On Writing

These are some observations about writing.  They are based in part on my own experiences and in part on the studying I have done about the process of writing.  Here goes.

Writing is hard work.  Physically it is easy.  We now sit at a keyboard and hammer away.  If you are looking for a good way to take some pounds off, the writing process will be absolutely no help.  More active forms of exercise (or a good diet) will be required.  But the mental processes involved in writing are hard work.  I believe that is true even for those who are gifted writers.  It is one of those professions where the best advice is:

If you are not driven to do it, don't.

This is often applied to the profession of acting.  It is well known that in the acting business a tiny few make bales of money.  A larger but still small number of additional people make a bare bones living.  Everybody else starves to death or, worse yet, never even scores a single paid acting job.

Writing is not as bad as that but it is close.  There are probably a few more writers who earn enough at writing to do it full time than there are full time actors.  But neither group will ever constitute an employment category large enough to justify its own dedicated set of statistics.  There are just too few in either category who earn enough to do it full time.

And, as I said, writing is hard.  I dabble at it, mostly for my own interest and edification.  I feel a compulsion to "go on record".  And I am retired and well enough off that I can afford to.  But at no time did I ever consider trying to write for a living.  Sure, before I retired I wrote the odd study or position paper, but that was it.  The time I spent writing constituted such a small part of my work day that it did not merit a mention in the job description for any job I have ever held.

That said, I do have a brother who has managed to earn a living by writing.  That's an impressive feat.  Congradulations, Jim.

So what was my path from there to here?

The earliest writing related event in my life that I remember happened to me in the ninth grade.  I got a grade of C+ on an essay I wrote for class.  I talked to my teacher.  I said "I think it is a fair grade but, if it's not too much trouble, could you give me some pointers on how I could have done better?"

She returned the paper a day or so later.  She had slightly increased my grade (not what I asked for) but provided no guidance (the thing I actually had asked for).  For whatever reason, that was a very discouraging moment when it came to my interest in writing.  I decided then and there that writing was not my thing.  It was a long time before that changed.

Looking back on my first year in college I now realize that something happened then that should have given me encouragement as a writer but it didn't.  I started out as an "Arts and Sciences" major (I later changed to Engineering).  At the time there was a requirement that all A&S majors take three one credit English classes.  You took them in sequence and each class required you to submit a series of essays.

This was the late '60s and the cutting edge writing technology of the day was the typewriter.  Being a poor struggling college student I had a cheap "manual" (entirely mechanical - see any number of movies from the '30s and '40s if you are not sure what I am talking about) typewriter.  The key attribute of all but a few fancy (and expensive) electric "office" typewriters was that they didn't permit you to go back and correct anything.

Even the fancy models would only give you a way to fix the odd typographical error.  Whatever first hit the page, that's what you were stuck with.  Unless, of course, you were willing to retype the whole thing over from the beginning.  So that was a problem.  I was a terrible typist and I had a low opinion of my writing ability.  It would have been nice to be able to revise my first draft but at the time there was no practical way to do that.  Even if I was willing to retype the whole thing there was not enough time (see below).

The other thing I learned at the time was that words would not flow unless I was "on deadline".  If it had gotten to the point where if I typed like hell I had barely enough time to finish up the paper in time to turn it in at the start of class then the words flowed.  Before that it was all "writer's block" all the time.  Sitting down the night before, or even several hours before class started, was a complete waste of time.

As you can imagine, this did not lead me to believe that what I was turning in was any good.  In fact, one time I accidently left page 2 behind in my dorm room when I turned the paper in.  I almost threw it away figuring the paper was so bad it would not make any difference.  Fortunately, I changed my mind.  I turned the missing page in at the start of the next class and the instructor was gracious enough to accept it.  So the instructor at least had the whole paper to evaluate.

But if you did well enough in the first two classes you could skip the third one.  I did.  That should have told me that whatever I was doing was working better than I thought.  But it didn't.  I was happy to not have to take the third class but did not conclude, as I should have, that there was actually some hope for me as a writer.

I soon moved over from A&S to the School of Engineering, specifically the Electrical Engineering Department and, most specifically of all, to the Computer track.  I left the world of Arts and Sciences and all that entailed behind.  Well, not entirely.  The School of Engineering had a series of "social studies for Engineers" classes that us students were required to take.  The School of Engineering thought that it's graduates shouldn't be totally clueless with respect to "the finer things in life".

