Four Economists Who Support Statism at the Expense of Freedom - Part II: Kelton and Mazzucato

Perhaps the more sophisticated of the four statist macroeconomists discussed in this two-part article, are Stephanie Kelton and Mariana Mazzucato. As American academics, they are far less tin-eared in their statements regarding the benefits of the market economy than Piketty and Zucman. They put the efficient, managerial state in the centre of a state-directed economy, fuelled by endless money printing from the central bank. There are precedents for this economic policy: Germany, Italy, and the USA in the 1930s and 1940s. If Piketty and Zucman are socialists, Kelton and Mazzucato are fascists.

Kelton, in “The Deficit Myth: Modern Monetary Theory and How to Build a Better Economy” (2020) makes the most well-known case for MMT. In both her and Mazzucato’s view, government budget deficits don’t really matter and can be sustained almost indefinitely in order to fund state projects. But this is only possible to some extent because of the “exorbitant privilege of the dollar” as the reserve currency, to use former French President Giscard D’Estaing’s words. Printing money works, until it doesn’t, with long-term consequences that can be disastrous for the entire society.

Both Kelton and Mazzucato advocate for policies that benefit mostly the ruling minority, using the Cantillon effect which is the inevitable consequence of such an inflationary policy, to give even more leverage to the politically connected financial institutions. Inflated crumbs and lower real wages for the ruled majority is generally the consequences of such policies.

In “The Entrepreneurial State” (2014), Mazzucato argues the state is the true engine of innovation, noting that government grants and military funding laid the groundwork for the internet and GPS, which was then developed by the market. Mazzucato is yet another victim of Frederic Bastiat’s Broken Window Fallacy, of “What is Seen and What is Not Seen.” What are seen are the innovations that can come out of inefficient government defence spending. What is not seen is the massive amount of private innovation, wealth, and discovery that was not to be because the state used and taxed those resources out of the market in the first place. Such thinking is generally not encouraged because it is not inconvenient if the goal is to assert the power of the state over society.

In “The Moonshot Economy” (2021), as Epicenter’s review states, Mazzucato ”tries to illustrate how governments can implement mission-oriented policies. A mission can be regarded as a grand societal goal formulated by policymakers, for instance putting a man on the moon, lowering CO2 emissions or sharp reductions in poverty.” (2021). Yet useful spinoffs for society from such exorbitantly expensive “missions” usually are marginal. Apparently, the EU Green deal is largely the brainchild of Mazzucato, which is already becoming a showcase of all that is wrong with ideological state planning. She obviously has little faith in the market, stating that “markets will not find a green direction on their own”, while criticizing private venture capitalists despite they being essential for innovation in the free market. Further, since real free market innovation inevitably requires and leads to creative destruction, as Schumpeter showed in 1942, the “mission” oriented approach is bound to lead to disappointment.

Epicenter diplomatically concluded: “Mission oriented policies… appeal to policymakers as they are portrayed as visionary and capable of addressing and solving the grand challenges that our world is facing. Reviewing the track record of such policies and using elementary economic theory, it is clear that these policies need to be treated with caution and perhaps, suspicion. The policies that come out of the political machineries interacting with interest groups are likely to strengthen established firms and technologies rather than result in any real transformative change.”

Mazzucato thus disregards the fact, or simply accepts it, that state actors never act purely for the public good. Public choice economists like James Buchanan showed that bureaucrats act in their own self-interest - seeking bigger budgets, job security, and political favours, exactly as can be expected. She frames the state not as a bloated bureaucracy, but as a bold, sophisticated state venture capitalist directing “missions”. State-directed “missions”, even if they sometimes reach expected results, inevitably involve “pork-barrel” spending, corporate lobbying, and regulatory capture, where politicians fund projects that win votes rather than projects that advance human utility.

Further, government bureaucrats do not possess the information to select projects as efficiently as the decentralized free market process. States suffer from a knowledge problem, compared to the way information flows in the free market, as explained by Hayek in his essay “The Use of Knowledge in Society” (1945). State investment projects can sometimes be “successful”, even though the definition of “success” cannot really be the same as in the free market. Private venture capital works precisely because it allows decentralized, trial-and-error experimentation with private money. When the state picks a “mission,” it commits huge sums of taxpayer dollars to a single political goal, removing the market feedback loop of profit and loss.

In his final work, “The Fatal Conceit” (1988), Hayek argued that the ultimate error of socialism is the belief that a small group of individuals can deliberately and successfully shape and design the incredibly complex order of human society. Kelton and Mazzucato are “victims” of the Fatal Conceit. Both are imbued with a technocratic hubris - the presumptuous idea that with enough data, computational power, and smart bureaucrats, the state can direct the development process of human society better than the decentralized and unhampered market. There is hardly a more dangerous thought to inhabit a person of influence.

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To conclude these two articles on four economists who promote statism, it is interesting to ponder the enormous praise and fame that is being heaped upon them over the years. Without the unwavering support from most of academia, many editorial boards, most corporate media, and of course political leaders, these four flawed macroeconomists would probably never have reached such heights. They evidently are looked upon favourably by the Western oligarchy; they are useful spokespersons for a ruling oligarchy in need of tightening control over society in the current times of uncertainty.

J. M. Keynes was similarly celebrated by the powers-that-be in the 1930s for lending an aura of legitimacy to public spending policies that had hitherto been mostly frowned upon, and rightly so. This is in stark contrast to the way Hayek and Mises, dramatically better economists than either Keynes or these four, were left out in the cold for decades after WWII. These four economists must be exposed as statists and presented as they really are: enemies of freedom.