Is it always better to have someone producing something rather than nothing? Chapter 8: "Is It 'Better to Produce Anything than Nothing'? Job Guarantees Versus Idleness" by Lucas M. Engelhardt. One of MMT's signature policy proposals is a federal job guarantee. The government would offer employment at a fixed wage to anyone willing and able to work. They say that this would eliminate involuntary unemployment, put idle resources to work, and help stabilize the economy. But Dr. Engelhardt asks: "Why are resources idle in the first place?" - p. 190 Drawing on W. H. Hutt's The Theory of Idle Resources, Dr. Engelhardt explains that apparent "idleness" isn't necessarily wasteful. A machine might sit unused because its owner expects more valuable opportunities in the future. Someone might remain unemployed while searching for a better job. Students forgo employment while in school. Some people simply prefer leisure to the available employment opportunities. Hutt called some of these situations pseudo-idleness. What appears to be wasted productive capacity is actually in the factor owner's best interest. If anyone else has a better idea on how to use the "idle" machine or labor, they are free to bid for it and employ it. Simply observing that a resource isn't currently being used doesn't establish that putting it to work would improve economic welfare. But there's another problem with the job guarantee: "very few jobs rely on labor alone." - p. 203 Suppose the government hires unemployed workers to paint murals. They'll need paint, brushes, ladders, transportation, etc. Other government jobs require computers, office space, and other equipment. All these complementary resources have alternative uses. And here's where the calculation problem enters (once again--noticing a theme in this book?): "Without accounting for profit and loss, it is impossible to say whether the cost of these workers is worth the value of the services they provide." - p. 204 Dr. Engelhardt points out that even if job guarantee wages are comparable to unemployment benefits, the additional costs of employing workers could make the program substantially more expensive. Anyone (even government bureaucrats!) can find something for unemployed workers to do. The trick is finding something for them to do where the value of what they produce exceeds the opportunity cost. Only the profit and loss system of the market can do that.

"Coming up with the money is the easy part," says @StephanieKelton. Per Bylund agrees. For a government that issues its own fiat currency, creating money is easy. But what does this tell us about creating wealth? Chapter 6: "'Coming Up with the Money Is the Easy Part': MMT and the Economy," by @PerBylund. "An economy does not need more money to increase its valued production—it needs more, or more valuable, production." - p. 146 Dr. Bylund argues that MMT's fixation on sectoral balances causes them to ignore the economizing market process. Consider a carpenter buying hammers from a hardware store. The transaction adds nothing to the private sector’s net financial assets. But both parties expect to benefit: the seller values the money more, and the carpenter values the hammers more. The carpenter now has increased productivity. You can have more productive investment, better resource allocation, and greater wealth without any increase in aggregate net financial assets. Accounting identities cannot tell us whether resources are being economized. MMTers often reply that the real question isn't "How will we pay for it?" but "How will we resource it?" Do we have the steel, engineers, workers, and equipment to carry out the government's plans? But availability isn't the same thing as economic justification. "That something can be done and has value does not mean it should be done, because that depends on what else of value those resources could be used to create." - p. 149 The missing concept is opportunity cost. (This is why I summarized Bylund's chapter as him pointing out "the economics-shaped hole in MMT" in the Introduction.) Entrepreneurs bid for scarce factors based on anticipated consumer demand. Profit and loss reveal whether they used those resources productively. A government that can create its own currency can outbid private producers, but that doesn't tell us whether its projects are worth the resources diverted from other uses. "Goods are not valuable simply because they are produced; rather, it is their expected value that justifies engaging in costly production." - p. 155 This is why entrepreneurship, prices, and economic calculation matter. The economic problem isn't merely putting resources to work; it's discovering which uses of those resources best satisfy consumers. Read the full chapter here: mises.org/library/book/anti-…

It's easy to say that government spending should stop when it causes excessive inflation. It's another thing entirely to explain how anyone can reliably identify that point or why politicians would act on it. Anti-MMT, Chapter 5: "Modern Monetary Theory and Inflation Control from an Austrian Perspective" by Karl-Friedrich Israel MMTers insist that governments issuing their own currencies don't face financial constraints on spending. Their real constraint is inflation. Stephanie Kelton puts it plainly: "a deficit is only evidence of overspending if it sparks inflation. Since prices weren’t accelerating, the deficit couldn’t possibly be too big." - quoted on p. 117 Dr. Israel identifies three major problems with this approach. First, how do we know when that limit has been reached? Drawing on Haberler's pioneering work on index numbers, Dr. Israel explains why there's no objectively correct measure of price inflation. "The important takeaway from Haberler’s analysis is that we cannot calculate a precise inflation rate when consumption patterns shift." - p. 124 Preferences change, new goods appear, quality changes, and consumers make substitutions. An index number cannot capture all these changes. Second, a stable CPI doesn't mean monetary expansion is harmless. New money has uneven effects, changing relative prices and redirecting investment. Consumer prices might remain stable while asset prices soar and malinvestments accumulate. "MMT’s reliance on general consumer price indices fails to account for sector-specific inflation and, above all, asset price inflation—for example, in stock and real estate markets." - p. 131 Dr. Israel points to the dot-com bubble, the housing bubble preceding the 2008 financial crisis, and the post-2008 asset boom. Austrian economists have long emphasized that monetary expansion causes distortions throughout the capital structure even when consumer price inflation appears relatively low. Third, even if we could measure inflation perfectly, would politicians actually do anything about it? MMTers propose using taxes and spending adjustments to restrain inflation. But that requires politicians to raise taxes or cut spending precisely when doing so is most unpopular—and after distorted investment decisions have already been made. "The very instruments that MMT designates for inflation control are among the most politically sensitive and difficult to wield precisely when they would be needed most within the MMT framework." - p. 135 “Inflation control under MMT thus becomes a useful illusion. It provides rhetorical cover for expansive fiscal policies by maintaining the pretense that spending will be reined in if inflation appears.” - p. 136 So here are the questions for MMTers: If inflation is supposed to be the binding constraint on government spending, how exactly does that work in practice? What indicators tell policymakers that they've reached the limit, especially when CPI is relatively stable but there are bubbles brewing in asset prices and the structure of production is being distorted? And more importantly, what makes you think Congress will actually raise taxes or cut spending when those indicators flash red? Read the full chapter here: mises.org/library/book/anti-…