And I actually liked these classes.  I thought they did a good job of paring away a lot of the BS and focusing on the heart of the matter.  And one of these classes was called "Technical Report Writing".  It was only a one credit course but I thought it was excellent.

The course was organized around a number of questions and observations.  These were designed to focus you on what was important, not about the technical details of whatever you were writing about, but on how to make your written communication effective.  And the most important of these was "Who is your audience?"

The object of a report is to communicate information effectively.  To do so it is important to focus on who will be reading the report.  What do they know?  What don't they know?  What do they need to learn?  These are critical questions.  You can't answer them unless you first know who your most important readers will be.  Then you must figure out how to answer these questions with respect to those people.  I very much took that lesson to heart.

And a good many years later I found myself writing a series of reports, explainers, and recommendations as part of my job.  The key member of the audience for these writings was the IT Director.  So I did my best to answer the above questions as it related to him.

Then a magical thing happened.  He stopped by one day and said "I like your reports.  Keep them coming."  That turned my life around when it came to how I felt about writing.  I now believed I could do an at least adequate job and I no longer feared writing.  Of course, the technology had advanced light years since my Freshman College days.  It was now easy to "revise and extend" to your hearts content.  And we now had spell-check.

So I have internalized that experience from my college days.  It is now "put something down, anything.  You can always fix it later."  I no longer worry if my first draft is good or not.  It is only a starting point.  I think I am a good editor.  I can figure out what's working and what isn't.  Then I can set about fixing what needs improvement.  And, by the way, spell-check is a good starting point.  But it catches far from everything.

If the word on the page is the wrong word but it is spelled correctly a spell-checker will not flag it.  So you have to go through your writing to make sure the word on the page is the one you intended and not some correctly spelled but entirely inappropriate word.  For instance, I often type "form" when I mean "from".  A spell checker is completely happy with "form".

So when I am composing one of these blog posts I start by just banging something out.  Sometimes this first draft works pretty well except for the odd word that got past the spell checker and perhaps a few other things that are pretty easy to spot and fix.  But some first drafts require a lot of rework.  It just depends on the subject and how the juices are flowing that day.

And I used to be able to compose, revise, and publish one of these posts in a single long session.  Now I find it often takes me two days to complete a first draft and then whip it into decent shape.  (This piece is taking about an average amount of editing and rework.)  And, since I do this mostly for my own interest and edification, at some point I decide "it's close enough" and hit the "Publish" button.

Is it the best it could be at that point?  No!  But I want to avoid the "this is getting to be more trouble than it is worth" stage and that involves deciding that "enough is enough" and letting the world see whatever warts may remain.  If I was doing this for a living I couldn't get away with that.  But, if I was doing this for a living, I would have an editor to help me out.  Trust me.  Editors perform a valuable service.

And along the way I have developed an interest in the art and craft of writing.  I have read some books and I regularly listen to a podcast called "Writing Excuses".  The final line of every episode is "you are out of excuses - now go write".  I don't write fiction.  But let me pass along some of what I have learned about writing fiction.  Why?  Because it's fun.

There are two basic approaches to writing fiction.  One approach is called "discovery" writing and the other is called "outlining".  Most writers are not pure one or the other but they tend to lean more heavily toward one approach over the other.

And lots of writers use one approach in some situations and the other approach in others.  Brandon Sanderson, one of the "Writing Excuses" regulars, is an outliner when it comes to the overall structure and most of the plot of his books.  But he does a lot of discovery writing to develop and fill out his characters.  This "one from column A and one from column B" approach is very common.  But I am going to ignore that for the moment and explore the writing process used by two popular and successful authors.

John Grisham is an outliner.  I heard an extended interview he once gave in which he talked at length about his writing process.  He keeps a file.  He puts every idea he comes across or thinks up, good, bad, or indifferent, and big or small, into the file.  Then when he sits down to start a new book he combs through the file.  He is looking for one or two big ideas he can hang a book on.  This is very obvious if you look at his books.  Here's a one sentence summary of several of them:

A Time to Kill - What if someone murders a guilty person who is likely to get away with it?
The Firm - What if a "respected and legitimate" law firm is actually a front for the mob?
The Pelican Brief - What if someone murdered a Supreme Court Justice to hide a crime?
The Client - What if someone know something dangerous to the mob and it was a kid?

