Recommended Reading: Brian Romanchuk, Modern Monetary Theory and the Recovery: A BondEconomics Report
James Keenan
Brian Romanchuk is a Canadian bond analyst and financial markets commentator who is also an MMT advocate. He publishes at http://www.bondeconomics.com/ and at https://bondeconomics.substack.com/. I heard him speak at the Second and Third International MMT Conferences in 2018 and 2019, respectively, and have had some email correspondence with him. He has self-published a number of books. Today I'm talking about his 2021 book, Modern Monetary Theory and the Recovery: A BondEconomics Report. The "recovery" in the title refers to the long, slow recovery from the Great Financial Crisis of 2007-08. Although he describes this book as a "primer," it's not a book for raw beginners in MMT. Rather, it's a first book for people who are already comfortable with the language of bond markets and who are not afraid of references to the neoclassical and post-Keynesian schools of economic thought.
Did that description scare you off? Sorry. What I want to focus on here is the way Romanchuk presents MMT. It's different from what we're accustomed to and deserves your consideration.
The Customary Presentation: Description versus Prescription
(Macro Theory versus Macro Policy)
If you read MMT scholars like Randy Wray, Bill Mitchell and Stephanie Kelton, you will frequently come across a distinction between the descriptive and prescriptive sides of Modern Money Theory. The descriptive side is said to be an accurate description of contemporary capitalist economies that clears up myths perpetrated by orthodox economics. For example, MMT demonstrates that the central governments of countries that enjoy currency sovereignty are not financially constrained in their spending for the public purpose (though they are constrained by the real resources available to them and, of course, by political considerations).
From the description which MMT paints of these economies, can we directly deduce the macroeconomic policies which the governments of these countries ought to pursue. No, we cannot. Even if people agree on how an economy functions, they are likely to have different sets of political and social values and will therefore recommend different policies. You have to acknowledge "the facts" of the economy, then specify your values before you can advocate particular policies.
A Problem with the Customary Presentation
Drawing a rigid distinction between the descriptive and prescriptive sides of MMT becomes problematic when you start to talk about policies strongly associated with MMT such as the Job Guarantee (JG). On the one hand, you will hear MMT advocates stating that MMT is "first and foremost" a description of modern capitalist economies. They will then go on to describe the JG as an "inherent" part of MMT and take umbrage at MMT advocates who downplay the JG.
But are there any such economies where the JG has been implemented at scale? No, there are not. So that must mean that the JG is a policy recommendation or prescription. But if the JG falls on the prescriptive side, what does that say about its being an "inherent" part of MMT?
When I've taught MMT over the past few years I've taken an approach which I fancy is more dialectical. I say that the descriptive side of MMT encompasses not only the economy's current institutional setup, but also the economy's potential for institutional evolution. In the United States we currently do not have anything resembling a Job Guarantee. But because the U.S. government is the monopoly issuer of the currency, it inherently has the ability to offer a job at a fixed wage denominated in that currency to whoever is looking for employment. That potential is baked into the U.S.'s currency sovereignty. Whether you think the U.S. government should offer a JG -- what macro employment policy the country should follow -- does depend on your political and social values and so falls on the prescriptive side of MMT.
Still, I concede this is not the easiest thing to get across to students or to newcomers to MMT. That's why I think Brian Romanchuk is on to something.
Romanchuk's Approach: Narrow MMT versus Broad MMT
Romanchuk asks us to distinguish between "narrow MMT" and "broad MMT." Narrow MMT consists of the minimum set of concepts needed to distinguish MMT from other schools of political economy and, in particular, from other schools of post-Keynesian theory. Romanchuk writes, "The narrow version of MMT uses as its base case a fiat currency .... For a fiat currency, government money is a public monopoly -- and analysis and policy should be based on that starting point. The economic reason why governments issue money is to provision themselves easily, instead of demanding goods and services in-kind ...." (2)
Fiat currencies have no inherent value. "To provision itself using money, that money must have value in trading in the non-government sector." "The role of taxes is to create a demand for money to meet tax payment obligations -- which are denominated in the domestic currency." (2-3) And so forth. Romanchuk then goes on to discuss functional finance, the spectrum of currency sovereignty, the importance of the labor market, monetary operations, banks as government-regulated utilities, sector balances and stock-flow consistent models. All of these topics fall within narrow MMT.
What, then, is broad MMT? Romanchuk characterizes MMT as one school of thought within what Marc Lavoie has called "broad-tent post-Keynesian" thinking. Broad MMT includes analysis of the labor market and inflation; analysis of fiscal policy; the history of money; legal and social analysis of the monetary and financial system; analysis of the Green New Deal proposal; and so forth. "Broad MMT is an entire school of thought of economics, and not just a model like Quantity Theory of Money, or the Fiscal Theory of the Price Level. In reality, MMT (or the post-Keynesian theoretical project) aims to replace neoclassical theory in its entirety. (7)
Romanchuk introduces the narrow versus broad distinction in Chapter 1, "Overview." He then spends two chapters discussing "the era of sluggish recoveries" before returning to "What Is MMT? (Longer Version)," which is explicitly grounded in Warren Mosler's continually evolving White Paper. He concludes with a chapter on "Frequently Raised Critiques" of MMT.
Recall the difficulties I described earlier about where to place the Job Guarantee on the descriptive/prescriptive binary? Romanchuk writes, *"The Job Guarantee is a core part of Modern Monetary Theory, both as a policy recommendation, as well from a theoretical perspective." (53)
Core MMT versus Extended MMT: Is That Terminology Better?
The word "narrow" has a negative connotation. It's useful here only in contradistinction to "broad" -- a term which has a somewhat positive connotation. However, I think we should avoid this negative connotation if we can. Romanchuk suggests that narrow MMT could also be called "core MMT." If that's the case, then I propose that we call broad MMT "extended MMT."
Conclusion
I enjoyed this slim (approximately 150 pages) volume and have ordered his earlier book, Understanding Government Finance.