Yves here. I must confess that I am at a loss to understand the deep emotional reactions some readers have to MMT. It’s like raging at a thermometer because it shows you your body temperature. Virtually all of the complaints about MMT are based on a failure to understand what it says about how money works. MMT is descriptive of our current system, and it also has a message that progressives (the real kind, not the Democratic fauxgressive kind) ought to welcome, that the Federal government as a sovereign does not need to run a balance budget, and that a balanced budget is in fact destructive when the economy is as slack as it is now. That means the government not only can but should spend more, which is in contrast to all those barmy arguments about how we can’t spend to [fill in your priorities, have national health care, improve our infrastructure, feed low income kids in school, etc.]. If you don’t like the Federal government directing that much spending, there’s a remedy for that too: revenue sharing, which was instituted under that great liberal Richard Nixon, who though the Federal government raised revenues more efficiently than state and local governments, but state and local government were better at setting spending priorities.
MMT provides a basis for rejecting neoliberalism and austerity, and people who ought to embrace it are instead being told falsehoods about it and are becoming skeptical. That assures that the current crop of looters can continue their work unperturbed.
However, MMT does require that you turn the conventional stories about money inside-out. It takes some mental rewiring to understand it, and that degree of reorientation seems to be a big reason for the heated reactions.
By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute. Originally published at EconoMonitor
While we are on the topic of monetary cranks, I thought it might be useful to quickly address a cranky idea that often comes up in comments to my blogs and also during Q&A after presentations: so-called “debt-free money”.
The first time I heard it, my immediate reaction was “Say what?”, and the second was puzzlement at the non-sequitur.
I am not sure exactly which of the crank approaches explicitly adopt the notion, but it seems common to a lot of them. I’m not going to address any particular approach but instead will address only the idea that we can have a “money” that is not a “debt”.
But first I want to tie up a loose end from my last blog, Something is Rotten in the State of Denmark: The Rise of Monetary Cranks and Fixing What Ain’t Broke, which was carried at GLF, NEP, and Naked Capitalism.
Most of the comments to that piece were about a particular (“crank”, in the endearing sense) approach called Positive Money. I did not directly comment on that approach in any kind of detail; I borrowed a quote from Ann Pettifor and directed my comments only to one particular aspect: a centralized committee that is to control “thin air money creation”. I provided my objections to that one aspect.
First, I don’t like centralized committees and I certainly don’t like centralized committees headquartered at the thoroughly undemocratic and inflation-obsessed central banks. Second, I like highly decentralized and mostly small, heavily regulated and supervised, community lenders making decisions over how much lending and whom to originate loans for. I also wondered about the apparent loanable funds framework PM appears to adopt—but I’m not sure if that is indeed the framework.
I’m prepared to be dissuaded from those positions. And I do not hold a general position on PM. I’m surprised that so many of the comments were about PM, while my piece only briefly mentioned it.
I said I do like the idea of carving out a small part of the financial system—the payments system—which is what Narrow Banking is all about (at least, in most of its versions, dating back to Fisher, and more recently with Phillips and Minsky). I suggested a Postal Saving System achieves that goal and until I’m persuaded that Narrow Banking is better, I choose PSS.
Yes, I’ll probably do a blog related to that topic and will tangentially address public banking. I don’t have anything against the general idea. Just as I’m not against the narrow banking proposal, in general.
OK, with that preface, let’s look at the problem with “debt-free money”.
The Cloakroom Debt Token
In discussing money, G.F. Knapp (one of the developers of the State Money Approach, adopted by Keynes and by MMT) made a useful analogy with the cloakroom token. When you drop off your coat at the cloakroom, the attendant offers you a token, usually with an identification number. The token is evidence of the debt of the cloakroom, which owes you a coat.
Some hours later you return with the token. The attendant returns your coat. If you feel generous, you tip the attendant for the service.
By accepting the token and meeting the obligation to return your coat, the attendant has “redeemed” herself or himself. The slate is wiped clean. The debt is destroyed.
At this point the token is simply warehoused, put back on an empty coat-hanger, waiting to be reused.
When the token is in the cloakroom, it is not a debt. It is a circular piece of cardboard, perhaps enclosed in a metal ring.
Or maybe it is a square chunk of plastic.
Or a shiny brass coin.
Some cloakrooms instead use paper tickets, split into stock and stub at the time a coat is deposited. On your return to the cloakroom, the stock and stub are matched, the coat is returned to the rightful owner, and the stock and stub are thrown away.
It makes no difference what form the token takes—it is just evidence of a debt, a “coat debt” that is redeemed by return of the coat.
Note that you could pass the token to your spouse or even to a stranger, with instruction to fetch your coat from the cloakroom.
If coats were homogenous, the tokens would be valuable to anyone who might want your coat. They could become a sort of currency passing from hand-to-hand at the value of a coat debt, so Knapp’s analogy is not so far-fetched as it might first appear.
However, coats are not uniform, and the attendant cannot simply return “a coat”, but must return “your coat” in redemption for the token.
Dry cleaners also use tokens, but they make an additional promise. Not only will they return your coat, but they also will clean it. They cannot redeem their debts simply by returning your dirty coat.
Ditto the seamstress, who redeems her token debt by returning your coat with sleeves shortened.
The point here is that the token is representative of debt, with the specific obligation spelled out by custom or contract and enforced if necessary in the courts.
Money as a Token of Debt
Let us begin with the closest analogue to the cloakroom token: the tally stick. Tally sticks were commonly issued for hundreds of years in Western Europe—by Kings but also by others (my 2004 book cover shows a photo I took of tallies that were used on private estates in Agrigento, Sicily in 1905) as records of debt. The sticks were split into stock and stub, matched at the time of redemption and then destroyed.
In the case of the King’s tallies, Redemption Day was tax day when the King’s representative (the exchequer) arrived in the village, spread cloth on the ground, and matched stock and stub. Hallelujah, the tax was paid.
The tally stick had value because it could be used to “redeem” oneself on Redemption Day. You owed the king his taxes, and he owed you the right to deliver evidence of his debt (recorded on the stick) to pay your taxes. The sticks circulated because this debt was “homogenous”, unlike the debt redeemed by the cloakroom that took the form of your specific coat. Anyone with a debt to the King needed a tally stick (any tally stick so long as it was issued by that King) to pay taxes.
A.M. Innes explained the significance of tallies, quoted in my 2004 book:
For many centuries, how many we do not know, the principal instrument of commerce was neither the coin nor the private token, but the tally, (Lat. talea. Fr. taille. Ger. Kerbholz), a stick of squared hazel-wood, notched in a certain manner to indicate the amount of the purchase or debt. The name of the debtor and the date of the transaction were written on two opposite sides of the stick, which was then split down the middle in such a way that the notches were cut in half, and the name and date appeared on both pieces of the tally. The split was stopped by a cross-cut about an inch from the base of the stick, so that one of the pieces was shorter than the other. One piece, called the ‘stock,’ was issued to the seller or creditor, while the other, called the ‘stub’ or ‘counter-stock,’ was kept by the buyer or debtor.
Both halves were thus a complete record of the credit and debt and the debtor was protected by his stub from the fraudulent imitation of or tampering with his tally.
The labours of modern archaeologists have brought to light numbers of objects of extreme antiquity, which may with confidence be pronounced to be ancient tallies, or instruments of a precisely similar nature; so that we can hardly doubt that commerce from the most primitive times was carried on by means of credit, and not with any ‘medium of exchange.’ (See Wray, “Credit and State Theories of Money”, Edward Elgar, 2004.)
Now, what were coins? As Innes emphasizes, coins were never very important—in spite of all the ink spilled in writing about them. They are bright shiny tallies that can last a long time and still garner interest when discovered centuries after being lost and forgotten. Collectors love them. By contrast, tally sticks are burned or simply rot away; ditto papyrus or paper evidences of debts. But coins were typically a nearly insignificant part of the “money supply”, and most tax collections brought in far more hazelwood tally sticks than coins.
Economists focus on coins only because they outlasted the sovereigns that issued them and many of them contained bright shiny metal that blinds reason. If bovine droppings had been stamped, instead, they would have served perfectly well as coins but no one would be interested in them after the demise of the empires that issued them.
Coins were evidence of debt that solved the problem of counterfeiting not through splitting a notched stick but rather through the technology of stamping or, later, milling coins. High quality craftwork and then milling the edges made “fraudulent imitation” more difficult. In addition, the use of precious metals (which were more easily monopolized by the sovereign) made counterfeiting more difficult and more expensive. (I won’t go further into the history of coinage here—and all the myths about value being determined by embodied precious metal—as I already did that in my 2012 book, Modern Money Theory.)
The sovereign spent coins into circulation, then accepted them alongside tallies in tax payment. Coins circulated more freely than tally stocks because the coin by itself contained all the evidence of the crown’s debt (in the case of a tally stick one needed both the stock and the stub).
In addition to promising to take back coin token debts, the sovereign issuer could also promise to exchange them for foreign currency or for precious metal on demand. This is an additional promise added to the promise to accept the coin in payment of taxes. It is similar to the additional promise made by the dry cleaner or seamstress: not only do you get your coat back, but you also get it cleaned and stitched. In the case of the coin, the sovereign not only promises to accept in taxes, but also might promise to exchange it for gold, and might also impose a legal tender law that proclaims the coin is good for private payments, too.
Paper Money Token Debts
Paper money has been around for a long time, but became common in the west only in the past few centuries. Most of it was issued by private banks, in the form of bank notes. You did not owe your bank taxes. So what debt was evidenced by the bank note?
The bank issued notes when it made loans. It held your “note” (the IOU you signed; we still use the term to refer to the documents associated with loans) as evidence of your debt to the bank. It issued its own “note” as evidence of the debt of the bank. You could spend the note, passing it to a third party. That third party could present it to the issuing bank to pay down debts owed to that bank.
With a clearing system, you could repay your debt to Bank A by presenting for “Redemption” notes issued by Bank B. The bank notes were circulating private “tallies”. The system clearer would return notes to the issuers as banks cleared debts with one another.
Like the cloakroom tickets, the notes might be destroyed by their issuers when they were returned. Or they could be stockpiled in bank warehouses for use later (just as the cloakroom’s token might be warehoused on empty coat hangers).
Eventually government central banks would do much of the clearing, originally issuing their own notes. The first central banks were explicitly created to issue notes to finance government spending, with the notes collected in tax payment.
Not liking competition, governments taxed private bank notes out of existence. Banks moved to deposit-based banking (rather than note-based banking). And, eventually, we got to the present day when it is mostly keystroke entries of debits and credits.
But, folks, it is all “debt money”.
“Bank Money” is an electronic entry on the liability side of the bank’s balance sheet, and an electronic entry on the asset side of the depositor’s balance sheet. (Called double entry book-keeping, the “keystroking” of deposits when a bank makes a loan means there will be four entries—the “note” of the borrower is the bank’s asset, and the bank’s “deposit” is its liability; the deposit is the borrower’s asset, and the note is the borrower’s liability.) Depositors can write checks on these deposits to pay down their own debts, including debts to banks.
“Central Bank Money” is generally comprised of two forms: paper notes and electronic reserves. The paper notes are the central bank’s liability and the asset of the holder. FRNotes are mostly used outside the USA, and are mostly used for illegal activities. (To increase the circulation of FRNotes, we need to raise the denomination of the largest denomination notes—the almighty dollar is being replaced by larger denomination Euro notes as the preferred medium of exchange by global drug dealers, although Bitcoins are making a dent—see below.)
FRReserves are keystroke entries, representing the Fed’s liability and the asset of depositors. Unless you are a bank, a foreign central bank, or some other special entity, you cannot hold these. In theory, the government should accept its central bank notes in tax payment. In practice, US taxpayers make tax payments using their banks—either with checks or direct withdrawal. The Fed then debits the private bank’s reserve deposits. So whether taxes are paid with FRNotes or FRReserves, in either case, the Fed’s liabilities to the US private sector are reduced. (There is also internal accounting involving the Fed’s and the Treasury’s balance sheets—the Fed credit’s the Treasury’s deposit account at the Fed. As I’ve said, this is like the husband owing the wife some dishwashing.)
“Treasury Money” is now mostly coins; in the past treasuries issued notes (and some still do). What is a coin? Stamped evidence of the Treasury’s debt. Some have pointed out that the US Treasury records coins as “equity”. Equity, of course, is on the liability side of the balance sheet. In theory, one should be able to pay taxes by returning the King’s coins. In practice, hardly anyone does that. I used to think that the IRS would not accept coins in payment of taxes, but apparently Tea Baggers are doing just that. According to a news report one of them delivers, each year, a bag full of coins in payment of taxes, with the stated intention of wrecking the day of some IRS agent, who presumably has to spend a few hours stacking and counting (tallying?) the coins.
So it is apparently possible to push a wheelbarrow to the IRS steps to pay your taxes in coins. In any event, most US taxes are paid as described above. You can certainly deposit coins (and FRNotes) at your bank and write a check to the IRS—Redeeming yourself in the eyes of Uncle Sam without pissing off IRS agents.
Debt-Free Tokens?
Now, with that background let us try to make sense of the call for “debt-free money”.
Imagine a cloakroom that issues “debt-free” cloakroom tokens. These look just like the tokens discussed above, but they are not debts. You can return them to the cloakroom, but you don’t get a coat.
What is a “debt-free” cloakroom token? It is a piece of plastic, a piece of cardboard, a piece of paper.
Imagine a sovereign that issues “debt-free” tallies. They look like the tallies discussed above, but when you return them to the exchequer, your taxes are not paid. The exchequer does not recognize them as a debt, but rather as a stick—perhaps fuel for a fire, but not a means of Redemption.
What is a debt-free tally? It is a hazelwood stick.
Why would you want the debt-free cloakroom token? Why would you want the debt-free tally stock?
As MMT says, “taxes drive money”.
(I’m not going through that again here. See the series that begins with this post. Note, however, that “TDM” is short-hand for “obligations to the sovereign drive money”. You can pay fees, fines, tribute, tithes and taxes owed to the sovereign by delivering back his debt tokens (tallies, notes, coins, electronic records of liabilities). Note also that we claim that taxes are sufficient to drive a currency; we do not say they are necessary. Some commentators note that there are a few sovereigns (typically noted are oil-producing nations in which the sovereign monopolizes ownership of oil) that don’t impose taxes but still issue currency. But as we have long pointed out, if the sovereign can monopolize necessities of life, the sovereign can name what must be delivered to get the necessities. The Chicago water monopolist can designate what you must pay to quench your thirst; the heroin pusher can dictate what you need to get your fix. Maybe Bitcoins?)
If you cannot redeem the token for your coat, or for the taxes you owe, why would you want it?
A “debt-free money” would not be evidence of a debt. What would it be?
Maybe a banana? I like bananas. If the sovereign or cloakroom attendant offered me a token banana, I’d take it. I wouldn’t worry whether I could redeem it. I’d eat it. If I weren’t hungry, I might exchange it for a newspaper at the kiosk.
I don’t find it useful to call bananas money. Even if I can trade them for newspapers. Bananas are not “issued”. They are cultivated, harvested, transported, marketed. They’ve got value. But they are not money.
I don’t think our debt-free money cranks want government to “issue” bananas. I think they want a “money” that is a record. But a record of what?
From what I gather, they want government to issue notes (many love to refer to Lincoln’s Greenbacks) or electronic “money”. But what are notes or electronic entries? They are records of indebtedness—debts that can be redeemed in payments to the issuers. They are debt tokens.