You get the picture.  He starts out with one or two big ideas.  Then he goes through his file a second time looking for small ideas he can use to spice the book up and keep it from being a straight line march from crime to conviction.  Then he outlines his story.  He puts down a summary of the important content of each chapter.  It may only be a single sentence.  At most it is a short paragraph.

Once he has about 60 of these chapter summaries he is ready to sit down and start writing.  He works on one chapter at a time and not necessarily in sequence.  He expands his short summary out to a full chapter.  He adds description and detail.  He may also add extraneous detail.  There are two key points to keep in mind while he is writing.  The first is to make sure that whatever was in the summary ends up in the chapter.  The second is that none of the "filler" material screws up any of the rest of the outline.

Occasionally he will run into a serious problem when writing a chapter.  This may necessitate revising the outline.  And this in turn may necessitate rewriting some chapters that have already been written.  He tries to avoid this and, I presume, he is generally successful.  And sometimes he has to abandon an idea because he can't figure out how to make it work.

But this almost always happens at the outline stage.  At that point he doesn't have that much invested because he has yet to write a single word of the actual book.  Abandoning what originally seemed like a good idea but that ultimately did not pan out comes with only a modest cost.  Fortunately, this has rarely happened.  And, when it comes to expanding his chapter description into a full blown chapter, he rarely runs into trouble.  And when he does usually only a small part of the rest of the book needs to be rewritten.

Someone whose approach is the compete opposite is Lee Child, author of the "Jack Reacher" books.  Child let Andy Martin follow him around for a year while he wrote "Make Me".  The result is a very interesting book called "Reacher Said Nothing:  Lee Child and the Making of 'Make Me'".  Child, whose real name is James D. "Jim" Grant, started out in TV in the UK.  This gave him an excellent visual sensibility.  And that informed his approach to writing the Reacher books.

Everything starts as an image.  In "Make Me" he started by imagining it is eleven PM.  A train has just pulled into a station of a "wide spot in the road" town in the middle of the American prairie.  This is a very evocative image and the prose description he creates from it gets the book off to a good start.

A mostly dark train rolls into a mostly dark station with its windows all lit up.  The station itself consists of pools of light separating by the vague outlines of buildings that can barely be made out.  Now throw in a couple of mysterious characters as Child does.  And, of course, Reacher.  If he isn't present there is no book.  So Reacher gets off the train.  Why?  Because that's what he does.  He looks around and chapter one is now in the can.

Who are these people and what's going on?  At this point Child has no idea.  But he moves on to the next scene and the next chapter.  Reacher needs someplace to sleep for the night.  So that gets us down the street and into a seedy motel.  And some more mysterious characters are introduced.  What are they up to?  We don't know and, at this point, Child doesn't either.

The next day Reacher gets up and wanders the town.  That gives Child more opportunities to turn images of what Reacher might see into prose.  And it gives Child more opportunities to introduce more characters and have them do interesting things.  And, since this is an "action" book, at various points Reacher gets into fights, which he inevitably wins.  Why?  'Cause that's just the kind of guy he is and we love him for it.

This process of "where would Reacher go next?" and "what would he see?" and "who would he meet?" and "what would they do?" continues.  Child keeps making it up as he goes along.  He has a strong visual sense so he keeps maneuvering Reacher into interesting places and situations.

Reacher has to come across good guys, or more likely girls, that he can defend and protect, and bad guys that he can get into fights with.  But at this point the construction of the book is driven by this process of stringing together interesting scene after interesting scene.  And each scene starts out as a picture in Child's imagination.

Somewhere around the middle of the book Child stops and reviews what he has written so far.  The two problems he has to solve at this point are "who are the main bad guys?" and "what are they up to?".  Once he settles on the answers to these questions the rest of the book starts to take shape.

This means that Child is now more constrained.  He still has a lot of options but he must eventually maneuver Reacher into a situation where we can get to the climax, the big fight in which he defeats the bad guys.  Finally, in true Western Movie style, he rides (the bus or train or walks or hitchhikes) off into the sunset in the last chapter.

