Sunday, August 19, 2012

Macroeconomics: Modern Monetary theory

I think, Modern Monetary Theory beats its competition in terms of explanatory power and policy.

How I found out MMT?

Mish --> Steve Keen --> Scott Fullwiler --> Randall Wray of MMT.

MMT folks should take some philosophy of sciences courses, to formulate both their defense of MMT and their attacks on the mainstream crap sold by Mankiw, de Long and others.

1. For instance, philosophy of sciences teach you that debates about definitions are not productive.

2. Here, some education on definitions, concepts/categories, words is necessary. Definitions don't settle theoretical debates. I can define Money  = X. You can equally define Money = Not-X. How to settle these? The real debate is not about a definition, but one about the hypothesis. MMT's hypothesis (or a consequence of another hypothesis) is that Money is an IOU; so, it is not a definition. One way to defend ones hypothesis is to appeal that their hypothesis is not ad hoc, and explains more facts than the previously selected facts (read Larry Laudan's Beyond positivism and relativism; and his progress and its problems)

3. Theory A is better than theory B, when A explains more facts than B. Or when Theory A explains many empirical anomalies of B. You can  use different philosophies of sciences to get across the same point.

4.  All facts are facts of a theory. Or every fact is a theory-laden. MMT guys should study some Philosophy of science literature on this.  Even something is tautology or not depends on the theory you accepts. Here, MMT'ers should educate themselves on some meta-theoretical debates in philosophy of sciences. Sometimes, opposing research traditions (program, if you are a Lakatos fan/ paradigm, if you are a Kuhnian), accept some facts and some tautologies: what is happening here, both camps accept the same theories that describe these facts. For instance, both Krugman and MMT'es agree that 2 + 2 = 4. Hence, it is a tautology (of course, it can debated). Since both camps accept it as a tautology, no debate. In fact, if you study philosophy of mathematics, you can further debate about 2 + 2 = 4. Why 2 + 2 = 4? There, 2 +2 = 4, 1 + 0 = 0, etc are seen as phenomena (observations). How to explain these? Here you see Peano's axioms, from which you can derive 2 + 2 = 4 as a consequence. (Read Lakato's dissertation on Philoosphy of mathematics)

5. Master philosophy of sciences to trash Nobel prize winners and economics professors at Harvard/Berkeley to show that how backward the thinking of the latter is in Macroeconomics.

What MMT'ers do?

Study history and philosophy of sciences on craft answers for meta-theoretical questions. For instance, one can say that MMT does not explain the fact Y. One can say that my theory is not a theory of everything; my theory explains more facts than the competition, or that my theory explains empirical anomalies of the compeition. For instance, there is a great book out there "Anomalies and scientific theories" by Willard Humphreys, a student of Norwood Russ Hanson, who was a public intellectual in 50's I heard.

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