A Non Sequitur in Search of a Policy
When I’ve engaged advocates of debt-free money, my protestations always generate confusion and the topic gets switched to government payment of interest. The “debt-free money” cranks seem to hate payment of interest by government.
I’m not sure, but I think what they really want to do is to prohibit government payment of interest.
That is fine with me. ZIRP forever. Stop paying interest on bank reserves, and stop issuing Treasury bills and bonds.
We don’t need a non sequitur in search of a policy.
Debt-free money advocates also hate debt. Fine, in many religions, debt is sinful—for both creditor and debtor. Monetary cranks (rightly) attribute our current economic predicament to excessive private sector debt. I agree.
Some also fear public debt—which has no basis if we are talking about sovereign currency-issuing government.
However, there are some advocates of debt-free money who understand MMT’s point about sovereign government. Some of these even recognize that the sovereign government’s debt is the non-government’s asset. Indeed, the outstanding US Federal Government Debt is (identically) our net financial (dollar) wealth.
But they argue that the irrational fear of government debt is what constrains our government spending; we cannot spend enough to get the economy growing because the outstanding stock of federal government debt prevents Congress from allocating more funding.
Hence the idea is that if we found another way—printing debt-free money—to finance spending without issuing more debt, Congress would jump at the chance to spend more.
And if government would spend more, then we wouldn’t need so much private debt to keep the economy afloat.
While I’m sympathetic to the view of political realities, the operational realities are quite different from what is imagined.
Sovereign government spends first, then taxes or sells bonds. The bond sales serve the operational purpose of keeping interest rates on target. If we target zero and stop issuing bonds, we will have already achieved what our “debt-free money” champions want.
However, the currency spent by government and accumulated as net financial assets won’t be “debt-free money” but liabilities of the Fed (FRNotes and FRReserves) and Treasury (coins).
There are several ways to accomplish this, all of them technically easy. None of them requires the use of bananas.
For example, Congress amends the Federal Reserve Act, dictating that the Fed will keep the discount rate and fed funds rate target at zero. It simultaneously mandates that the Fed will allow zero rate overdrafts by the Treasury on its deposit account up to an amount to allow Treasury to spend budgeted funds. I’m not saying that is politically easy, but it will be no more politically difficult than mandating that government spending will henceforth be made in bananas or some other “debt-free money”. And it is at least operationally coherent.
Again, we don’t need a non sequitur in search of a policy.
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Your thermometer analogy is a bad analogy because the thermometer just tells you your body temperature but not how to keep the optimum temperature or how to return to it after crossing safe thermal bounds. MMT is not just descriptive, it is prescriptive, it is like a whole medical theory including diagnostics and treatment. So it naturally makes some people uneasy.
If it’s descriptive, then it can be linked to our current predicament.
It’s hard to swallow the prescription when all signs point to the fact that it has most probably contributed to the headache… What next? A migraine?
That’s just stupid. As if MMT had any inlfluence on policy’s before or since the crisis. Get a clue. There’s 20+ years ofliterature in MMT critiquing existing policy and policy frameworks.
It would be great if it you could be more civilized in discussion. It’s really tiresome to approach MMT people with criticism because all too often the reaction is arrogant and offensive.
In relation to Moneta’s point, a case can be made, perhaps tenuously, that in fact central bankers have been implementing MMT principles for some time now, what they call experimental or non traditional policy tools, to the benefit of some sectors, but please do not call me stupid or ignorant, I beg you.
Descriptive MMT looks to me like a monetary system that has been gradually morphing into a system, to keep the game going, that does not have to maintain checks and balances.
Why does it look that way to you?
Precisely what has been implemented by the fed that has any relation to MMT except perhaps ZIRP? And not that they want to be doing that in the first place?
This is what I’m talking about. Instead of misrepresenting, just ask. Do you know how tiresome it is to respond to all of these vs. answering honest questions?
If critics can’t be civil, be avoid misrepresenting, or stay on topic–and the vast majority are doing at least one of these here– then they are being hypocritical to complain when they are treated the same way in response.
In relation to Moneta’s point, a case can be made, perhaps tenuously, that in fact central bankers have been implementing MMT principles for some time now, what they call experimental or non traditional policy tools
It’s trivially true (and a strength) that MMT researchers set out to make their theory consistent with double-entry bookkeeping and banking operations as they are actually carried out. How then could central bankers be operating by anything other than MMT-consistent principles ? But who are these MMTers who supposedly supported the central banks unconventional monetary policies ? Which MMTer thought QE would actually be successful ? Which MMTer didn’t have a whole raft of alternative proposals ?
MMT is descriptive of “how the system works” therefore any steps policy takes will by definition be operating within the MMT framework. It’s not like reality can be avoided by ignoring it.
Here on planet Earth we are constrained by the law of gravity. We can take any action we choose while ignoring gravity but the consequences in denying gravity will be readily apparent…like believing we can fly and walking off the top of a building.
I’m pretty sure of the consequences of that particular decision, and MMT has a mighty good track record in forecasting bad outcomes resulting from bad policy choices, especially when compared to other competing disciplines.
To wit: https://dl.dropboxusercontent.com/u/33741/reality.jpg
So MMT has the ontological status of the law of gravity? I thought it was only valid for fiat money economies.
There might be a more general framework where the worth of money comes from being “a store of durable value accruing to the results of hard work and right living” (Casino implosion, down there).
There is also the problem that for most sovereigns their own currency is not good in the international system of payments so MMT may only be useful for the practice of monetary policies in the USA.
“I thought it was only valid for fiat money economies.”
Correct.
I know that, I was trying to convey the idea that comparing MMT with the law of gravity is pretentious.
All currencies are fiats. Unless you can eat them, wear them, or live in them.
Our currency is backed by black gold.
Many other currencies are tied to our black gold back money via the currency exchange markets…as long as the issuing entities behave, they should be good.
The U.S. Dollar is not backed by oil.
It’s a hybrid, like the US economy is not purely capitalistic.
No, it isn’t. Oil being denominated in dollars is meaningless. This is dubious story plus a non sequitur in search of the gullible. What would be meaningful is oil producers saving dollars. They did begin to save during the 1973 oil crisis, but not because the US government asked them to.
If I recall correctly, it was the exact opposite. The US government informed the Arab oil producers back then that they would consider them NOT spending the flood of new dollars back in the USA as a hostile act. In other words, “backing the US dollar with black gold” was what the US insisted they NOT do. But OAPEC, etc did accumulate Treasuries, simply because the oil money was coming in faster then than they could spend or invest it.
At last, we get out of economics and into politics and political history.
Would either one of you be for denominating oil sales in some other currency, say the British pound, perhaps, as the oil producers seem like to shop in London, or maybe they like to sit on top of Japanese bonds better than the US Treasuries?
And it’s very ungrateful of these guys, despite of American blood, that they did not do what we insisted.
Yes, of course I wouldn’t care what oil is denominated in. It just doesn’t matter. If it were in the currency of some tiny country, it might matter to that country, they could live off of minuscule transaction fees. Otherwise, there is no way it could matter. Warren Mosler, who has made some dough trading currency & oil often says it just doesn’t matter.
There was no American blood in 1973; the USA judged the Arabs tried to do what they said reasonably well with their subsequent investment and spending in the USA. Inflation was an obvious problem of the oil shock. The USA was (somewhat) concerned about the stagnation part of Stagflation by this demand to NOT back the dollar with “black gold.”
I am not sure what he meant by it doesn’t matter. Doesn’t matter in what respect?
Would you be OK with a formal agreement that henceforth we have to buy euros to buy oil or Japanese yen to buy oil?
As for American blood, one does not stop counting after year 1 of the arrangement. We are still paying and enforcing that arrangement.
If only OPEC would love the US dollar less… That is our misfortune.
Why can’t they sell their oil in Indian Rupees? Why can’t they take more than just one currency?
Would you be OK with a formal agreement that henceforth we have to buy euros to buy oil or Japanese yen to buy oil? Yes, of course, as I have been saying. What the initial oil for currency transaction is denominated in matters not at all. What currency is saved matters, but not all that much. What really matters is the price – in dollars. Or the price of yen in dollar terms, if yen are demanded. I am not sure what arrangement you refer to. Of course the USA has made arrangements with the Saudis, but I tend to doubt the existence of such pointless, meaningless ones.
Trying to find the One True Thing that “backs” the dollar is absurd quest. The problem is the project itself, of bad philosophy, of thinking that only things, but never relationships, should be valued, are real. The dollar is backed internationally by all the products expected to be sold by the USA, and ultimately by the rational belief in the future taxing authority of the USA government, and its refraining from inflationary spending. Dollars are relationships – quantities of trust in the issuer/debtor by the holder/creditor.
And finally, you have the “misfortune” backwards. The more OPEC loves the dollar, the more it saves, the the better it is for us. It is not a misfortune, but a credit line. If the country just decides to have full employment, a JG, a very easy task, it can only benefit from such “hostile gifts”. (Abba Lerner’s word for such “misfortunes”.)
They did what we insisted that they not do, but that was not misfortune, you say.
What if they did not do what we insisted that they not do – misfortune?
If the dollar is backed by the government’s taxing authority, does it mean that the more you tax, the more valuable the dollar and every time the people vote to reduce taxes, there is less to back the dollar?
And if dollars are about trust between the issuer and the holder, what do polls showing confidence in the government say about the value of the dollar?
You don’t think we make an arrangement with Saudi Arabia to price oil in dollars?
And if Saudi Arabia loves the dollar, and that means we have to spill American blood to protect that area, it is a misfortune. It’s better they hate the dollar, even if they don’t park their dollars or have no dollars to park.
Lastly, that your US money can be converted to oil, without having to be exchanged into another currency, at any time, anywhere there is oil, can do wonders for the dollar, including trust, as the dollar has the oil’s back.
While it is true the dollar is not “backed’ by oil in the same way the dollar is not “backed” by US Federal taxes, there is a contradiction in MMT theory in that while claiming domestically demanding taxes be paid in dollars is important on the international level they claim that demanding oil be paid in dollars is insignificant. The root of this contradiction is that MMT is basically a description of what happens at the level of the nation state (sovereign issuer of currency) but has little to no ability to describe things from the international point of view. And because of this fact that, the further MMT gets from describing the US, the weaker it becomes because it is unable to take into account the international power of the dollar and how that impacts on other countries. For example a sovereign issuer of currency in a weaker country always has her options limited because locals can always decide to switch to, at least informally, a dollar economy and because to get access to international trade more or less means acquiring dollars.
The value of the currency is really backed by output. The only reason the government even has the ability to spend on public purpose is because there is underlying output that can be taxed. The output of the private sector give the public sector its power. MMT likes to say that inflation becomes a problem when spending outstrips productive capacity, but they contradict themselves when they then turn around and say that the sovereign “drives” the currency with its ability to tax. Taxes don’t give money its value. And they don’t make people want to use the currency. The primary thing that drives the use of a particular currency is whether it is a secure medium of exchange giving its users access to the underlying output. Taxes are not a necessary component of this even if they are generally the way we happen to pay public representatives to ensure that the currency has the laws that make it credible. MMT vastly overstates their case here and misrepresents the views here in order to give the appearance that the state has more power over the value of money than it really does.
This is for Joe Johnson, but I’ve run out of reply space for it to thread properly:
MMT says that taxes drive money in the sense that when the state introduces money, what initially gives it value is that people must have it to pay their taxes. Once that initial trick is done, then the value of money is also derived from a host of factors including its use as a store of value and a medium of exchange and especially the real output of an economic system which can be traded using money. MMT does not say that ONLY taxes give money its value. And it does not say that a particular level of kind of taxation is necessary to maintain the value of money. In fact, it frankly admits that it doesn’t know what level and/or kind of taxation is necessary to maintain the value of money.
MMT says that the State introduces money in order to provision itself. So, I think it also follows that State money will be able to buy more in goods and services where the output of both private and public sectors is larger than where it is smaller. So, I think your statement doesn’t contradict but actually follows from MMT.
Not just MMT. All kinds of economists say this. It’s a very old story.
Sorry, but I don’t see the contradiction here perhaps you can spell it out it out in 1, 2, 3, 4, 5, fashion showing how the proposition about the cause of inflation contradicts the proposition that taxes give State money value at the point of origin of money and then continue, along with other factors too give it value.
I don’t think you can show this as a logical derivation because inflation being caused by too much money chasing too few goods doesn’t directly contradict the proposition that taxes give State money its value at the point of origin. So, mo I don’t think MMT is guilty of a contradiction here.
That’s certainly one factor; but the currency wouldn’t be a secure medium of exchange if it had no value, and if there were no taxes assessed to drive the currency it would have no value. So, if you look at things statically it may be the case that the currency as a secure medium of exchange is a more important factor than whether the Government taxes, but on the other hand, it may also be true that if the government either eliminates taxes or taxes at too low level that the value of the currency would be undermined. The Civil War experience of the Confederacy is an important historical case illustrating this proposition. You can find a discussion of it at Bill Mitchell’s site if you search on “printing money confederacy” there.
“what initially gives it value is that people must have it to pay their taxes.”
That’s just wrong. You don’t need a government to have a workable form of money.
Again for Joe_Johnson. All I see here is a denial of my view. So, nothing new in your reply, is there?
Your initial response said nothing. Thus, my response was nothing. You just make ideologically driven assertions based on what you believe and not what actually is. But this is what MMT really is at the end of the day. You are all just trying to make the operational side of your theory solid enough to pass off the political agenda as something convincing. It’s not working for you.
Working Class Nero, you made a great point. I will keep asking that question – if paying taxes with only the designated currency gives value, paying for oil in a particular currency (and only that currency) should impart value as well, shouldn’t it?
It can’t be insignificant. I hope all of us here can agree on that.
Look, either it’s descriptive or it isn’t. Make up your mind.
MMT describes and also prescribes policy. Why is that a problem for you? See here, and here.
I know it’s descriptive and PRESCRIPTIVE. It’s the MMTers who keep on flip-flopping and changing dates.
“MMT is descriptive of our current system.”
This assumption, presented as truth, is the foundation of my objection to MMT.
What if there is no such thing as a “purely inductive” inquiry–even though this is what is implied in the phrase “descriptive of our current system.”
What if MMT reads back into its premises on money creation its conclusion of good Big State?
What if MMT “description.” is largely metaphoric and does not transparently reflect a situation (money creation) that exists independently of its formlulations?
What if certain things have to be posited in every theoretical structure rather than inferred?
What if all of our theoretical perspectives initially involve a choice or decision (usually unacknowledged) about where to conceptually cut our focus?
What if the conceptual slicing which MMT engages in when discussing money creation( for example, an emphasis on vertical rather than horizontal money) is a reality of every framework, including my own?
What if there is no purely descriptive reading of any event and that there is an inescapable normative dimension to every “descriptive” formulation–even MMT?
What if you provided a specific example???????
Don’t forget that one.
I did provide a specific example.
What do you believe is the origin of MMT emphasis on vertical rather than horizontal money creation?
Is that emphasis in any way connected to a normative bias towards the benefits of State-centric models of the monetary system?
A different situation than the current situation: People’s Money (spent into existence by the people).
Jim:What do you believe is the origin of MMT emphasis on vertical rather than horizontal money creation?
As usual, it is what people presume that is the error. There is no such emphasis. The emphasis is on understanding them both, and how they relate. MMT thinkers think about state money because in this, as in most eras and places in human history, state money is the most valuable, the most desirable money, the base money, the top of the money pyramid.