Child prides himself on writing the book in sequence from beginning to end.  And he almost never goes back and makes substantial revisions to earlier parts of the book.  It happens but not often.

In the outline method the author knows where she is going before she writes the first word of the first sentence.  That is restrictive but it results in a coherent book that seems to have a sense of where it is going from start to finish.  Discovery writing allows for more creativity, at least in the early parts of the book.  At that point there are literally no restraints.  But it may be hard to get to a satisfactory conclusion and for the book to have a clear "thru line".

Child is good enough to pull it off but most writers aren't.  And the kinds of books Child writes make it easier to hide the fact that he has literally made it up as he went along.  So most writers stumble into the outline method for creating the spine of their book after repeatedly writing themselves into a corner they can't find a way out of.  Child is one of the few writers who seems to be consistently able to "work without a net".

But notice that there is an "outline" to Child's work.  Reacher starts off somewhere.  He wanders around and gets involved.  At some point he figures out who the bad guys are and defeats them.  Then he rides off into the sunset.

It is certainly not as detailed an outline as the one Grisham uses.  On the other hand, I suspect that Grisham does a lot of discovery writing at the chapter level.  He knows the chapter needs to hit a couple of key beats.  But it also needs some local color and some action, much of which will not end up contributing anything to the final resolution.  That leaves a lot of room for discovery writing when filling out the details of the location, the characteristics of minor characters who will not return, and so on.

So now that I have become an expert in the writing of fiction am I about to go out and create the next great American novel, or at least a successful thriller?  No!  As I said previously, writing he way too much work.  And this blog is more than enough to scratch my writing itch.

Finally, some homework.  The "Writing Excuses" podcast always assigns homework right before enunciating their sign-off line.  Your assignment is to pick a book.  It has to be a work of fiction that was written since say 1980.  (This outliner/discovery dichotomy was well known among writers by then.)  And it must NOT have been written by Sanderson or Grisham or Child.  Read the book and  determine if the author was primarily and outliner or a primarily a discovery writer.

You don't have to actually turn your homework in.  (Being a teacher, someone who actually cares whether someone else does their homework, is another of those "much harder than I want to work at this point in my life" professions.)  Instead, we will operate on the "honor system" here.  So, you are the only person who will actually know if you did it or not.  We'll just assume you did it and got it right.  Also, since this is not a blog about how to write fiction you don't have to "now go write".  Unless, of course, that's what you want to do.

Modern Monetary Theory

Just a couple of months ago I said, in effect, that I was done with Economics.  Here's the link:  http://sigma5.blogspot.com/2019/02/metaeconomics-wrap-up.html.  And, while I normally recommend you go back and check out my older posts, I do not recommend it in this case.  What the post I linked to boils down to is "there is a problems with economics - it doesn't work".  That's all you really need to know about that post or the previous posts I linked to in that post.

But Alexandria Ocasio-Cortez (AOC) is a phenomenon and, at least at the moment, a media darling.  And she has recently been talking about something I had never heard of before called "Modern Monetary Theory" (MMT).  That sounds like economics, and not the old, dusty, Keynes/Friedman, stuff we have been arguing about for at least the last fifty years.  So, I decided to check it out and let you know what I found.

Warning:  This is definitely NOT a light and fluffy post.  But, on the other hand, I think it is easy to follow.  You've been warned.

A good place to start is with the Wikipedia article on the subject.  Even though I recommend the article I'm not going to do that in this case.  Instead I am going to use a paper by Tymoigne and Wray that was published by the Levy Economics Institute of Bard College as the basis for my discussion of MMT.  You can find it by checking the references in the Wikipedia article.  So what is MMT, also called Mosler Economics (ME), and some other things?   (MMT is the name AOC used so that's what I am going to go with.).

MMT is an approach to making sense of fiscal/monetary policy.  In doing so it relies on some basic ideas from accounting.  As an example, the accounting equivalent of Newton's famous "for every action there is an equal and opposite reaction" is "for every Asset there is an equal and offsetting Liability".  MMT analysis applies to countries like the US and the UK that control their currencies but not to countries like France and Germany that don't.

