Hard Money Progressives?

      This striking phrase is what Michael Hoexter uses to call Simon Johnson and  James Kwak's approach in their new book White House Burning, as being in "the grip of hard money ideology."

      http://neweconomicperspectives.org/2012/04/simon-johnson-and-james-kwaks-white-house-burning-progressives-in-the-grip-of-hard-money-ideology.html

      I think this is a great phrase-"hard money ideology" and agree that real progressives/liberals need to guard against it. Certainly I must agree with Hoexter's gloss that liberals need a coherent understanding of the monetary system and they must reject all forms of hard money ideology. This is what MMT is about more than anything.

      Whether or not White House Burning (WHB) suffers from being in the grip of this ideology is another question. What I will say is that even with the critical tone of Hoexter's article I still feel that WHB is a book that's worth reading-even if it does suffer from some of this ideology it is still a very good learning opportunity.

      Hoexter certainly to his credit is certainly not writing an ad hominem attack here which is why some of the virtues WHB may still be apparent. If nothing else the book gives us a nice look at some very interesting and informative monetary history.

      Some of the authors' (SJ & JK) analysis of American monetary history don't necessarily sound very hard money to me.

       For example they take the side of Hamilton over President Jefferson on the question of a central bank.

      "At first glance the title of the book suggests an emergency, a grave existential threat to theUSgovernment, and seems to be intended to cause alarm in the reader. J&K have chosen to title their book after a raid during the War of 1812, actually occurring in 1814, when the British burned down the White House, Capitol and Treasury buildings. This military defeat and humiliation of the US government surprisingly did not lead to the utter humiliation of the US at the end of the war, nor, obviously, to the re-conquest of the US by its former colonial power."

    "The reason for the authors’ selection of this incident as the pivotal vignette for their book on contemporary US fiscal policy is not at first obvious but J&K quickly explain their choice. J&K feel, as do some other historical commentators, that the US was ill-prepared to defend itself from British attack not because of some inherent military weakness but because the US government had not set up strong enough centralized banking and taxation authority for the government. Not enough soldiers and material could be mustered to defend Washington August of 1814, in part because of lack of funds and the lack of a strong currency. The political faction that had ruled early 19^th Century America, the “small government” Jeffersonian Democrat-Republicans opposed what J&K feel were the more prudent Hamiltonian/Federalists who advocated setting up a national commercial and banking system backed by the US government with sufficient power to tax. The US federal government at the eve of the war of 1812 was not collecting enough taxes to pay the army and buy war material from abroad. Still influential Thomas Jefferson, the President from 1801-1809, and the eminence grise of the Democrat-Republicans had a suspicion of bankers and large commercial interests. The early policies of Alexander Hamilton, the first Secretary of the Treasury, included an excise tax, and were partially rolled back in the decade prior to the war. While this incident highlights two unique historical personalities and a policy dispute from the distant past, the general political struggle was between a more centralized federal “big” government philosophy and a more decentralized, confederal “small” government, a political/cultural issue that continues to re-emerge in political conflicts in the US and abroad."

     "By selecting this metaphor, J&K maintain that government borrowing is one of the most critical attributes of a functioning government, especially during an emergency. Therefore, in their view, the defining strength, function, and service of government is to maintain its credit rating as a borrower. Ironically, Johnson and Kwak, in 13 Bankers and in numerous posts and editorials, in which they call for diminishing the power of large commercial banks by breaking them up, find themselves now siding with the opposite side, the Hamilton side, of the Hamilton-Jefferson political conflict."

    "Also metaphor seems to be an effort by J&K to be noticed by the Obama White House itself: if a book suggests an existential threat to the home of the Presidency, someone at1600 Pennsylvania Avenue is sure to pick it up. Though perhaps a clever ploy, the book offers so many different interpretations that it is unclear what those readers will take away from it. The notion that public debt is threatening the Obama Presidency seems to resonate more with the foolish efforts of the current Administration to cut deficits during a time of private sector over indebtedness, i.e. a debt deflation."

    Although it's a lesser point, and I really shouldn't get into these skirmishes I can't but feel like pushing back against the usual dismissals of President Obama. This takes me back to the old days when I was the resident "Obamabot" at Firebaglake-I mean Firedoglake. It was a litmus test for being a serious progressive that you had to be highly critical of everything Obama has ever done.

    I will just point out in passing that one reason why the US has had some recovery-in any case we are not on the verge of a double dip like both Britain and the Eurozone (Britian's

   And President Obama is more responsible for this than anyone I believe. For more on this read David Corn's new book on how Obama did have a strategy after the "shellacking" of 2010 and it was never about simple capitulation-though in the early going it was helpful for it to maybe look a little like that. In any case, without a Democrat in the White House during the debt ceiling mess we would have Cameron style austerity in this country. So Obama was the last line of defense against austerity and he held the line.