The other reason is because we live in at least formally democratic societies; everybody has a formal say in state policies. MMT’s JG just says that everybody should be on the State Centralized Committee of Experts on Money Creation too.
As for the many philosophical questions, they would take a lot to answer adequately. But the MMT thesis is that its monetary descriptions are not “metaphoric” – but nothing but irrefutable accounting. But “Of this accounting which holds forever men prove uncomprehending” , as a notable grouch said a while ago. :-)
No, Jim. I don’t think that vertical money creation is emphasized because of “a normative bias towards the benefits of state-centric models of the monetary system?” I think its emphasized because other approaches to money creation under-emphasize the role of fiat sovereign money creation and make a big, big, mistake in doing so.
I think value judgments enter into MMT as well as other branches of economics for more subtle reasons than reasons like the ones you gave. Here’s how biases enter: http://www.kmci.org/media/Against%20The%20Fact-Value%20Dichotomy.pdf
Calgucus, irrefutable accounting can be found in Too Big Too Fail.
I think we need more than that.
We need something other than the current system, making sure, of course, that something is irrefutable accounting-wise.
My basic objection is ‘what can one do when one wants to improve/rectify the (entire, if needed) current situation?’
Maybe the current situation is corrupt, corrupting, unethical, illegal, unconstitutional or ineffective/inefficient, among other causes? Perhaps. Maybe. It doesn’t matter.
Is there a history of money predating state money–predating palace communities?
If there is such a history then an important question becomes why MMT focuses historically on state money?
Could it be that an unacknowledged choice was made conceptually to narrow the discussion of money systems to State-centric models primarily because of a normative bias towards the State?
That seems a logical position taken the perspective, as stated by Yves that legitimate progressive should like MMT because it is “descriptive” of our current system and it also has a message that progressive ought to welcome, that the Federal Government as sovereign does not need a balanced budget.
Is that statement immediately above in someway indicative of a state-centric bias towards the money system?
Are we then talking about the disguised prescriptiveness of the MMT money system explanation– where premises, inferences and conclusions feed into each other in a way that ensures that the prescriptive lurch of MMT descriptions of the money system are realized and sustained?
Is the logic of MMT, then, much more circular than it is willing to admit?
Why is MMT so hesitant to admit to circular logic?
Is such a hesitancy political?
Is there a history of money predating state money–predating palace communities?
No.
If you read Calgucus’s comment (quoted here):
July 2, 2014 at 5:53 pm
In usual practice, there certainly is a debt here. The mother becomes indebted to the teenager for performing that service. You might say that the mother is borrowing the teenager’s time. In that weird place called the USA, teenagers even ask mothers to settle this debt by giving them cash = state money, state debt
You then realized had a caveman settle this debt by giving them a mammoth steak, that steak became private money, private debt.
Is there a history of money predating state money–predating palace communities?
In fact there is an extensive such history – and one need not reach back to hypothesized monetary transactions in the neolithic era to illustrate this. Much of J. K. Galbraith’s classic Money: Whence It Came, Where It Went concerns itself with pre-state-dominated monetary history. In particular I recommend Chapter 5, “Of Paper”, which opens with
If the history of commercial banking belongs to the Italians and of central banking to the British, that of paper money issued by a government belongs indubitably to the Americans.
…
Government paper in its early manifestations often had the advantage of a rate of interest — a promise of a modest premium when turned in for redemption. It had also back of its promise of redemption the majesty and integrity of the state, over much of history where money was concerned two exceedingly dubious assets.”
Said chapter offers several notable examples of local-money experiments in the colonial era, including adoption in the early days of the colonial settlements of the longstanding wampum (small mollusc shell)-based money systems used by the natives along the eastern coast:
…the acceptability of wampum depended on its being redeemed by the Indians in pelts. The Indians, in effect, were the central bankers for the wampum monetary system, and beaver pelts were the reserve currency into which wampum could be converted.
As the human/beaver ratio in the ever-expanding colonies predictably plummeted the wampum monetary system faded into history, to be supplanted by even-more-notable systems based on, e.g. tobacco.
Not to be snide, but anyone not thoroughly familiar with the history of money as captured by Galbraith and others is unfit to debate monetary theory, whether “modern” or otherwise. Since I so rarely see such illuminating history brought to bear in NC discussions about money, I am forced to conclude that, despite the overall high intelligence on display hereabouts, such an accompanying historical grounding is an unfortunately scarce commodity.
The answers to most of your questions are simply no! In particular there is no history of money showing that it pre-existed imposition by a political authority. So, if any bias existed on this point, it is in the assumption made by most economists that money existed a state of nature in which it was created anarchically and used as a medium of exchange. Some people still can’t believe that humans are social and political animals first, and money-seeking animals only secondarily.
ewmayer, thanks for the reminder.
I was thinking of the stone money of some Pacific Islanders.
For ewmayer,
What do you mean by “adoption”? I think the adoption of wampum refers to the colonials collectively deciding that wampum would be their money because they wanted to trade both with one another and with the indians. So, I think it’s still a case of State money by adopted by human collective decision. i.e. fiat. Also, the colonial experience is nowhere near as old as Babylonia, where clearly “money” was defined by the State and given value through taxes.
Human collective decision – anything, including using some form of money, involving more than 2 persons is collective decision.
Well, as it happens, there’s at least one MMTer who thinks that the questions you pose reflect the true state of affairs. See here and here. So I think that MMT is both prescriptive and descriptive. In addition, I don’t think it is inductive, because the proponents of induction have still failed to provide a reconstruction of the rules that make induction “logic.” Inductive logic still doesn’t exist. Hume and Popper were right about that!
All that said. So what?
@JoeF (note this is in reply to your 10:32am post above — apparently the comments section here sensibly has a nesting-depth limit to prevent ‘sliver-width discussions’, a.k.a. ‘the ZeroHedge effect’ :) :
Describing colonial settlers adopting an indigenous monetary system absent a mandate-from-above as “still a Case of state money” strains credulity.
And note that state taxation had nothing to do with the resulting monetary system, although it is certainly possible that such was involved in its supplantation. (Though running-out-of-beavers seems plausible on its own).
“Describing colonial settlers adopting an indigenous monetary system absent a mandate-from-above as “still a Case of state money” strains credulity.”
Credulity is not the issue. What is the issue is whether or not the colonists immediately established Governments that made decisions for their settlements about what form of money they would us. Of course, all the settlers were familiar with money by the time they settled whether in North or South America. The evidence is that all the new settlements were pretty authoritarian affairs with political systems that were far from anarchies/states of nature and heedless of individual rights. What strains credulity is that would have allowed a monetary system to emerge without the authorities in the settlements being involved. It also strains credulity to believe that there were no taxes in such settlements in the currency settled on by the authorities.
I get the feeling you’re wasting your breath (well, keystrokes). A few of the commenters strike me as either playing some kind of game or averse to the “danger” of an aha! moment.
If so, too bad.
P.S. I’ve learned a lot from your excellent posts at http://neweconomicperspectives.org/ . Thanks.
MMT is partially descriptive. But it’s primarily prescriptive. In order for the theory to be totally valid there needs to be some legal changes. For instance, the US government isn’t a self funding entity any more so than I am a self funding entity. It just so happens to have substantially more power than me, though not the sort of unencumbered power MMTers sometimes assume in their analysis. Further, the banking system would have to be nationalized for MMT to be entirely valid. We don’t have a “state money” system at present. We have a bank controlled system of which the government is actually subservient to. The government, like the rest of us, must tax or obtain bank credits before it can distribute said credits.
That only scratches the surface here. MMT tries to claim it is descriptive because they try to jam the prescriptive portion down your throat as if there’s “no alternative” because it’s just “operational reality”. There’s a lot of politics and ideology surrounding all of this and I am disappointed in Yves for giving them a megaphone here. You can be supportive of progressive policies without the vast misinformation involved in MMT’s “description” of the monetary system.
Your rant here is ridiculous. MMT is an approach to economics. It is partly prescriptive and partly descriptive in my view, with the fact and value elements hard to separate. I believe all that is true. But the idea that MMT writers are trying to jam its policy prescriptions down people’s throats by saying that they are descriptive is ridiculous. No MMTer ever tries to do that. In fact, if anything, I think most MMT writers over-emphasize the distinction between the descriptive and the prescriptive by constantly reminding people that their policy prescriptions are normative, implying, perhaps that they should not carry as much weight as their description of the operational realities of the system.
That’s not true. I constantly see MMT advocates claiming that the government causes unemployment in a fiat monetary system and is therefore the only entity that can resolve it.
MMTers also constantly say that the government provides the savings that the private sector desires and therefore the government must provide that savings.
These are clear cases of claiming that it’s an operational reality that can only be fixed with MMT’s prescriptions. These points are extremely misleading and based mainly on ideology. Just read the comments here by MMT supporters – you all sound like a cult and you’re so blinded by your ideology that you can’t even understand why your theory is wrong.
But why bother saving if the government will guarantee me a good job AND my pension?
There are so many inconsistencies… they don’t realize the government intervention will screw up all dealings based on trust and the normal survival instinct.
It’s not just that they assume an efficient operating government in their model of the world. They actually get the accounting and operational explanation wrong and then get angry at people who try to explain why.
What MMTers say is that a money economy causes unemployment, and that none existed before monetization of economies. MMTers also say that the Government is the only entity that can guarantee full employment in the precise sense that everyone who wants a job and is able-bodied can be guaranteed a job offer at a living wage with good fringe benefits, regardless of the state of the business cycle.
Some MMTers go on to say that since the monetary system imposed by the Government is causing unemployment, it is the obligation of the Government to offer a Job Guarantee because people have a right to work under FDR’s second bill of rights. However, in saying that, MMT writers are prescribing and saying something that is clearly normative. But that doesn’t mean we are “jamming” that conclusion “down people’s throats.”
There’s a difference between offering a prescription and doing that. And, as citizens, MMT economists have the same right as other citizens do assert the normative prescriptions and assertions they think are related to MMT descriptive conclusions.
It’s also important to note that MMTers are not claiming that only Government can create “full employment” according to some other standard such as less than some arbitrary number such as 5%, 4%, or 3%, that conventional wisdom asserts is as low as one can go without causing inflation. Obviously, we’ve had full employment in that sense a number of times since WWII, most recently under Bill Clinton when U-3 unemployment declined to 3.8% without a JG and mainly because of economic bubbles in the private sector. All this is by way of saying that when you say MMTers say something, it’s important to be accurate, and not distort their view..
I’d like to see some quotes saying exactly that, because I don’t think that’s precisely what we say.
What we say is that since bank created money is always matched by a liability, the Government, because only its net spending into the private sector is unaccompanied by a liability, must be the source of all Net Financial Assets, i.e. the definition of savings in the sector balances model (SFB) accounting identity.
Then we say that if we want the private sector as a whole to net save over a period of time, then we must have the Government net spending over that period of time, provided that the private sector is not getting net savings from the foreign sector. (Due to our running a trade deficit.) We also say that if we want the private sector to have its savings desires fulfilled, then the Government must net spend, unless the foreign sector is already fulfilling those savings desires by providing a sufficiently large trade surplus.
First, of all, even if MMTers did say in a particular case that something can only be fixed with an MMT prescription, that would still not mean that a mere recommendation is jamming a policy down someone’s throat. That is, if we say there’s no alternative, and you think that’s false, then there’s no one preventing you or others from proposing an alternative that would work.
Second, as I show above these are NOT “clear cases” as you say, because you’ve distorted what MMT says and also, are taking prescriptions as equivalent to “jamming” a policy down people’s throats, even though you have not even provided any quotes or links showing the clear cases you claim are there.
I won’t say that MMT is not ideological because I view ideologies in broad terms, as wholistic knowledge claim networks combining both fact and value statements. But I think what you mean by “ideology” is that MMT is like a religion, impervious to refutation of its main principles by experience, and sustained only by faith in those principles.
I think this charge is clearly nonsense. If you read MMT publications and blogs, it is very clear that MMT has a much greater empirical and descriptive component than other, classical approaches to economics do and also that MMT’s predictive track record is far better than the track records of other approaches. If you think you can prove the contrary, then please feel free to try.
You may begin by quoting what MMTers actually say, rather than distorting our views according to your own whims, and then you can continue by comparing MMT’s record of prediction of economic events since 1994 with the predictions of other schools. I personally will look forward to the results of such a critical study.
Finally, I’ll say that its very easy to label a group of people following a particular approach as sounding “like a cult,” but, pray tell, what are your criteria for measuring cultlikeness? And have you applied these criteria to other approaches to economics apart from MMT?
Have you applied the same criteria to the approach to economics that you subscribe to or have invented yourself? Or don’t you have an approach to economics at all?
I can see an alternative, where instead of government spending, it is the people who net spend into the private sector.
In that case, what the people net spend is also what they have in savings (excluding foreigners).
You define net saving as the government’s issued financial assets? How wrong can MMT be!? You don’t even have basic definitions correct!
Net saving, as defined in the national accounts is net disposable income less final consumption expenditure. This is absolutely NOT the government’s issued financial assets.
You are hopeless. You are redefining terms and getting very basic accounting wrong. If you don’t understand net saving then you can’t possibly begin to pretend to understand economics at any level and this misconstrued version of “net saving” is laughably wrong.
“It’s hard to swallow the prescription when all signs point to the fact that it has most probably contributed to the headache… ”
If indeed “all signs” did this, you’d be able to point to one, easily. Since you do not, I can only assume you can’t.
I mean, come on. Do you really think MMTers in the UMKC economics department are responsible or any part of the headache? Are they puppet masters pulling the strings of the neo-liberals at the University of Chicago, Harvard, MIT, and Princeton? This is agnotology in pure form. Worse, it’s making any NC reader who falls for it stupider.
http://en.wikiquote.org/wiki/Dick_Cheney”
“You know, Paul, Reagan proved that deficits don’t matter. We won the mid-term elections, this is our due.”
1. If Dick Cheney is for it, I’m against it.
2. It seems to me we have defacto MMT. Where are all the extra higher paid teachers, oodles of free health care, improved infrastructure, and full employment at good wages???
Does it occur to people that MMT could be used to support the military industrial complex, intelligence/police state????
Its not about economics, its about decisions that are made and that’s politics.
Name one theory related to economic policy that couldn’t be used in ways that it’s designers did not support. Adam Smith? Keynes? Marx? Schumpeter? Coase? Friedman? Minsky? All of them have been corrupted in policy discussions or even policy making at some point.
In fact, you’re doing it yourself. MMT explicitly says deficits DO matter. Randy even wrote a popular post with that precise title. Not to mention equating MMT with Cheney.
do you have the link for the post by Randy on deficits.
I was under the impression the sovereign, with the ability to issue currency, could never have a deficit.
“All of them have been corrupted in policy discussions or even policy making at some point.”
That’s my point – its not the method, its what the method does.
http://www.nakedcapitalism.com/2010/07/deficits-do-matter-but-not-the-way-you-think.html
thank you for the link.
I saw this statement in the aforementioned article:
“But the strange thing is that Krugman never actually addressed Galbraith’s points that insolvency, bankruptcy, or higher interest rates are non-issues for a sovereign government. Nor did Krugman even try to justify his claim that MMT-ers “say that deficits are never a problem”.
“In fact, MMT-ers NEVER have said any such thing. Our claim is that a sovereign government cannot be forced into involuntary default.”
So this made me think of Argentina. Unfortunately, Google will not give me a straightforward answer to the question, ‘Does Argentina issue its own currency?’