MMT then introduces something called "Circuit theory" and posits that it applies to "Currency".  The economy consists of a "simple circuit" and Currency (their term for money) is confined to it.  There are basic versions (simple circuits) and more elaborate versions that add more paths.  But MMT argues that the simple circuit actually works pretty well in terms of telling us what's going on.  The more elaborate circuits, while superficially representing the real economy more accurately, don't really tell us much that can't be derived from studying the simple circuit model  So I am going to stick pretty much with the simple circuit.

In the simple circuit model the economy consists of two boxes.  The first box is the government, in our case the US Federal Government including the Federal Reserve.  The other box consists of what I am going to call the economy, roughly everything else.  "Currency", the preferred term for money in MMT, circulates between the two boxes.  Currency is created by transference from the government to the economy.  It is destroyed by transference from the economy to the government.  (BTW, this is not how money actually works.)

Put another way, government spending creates Currency and injects it into the economy and paying taxes takes Currency out of the economy and destroys it.  (I am sticking with the definitions and usage of these terms and ideas in MMT so these statements do not always mean what they do in normal conversation.)  To actually understand what's going on we need to drill down into the details but only a little.

In this model we look at assets and liabilities.  Lumping everything into a few general categories works just fine.  So we have "physical assets and financial claims owed to the government" (all one thing). We also have "monetary liabilities held by banks" (one kind of liability), and "other liabilities" (the only other kind of liability we need at this point).

We eventually end up needing some other things like "G", the government sector, "DP", the domestic private sector, and eventually, "F", the "foreign" (external to the US) sector.  We also need "FA", financial assets, "RA", real assets, "FL", financial liabilities, and "NW", net worth.  Finally, throw in a "T" for taxes.  But that's all we really need.  Not much to model the entire US (or, in the elaboration that requires adding "F" to the mix, all we need to model the economy the whole world).

That's not much but MMT contends it is enough (if we add some high school algebra) to understand how and why things work the way they do.  I am not going to go into how all this is done.  I am just going to skip to the results.  It is these results that are why MMT is popular in some circles.  They shed light on important economic issues and provide some interesting policy guidance  So let me list some of them:

The government has an unlimited ability to provide funds.  As such insolvency and bankruptcy is impossible.  It can always pay what it owes in full.  Constraints on borrowing and spending are artificial and can always be changed or eliminated given a little political will.  What this means is there is no reason not to run a budget deficit.

In fact, because of the "closed loop" nature of the model, if the private sector is going to be allowed to grow by generating profits, savings, retained earnings, etc., this surplus is automatically offset by government debt and deficits.  The private sector can't grow unless the government sector goes into debt.  So government debt is actually a good thing.  To a certain extent, the more, the merrier.

It is a necessary condition for currency to have value that the government accept it as the vehicle by which taxes and fees owed by the government are paid.  MMT observes that this "you must pay your taxes in dollars (in the case of the US)" is what underpins the fact  that the dollar is generally accepted as a repository of value and becomes accepted for payment by the private sector.  MMT loudly proclaims that this is a "necessary" condition but MMT makes no claim that it is a sufficient condition.  History seems to bolster this argument.

Taxing, borrowing, and money creation are not exclusive methods of funding the government.  In other words, an increase in one does NOT require a decrease on one of the others.  This means that none of the traditional reasons for running a balanced budget are actually true.  And this is a good thing.  Because, as noted above, running a deficit is actually good for the economy.  This is also where MMT people say this whole "family budget" model for how the government should be run is wrong so it shouldn't be used.

Now we get to the interesting part.  MMT demonstrates that there is no reason not to maintain a full employment posture.  Full employment can be maintained while meeting other objectives like low inflation.

In fact, MMT supporters believe that the ideal Fed Funds Rate (FFR - the rate at which banks can borrow money over short terms) should be zero.  This, in turn, implies an inflation rate at or near zero.  If you follow the MMT logic it is entirely possible to simultaneously have a growing economy, low inflation, and full employment.  There are enough "economic knobs" to do all of this at the same time.

I think you can now see why MMT is so popular in some circles.  And if MMT was the whole story then we should all jump on the bandwagon.  But, alas, there is no such thing as a free lunch.

