he understands the point of MMTers that the government is not revenue constrained, yet his major attempt to refute MMT is an analogy (from 14.05) where he just assumes that the government is like a private household. The analogy also bizarrely assumes that government deficit spending is not just immoral but criminal, in a totally absurd example of begging the question by assuming the truth of libertarian ethics.

Murphy is also committed to the flawed and unrealistic Austrian theory of price inflation. He seems oblivious of any of the empirical evidence on administered prices and the way that demand drives private sector output and employment.

Murphy is also guilty of astonishing intellectual inconsistency. At 22.43 onwards, Murphy’s explanation of recessions and idle resources invokes the Austrian business cycle theory (ABCT) that he himself says is grossly flawed by its reliance on the Wicksellian natural rate of interest (see Murphy 2003). But both the arguments of Murphy’s PhD and this paper are conveniently forgotten as he preaches to the choir and invokes the ABCT – and blames the lowering of the rate of interest below its natural rate – as the explanation of recessions.

Here is a man who tells us that he agrees with John Maynard Keynes that interest rates are a monetary phenomenon, but then in this interview throws that to the wind and requires that the interest rate is a real phenomenon caused by loanable funds and the real forces of productivity and thrift, despite the fact that his other published writings logically require a rejection of both ideas.

Further evidence of Murphy’s hapless inability to understand MMT – or even Keynesianism – is Murphy’s implied belief (from 24.58) that he thinks that MMTers or Keynesians wish to stop or abolish all frictional or seasonal unemployment. That is just rubbish.

One can note that the interviewer – one Tom Woods – is even more ignorant and incapable of understanding MMT or the theories underlying it.

Murphy, Robert P. 2003. Unanticipated Intertemporal Change in Theories of Interest. PhD dissert., Department of Economics, New York University.

Murphy, Robert P. “Multiple Interest Rates and Austrian Business Cycle Theory.”


  1. So, so strange. Murphy is a reasonable guy with nuanced views but he just repeats ideas that he himself disagrees with!

    I'm going to be charitable and say there is surely an explanation, but he needs to spend more time telling us what it is.

    1. A man's got to earn his bread, y'know. Sometimes it just requires some moral flexibility.

      "There's a demand
      You're the supply
      Dry your tears
      That's why" (c)

  2. I think Warren's comment in his debate with Bob sums thinks up nicely:

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

  3. Murphy will say anything to appeal to his fanbase. He's almost worse than Schiff in that regard. Both of them treat economics as a stand-up act. But I'm not convinced that Murphy even believes the stuff he says. If he does I'd be even more concerned, of course.

  4. Perhaps you guys might like to contribute to my discussion with Bob Murphy on this subject:

  5. I think he is in a position of cognitive dissonance. Our character steers us towards some ideological positions and his steers him into libertarianism, but he is a smart guy, he got MMT and he cannot refute it, he just says he *doesn't like it*. That is why his attacks are so weak, he hates the fact that he gets MMT.

    1. I think you are right Peter, there is no point of engaging with him right now. Instead of giving MMT credit for educating him, he is trying to justify the mistakes he has made in the past. Austrian econ is really going down if the smartest academics are doing this. I consider him one of the smarter ones since most of them are Peter Schiff types.

      Murphy demonstrates his ignorance of monetary matters here:

      "My reason for expecting large-scale price inflation is fairly straightforward: I see no coherent strategy for Bernanke to remove the excess reserves from the banking system....

      .....After reviewing the evidence and the theories offered by the two camps, I still believe that Bernanke's unprecedented infusions of new reserves will lead to rapid price increases. These increases may not show up in the price of US financial assets, but they will rear their ugly heads at the gas pump and grocery checkout."

      He lacked the very basic understanding of how our current monetary system operates as late as 2009. So if Austrian theory doesn't teach him that and preaches about some other universe where It would be applicable, then so be It. In a fairy tale.

    2. "Murphy demonstrates his ignorance of monetary matters"

      Not to mention administered pricing.

  6. I guess I was wrong about Murphy, he is no better than Schiff
    "According to Paul Krugman, Murphy "has been predicting double-digit inflation for years but remains absolutely committed to his framework" despite the predictions being unfulfilled.[2]

    In 2009, Murphy discussed various economic policies of the Bush and Obama administrations, which he called "incredible assaults on the private sector from the central government". He stated that the policies of Federal Reserve chairman Ben Bernanke and President Obama would lead to double-digit inflation with high unemployment and could facilitate the abandonment of the US Dollar by the end of the Obama Presidency. Murphy warned that soaring prices for gasoline and imported products sold at Wal-Mart might be blamed by Obama Administration officials on "an attack on the Dollar by foreign speculators" and used by them to replace the Dollar with the Amero or some other currency "issued by a supranational organization". Murphy urged investors to purchase an "emergency stockpile" of physical gold and silver, and predicted double-digit inflation."

    I guess they are all zombies not to be taken seriously. They do have zero understanding of economics. It is Bob Roddis repeating slogans about economic calculation in LK's blog and MNE, that's all tey are capable of doing. I went to Murphy's blog before this comment and in the comments section I found ignoramuses discussing how FDIC really didn't have any money in case you thought your money was insured. What can you say? Nothing really.