1. Does Argentina issue its own currency as is commonly understood? (if not, why not??? And other than the Eurozone, are there any substantial countries that don’t issue their won currency???)
2. Does Argentina issue its own currency as a MMT advocate would understand the distinction?
3. If there is a distinction in “issuing” currency in Argentina between what a MMT advocate would describe and someone else, what is it?
4. Is Argentina being forced to default (or endure higher interest rates)?
5. Would a MMT approach for Argentina simply mean that Argentina could issue pesos to discharge its debt?
5.b. Why would someone not want to accept such pesos?
6. If Argentina could do that, why does it not do it?
7. Is Argentina a bad example of MMT for a sovereign?
8. If so, what specific circumstances makes Argentina inappropriate for MMT?
I don’t know the basics of MMT, but I have a tendency to be skeptical for the same reason I am skeptical of the FED. If it knows what it is doing, is this the best it can do? If it knows how to do better, why doesn’t it. If it would if it could, but evil men stop it, shouldn’t our efforts be at stopping evil men instead of debating 1 basis point moves a year from now?
Argentinas debts are denominated in dollars. Had it denominated its debt in its own currency it could not be forced into default. That is why MMT expends some breath defining what it means to be fiscally sovereign.
Argentina owes debts denominated in U.S. Dollars. It could try to buy more with its own currency but this would further devalue the peso and increase inflationary pressures which are ruinously high now, partially thanks to the country’s export policies. In attempting to build dollar reserves Argentina is exporting vast quantities of its agricultural production; internally supply is not keeping up with demand and food prices have been spiraling up.
MMT says: never borrow in another currency, never operate in another currency, and it often isn’t a good idea to peg or link to another currency. Argentina had done all these things in the two decades prior to its current problems and is still dealing with the consequences. The United States bears a lot of responsibility for this as we’ve exerted a lot of pressure persuading them to turn their nation into an economic vassal.
I think changes in line with MMT would consist of a Jobs Guarantee or continued expansion of the jefes program to reduce poverty coupled with a significant reduction in exports. The Argentine people need Argentina’s resources and they should be the priority. Protectionist measures to help fledgling domestic industries grow would also reduce the need for foreign imports. Domestic spending can spur a rise in productivity and help get inflation under control.
Anything I might suggest is going to be relatively vague because I just don’t know much about the country’s politics. Pavlina Tcherneva would probably be the person to ask as she’s spent considerable time studying the dynamics and has worked with the Argentinians on economic issues.
Never borrow in another currency.
That’s reason enough to ban the World Bank and the IMF, unless they lend in local currencies.
I hope we are open to fortifying the current system and updating the manual.
The deficit is the gap between spending and taxes when spending is greater than tax revenues. That gap can be closed either by borrowing money or by creating coins, currency and/or reserves without issuing debt instruments. Whichever method is used, the deficit continues to exist by definition.
If you are serious, fresno dan, yes, Cheney understood MMT (through Mosley) that deficits would not slow up the economy. Cheney’s comment that deficits don’t matter was from his perspective that only what happens to the elites matter. So yes, rather than use the new money for productive investments, he enriched the 1% through tax cuts and war. In this way MMT is like gravity. We can ignore the consequences for a short time, but eventually focusing only on the top 1% is not healthy for the overall economy and inequality. Understanding MMT and how the economy actually works, doesn’t mean that it cannot be used to increase inequality.
.
If long time MMTers want to refine my thinking, I am open to your comments.
MMT-policies can’t be used “to support the military industrial complex, intelligence/police state” because those institutions don’t fulfill public purpose, but explicitly contradict it. You can’t condemn MMT for its description of fiscal realities. Reality is reality, learn to cope with it; you don’t gain anything by refusing the to recognize it. The only way to cope is to acknowledge operational realities and then evaluate fiscal policies based on whether they conform to public purpose. If they don’t then join forces with other Americans to defeat those policies.
A thermometer can be both descriptive and prescriptive, in a sense.
Suppose the thermometer reads zero degrees Centigrade (that’s 32 degrees Fahrenheit for Americans). That’s descriptive. It says nothing about what you should do in any particular situation. But if you are inside, you might apply a bit of common sense, conclude that the thermometer reading means it’s cold, and decide that you should switch on the heater.
When an economist comes in and tells you that according to his model, it’s not cold but hot, and that not only should you not switch on the heater but you should throw open all the windows, you can refer him to the thermometer reading, give him a clip on the ear, and tell him to stop being an idiot.
‘ZIRP forever.’
Two words which demonstrate conclusively why MMT cannot be taken seriously.
Two words that demonstrate conclusively why those who claim MMT is a secret cabal to enrich the banks cannot be taken seriously.
God forbid that banks lose all that government interest.
Jim, I think, is of the breed that thinks that the only way to get stock and housing prices back in line with the fundamentals and keep them there is to club the economy to death with high interest rates every now and again. That this may result in mass unemployment, and ensure a guaranteed return on idle financial wealth for the 1%, well, those are some eggs he’s prepared to break.
Two words which demonstrate conclusively why MMT is about ending welfare for the rich and other nations.
“MMT provides a basis for rejecting neoliberalism and austerity, and people who ought to embrace it are instead being told falsehoods about it and are becoming skeptical. That assures that the current crop of looters can continue their work unperturbed.”
This is exactly what I mean when I say (approx.) “second order human reaction”. MMT is not a law of physics, (although some accounting identities come close). To make it (hopefully) very clear – my beef with MMT is not what it says in its descriptive part. It’s what it ignores (=it’s enemies and ignorant public) in its potential prescriptions.
MMT proponents make it very clear the political difficulties of implementing it’s suggested policies.
First, MMT is not a law of anything. It is an approach to economics. Second: with respect to this:
I appreciate your agreement with MMT’s analysis of out monetary system and our economy, but I really disagree strongly with your characterization of MMT as ignoring its enemies and the ignorant public. I’ve been involved with MMT since early in 2010, and most of what I see is writing that tries to reach various parts of the public and also writing that takes on MMT critics. I done a lot of both myself, and so have most of the more accomplished MMTers like Warren Mosler, Randy, Bill Mitchell, Stephanie Kelton, Pavlina, Tcherneva, Bill Black, and others of us. The academics among us still spend time on their academic work of course, But most of the rest of us are just trying to educate people about MMT.
I’m always puzzled by the blatant and socially damaging disconnect in MMT or any monetary model that allows zirp for treasuries but 30% on bad credit. WTF.
A lot of people, like you, are not happy with the current situation or the current system.
When they read the manual, they become upset (at the situation), though it appears that they are mad at the manual.
MMT isn’t a monetary policy model. That’s why we say ZIRP forever! That way the economy gets regulated by fiscal policy not ineffective monetary. Also, MMT isn’t in favor of 30% credit. It would evaluate policies allowing that on the basis of whether they fulfill public purpose. Since, they don’t, policies favored by MMT would either limit the rates allowed on credit cards, or simply switch the credit card functions to Post Office Banks or other public institutions that would charge interest rates within a few points of ZIRP.
MMTers are out on the economics blogs constantlyand you think that’s their clever plan to ignore its enemies and the ignorant? That makes no sense.
Monetary policy morphed into MMT when the US hit a ceiling and needed to increase its level of deception. For the last 40 years, MMT has been a tool used by neo-liberals to get us into our current predicament.
As long as the US consumes more energy that it’s fair global share, deception and corruption will prevail and the country will continue its downward spiral.
The biggest problem with out economy today is that we are not accounting in any way for differences between goods and services or renewables and non-renewables.
The externalities were a non-issue a hundred years ago when the planet’s environment still had plenty of raping it could endure but today, it’s a different story. With 7 billion people roaming around, and the current level of entropy that needs to be maintained and to grow, the externalities will do us in in no time.
We need a money system that helps us manage our resources. MMT deals with the abstract stuff, not the nitty gritty. And most people learn from experience, not theory… especially the perma-optimists who make it to the top and end up implementing the theories which they don’t truly understand.
That’s one of the most ignorant comments about MMT I’ve ever seen. 40+ years? A tool of neoliberalism? Where do you get this? Whom are you confusing MMT with?
You actually think MMT started in 2008?
Obviously, I struck a nerve.
You’re going to try to argue with Scott Fullwiler about when MMT was first formulated as an approach? That’s silly. We all know that the first formulation of a full blown MMT approach in print is Warren Mosler’s lengthy 1994 paper on Soft Currency Economics.
I think what’s confusing you is that many people were aware of some of the realities of fiat money and functional finance long before MMT was formulated, and that some people who new this used their knowledge for ill. But these people weren’t following the MMT approach and certainly weren’t proposing and following the kinds of policies advocated by MMT economists today. Those policies, in fact, have never been implemented. If they were, the long depression would have ended by June of 2009, and we would have had full employment and price stability since and also much better management of the resources both you and other MMTers are very concerned about..
I’ve been in MMT since he beginning and I was in kindergarten 40 years ago. If you’re going to accuse, at least try and be a little accurate.
Yes, hundreds of commenters blatantly misrepresenting my life’s work gets a bit annoying, particularly when it’s the same people on the same site, over and over, while you’re quite willing to have a serious discussion if someone would meet you halfway. Try it some time.
Not just people’s life work, though that’s important; great social benefit as well, as Yves points out:
What say, Moneta? Do you support neo-liberalism and austerity? If not, do you have a wy out? What is it?
I believe in deficit spending but not if it is based on hard assets. The deficit spending based on infra and real estate will only perpetuate the global mal-distribution of resources.
A progressive in the US can be viewed as a conservative on a global basis. The American progressive wants all Americans to be equal but does not realize that this internal equality based on materialism is crushing the ROW.
However, I believe that some form of MMT is coming no matter what because the Americans won’t let themselves sink or let other countries consume energy it could consume itself. And I am not convinced that the average American will benefit.
IMO, we are stuck in a race to the bottom and MMT is just another tool.
“deficit spending based on infra and real estate will only perpetuate the global mal-distribution of resources.”
Two things MMT has never explicitly endorsed, though the US does have a serious infrastructure deficit–no arguing that.
“The American progressive wants all Americans to be equal but does not realize that this internal equality based on materialism is crushing the ROW.”
And where has MMT specifically been in favor such a thing? I teach in a sustainable MBA program. Bill Mitchell is about as “green” (i.e., anti-materialism, pro-environment) as a person could ever be.
“let other countries consume energy it could consume itself”
Again, specific examples of where a theory of the monetary system is necessarily related to this?
Hmm. “Struck a nerve” seems an odd test for correctness. The ungenerous might call that trolling.
If I were on an anti-MMT blog, I doubt I would be viewed as a troll.
Then go join the others that like to troll so that the rest that want to actually discuss the merits/demerits of MMT can.
YOu just admitted you’ve already made up your mind–what kind of deranged person spends the day–and week, and month–commenting on posts he/she hates?
You’ve obviously also made up your mind so I could ask the same question.
It’s interesting how some can blatantly insult others with impunity.
I insult trolls with impunity, yes.
People that want to honestly engage . . . that’s very different. Thus far all you’ve done is accuse MMT of doing things it hasn’t done and then when asked for examples not provided any. Why do you deserve to be treated as a respectful commentator in that case? Why should you be allowed to comment at all in that case?
Provide a specific example as you’ve been asked multiple times and see if things change. If they don’t, then you’ll have every right to complain. Until then, you’re a hypocrite.
Stop calling names. You do yourself a disservice. Moneta, right or wrong in her analysis, is no troll. You’re speaking as though you are not familiar with this site.
What stf is saying is true. What word would you propose?
YOu just admitted you’ve already made up your mind–what kind of deranged person spends the day–and week, and month–commenting on posts he/she hates
——-
I would argue that being labeled obsessive and deranged by a person who devotes their career or WAY more time than me to an ideology the height of irony.
Believe it or not I have learned a lot here. I came here to get my paradigm shift. It might not be MMT but it is something else.
I can feel that I am getting close to my fill. So many of you will soon be able to party.
Lambert, stf went clearly below the belt with his attack on Moneta (who is a very thoughtful and principled progressive). He even says specifically Moneta deserves no respect. Nonsense.
I just can’t understand the double standard operating around this place. Ideology sure does blind normally even handed folks I suppose.
I’m reminded of the famous New Yorker cartoon: “I say it’s spinach, and I say the hell with it.” If that be principled progressivism, well, so be it.
For what is worth, I don’t think Moneta is a troll.
None of us is perfect. All we can do is try.
I don’t see analysis. I see an ever-shifting series of talking points, dropped as soon as answered, and new talking points brought in as reinforcements to be shot down in their turn, all ad hoc, and all patiently answered by people willing to cite to sources, and who are supported by a substantial body of work. Repeatedly invited to present the positive alternative, we get nothing, oddly, or not. If you don’t like the word troll, let’s use the word banana, or waterfly, or chowder and marching society. Whatever.
stf just pointed out one of MMTs founders is deep green and you didn’t respond, despite your endless drumbeat on environment. That is exactly what tou do, over and and over and over. You retreat, ignore what was written and try to attack again. That is trolling. Not only have you stated you’ve made your mind up, you’ve announced to the world there is no hope of anything ever getting better, therefore you oppose any attempt to make it so. You don’t have hope and you have taken it upon yourself to see to it no one else does either.
Who appointed you spokeswomam for the angel of death?
@Yves MMT is descriptive of our current system
As there’s now a proper MMT thread for the morning, I’ll ask again. Quoting Wray’s piece:
Dr. Wray has been at this for a while. Is that an accurate accounting of Equity? Can anyone point us to such a balance sheet?
Sure, here is UK Whole of Government Accounts. In the Consolidated Statement of Financial Position (pp94) contains the term “Financed by Taxpayers’ Equity”.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/221560/whole_of_government_accounts_31-03-2011.pdf
Thanks, gentlemen, for your replies. Here’s the SEC’s introduction to the balance sheet equation.
So Assets less Liabilities equals Equity. Describing cash as equity is another way of calling it an asset, which is exactly how the US Government books it. Reserve Notes and Treasury Bills outstanding are booked as liabilities: Reserve Notes as liabilities of Reserve Banks, and Treasuries of USG. That’s why reserve notes in the vaults of Reserve Banks are booked at zero. Of what value is a debt to yourself? Same with Treasuries in the vaults of the Treasury. To book them as assets to their issuers would be ludicrous.
And yet coins of sovereign issue pull off precisely that trick. They’re not a promise to pay; they’re the thing promised. Joe, that’s the accounting basis of your coin seigniorage campaign. Other cash held by government is an asset to government, because it represents the commitment of banks, including the one on Liberty and Maiden Lane, to assume liability for government’s expenditures. That is, to account USG’s payees as paid. Even as, in state money terms, they continue to be owed.
I’m not an advocate of Positive Money as policy, for all the good reasons Ann Pettifor conveyed; it’s a prescription for penury and stagnation. But it has accounting coherence; it’s absolutely in accord with how Government books coins. As assets to anyone who lawfully holds them, and liabilities to no one, neither the government nor the Reserve Banks.
Please notice as well the word “would” in SEC’s accounting depiction of Equity. It’s an estimate of value, not an account.
With that as reference, it’s on to your specific examples in Round 2.
Thank you for your cooperation. You’ve been most helpful.
They’re [coins of sovereign issue] not a promise to pay; they’re the thing promised.