The first, and perhaps most important question to ask is - does the economy behave as MMT says it should?  The answer should not be a surprise,  It is "no".  So should we toss MMT out the window?  Also, "no".  MMT does provide a lot of useful insight.  And remember that its older and more mainstream competitors also get it wrong regularly.  If we only looked at economic theories that always worked we would have no economic theories to study.

The first and most basic problem with MMT is a problem that plagues all economic theories, the "rational person" assumption.  Economic theories assume that people always act rationally and always act to advance their own interests.  So how does this play out with respect to MMT?

Government injection of money ("Currency", in MMT speak) is supposed to result in increased economic activity.  So if you inject more and more money into the private sector it hires and hires and eventually the economy will reach full employment.  That in short, (and not only in MMT but in pretty much any economic theory) is one way to get to full employment.

Is this how the real world works?  To answer that question let's start by ignoring company activities and instead just focus exclusively on workers.  (We will add companies back later so don't panic just yet.)  We will arbitrarily divide them into three groups, the rich, the poor, and the middle class.  Now let's examine the behavior of a typical member of each group if given more money.

If we give more money to poor people they will go out and spend it immediately.  They have many heretofore unmet needs (food, clothing, shelter) and the extra money allows them to better satisfy those needs.  So, from an economic perspective the economy sees pretty much all the money going back into the economy where it generates additional economic activity including additional hiring.  (Giving more money to poor people is a good way to move the economy rapidly toward full employment.)

But rich people don't have unsatisfied needs.  They have had the money necessary to buy everything they want or need for some time so they have already bought it.  As a result, the extra money is likely to go into savings and investment.  So the extra money has little economic impact.  And we see little or no movement toward full employment.

The middle class case falls somewhere in between.  Their needs are not as acute as it is in the case of poor people.  But they do have unmet wants and needs.  So a good chunk of the new money they get will be put right back into the economy with only some of it going toward savings and investment.

Rich people on a per-capita basis spend more and thus put more into the economy than a poor or middle class person.  But there are only a few of them so the aggregate economic impact of making the rich richer is small.  Putting money into the pockets of the poor gives the economy an immediate and substantial boost.  The boost attained from adding to the incomes of middle class people is not as pronounced as in the case of poor people but there are a lot of them (we hope) and most of the added income goes back into the economy relatively quickly.

The same is true of businesses and corporations.  Many large companies generate a lot of "free cash" which they can use to take care of pretty much all of their spending and investing needs internally.  So making it easier for these businesses to get a loan or forcing interest rates low makes little or no difference to their behavior.  They just keep on keeping on without their behavior being influenced much by the availability or cost of loans.

Small businesses behave much like poor people.  If loans are easier to get or interest rates are lowered they tend to borrow more and immediately put the borrowings back into the economy.  The economy grows.

Medium sized businesses behave analogously to middle class people.  So the above analysis is easily extended to realistically cover the whole economy.

Another problem with MMT is Currency versus money.  They sound like the same thing.  And the "Monetary" in MMT has to do with money.  But money in the real economy does not behave like Currency does in MMT.

In the real economy money is created by making loans.  Consider bank A.  Alice deposits $1,000 in bank A.  Now the books show total deposits of $1,000.  Bob now gets a $500 loan from bank A.  This is okay because the bank holds Alice's $1,000.  But if we look at the bank's books total deposits now amount to $1,500.  $500 has just been created out of thin air.  Now, if Bob pays Charlie $100 his balance goes down by $100 and the bank's total assets are now $1,400.  But most likely Charley will deposit the $100 into his account in bank B.  If we add the total deposits of both banks together we get the same $1,500.  So Bob paying Charlie changes nothing.

Similarly, if Bob uses the loan for a productive purpose he soon has some extra money so he pays off $50 of his loan.  This causes Bank A's total deposits to go down by $50.  The loan payment has caused $50 of money to be destroyed.  If Bob also pays $5 in interest that money just goes into a different account in bank A.  So, like when Bob paid Charlie and nothing changed, the interest payment changes nothing.