    Ok, back to the main event. The fact that S&J take Hamilton's side against Jefferson would put them on the other side of the debate, against Hard Money Ideology (HMI). On the other hand Hoexter is certainly right from what he tells us that the authors wrongly underestimate the importance for monetary policy of the end of FDR's devaluation, leaving, and finally pegging of the gold standard, the Bretton Woods, and the end of the gold standard.

    This statement by Hoexter grates on me a little:

     "Furthermore, J&K make some strong and interesting arguments from a modified neoclassical/New Keynesian (NK) perspective that support social spending more generally. J&K are strong believers in social insurance programs like Social Security and Medicare and make clear New Keynesian arguments that from the point of view of individual citizens, pooling risk across the entire society is an economically rational way to approach funding these social programs. Furthermore they are rightly critics of President Obama’s health reform, seeing in it an avoidance of the much more efficient single-payer/Medicare-for-all alternative. They also show a concern for addressing our climate and energy challenges, proposing a new carbon tax and a higher gasoline tax, the latter to disincentivize car use specifically with its imposition of external costs on cities. They also are fans of a value added tax as a means of reducing income taxes, which in their analysis disincentivizes saving. They propose cushioning the regressive aspects of carbon and value added taxes by rebates after tax collection."

     Why? Because really he changes the subject from what Cullen calls "description to prescription." The point of his review of the book is not to argue about Obama's health care bill but an analysis of S&J's historical analysis of US monetary policy. One can agree with Hoexter or not on this verdict and not agree with him that if you can't get single payer you should allow any other bill to die. The point is while I have no horse in the race between MMT and MMR-Cullen's new offshoot-I think that MMT would be more successful in its advocacy if it ddidn't always feel it had to knock people over the head with every single opinion of a particular author that is not relevant to the monetary issue at hand.

     I think the debate over description-prescription is a tenuous one as Trotsky once said, "The ends flow from the means." The implications of description often give us a clear shove towards certain prescriptions and away from others. I don't agree that they are one in the same so to that extent Cullen may be right. But they are not wholly mutually exclusive either. Speaking for myself I want to truly understand how the monetary world works. But if it wasn't for my interest in the implications for policy the interest would be much less.

     Again, though Hoexter is certainly right about their misreading of things like fiat money and the move from Bretton Woods:

     "Johnson and Kwak seem to know better and at points in their historical narrative, the inconsistencies in their overall position show themselves. In discussing the issuance of paper currency and the suspension and eventual exit from the gold standard, J&K acknowledge in passing some of the historical realities of fiat currency issue but seem to want to exclude them from their “hard money” narrative. J&K write dismissively of the early experiments in paper currency as inherently inflationary and seeming policy “mistakes”: the issuance of Continentals during the Revolutionary War and the issue of Greenbacks during the Civil War. In their view, it seems, these were not hard currencies and therefore are suspect. Roosevelt’s suspension of the gold standard is described as an episode in crisis management but its critical role in transforming the role of money in the economy is lost in the account. In the 1930’s were a critical period in the development of modern money technologies and Keynesian fiscal policy but J&K seem to miss or don’t want to alert the reader to a qualitative shift during this period."

     "A critical event or set of events in the emergence of modern money was the breakdown of the Bretton Woods system in the early 1970’s. J&K discuss a number of the events involved but seem to accord the emergence of a non-convertible fiat currency as largely a “non-event” and not the emergence of a new monetary technology. They manage to sidestep its significance in part by claiming or implying that the US dollar’s continuing role as the preferred reserve currency in the 1970’s and beyond hides the fact that the dollar remains dependent upon the willingness of other countries to lend us our/their money in order to be issued, i.e. a virtually convertible currency. Dean Baker, is his review of White House Burning, points out that J&K’s assumption that the dollar’s global reserve currency is a benefit to the US is unwarranted: the ballooning of the US’s trade deficits are for the most part attributable to efforts by countries with export-led development to maintain dollar reserves which has had the side benefit for them of shutting down competing US manufacturers. Thus what would be the story of an evolution or a change in the quality and type of money, instead becomes the story of “more of the same”.
   
     Hoexter's final judgment of WHB is:

     "In the end, I am convinced that Johnson and Kwak believe in human progress and using the tool of human rationality to improve our individual and collective well-being. They are also aware of some of the empirical evidence that is used by Post-Keynesians and Modern Money Theorists to construct a more plausible narrative of a dynamic monetary system. Despite these commitments, their breadth of knowledge and their often admirable efforts to expose hypocrisy and corruption in our current political economic system, White House Burning misdirects our attention to public debts and continues to promote an antiquated conception of how money and government work."

     I do think that WHB can be read with profit, I also think Hoexter's review can be. For me, it's always about understanding the monetary and economic world as well as possible, with as much depth as possible. Both the authors and the albeit somewhat critical reviewer seem to help us in that regard.