No, they aren’t. Why would anybody want them if they were all you get? That’s not why I want coins or dollar bills! Coins are valuable because they represent a government promise. That is all. (Except to coin collectors.) The point of MMT is that the human mind can and does understand “promises” in the abstract, without there being any particular “thing promised”. And that is how money and finance has always worked – purely abstract “promises”, abstract relationships, which by prices are used for many various things-which-can-be promised-for-a-while. In modern states, the biggest thing-promissable, sold at various prices to various people, that drives the money-promise is “not being punished for not paying taxes”.
As I have said, it doesn’t matter what the government, what the bank, what anybody says or thinks they are doing – although many other people have pointed out places where governments, banks etc have occasionally understood and said what they are doing well enough. But there really is such a thing as truth independent of what such people and institutions say, and which is beyond their power to alter it – and sensible governments etc acknowledge and say this.
And yet coins of sovereign issue pull off precisely that trick. They’re not a promise to pay; they’re the thing promised.
The sovereign agrees to reduce the amount of a debt (owed to the sovereign by the bearer) by the amount denominated on the coin, in exchange for the coin. How is that not a promise?
All Randy and I are saying is that equity goes on the liabilities side of the balance sheet. Specifically, for the balance sheet to balance i.e. for the asset side to equal the liability side the equity or net worth has to be on the liabilities side. and that explains Randy’s remark.
Anyone who’s run a business and has to do a balance sheet knows that. It’s been a few years since I had to do a balance sheet for my business because I have no occasion to apply for bank credit. But I used to do them a few times per year. And the net worth is always on the same side of the balance sheet as the other liabilities, i.e. the debts. This is really not open to argument. Every business accountant knows what I’m saying because she/he has to do balance sheets.
Moving to the seigniorage point, your narrative on that is quite right. But if the coin created by the Treasury were deposited at the Fed and the fed credited it which I’ve argued else where it must do, then that coin becomes an asset of the Fed and a liability of the Treasury immediately, and if the Fed wanted to redeem that coin at the Treasury, then Treasury would have to redeem it since it is legal tender. However, fortunately, it could then redeem it with another platinum coin just like it. So, the Fed is unlikely to try that maneuver.
It’s also important to note that once reserves are spent by the Treasury and go into the private sector, then that money (the reserves) does become a liability of the Treasury in the sense that it is debt which the Treasury must redeem with tax credits.
@AndyB Sure, here is UK Whole of Government Accounts. In the Consolidated Statement of Financial Position (pp94) contains the term “Financed by Taxpayers’ Equity”.
Sorry, not a chance. The entries in that column are described as “Liabilities to be funded by future revenues”. Thus Taxpayers’ Equity itself is not among the liabilities; rather, the enumerated liabilities draw down Taxpayers’ Equity, whose remaining positive value derives entirely from assets.
Read Godley and Lavoie, Monetary Economics, around page 27 I think.
Owners’ equity, or capital, is not a liability. The basic accounting equation is C = A – L, which can also be written as A = L + C . By convention, one puts liabilities and owners’ equity on the same “side” of the balance sheet – if it is presented in a side-by-side format – or in the same section. That’s because it is easiest to read the balance sheet if one groups together the two categories that, added together, must be equal to the third side. But equity and liabilities are different things. The fact that they are different things is easiest to understand in the case of a sole proprietorship: owners’ equity is just a measure of how valuable the business’s assets would be to the owner if they were all sold off and the business’s liabilities (mainly its debts) were all paid off.
Thank you for accounting 101 lecture. Equity is a claim on the company, as liabilities are, albeit one of a different character. But the equity=claim was Randy’s point, since govt money represents a claim on the govt that the govt must honor via acceptance of its money in payment.
Equity is only a claim on the company in the case of a public corporation, where there is a legal difference between the obligations and claims of the company and the obligations and claims of the owners of the company. When there is no difference between the company and its owners, then owners’ equity is not any amount that the company “owes” to its owners: it is just the net worth of the company, which is part of the owners’ combined net worth. The assets of the company are personal assets of the owners and the liabilities of the company are personal liabilities of the owners. The owner’s equity is just the difference between the two.
In both cases, though, there is an important difference between a company’s capital, or equity, and its liabilities. It’s also not a very important issue as far as government-issued coins are concerned.
Never mind Godley and Lavoie. Nothing wrong with them, of course, but, more directly, just google “balance sheet accounting” and find an example of a balance sheet. There you will find “net equity” on the “liabilities” side of the balance sheet.
But I wanted to make him flip through the book. . .
Sorry!
The reality is that there is no palatable solution.
The US represents 5% of the global population and consumes something like 25% of the planet’s resources. If it wants more fairness internally, it will have to accept that it needs to share with the ROW and drop its resource consumption to 5%.
I don’t see MMT dealing with this issue. It seems to perpetuate the 25% which will inherently create more global flare-ups and wars.
Just because MMT cannot deal with that issue does not mean that it is not a reasonable theory or that it cannot shed light on that issue.
And IMO what MMT says about that issue is that jiggering with the money will not deal with it no matter what monetary theory you use to guide the jiggering.
It is regulatory, tax, and fiscal policy (and also foreign policy), not monetary policy that will deal with that issue. And it must be dealt with over a political class that has zero understanding of how to make that work. And a major part of those policies is beyond the scope of what is usually considered economic policy.
If I understand correctly, most MMT proponents like MMT because they think it can bring fairness.
I do not see this at all because the foundations are based on global exploitation which ends up coming back home.
Global exploitation? And no examples provided, fittingly.
LOL!
Since MMT is descriptive and the US has been exploiting emerging markets, we can conclude that the foundations are based on exploitation.
The prescriptive part of MMT is starting from a base where the US is consuming 25% of resources…. I have trouble believing MMT will make sure that the resource distribution is fair globally so that Americans can end up only consuming 5%.
That is not the job of MMT or any description of how a system works. That’s like criticizing a manual because it can’t sing.
MMT is pretending that there is no resource distribution problem and that the US can keep on consuming all the energy it wants completely disregarding that there is resource war building up worldwide.
For example, Norway sold a lot of barrels of oil and now holds a whack of US treasuries in their generational fund … do you think these barrels should have stayed underground for posterity or do you think these US treasuries will pay off over time?
You’re a joke. Monetary theory isn’t about resource distribution.
Show a specific place where MMT has said anything like this, or GO AWAY:
“MMT is pretending that there is no resource distribution problem and that the US can keep on consuming all the energy it wants completely disregarding that there is resource war building up worldwide.”
In fact, we all believe precisely the opposite, but we’re monetary economists so we write about MONETARY ECONOMICS. Go look at any monetary economics text by any school of thought and show me where those issues are ever dealt with. And just because the issues aren’t dealt with doesn’t mean we disagree with you–Randy didn’t talk about slavery either, so I suppose he’s in favor of it in your view.
“Monetary theory isn’t about resource distribution.”
Maybe that is the problem. Money, or any euphemism you like to you for it, is about real resources, including labor. Don’t pay your taxes, and people with guns put you in jail. Don’t pay your mortgage, and people take your house…..unless you own thousands of houses, and than the FED creates, or credits, or does something, and for some reason who get to keep the houses, and the debt somehow goes away….
http://www.themonkeytrap.us/twenty-important-concepts-i-wasnt-taught-in-business-school-part-i
“The chemical potential energy available from the burning of things (e.g. wood) is rather astounding when compared with the energy which we supply our bodies in the form of food, and the fossil fuels of coal, oil, and natural gas burn even hotter while also being much easier to store and transport. We quickly learned that using some of this heat to perform work would transform what we could accomplish in massive ways. One barrel of oil, priced at just over $100 boasts 5,700,000 BTUs or work potential of 1700kWhs. At an average of .60 kWh per work day, to generate this amount of ‘labor’, an average human would have to work 2833 days, or 11 working years. At the average hourly US wage rate, this is almost $500,000 of labor can be substituted by the latent energy in one barrel of oil that costs us $100. Unbeknownst to most stock and bond researchers on Wall Street, this is the real ‘Trade’.
The vast majority of our industrial processes and activities are the result of this ‘Trade’. We applied large amounts of extremely cheap fossil carbon to tasks humans used to do manually. And we invented many many more. Each time it was an extremely inefficient trade from the perspective of energy (much more energy used) but even more extremely profitable from the perspective of human society. For instance, depending on the boundaries, driving a car on a paved road uses 50-100 times the energy of a human walking, but gets us to where we are going 10 times faster. The ‘Trade’ is largely responsible for some combination of: higher wages, higher profits, lower priced goods and more people. The average american today consumes ~60 barrel of oil equivalents of fossil carbon annually, a ‘subsidy’ from ancient plants and geologic processes amounting to ~600 years of their own human labor, before conversion. Even with 7 billion people, each human kWh is supported by over 90kWh of fossil labor, and in OECD nations about 4-5 times this much.”
“Oil is a renewable resource, with no intrinsic value over and above its marginal cost… There is no original stock or store of wealth to be doled out on any special criterion… Capital markets are equipped to handle oil depletion…It is all a matter of money”, M.A. Adelman, Professor of Economics, MIT Source”
We’ll see about that. As aquifers are drained, the cost of purifying, as well as transporting water vast distances is going to start to occur. I don not think monetarism is going to be the solution. The market is not capable of even grasping distribution based on FAIR. But when it comes to distributing water, no society that can’t do it fairly will be a surviving society.
Money did not emerge as a tool for resource distribution, so I disagree with your assertion.
Most leading economic theories have been created by people in countries that can steal other countries’ resources so of course resources haven’t been an issue.
Not to mention that one hundred years ago, our planet could still support a lot of environmental exploitation.
Fresno Dan is talking about now, the present moment, not whether something emerged or not in the past.
Fresno Dan, by the way, that was a great quote, presenting things from those perspectives.
Ditto
That’s exactly the point. Resource distribution is a huge factor and all economic theories are WRONG because they don’t account for resources or externalities.
It’s not that they are right or wrong. (I challenge you to come up with an all-encompassing economic theory that is “right.”) It is that most ignore or undervalue the resources and services provided by the biosphere/planet. This has been a constant and valid critique of “capitalism” and corporate organization for a long time. What does that have to do with MMT or the post?
I am a permaculture-loving, tree-hugging soil-worshiper and believe that we are quickly reaching the point where we cannot prevent a huge planet-wide ecological catastrophe (it is probably too late already). I am also a firm (if somewhat unqualified) proponent of MMT. You would get a lot farther with MMT proponents if you would first bother to understand it before pontificating and making yourself look foolish.
If everyone understood MMT, we would all know that we should be focusing our efforts on what we do and how we do it rather than wasting precious time and energy discussing money, the monetary system, and finances which are all simply “tools” we use to create the society that we inhabit (and yes, these tools have been used to create a sick, sick society). We could focus on what really matters rather than arguing about what matters little in the big picture.
What matters, IMO, is that we start creating regenerative societies yesterday (sustainable will no longer cut it). What matters is that we examine how we live, what we consume (re: energy, material and sustenance) and what effects our activity and choices have on the planet. Instead we argue about money and economics, taxing and spending. We are arguing about which tool to use and how to use it while the house becomes derelict and collapses on top of us. Brilliant!
I’ve never heard the term “regenerative society” before. What does it mean?
Moneta,
You are asking MMT which is descriptive of the economy to prescriptively force the economy to do what you want it to/enforce your values(which I am not denigrating). MMT, on the other hand, hopes to allow all of us to affect the economy rather than be forced to subsidize the elite 1%.
gotta say I agree with Moneta on all this stuff…If the military budget is not adjusted for the well being of every citizen then we effectively have no citizens, therefore we have no debt; therefore we have no government and etc…
Military spending does reflect the Nixon-era promise to protect some OPEC members…part of the stealth non-fiat money (that, black gold money) agreement.
As long as we want the current (situation) currency, we will have to be prepared to fight.
Due largely to the military adjusting, the wellbeing of our citizens is in better shape than that of, say, Argentina, even as we hollow out manufacturing, exporting jobs and consume all the imports we desire.
Hey Susan
Problem with Monetas comment is that MMT has never claimed that following their prescriptions leads to a problem free world. The resource consumption/distribution issue exists with ANY monetary prescription. MMTs value, as I see it, is that when you hear people who might be discussing the energy issue say “We can’t afford to invest in solar” you know they are wrong. Its not a dollar issue its something else. Lets stop talking about affordability. People use “affordability” when talking about money and often times switch mid discussion to make it a real resources affordability issue, which is something COMPLETELY different. If you want to talk about what we choose to spend our money on…… lets do it, but if you want to talk about whether we have enough dollars to do something as a united public entity, which is what is usually the starting point of these discussions, then most current economists answers are wrong.
I know you’ve seen it. A politician or economist gets on TV and talks about how we are going to “pay” for some proposal.
Its always a zero sum proposal where the money to fund something comes from a tax increase here or a spending cut there. MMT exposes that entire conversation as at worst a lie and at best ignorant folly. Just because we might recognize the folly though doesn’t mean that the proposals we make will actually be better for most of us.
MMT economists, I was going to add most but I can’t think of one I wouldn’t characterize this way, are interested in a society where a broad middle class is present to consume goods produced by those godly (not Godley) “job creators”.
If you read their work you would see that many of Monetas charges are off base
I read Moneta this way – it’s not whether we can afford to invest in solar, but whether we can afford to keep consuming like we are consuming.
The real problem here is that MMT economists agree with that. This whole thread is a straw man.
Randy Wray just posted this response at Economonitor to a commenter a few days ago:
“As I’ve said many times before, we require sustainable growth. We need to think about growth in a much different way. We need to move away from growth based on increased thruput (of resources etc). Capitalism requires rising nominal incomes; it does not require rising natural resource use and accompanying environmental disaster.”
Sorry, can’t link b/c of spam detector.
What is there to agree with? Moneta is the most unfailingly negative commentor at NC. Every single comment begins from “There is no hope, everything sucks, give up and die”. She never defends a position, never acknowledges the argument of the person engaging with her and never adds anything constructive. She just encourages passivity, which is ironic: she is a willing participant and advocate for the things she claims to oppose. There’s a medical diagnosis for this:
http://m.youtube.com/watch?v=CY0Qjx5K53o
The reality is that there is no free lunch. Sometimes some generations get to suffer because of the follies of the previous one.
If you read some history books, or even visit the Louvres, you will notice that human existence has been full of suffering.
You will argue that there does not need to be any suffering. I will argue that suffering is part of life and you will call me a pessimist for saying this.
In the animal kingdom, lions eat gazelles. Am I an optimist or a pessimist for saying that the lion is in a better position than the gazelle and that nothing can be done about this?
Often doing something makes you feel better but it really makes no difference. The trickiest part of life is knowing when you actually make a difference.
Wow, life is suffering. No kidding, says the moderator who has to plow through endless reams of off point bloviation.
There’s an entire category of MMT critics who fit that description. Often as not they are people who fully understand MMT. They’ve read and understood the manual, cover to cover and they’re angry that it won’t sing.
The tune they want it to belt out varies from critic to critic, sometimes the hobby horse is natural resource depletion or climate change, sometimes it’s productivity, sometimes it’s form or size of government, sometimes it’s inequality. Faulting MMT for not taking up a banner for the cause is the common thread–if the manual won’t sing with me, it’s against me!
Well-meaning progressives, I think, put too much burden on economics when they want it to fight their battles for them. You have to carry your own flag to the field and fight your own battles. Use MMT to get the whole ready, fire, aim thing sorted out and avoid shooting yourself in the foot.
EXACTLY.
If we don’t say precisely what they want us to say, then we must be against them.
People describe how Microsoft Windows works.