In short, money is created by the origination of new loans and money is destroyed as a loan's principal is paid off.  And this loan origination/payoff happens in the "economy" box and does not involve the movement of Currency between the boxes.  So Currency does NOT behave like money.  And MMT explicitly says that Currency is created and destroyed only as it moves around the loop.  Since loan origination and payment happens within the "economy" box no Currency is created or destroyed.  What this means is that the Currency of MMT is not the "money supply" that people usually talk about.

Government spending can be directed to the public good like investments in infrastructure, education, aid to the poor, support of retired people, etc.  Since the MMT idea that the government can run substantial deficits and the economy will purr along means that the "we can't do that because it will run up the deficit" argument is a specious one.

That said, the MMT people apply "rational person" thinking to government policy.  The officials in charge will do reasonable things, they opine.  So inflation, for instance, is a manageable problem.  But if recent political history has demonstrated anything, it's that you can't count on the government sticking to the reasonable and avoiding the unreasonable.

And that's a problem when with the MMT approach to both full employment and inflation.  I think it is important to remember that the last time inflation was a serious problem in the US was in the late '70s.  A lot of MMT advocates weren't even born at that time so they have no personal experience to guide them.

On the other hand, for the entire time these same people have been alive getting and keeping good, well paying jobs has never been easy.  They have a deep personal understanding of what it feels like to do a bad job with employment policy.  A government policy of guaranteeing full employment sounds like something that is a critical priority if it can be done in a responsible way.  And MMT says it can..

There are MMT solutions to controlling inflation if it looks like it is getting out of hand.  And, on paper, there is nothing wrong with what they recommend.  The problem is that the political will may be lacking when the time comes.

To see the problem we need only look at the "Fed", the Federal Reserve System.  The Fed has a responsibility to manage the economy to avoid extremes of either growth or the lack thereof.  Inflation is closely tied to an inappropriate rate of growth.  Historically, the Fed has used interest rate manipulation to do this.  More recently, it has also used "quantitative easing" (QE) when interest rate manipulation proved inadequate.

Generally speaking the solution to not enough growth or inflation is to increase economic activity.  Generally speaking the solution to too much growth or inflation is to decrease economic activity.  Lowering interest rates is supposed to result in an increase in economic activity and vice versa.  But this assumes the level of economic activity is influenced by interest rates.

Historically, it has been.  But our modern income structure means that rich people and large corporations are insensitive to interest rates.  We saw in the crash of '08 that driving interest rates to zero was insufficient to get the economy growing.  A near zero interest rate was supposed to product more loan origination which was supposed to increase the rate of economic activity.  But it is important to understand that this is an indirect effect.

Lowering interest does not in and of itself increase economic activity.  Instead it is supposed to change behavior (the low rates cause people and companies to change their behavior by borrowing more money and spending it).  This increased spending increases economic activity.

But, for the reasons I outlined above, this indirect effect, which had been completely reliable in the past when wealth was far less concentrated, was missing in action in '09.  So the Fed had to resort to adding QE to the mix.  Fortunately, that eventually worked.  So now the economy is in good shape and the Fed should be recharging its batteries.

This in turn means raising the interest rate so that it will be possible to substantially lower it when a recession looms.  It also means unwinding QE so that it too can be wound up when it is needed.  But as a result of political influence the Fed has changed course.

Last year they were gradually raising the interest rate and gradually unwinding QE.  The interest rate was still below historical norms and by the end of the year a lot of QE had yet to be unwound.  The Fed moved slowly and carefully enough in both cases that the economy was still able to do pretty well last year.

But, in a short term effort to goose the economy this year, the White House has pressured the Fed to stop increasing the interest rate and to slow or halt the unwinding of QE.  It looks like the Fed is going to go along even though it puts at risk the Fed's ability to deal with future problems.  When the next recession looms on the horizon, which it inevitably will at some point, the Fed may not have the tools it needs to manage it.

When it comes to full employment I think New York City's experience with rent control (another idea MMT people like) is very informative.  Many decades ago NYC instituted rent control policies in an effort to provide affordable housing for people of modest means.  They expanded the program several times over the decades because the problem kept getting worse and worse.

But eventually the whole thing became unsustainable.  Without rent control developers build buildings because they think they can make a profit and landlords maintain them so they can keep rents high enough to make a profit.  But with rent control maintenance no longer made economic sense (you couldn't get your money back from high rents) and developers only built buildings for rich people because those buildings were exempted from rent control.

