Fuck MMT: The Left had better start looking for an exit from capitalism
Bill Mitchell, an Australian blogger associated with the modern money (MMT) school, thinks the Eurozone has failed, but he is not clear whether the failure results from ignorance, stupidity or malice. And I feel his pain, since I go back and forth on this one myself. It is difficult to figure out whether the European Union (EU) was designed to be ineffective in a crisis or if these people are just too stupid to be managing one of the world market’s most important regional institutions.
Mitchell takes exception with the idea that the European economic mechanism has been crippled by the crisis. According to him, this idea only makes sense if you assume the European Central Bank (ECB) has no role to play in facilitating the fiscal intervention necessary to fight the crisis — an assumption he doesn’t accept:
“The ECB boss [Mario Draghi] felt it his purpose at the gathering, which you can guarantee is plush in all respects (catering, wines, etc), to urge politicians to introduce more “growth-friendly policies”. He claimed in his speech – Unemployment in the euro area – that the so-called “sovereign debt crisis” had disabled “in part the tools of macroeconomic stabilisation”. Which is only true if one accepts that a central bank should play no role in supporting fiscal policy and that fiscal policy should be constrained by innane rules that deliberately prevent it from having sufficient latitude to meet foreseeable crises.”
If you think the ECB can support fiscal policy, then fascist management hasn’t failed — it is just being incompetently managed. But, Mitchell adds, ECB action is constrained by rules that appear to deliberately prevent it from meeting what should have been a foreseeable crisis. If the crisis was foreseeable, but the ECB was hedged in by rules to prevent it responding, this might imply the ECB is working just the way it was designed to work.
So, has the European economic mechanism failed? Or is it working as designed? And if it is working as it was designed, was this design the result of stupidity or intent? Mitchell is not a mind reader and really can’t be expected to know what was on the minds of the people who designed the EU economic mechanism, but he can speculate on their motives.
Since he can’t know what was on the minds of the people who designed the EU and ECB, the simplest assumption is that both the EU and the ECB are working as planned. Which means the designers of the economic mechanism fully intended to meet an inevitable crisis with austerity, not full employment. The European Union member states never intended to pursue a countercyclical fiscal expansion during that inevitable crisis, so they did not include that sort of facility in the design of the EU.
The present crisis was easily foreseeable; but, despite this, no other means was provided to address it than austerity. It would appear as if the thinking behind the design of the European economic mechanism is a throwback to the sort of thinking that was dominant in the United States during the Hoover administration and earlier. The period is best remembered by a quote from Mellon on the proper course of state policy during a depression: government should keep its hands off the economy and let the depression work its magic in its own destructively creative fashion:
“[Liquidate] labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”
This response to depressions had worked up until the Great Depression, but it did not work after 1929. The reason, of course, was that capitalism had run into the problem of absolute overproduction of capital, as predicted by Marx. It took four years of economic contraction before it finally dawned on the simpletons in Washington that “this time it is different” — recovery would not happen until a means was found to restart capitalist production.
The means finally adopted were forcible devaluation of the wages of the working class and inflationary state deficit spending.
But here is the thing: while the troika has again pursued forcible devaluation of the wages of the working class in the Eurozone crisis, it is also pursuing an austerity aimed directly at constraining member states’ deficit spending. The designers of the EU and ECB knew, or should have known, that when a crisis actually occurred they would be constraining fiscal policies of the member states and limiting their capacity to deficit spend in a crisis.
The procyclical policy options imposed on European member states is more or less the same as the fiscal rules individual US states follow: during expansions, spending increases; during contractions spending contracts. The aim of the economic mechanism adopted by the European Union was to create a system of European states that have no more ability to implement countercyclical policy than New Hampshire, Louisiana or any other American state.
In the United States, however, countercyclical economic policy is available to Washington politicians, where (in theory at least) spending increases during contractions and falls during expansions. (Of course, for very good reason that cannot be discussed here, this was never as neat and clean in practice as in the theory, but you get the idea.) When the EU was designed, there was already long experience with this sort of division of labor, but a countercyclical fiscal authority was deliberately left out of the EU structure — the member states didn’t forget crises happen and they certainly weren’t stupid enough to think capitalism could survive without one — they deliberately left the capacity to pursue countercyclical policy out of the original design of the EU.
What explains this deliberate defect in the design of the European economic mechanism?
Here is the thing: So far as I can tell, you actually only need one fiscal authority in the world market. In a highly integrated world economy, it is not as though every country within the world market needs its own sovereign capacity for countercyclical policies during a depression. But Mitchell believes the EU needed to preserve its ability to pursue countercyclical policy in a crisis for the same reason most people think every country needs its own flag, currency, national anthem etc.:
“This is how things have always been done.”
Yeah, well not so much anymore. The EU was designed without the ability to conduct countercyclical fiscal policy because the member states who designed it didn’t want the EU to have this capacity. I think they knew very well what they intended to happen: to employ the pretext of a crisis to break the European “social contract” across the board. Essentially, the member states designed the EU so that when the crisis came, national governments would have no choice but to slash their social spending.
Okay, so if that is the strategy of European capital, what is the response for the Left? Mitchell seems to think the response should be a little of his MMT magic, but designed to create a job for everyone who needs one at a socially acceptable minimum wage and with a social wage targeted to lowest income sections of the population. The effort would be funded by allowing national governments to deficit spend freely, with the bonds being purchased by the ECB. According to Mitchell, with an MMT funded program, “Europe’s unemployment problem could be solved within a few weeks”.
The idea might work, but it leaves us with a big problem: With Mitchell’s solution, the very same people who designed the current system that crippled members states in a crisis are now in charge of implementing Mitchell’s solution.
The EU and ECB were designed by the member states themselves to strip their voters of the ability to pressure national government to provide countercyclical policy in a crisis. Now Mitchell wants the very member states who robbed their own working class voters of their control over the economy in a crisis to manage a new MMT-inspired program to address the crisis. And he wants the very people who saddled European member states with massive debts, in order to bail out of the banksters, to continue in place by lending still more excess capital to the already fiscally overstretched governments.
Moreover, Mitchell argues the working class can support far more debt than it is saddled with at present so long as the banks step up to collect interest on this fictitious capital:
“There is no hint that if fiscal deficits in the Eurozone nations rose with ECB backing that there would be a ‘loss of confidence’.”
Which is to say, so long as there is excess capital floating around within the world market that cannot be employed productively, the national governments should be easily able to gorge themselves by wasting it on “infrastructure investment”.
Why does Mitchell think this is anything like a useful response to the present crisis?
Clearly, the member states of the EU have presented the Left with an ultimatum: Accept the straitjacket we have imposed on national fiscal policy or leave the EU!
And they know the Left cannot win an election by promising to leave the European Union — only the Right can exploit the sort of regressive national sentiments that were evident in the recent elections. The Left is stuck with the effective end of national economic management and has no choice but to acknowledge sovereign conduct of economic policy is finished for good.
If the Left is to offer something other than austerity lite to the working class it will have to go beyond “conventional economic management” to demand reduction of hours of labor. They are stuck between the fascists running the EU and the fascistS demanding a return to national autarky.
The Left had better start looking for an exit from wage slavery altogether.