They take the manual that describes the magnificent object everywhere.
To those who complain about the object, they urge more time devoted to the manual to understand how the system works.
‘You don’t like the description?’
‘No, I don’t like the object.’
‘Don’t complain about the manual.’
‘Well, every time I read the manual, I am reminded of the object. So, the complaints come at the same time. But correlation is no causation. I am really complaining about the object, which happens every time I read the manual.’
The faults you attribute solely to MMT seem to apply more accurately to the whole of economics.
Yup. And MMT only extends them. MMT will help kick the can down the road.
The 1% are trying to protect themselves from the global redistribution of resources that should happen. And the MMTers want the Americans to get protected from this redistribution.
It is not dealing with our inherent systemic economic problems.
So you think that MMT economists don’t see a “redistribution” as necessary?
They push for a job guarantee, which means anyone anytime can go earn 12$hr with health care AND SS benefits (Actually the 12$ is my number, they realize that the number will be negotiated)
How do you think that would affect the current hiring dynamics? Every employer would know that any employee they hire would have a legitimate opportunity to say NO and wait for a better offer while making 500$ wk with health care bennies. Right now, people with masters degrees are desperate to get almost anything ( I know cuz my son recently finished a Masters and is looking for anything, his field or not). This wasn’t the case 10-15 years ago and it doesn’t “have to” be this way now. Its our choices, not some sort of law of the universe that has made us lay off millions of hard working people as many economists would have you believe.
thank you.
By your own argument any knowledge acquired since the U.S. started consuming 25% of resources must be abandoned as unsustainable because that’s all MMT is; knowledge. Again we return to this bizarre notion of “tainted knowledge”, that something noble is achieved through ignorance.
Ah, the old “If my opponent is serious, why will they not engage me in a pie-eating contest”? argument.
Pure derailment and distraction, to be taken in the unserious spirit it’s offered. (“How can MMT be palatable if it does not bring [World Peace|proper diet|universal brotherhood] ….”)
That said, show of hands: Who thinks neo-liberalism and austerity are the way forward to solve “resource consumption” issues? (Accepting that frame for the purposes of argument.)
If you want to believe that the US can keep on exploiting the ROW with impunity, it’s your choice.
It believe today’s problems are due to this view.
Still waiting for a specific example from MMT literature . . . . doubt the wait will ever end, though. Maybe I’ll be surprised. That would be nice.
First, you don’t show I believe that because you can’t. Second, your point has no relevance to Wray’s post at all. Third, believe what you like. People believe all kinds if things. So what?
I’m still fairly new to MMT so I’m apologizing for any ignorance in advance. I welcome corrections to my misconceptions.
First, I don’t think neoliberalism and austerity are the right path forward but then neither is groaf/jawbs/prawgress and MMT seems to be hailed as what will jump start the world economy. What real good is done by catalyzing our society’s proclivity for excessive resource consumption? Isn’t that just rearranging the deck chairs on the Titanic or making sure YOUR radio station is on as the car of humanity goes over the cliff? From what I know, MMT seems like a good idea… if done in a lab environment or after a societal collapse and “reset” (a mere billion on the planet and it’d be sweet! 7+billion, not so much). I think the problem pro-MMTers are running into is that it tends to get framed as a panacea for the economy and society as a whole while ignoring the unbelievably interconnected nature of the world. While it seems to get the financial rentiers out of the picture I am failing to see how it would deal with the current set of industrial oligarchs who would continue business as usual. You remarked in a post further down that resource allocation is not part of MMT and should be done through politics. I think this trivializes the link between money and resources (every resource takes some sort of labor to produce/use/bring to market and beyond Maslow that driver is money). You can’t create infinite money (debt/interest free or not) that is exchanged for finite resources (even renewables and human labor are finite) and have a workable system. This is the problem with sustained growth on a planet that isn’t growing with a society that isn’t interplanetary capable (yet, not that this couldn’t be extrapolated out to the universal scale) no matter what the money system. Further, when politics is controlled by the elite what does it really matter what our monetary policy is? Again, while MMT might temporarily help us out of our current situation, I think the main criticism (I think this was Moneta’s main issue, I may have interpreted it incorrectly) is that it only kicks the can down the road on resource and population issues and may even bring them about faster, so discussion of one without the other seems disingenuous and less than intellectual. How close do we want to get to planetary carrying capability before we start addressing that problem?
That’s also how I see it.
Moneta, see just below.
Shorter moneta: MMT bad because no world peace.
That’s about the size of it.
Translating: I hate trains because they don’t fly. Simple category error.
Notice also that Moneta never, despite repeated requests, supplies no positive alternative economic theory. No not only does Moneta not get to fly, Moneta doesn’t even get tontake the train.
First of all I said that the US consuming 25% of world resource vs. a 5% world population stems from exploitation and you ask for proof.
The fact is you don’t like the truth because it does not fit with what you want for the US and no matter what example I bring, you will shoot it down.
Speaking of desires, that’s one heck of an important metaphysical variable…. what do Americans really want anyway?
Building a bridge is quite easy. You follow the rules of physics and you can get yourself a nice bridge. But even then, you still have to determine whether you want that bridge to stand up 50 years or 500. That last question falls into the metaphysical.
The economy is multi-variate with many feedback loops, it is bound by the laws of nature but we have enough leeway, using the metaphysical, to create the economy we want. And it can last a while but the more we disregard Mother Nature, the faster she will let us know.
For the last century, we have been trying to build an economic system based on science when it is so far away from science it is not funny. That’s why we have ended up with leaders using useless spreadsheets and tweaking them to get the results they need to go ahead with the metaphysical wants they started with in the first place. The vast majority of decisions are metaphysical.
Ironically, over the last century, by focusing on the hard sciences, we have totally denigraded the social sciences or humanities which are the ones that could help us with the metaphysical choices we need to make.
Speaking of metaphysical, let’s start with fairness and equality which seems to be at the heart of this MMT movement for many. Has there even been a discussion about what fairness means? Maybe for one individual it means that he should be allowed to drive a Nascar whenever and wherever he wants, with cheap gas, and for the person next to him it’s about not having to breath Nascar fumes or hear Nascar noise. Oooops… they thought they were fighting for the same cause!!!
So when MMT prints that new money, who will get it, Fresh Air Joe or Nascar Bill? In our economic world based on collateral, something tells me Bill will get it.
I have spent my entire life in the hard sciences proving and maximizing efficiency because that’s what the economy currently values. But it’s a farce. Humans need the metaphysical and it’s time to focus on the metaphysical.
– I believe that 300M+ countries are doomed to fail most of their people.
-I believe that our systems are too big and need to be scaled down to human size
-I don’t see how MMT can lead to the 2 points above without FIRST having a conversation on the metaphysical… but MMTers keep on saying that politics is another issue. If you deficit spend now, you will be repeating the same mistakes of the last 40 years because Americans have not dealt with the metaphysical part of the economy first.
I’m not here to prove anything because there is nothing to prove. You can prove anything at this point in time. All you need it more political weight and your ideology will get the time of day… but MMTers keep on saying that politics is for another time.
I am here to ruffle feathers and to kickstart a metaphysical conversation that Americans need to have in order to move ahead.
People can insult me all they want. It makes me sad but I expect it.
Have a nice day!
Moneta, I think your assumption is that MMT is somehow biased in its analysis and prescriptions towards the United States. But MMT is international with leading MMT figures speaking and consulting in Europe, Asia, Latin America, and Australia. Ask yourself this question: If every nation followed MMT policies would the US still consume 25% of the world’s resources? Somehow I doubt it, since productivity would grow in all nations, and over time the desirability of exporting to the US would decline. Other nations would become much more interested in their own consumers and in importing goods and materials to satisfy domestic markets. Trade would become much more balanced and economies in other areas would modernize much faster. All of that would decrease the American share of consumption of the world’s natural resources. Our technology would have to adjust for that; but using MMT policies I think that would happen much faster than now.
Also, I appreciate your obvious concern about natural resources and the environment, and I have strong concerns about that too. But, I don’t write much in that area because I think the first order of business is to line up government in back of deficit spending so we can have programs for reinventing energy foundations and countering climate change among other things. That said, some MMT writers do focus on the environment, resources, and climate change from an MMT perspective, google work by Mat Forstater, Michael Hoexter, and Pavlina Tcherneva and I think you’ll see that.
Finally, I think the views you’re expressing about MMT reflect only limited reading of MMT literature. If you read more widely you’ll see that many of us are very concerned about resources and their distribution and about the environment and the climate. You should join us, MMT is perfectly friendly to people who would like to relate it to the foregoing concerns.
I like to think if it is “global” there are rules and no nation can play the loopholes. For which we are so infamous.
I can’t guarantee that. But if nations try to game the system using loopholes, then we have to hold politicians responsible to stop that. MMT doesn’t have any magic formulas for making that happen.
During your real estate bubble our CDN dollar was tanking… it went down to 63 cents and many leading economists, one who worked with Greenspan, recommended that we peg it to the US dolar because it was collapsing and Canada was going under.
During that time, there was a huge US demand for Cdn lumber and since our dollar was low, the Cdn exporters were dong better than the US lumber producers. So the US put tariffs on our lumber under the pretext that we were dumping. Canada fought but the US did not budge until the bubble burst and the Cdn dollar surged…
All this to say that the only country that can use MMT is the US. Americans do not realize how much they bully every one else around.
But even then, the reason why the US can deficit spend is because of its past glory which has given them the reserve currency. But this reserve currency is protected by the military which is there to force other countries into eating US dollars.
So IMO, you can keep on using MMT for deficit spending but don’t expect more equality for the US population. Just expect more wars and military spending. If you cut your military, reduce your bullying power and let the people spend it won’t be long before the bullied countries stop sending you the oil and resources you need… they will finally be able to keep it for themselves.
And I have spoken to a LOT of people from all parts of the world and we tend to agree on the bullying… it seems to be the Americans who don’t seem to share this point of view. I wonder why?
The other issue…. alternatives
IMO, we should practice some austerity… enough for the people to realize that we need to become more energy efficient. When the population comes to its sense, then you deficit spend.
Here in Canada, the credit crisis was averted by using CMHC… mortgages outstanding have gone from around 800M to more than 1.2 trillion in 5 years. Put this in perspective… it took 75 years to get to 800M and 5 years to tack on 400.
The credit crisis sent us a clear signal that we needed to change but the money printing sent the signal that all was OK.
The Ontario government invested in alternative energy AT THE WRONG TIME. This extra energy during the real estate boom put oil on the fire. It sent the signal that the energy situation was fine, that we could keep on building McMansions in burbs and exurbs.
Now Ontarians are upset. Electricity prices are shooting up and instead of seeing the energy crisis for what it is, they associate this increase entirely with corruption. Most don’t even realize that one third of the supply needs to be replaced.
My philosophy is that yes you need deficit spending but you don’t hand out easy money when the population is going to spend it exactly same way it did leading up to the crisis. There is a good time and a bad time.
Given your view that “all economic theories are WRONG because they don’t account for resources or externalities,” I’m curious to know how you came to this conclusion.
Which country has set up a balance sheet detailing the value of ALL its assets including resources and human capital? And accounting for the deprecation of said assets.
None. We are globally working with pseudo balanced sheets.
During the US real estate bubble, I remember one leading analyst jokingly stating to me that if you netted all the gains from the derivatives products, you’d have a positive number when it’s a zero-sum game.
You’re afraid of self-empowerment.
Thanks to MMT you now have access to the same knowledge possessed by elites, and you don’t use it. Instead of demanding someone else do hundreds of hours work to address your personal concerns, draw up your own plan. You do nothing but tear down other ideas, in fact you are the most unfailingly negative commentor on NC excepting JuneTown. I reject your fatalism and your tireless efforts to rob hope from the rest of us.
If you want to curl up and die, fine. We’ll keep working for a better world and you can continue directing sniper fire at our backs. Enjoy the self-inflicted hopelessness you wallow in.
Ben, +1000 on line 1.
I’ve heard it said that one issue with the American left us that, deep down, they don’t really want to exercise political power (which, as a prophylactic, let me note that any general assembly must do).
that’s certainly true for people who want a perfect theory to do all their work for them, an ant-MMT talking point that crops up every so often.
“However, the currency spent by government and accumulated as net financial assets won’t be “debt-free money” but liabilities of the Fed (FRNotes and FRReserves) and Treasury (coins).” Since there is no interest paid on debt-free money their is no liabilities as there is no interest paid on the debt-free money only the obligation to pay in government money. The reason for money is a uniform method of accounting, convenience and controlling the amount of money produced. Bonds are not needed by the government or treasury note as both create interest debt. We also need to end fractional reserve banking as it creates money.
Interest payments are not a necessary condition for indebtedness as ant fnancial assets issued by the central bank are still liabilities of that bank. There is always a debt.
Which is what Dr. Wray stated in the post.
Ben, the whole idea is to end the Federal Reserve as the central bank. This is why we have debt based money; the fed is staffed by wall street bankers, an who’s interest does that serve; certainty not the public. Think where the economy would be if home owners were bought out of debt instead of the people who created the problem.
The Fed has multiple functions. One of those functions is to act as a clearing bank for payments among private banks. The US has had a system without clearing banks before. It has had a system without a central bank before. Neither of those arrangements guaranteed financial stability either. Every monetary system the US has had so far has not been capable of itself to prevent the exponential leveraging of leverage, resulting in a subsequent crash or the draconian austerity subsequent to that crash of trying to make money “real” through some gimmick or another.
Getting rid of the Federal Reserve obligates one to a proposal of what to replace it with. And an explanation of how that will not result in yet another leverage bubble.
TarheelDem, central banks have been a bain on all societies. Since the first one in 1609 which was the Bank of Amsterdam. The government only needs to keep the private sector from creating new money causing inflation and devaluation. The government only needs to control the amount of money in the economy. That amount can be controlled threw taxes. No need for and government bank.
As we know all people need restrictions, so the amount of money in the economy would be base on the average of the GDP of the past ten years.
So what’s the plan ? Back to the free banking era. Where the average lifespan of a bank was 5 years, bank runs were common, and notes issed by different banks didn’t trade at par.
The life span of a bank is STILL 5-10 YEARS. (sorry for yelling). Only now, the depositors get a few dollars back and the bankers go on to ruin another bank.
Link, please. That’s just not true. Calculated Risk has been faithfully publishing the list of failed banks and it is no where near as large as it would have to be for your claim to be true.
Banks ARE bought all the time because banks want to increase the size of their franchise and it is widely believed that big banks are more efficient than small ones. For instance, my perfectly good bank Commerce Bank was bought by TD Bank.
The data actually doesn’t support that, but the acquirer makes headcount cuts to his bank and the purchased bank (the efficiency stats basically say that either bank could have made the efficiency improvements on their own, but the merger gives the excuse for making them). The other motivator for bank consolidation is that big bank CEOs are paid better than smaller bank CEOs.
We need a bank of sub-bacterial assets, which naturally inflate our gross perception of reality, so that there will never be a lack of “money.”
Mike, in the new reforms to banking the depositor’s are depleted of funds first in bank failures. Do not know how this squares with deposit insurance.
lolcar, leave banking to private sector, criminalize violation of laws. The government is the only entity to print money.
Money itself likely has been a bane on all societies. Banks just allow those with the love of money to live only with their love.
What the most recent bubble and bust shows is that almost 200 national governments act so as to create trans-national spaces in which private lenders can create leverage on top of leverage. No different from the collapse when money was notes on leveraged future shipments of cotton in the 19th century. Just now in trans-national jurisdictions. And what some governments want to do is institutionalize that irresponsible trans-national space instead of regulate it.