So buildings that people could afford were allowed to deteriorate.  Over time the deterioration was so severe that they became unsafe and had to be torn down.  The only new buildings that went up were targeted at rich people.  People couldn't find housing yet buildings were falling apart and eventually were torn down.  New buildings that people of moderate means could afford to live in were not built to replace them.  Things got worse instead of better in terms of the availability of decent moderately priced housing.  Eventually NYC was forced to dismantle most of its rent control regime.

I am worried that the same thing would happen with the MMT people's preferred method of getting to full employment.  Instead of continuing to goose the economy until full employment was achieved they envision the government becoming the hirer of last resort.  The government would directly hire anyone who wanted to work and couldn't find employment elsewhere.  They would be paid (under one formulation) the minimum wage, and presumably be put to work on worthwhile projects.  But the Federal minimum wage in now $7.25.  That is a ridiculously low number.  It is not a living wage in even the most depressed economic areas.

Well, the "reasonable person" solution to that problem is to raise the Federal minimum wage.  But it is currently so low because it has proved politically impossible to raise.  There is a shortage of reasonable people in Congress.  But assume that problem somehow gets magically fixed and the program starts working as advertised.  Everybody who wants to work but can't find a job gets a government job on some worthwhile project.  So far so good.

But a big concern I now have is with structural problems in the job market.  We currently have, for instance, a bunch of unemployed (or underemployed) coal miners.  The coal mining industry is contracting so there are less jobs than there used to be.  This means they can't even move somewhere else to get a coal mining job.  What should the country do?  Frankly, we already have too many coal miners.  We need to change things so there are fewer coal miners.  This means things like retraining programs and not programs that put coal miners to work as coal miners.

More broadly, a big employment problem the economy has is structural.   We have lots of people who are ready, willing, and able, to perform jobs that don't need doing.  At the same time there are other jobs that go begging because there is a shortage of people with the necessary skills.  If a job has only temporarily gone away it makes sense to park people somewhere for a short while and wait for things to right themselves.  Then the person can go back to doing what they know how to do.

That's what unemployment insurance does and does well.  What it doesn't do is match skills training to actual needs.  And an "employer of last resort" system doesn't do that either.  This is a problem with the structure of the job market, not with the number of jobs on offer.  MMT people have nothing to say about this problem.  And even if you are able to create the kind of program MMT envisions, over time it will be subject to the same forces that eventually doomed the NYC rent control system.

The NYC rent control program was initially well suited to the problem at hand.  But over time, structural changes kept making it less and less effective.  But the will did not exist to make the changes necessary to keep up with these structural changes.  It was always easiest to put changes off for another year or so, especially if the changes were unpopular, and they usually were.  I am concerned that even an initially well designed jobs program would suffer the same fate over time.

So does that mean that MMT is absolutely useless and should just be ignored?  No!  I think it has many useful things to say.  It is a theory that rests on some simple assumptions.  If the assumptions were correct than it makes complete sense.  But I think it can be very illuminating to explore exactly how reality and the MMT model world differ.

It is definitely true that, as MMT says, most of the discussion about debt and the deficit is nonsense and should be rejected.  And MMT gets us closer to how the real world actually works when it comes to full employment and its economic impacts.

Conventional economic theory says that certain unemployment numbers represent effective full employment.  Dropping below them was supposed to immediately result in all kinds of bad things (a big increase in inflation, an immediate economic downturn, etc.).  None of those things happened.  We are currently are at historic lows when it comes to the official unemployment rate.  But, again, the bad things that are supposed to be happening aren't happening.  The economy is instead behaving like we are a substantial distance away from full employment.

And there are a number of areas where MMT analysis is valuable and illuminating.  The current problems the European countries that use the Euro are having is much easier to understand if you apply MMT to the situation.

I also found what MMT had to say about the ways the Fed and the Treasury department informally work together in a joint effort to make sure both departments can perform effectively in their separate roles, for instance, quite illuminating.  I could go on but I won't.

Can MMT help make sense of this and many other things?  Definitely yes, in some cases, and maybe in others.  I am going to skip over the several other areas I found MMT analysis quite helpful in.  So, let's give it a chance.  It is no nuttier than other economic theories I have seen.