The supply of money only needs to be that sufficient to service the demand for goods, services, investment in means of production, research, information, and other factors that potentially could lower the cost of production in future time periods to list just a few needs for money. That is not a trivial judgement, and it cannot be reduced to a mathematical calculation. What is clear is that economies left to themselves without political decisions by someone or some collective with a view of the systemic preservation of the economy cannot automagically deliver those judgements.
Given that monetary policy is almost entirely a waste of time there’s no reason we can’t dismantle the Fed. Dr. Wray is on the record suggesting we fold the Fed’s critical functions into the Treasury, and there’s no reason to continue allowing it set the short-term interest rate. We do have a commentor here who thinks the Fed’s uselessness is evidence it does a great job, but we’ll ignore him.
However we will continue to need Fedwire for the payments system and a lender of last resort. I see no reason to take chances with the ability to accesd one’s checking account or deposit a paycheck.
When you pick up your coat at the cloakroom, do you pay interest on it?
It’s voluntary. Can you always eat a voluntary ham sandwich?
It’s not “voluntary.” It’s a debt, exactly as Wray says.
Beene you’re really missing the point. “Debt free” money is not your debt, it’s the Government’s debt, which it can only redeem by accepting payments to it made in that money. Currency and reserves are just as much a debt of the Government as debt instruments are. It’s just that debt instruments like Treasurys are redeemed by the Government by paying the holders of those instruments in currency or reserves for both the principal and the interest specified in the instrument. But nevertheless, debt instruments, currency, and reserves, are all “debt.”
Also, MMTers point out all the time that the Government doesn’t have to issue bonds in order to deficit spend. I’ve written a book about that in fact: http://amzn.to/Z7kG5q
That’s a big problem. Ignore private debt; make government debt completely sovereign. Then what do when private debt overwhelms the system, aka NOW? We are really not talking government debt at all; we are talking the impoverishment of all the people who once made up this country. And a “government” that has morphed into a joke. Hence a currency which is also a joke. Without good faith, fully enacted, we have the real zirp.
“Then what do when private debt overwhelms the system, aka NOW?”
We have a debt jubilee and also compensation programs for those driven into debt by financial speculation. We fund the compensation program with money created by the Government without associated issuing of debt instruments.
There is ALWAYS a liability created, regardless of whether or not interest is paid. (You need a refresher on D/E Accounting). The liability is that the government has to accept the debt in satisfaction of billed tax obligations. Federal debt is identical to a federal tax credit.
Two things. The tradition that debt be repaid with interest is a legal/social construct. There is no reason that all debt contracts include an interest component. It was my impression that this debt-free money idea was, at least in part, the idea that the legal tender of a nation could be created by the sovereign powers without incurring a debt that, by contract, requires an interest payment. At present, a dollar, a debt as Dr. Wray reminds us, represents a dollar loaned at interest by its originating bank. Perhaps a term like double-debt money or some such might be a better name as Wray’s comments point out.
Ok, so only one thing … lost the other as I went.
That seems to be what some commentors here arw arguing, but if we go to the Positive Money website we find it clearly argued that principle is considered debt as well. So it’s possible a lot of PM advocates don’t know much about it.
I think the big issue regarding arguments between supporter of Positive Money and supporters of MMT is understanding the difference between money as stock and money as flow. I started out with Positive Money and then graduated to Steve Keen and from there MMT. My impression is that Positive Money is based on a layman’s understanding of our monetary system (although there are a couple of academics involved) and is very much wedded to the notion of money as stock, hence the focus on interest, debt and redistribution.
I think MMT and Positive Money ultimately want the same things, I just don’t see the PM precriptions as technically feasible, nevermind the political aspects. I think you’re right in that advocates tend to focus on things like interest whuch hurt a lot of people, and there’s nothing in MMT that says you can’t have institutions that offer loans free of it. I’m hoping some of them will come to understand, as you and I have, that MMT offers a vast array of options for addressing their concerns.
Interest is the bribe you have to pay in order to get the loan. Lenders always risk not being able to collect even from otherwise honest and credit-worthy borrowers. Even the US government, one of the most honored borrowers, ran afould of a Congress of balanced-budget crazy crackpots trying to repudiate a portion of the national debt. It only benefited from the distress in most other countries of the world.
More insidious than interest are all of the various processing, servicing, and management fees the borrower has to pay on the loan. These are just additional bribes to get the loan processed.
Yves, you’re mixing up two ideas here that need to be examined separately. Thanks for the article, but you have it mostly wrong.
Er, had you given consideration to the idea of explaining why?
Yes, Mike, I had the same thought as Lambert. Why just add an unsupported opinion? Why would Yves pay any attention to that? Why would any third party care about it. As far as we know you’re just a guy named Mike who won’t tell us anything about why he believes what he says he believes.
When Alexander the Great conquered the Persian empire, he and his generals found huge amount of precious metals. These metals were seldom used as money in the local economies, but the Macedonians used them to pay mercenaries and bolster their authority.
Didn’t those metals become ‘money’? As far as I know (but I’m admittedly rather ignorant in this field), mercenaries accepted the money because gold and silver are intrinsically valuable (in practice at least), not because they could discharge any debt to the state.
No, not everything used in trade is “money.” As far as being “intrinsically valuable” is concerned. They may have that kind of value to some people, but to others they’re just a means to an end. Food, on the other hand, is intrinsically valuable to everyone. However, food is generally not considered money, is it?
Thats because food is perishable and money needs to last indefinitely.
MMT is descriptive of our current system, and it also has a message that progressives (the real kind, not the Democratic fauxgressive kind) ought to welcome, that the Federal government as a sovereign does not need to run a balance budget, and that a balanced budget is in fact destructive when the economy is as slack as it is now.
———–
I would agree with that if the money injections did not focus on materialism. However, most of these money injections will be based on hard assets (infra, real estate, cars…) which perpetuate the global mal-distribution of resources.
Therefore, the conservative in me loves MMT because it means Canada will benefit from US policy as it tramples emerging markets and protects our way of life. But the progressive in me, hates it because our over consumption of resources will trample other countries and lead to more wars.
True progressives care about all people not just the ones in their own country.
That’s true. But true progressives also recognize that they owe heavier obligations to people they’re in the same boat with than others who choose to be in other boats. I’m concerned about people in all countries, but I have a special concern for my fellow citizens. I hope that’s not less progressive of me. I don’t think it is.
I understand. I have been dealing with this cognitive dissonance for over a decade now. I used to believe that we could find a solution that would benefit the planet but my personal experience has convinced me that this is a moving train. I want the US to print because I think it will benefit me. But this makes me evil because it means many other countries and their people will fail.
Even then, I am not convinced it will work. Let’s say US resource consumption drops from 25% to 20% of world resource production and the government deficit spends. Per capita, there would be a drop and a general feeling of falling behind. The population would feel like government is still not printing enough…
I am not sure we can be individualistic at this point in the cycle and expect good results.
I am actually thinking that our systems should be shrinking and not getting bigger and more cnetralized, that the US is getting too big and wondering if 300M+ countries aren’t doomed to failing most of its people.
Moneta: But this makes me evil because it means many other countries and their people will fail. The US is printing right now, and has for centuries. The deficit records how much money was net printed each year, the National Debt the net since 1776.
Today’s economies are demand – constrained, not resource / supply constrained. Oil is the only important exception, and the USA, Canada, the world could do a hell of a lot more to remove this constraint, for alternative energy, etc. Pretty much we have been trying very hard to not advance science, technology and other energy sources, but still, oil is rather less important to today’s economies than it was in the 70s.
Demand constraint – and the constraints always bite mainly on the poor in every nations & the poor nations – means that other countries will be like Canada, and benefit from the US printing more money, especially on the right thing – full employment – a JG focused on doing sane things, like a Green New Deal focused on addressing environmental problems and resource depletion. Not printing (on such good things) is what will make the USA and other countries “fail”. IMHO, you have things quite backwards. What you seem to think is “good is a proposal for resource destruction on a colossal scale. What you call “evil” and making other countries “fail” – printing enough money to fully employ everyone (doing sane and good things) is what Abba Lerner called an “international moral responsibility” of the USA (& every other country) back in 1950.
“Printing”, abolishing austerity and unemployment forever may be absolutely necessary to any reasonable solution to environmental problems the human race is likely to face, like global warming.
“I want the US to print because I think it will benefit me. But this makes me evil because it means many other countries and their people will fail.”
Why does it mean that many other countries will fail?
It’s highly unfortunate that MMT is not a deus ex machina, and that resource allocation is done via — [gasp] — politics. Personally, I feel that politics is best done based on accurate “descriptions.” I take it that you would prefer to keep people ignorant if accurate descriptions lead to policy outcomes that you do not support?
MMT “money injections” would focus on creating full employment and price stability, as well as a host of humanistic goals, so what’s “materialist” about that? Why do you think that MMT is more “materialist” than you are?
+100
I confess that I do not understand why MMT embraces ZIRP when it is clear that ZIRP does not reduce poverty.
There is a confusion in this discussion between (1) Debt-free money [a concept that would violate the very notion of double-entry book-keeping and the symbiosis that one person’s debt is another’s claim) and (2) interest-free money.
These two ideas are separate. Randy is looking at the interest-rate burden, both on the economy and on the government’s income and expense statement, and sees that this burden should be lowered.
But Shylock’s loan in the Merchant of Venice was a zero-interset loan!
Most MMTrs have MANY far-reaching reforms in mind (such as what Randy Wray wrote in his last article). But these systemic reforms are above and beyond the basic MMT idea itself, which is that governments need not borrow for spending in their own currency.
“which is that governments need not borrow for spending in their own currency.” Michael Hudson
Love reading your post. The above quote is really great coming from an economist.
MMT has probably said that 20k times, but when Michael says it it’s ok apparently?
Stf, my problem with MMT is it keeps bonds, central bank, and fractional reserve banking.
Bonds . . . Against them
Central bank. . . Against.
Fractional reserve banking .. .. We don’t even have that now.
stf, the of the debates about banking regulation at this time, is the difference in reserves required in Europe and the USA. This is what I call fractional reserve.
Fractional reserve banking – Wikipedia, the free encyclopedia
Fractional-reserve banking is the practice whereby a bank holds reserves in an
amount equal to only a portion of the amount of its customers’ deposits to satisfy …
http://en.wikipedia.org/wiki/Fractional_reserve_banking – 150k – Cached – Similar Pages
Ah, yes, that scholarly source, Wikipedia, that you’re never allowed to cite as a scholarly source without being laughed out of an academic discussion.
fractional reserve banking means banks are constrained by reserves–every econ textbook presents it that way. Go look. That’s not the system we’ve had since the gold standard in the 1930s.
Not to mention that reserves since 2008 have been a bazillion percent of deposits, not any prescribed amount. And not to mention that it was widely recognized that “reserve requirements” in the US had become essentially voluntary by the late 1990s. Or that about 10 nations–including Canada, UK, NZ, Australia–have 0% reserve requirements.
Mathematic-academically,
1/2 is a fraction
1/10 is a fraction
0/1 is also a fraction (specifically expressed as a fraction here).
0% reserve requirement is still fractional reserve banking.
Debates about banking regulation in the US and Europe have had NOTHING to do with required reserves. Required reserves have NOTHING to do with bank regulation. This is well established in the academic literature, and I’ve contributed to it numerous times myself.
Well, I must be confused. if it’s not the banking regulators who require bank reserves, who does? (In those countries which still require their banks to have reserve funds, of course.)
Reserve requirements are about achieving an interest rate target because they make the demand for reserves more stable and more forecastable. The CB’s open market operations are then more easy to plan and the target rate is more easy to achieve.
The alternative is a system like CAnada’s, with no reserve requirements but different mechanisms in place for achieving the target rate. The many countries that moved to 0% reserve requriements still have all kinds of bank regulations.
Yes, in earlier times RR might have been related to regulatoin. But not anymore, and not for several decades.
Again, this is not controversial in the monetary economics literature, heterodox or otherwise.
We gotta start somewhere; but what else must we do to save, literally, the people whom the system has utterly, and probably intentionally, failed? Not to mention the mortally wounded planet.
Dr. Hudson, coins do not have the debt deflation characteristic that bedevils debt-based money. When a bank charges your account a $10 fee, that money is not removed from circulation, but actually extinguished from existence. There’s no recognized monetary aggregate that increases at that moment to compensate for the diminution of M1, which includes bank demand deposits. Our debts, as nonbanks, compound, while the means to repay them is extinguished with each payment of principal, interest or fee to a depository institution. Forcing the economy’s producers to borrow anew to service prior and compounding bank debt. And encouraging the easy money populism of which MMT is an example.
But coins continue to be assets to whoever soever lawfully possesses them. They pass from hand to hand as assets, and cannot be extinguished by agreement between the unequal parties, as debt-based money can. A reserve note in the Reserve Bank’s vault is an unissued check, a glorified piece of paper in accounting terms. But a coin, by government’s very stamp and seal, is an asset, to you, to me, to the reserve bank, to the commercial bank, to the government.
The coin is asset money, not debt money. And one does not have to advocate a mass conversion to positive money to recognize that very real distinction. And even some policy possibilities, such as those from Joe Firestone in MMT’s own bullpen.
Most importantly, for all the limits of this form of money, it is not the money of debt deflation, and thus of boom and bust. Deposit currency is.
ZIRP alone may not reduce poverty; but ZIRP as one aspect of an aggressive program of expansive fiscal policy aimed at MMT goals would eliminate unearned “welfare” from a Government underwritten risk-free investment, and also more generally support fiscal policies that would decrease both inequality and poverty.
I agree zirp is a an idea based on equity for all of us. Even more important now in these final days is the idea of equity for the planet. Zirp helps. It prevents capitalism from destroying what’s left of the planet on a big industrial/corporate level. On a level of people trying to feed themselves zirp isn’t all that effective. We need coherence from the leaves to the roots.
susan – “Zirp helps. It prevents capitalism from destroying what’s left of the planet on a big industrial/corporate level.”
What? Low, low interest rates allows capitalism/corporations/builders/miners/people (you name it) to borrow, borrow, borrow, with little to no risk, lever up, and then friggin’ destroy this planet at the fastest pace in history.
HIGHER interest rates stops the raping of the planet because it makes it harder to lever up. Perhaps I have misunderstood you.
Lol. Wake me when MMT demonstrates how to print oil.
Yves, I really like your attempt to nail down where the differences are. Wray and others have spent so long targeting the faux left/right Dem/GOP lib/con theatrical drama that they’re not used to engaging different forms of criticism.
The notion that criticism arises from a lack of understanding is not generally a way of persuading people proffering said criticism :)
Some disagreements that are quite legitimate:
1) Modern Money places its focus on aggregates. It is quite legitimate to observe the present state of Western civilization and conclude we have plenty of aggregate output; what we need is a different distribution thereof. Concentration of wealth and power is at extreme levels. We don’t need deficit spending; it is simply irrelevant. What matters is how money is spent.
2) Modern Money agrees with the gold bugs and other hard money advocates that a system of political economy requires a buffer stock to anchor prices. That is a legitimate opinion. So is the critique of it, namely, that buffer stocks have always failed in American history, from gold to silver to copper to unemployment.
The proclaimed linkage of employment to price stability is particularly funny since the past couple decades has seen massive increases in housing, healthcare, higher education, and other areas despite massive unemployment.
3) Social insurance is not just theoretically beneficial. We also have actual experiential knowledge that even in a system under duress like ours, fewer than 100,000 dedicated souls at the SSA still manage to send out hundreds of billions of dollars to tens of millions of beneficiaries. Unemployment insurance of a similar magnitude to OASI (retirement) insurance would solve the social problems of job changes without requiring the government to oversee the hiring of tens of millions of workers.
4) Related to number 1 but a distinct issue, work is fundamentally destructive to the environment. Even if one isn’t concerned by the fact that the top 10% of wage earners take home a hugely disproportionate share of total wages, and even if one doesn’t value leisure time away from work, the environmental damage alone of yet more work is worth taking seriously.
5) Related to number 1 but a distinct issue, work is fundamentally destructive to family and social stability. Americans in particular work far more than our European friends, and this shows up in the vulnerabilities of our families and communities and the lack of time and energy people have to engage in civic participation.
6) Related to number 1 but a distinct issue, authoritariniasm is a much bigger problem than unemployment, especially for the most voiceless and disadvantaged members of our society. It is quite legitimate to say that worrying about torture and a racist criminal justice system and an out of control national security state and so forth are more important issues. That the USFG is so out of control points to fundamental questions about whether we want to live in a Constitutional society, and it provides great reason to be cautious about a philosophy that justifies even more centralized power until such situation is resolved.
All very well.
1. Money must get to consumers. That means that spending must be redirected more to wages of ordinary workers (and that globally, because there is global inequality). That also raises issues of constraints of environmental carrying capacity that cannot be solved through normal economic operations with scarcity.
2. Does it? How?
3. Not exactly a monetary policy. But it makes sense and is consistent with attempts previously to run a full-employment economy. The sticking point in the 1970s was the natural resource constraints with the particular choices that consumers made and the unwillingness to create institutions that changed those choices effectively. Environmental and energy policy in fact went in absolutely the wrong direction because of the failure of proper accounting.
4. Another original sin. Marx in Capital essentially says that the invention of tokens that are claims on production leads to capitalism–an original sin of exchange, which is what requires continuing political solutions. This is another. Work alters wildness. Which for several million years has been the point of work.
5. Again not an element that can be solved by monetary theory but by wage and hour laws.
6. Well away from monetary theory. In fact, in the debates going on in politics and economics today, we are revisiting some Enlightenment thinking that we thought were settled issues. IMHO, the invention of the joint-stock company and the creation of Leviathans through corporate limited liability laws, all of which occurred para-Constitutionally is a major issue. As is the para-Constitutional evolution of the other major institutions that dominate American life-national security and intelligence community institutions. Take away those three para-Constitutional institutions and what is the scope of freedom for ordinary people in the US–mainly social media and the ability to shout at the sky.
You’re critiquing something, but it ain’t MMT
Um, here’s Wray, verbatim (my bold):
“However. And here’s the Big However. We do agree with the mainstream that you need a price anchor, or otherwise pursuit of true, full employment probably would, at least much of the time, cause inflation. So, we, too, want a price anchor. We object to the (usually implicit) claim of just about everyone outside the MMT camp that unemployment is the only possible price anchor. Other economists do not have the imagination to come up with any alternative price anchor for a fiat currency.
In our view, that is wrong.
Here is Warren Mosler’s response, in what is almost a Haiku in its simplicity:
It comes down to this:
With ‘state currency’
There necessarily is,
Always has been,
Always will be,
A buffer stock policy.
Call that the MMT insight if you wish.
So it comes down to ‘pick one’”
http://www.economonitor.com/lrwray/2013/12/28/bop-a-mole-1-does-modern-money-theory-need-a-job-guarantee/
If MMT doesn’t advocate a buffer stock policy, then what have Wray and Mosler been describing?
You’re objecting to something, but it isn’t stf’s comment.
You are taking the concept of “buffer stock” in MMT so completely out of context it’s not worth responding to. But I told you that yesterday and offered a quote/link–obviously did no good.
That’s the rub, isn’t it? Modern Money is such a complex form of chartalism that lay people can’t even discuss it in short, concise comments.
Only the experts have the capacity to discuss it in context.
No, he responded to you yesterday and you didn’t want to listen, exactly as today. MMT can’t do much about people who stick their fingers in their ears and go “la la la I can’t hear you!”
Just for the fun of it, here’s Wray a bit further down in that article:
“I’m not going to say more about these final two arguments against full employment as I’m convinced both are fallacious, and because neither of these critiques offers a price-stabilizing anchor for the currency in place of the JG/ELR.”
Washunate never did show why the buffer stock failed, or had to fail, even though Tarheel Dem asked. It would certainly have been odd for Bill Mitchell to have chosen that mechanism in his early version of the JG if there were no examples of its success!
And again: So far as I can tell, from elsewhere on this post, and from these six points specifically:
You agree that MMT is accurate in its description of our money system today.
However, since the widespread acceptance of MMT’s description would produce policy outcomes you do not support, you would prefer, again as policy, to keep people in ignorance of it.
Is that a fair summary?
“You agree that MMT is accurate in its description of our money system today.”
Yep. I would say it describes currency rather than money, but that’s a quibble beyond the scope of a short comment.
“However, since the widespread acceptance of MMT’s description would produce policy outcomes you do not support, you would prefer, again as policy, to keep people in ignorance of it.”
Nope. I reject your premise that there is presently a lack of understanding about the ability of the government to transfer public resources to private actors. Quite the contrary, I would say that is the defining characteristic of the looting over the past few decades, especially the last 2.
Nope. I reject your premise that there is presently a lack of understanding about the ability of the government to transfer public resources to private actors.
His premise is that the public is unaware of the capacity for government to transfer private resources to the public purpose. You’ve gotten it completely backward.
And I would counter that’s either hogwash, or purposeful obfuscation. It is blame the victim mentality.
Public awareness is not the problem.
Every elderly person who, when asked, says they’re frightened of social security running out of money falsifies your statement. Every parent I speak to who fears the national debt will ruin there child’s future demonstrates that you’re being silly. Every politician that insists we can’t afford universal health care shows you false.
Not to mention that rather than acknowledge you got Lambert’s position backward, you just write another feeble attack hoping no one notices. When are you going to get tired of losing every batle you fight?
Exactly.
There is a segment of the left that never does tire of losing battles, unfortunately.
LOL
Social Security and Medicare (i.e., the closest things we have to universal social insurance programs) are basically the most popular public policies in the US.
Actually, ben and lambert
Just because some/many people are uninformed about something, doesn’t mean that the best prescription is to tell them things that have no path to action, and will likely get them more of the same economic assault.
The retiree,or the parent, may not understand the politicians are lying to them. The politician may or may not, understand their lies, to a full extent either.But to then offer up an MMT framework, that poses no solution to any of the issues ,does no good either.
The thing with MMT is that as far as it’s chartalist roots, it is a useful description of where we would like for this country to be. When the government becomes monetarily sovereign, that would be a step in the right direction.But now, the government is not monetarily sovereign,
The kernel of truth in that is what is wrong with MMT.
If the government were to be monetarily sovereign, say after it adopted and ratified the Kucinich bill 112th congress HR2990 “the NEED act”……
then the gov’t would be monetarily sovereign. Then there would at least be a chance of the public taking the reins of monetary creation power using the knowledge everyone OUGHT to posses. When the people know how a fiat currency works. And after the private banks who now wield that sword, have their goose that lays the golden eggs,cooked.
Then the proponents of MMT, can go around and educate the people as to the power their money has, and what it can provide for them.i.e. healthcare,education,energy,etc…. and stop wasting it on wall st and on the stuff that is destroying this world.
I think the public is aware and is mad about the looting that has taken place in the last few decades.
But the public is not aware of an alternative fiscal policy that woukd undercut austerity.
I think the public is aware of at least one alternative fiscal policy where military money is used for needy Americans.
It would be sad, but not surprising, if the public is not aware of that.
That is an absurd claim Lambert. This has really gotten under your skin, eh?
Americans voted Democrats into office to do things like provide universal healthcare, end the wars, jail the banksters, and save public education. Remember when the Obama tax cuts were the Bush tax cuts?
That politicians aren’t actually doing things says nothing about what the public wants politicians to do.
This is a very vague argument whose statements are unconnected by logic. MMT is a macroeconomic approach. That’s true. But people all over the world are still very poor or are near poverty. Meanwhile, in many nations the economy is running at far less than its potential. It may be true that the world has enough real output of goods and services to go around and provide a decent living standard for everyone, and that the economic problem now is solely one of distribution. But I don’t know how to show that, and even if we could I don’t know how we could ensure that world wide equitable distribution of output would occur.
Meanwhile in the United States we have an increasing number of poor and struggling who don’t believe that they are getting enough output and we have lots of unused production capacity and 25 million who want full time jobs who can’t get them. Moreover we have an extensive list of economic problems that are unsolved. If MMT can help us to solve these problems then I certainly think most people will find it increasingly relevant to their lives.
As for deficit spending and its relevance. The fact is that we would close the output gap with deficit spending targeted at the right needs than we will with balanced budget spending targeted at the same needs. We know this because fiscal multiplier effects are well known and it is easy to demonstrate that balanced budget fiscal multipliers are far lower than those using deficit spending. So, those who want full employment will want deficit spending as long as they understand that the level of it won’t be inflationary and the spending will be on things of value and won’t be giveaways to wealthy special interests.
They haven’t always failed. Buffer stocks of wool succeed in stabilizing wool prices in relevant markets, and there are concrete reasons for thinking that putting a floor on labor costs would prevent price deflation during crashes. There are also good reasons for thinking that such a floor would also hinder price inflation, since wages in JG jobs would not respond to wage bubbles since the government won’t be competing on wages with the private sector on the upside of a boom. Of course, the JG won’t be enough by itself to contain price inflation resulting from bubbles; but any MMT-based program will have other automatic stabilizers in it besides the JG.
The linkage doesn’t go both ways. No MMTer claims a linkage between unemployment and price increases and unemployment.
I agree that our social insurance programs can and should be expanded in their coverage and in levels of support. But people will still want full time jobs. Why should they not have them if the Government can provide the financial wherewithal to pay local community groups to employ people to do valuable work that the private sector finds unprofitable to do?
Now that is really baloney because its far too abstract an argument. First, merely living can be destructive to the environment. There is little evidence that unemployment is less destructive to the environment than many types of work. Sure certain types of work will be more damaging to the environment than unemployment, and we don’t need more of this kind of employment. But there are many jobs that can be defined which can help to save the environment and slow down climate change. Having more of these jobs is what we want if we really care about the environment.
I’m all for reduced hours for full time wages, for the reasons you cite here. I’d legislate at least a 30 hour full time week tomorrow. But that doesn’t mean that everyone who wants a job isn’t entitled to one. They are entitled to work if they want to and if this entails having too much of the kind of work and consumption that damages the environment, then we can cut down work hour further until we reach a balance between work and the environment that’s sustainable. Btw, everything I just consistent with MMT policy prescriptions as I understand them.
I’m very concerned about the movement towards totalitarianism in the United States, and I do think it is a fundamental issue. But I also think that large private business institutions fostering corporate-based globalization are just as guilty of creating this movement as the Federal Government. In fact, these institutions and their very rich owners have subverted the political process, made the Government subject to their will, and are ending constitutional democracy as we write. Why has this occurred? In large part, because we’ve de-regulated business and allowed it to accumulate vast resources it can use for political activity. Meanwhile, we’ve been ignoring growing inequality and impoverishing a middle class that has been a primary bulwark of support for democracy. A middle class that feels threatened, like the German middle class in the 1920s can easily become the class basis of an aggressive fascism, full of lies, misdirection, scapegoating, and subjugation of everyone except a small fascist elite.
We see that happening before our ideas, and what is accelerating it in large part is economic anxiety and hopelessness resulting from stagnation, high and hidden unemployment, and lack of opportunity due to a stagnating economy. We have gradually been re-creating the conditions that led to the rise of fascism in the 1920s and 30s, and we will continue to re-create them until we can get the attention of people off the economic graves they staring at and focus their attention instead on the threat to everyone’s liberties that is closing in around us.
MMT is relevant to this downward spiral. If we can use its policy recommendations to get out of the economic mire, solve many of our economy-related problems including full employment, and create a sense of buoyancy and hope for the future once again, then the same people involved in that effort will have the political credit necessary to reverse the policies that have created a dual standard of law for the rich and the rest, and that have also created the national surveillance/security state. The economic and other societal adaptive problems we have are intertwined with our economic problems. They cannot be usefully separated. We cannot hope to re-create a Constitutional Republic once again, without also re-creating a Constitutional Democracy guided by economic and social justice. To think we can do so is a fantasy of the well-off.
We are not living in 1789 anymore. Now the downtrodden know too much about what is possible for all. They and others who love democracy will not tolerate a Constitutional Republic without democracy and economic and social justice too, because a Republic without democracy is nothing but totalitarianism for those who aren’t part of the Republican elite.
I appreciate the response. You seem to be one of the few commentators over the past couple years who understands these are discussions of personal preferences, not scientific laws.
You summed it up great here:
“MMT is relevant to this downward spiral.”
That link is what I dispute.
Except that you don’t. Joe spent at least thirty minutes writing to you, and the entirety of your response is: I dispute that.
Ben, I have been pointing out things for years. Lambert has specifically put me in moderation because I have written too much about this. I wrote a detailed first comment so there wouldn’t have to be a lot of back and forth.
Ideas advance by being critiqued, not by being applauded.
I note that as the thread goes on, we drift more and more away from the original point, which is that MMT is focused on aggregates. While personally, I think distribution is more important in our present state of affairs.
“Should Banks Be Public Utilities?” by Rodger Mitchell – http://mythfighter.com/2011/08/24/should-banks-be-public-utilities/
While I accept and, I think, understand the descriptive side of MMT theory, I confess I am at a loss to perceive how someone as economically and politically perceptive as Yves could be baffled by the emotional objections to MMT.
MMT describes a world in which money is controlled politically. Americans want to believe in a store of durable value accruing to the results of hard work and right living. The idea that the worth of money is entirely a creation of men and their institutions and laws with all the corruptions and sins inherent in these things, is unbearable to many.
“MMT for the elites, Austrian Economics for the rest of us”, is what I always say.
I do believe that nails it.
Americans want to believe in a store of durable value accruing to the results of hard work and right living.
———-
I would go farther and say that Americans are convinced that theirs is the right way of living and that their 25% consumption share of world resources is fair.
The store of durable value can’t be in fiat money, and we also know that it can’t be in a commodity either since any such commodity is subject to the vagaries of the market and to politics. So money as a store of value is an illusion and one of limited utility. The store of value for hard work work and saving lies in the real conditions of life both material and non-material that people have. If we can guarantee such conditions to people by right, than they will be less mesmerized that the false dream of money can provide them with the absolute security they are looking for. There is no such thing. Life is not like that. It will never be that way. There will always be risk. What we have to explain to people is that there is less risk to their real store of a value in a Constitutional Democracy full of economic and social justice than there is in alternative societal and political arrangement where the have-nots may at any time destroy the order of the haves and confiscate their stores of value both nominal and real, and even their very lives, as political, social, and economic elites have learned from time-to-time.
I do not find Chomsky amusing. Nothing personal. In fact I actually admire the guy.
On the other hand, when it comes to MMT — or the Platinum Coin — or BitCoin. THAT’s amusing. For sure. I always love reading about that stuff, can’t get enough of it. I also love Bernie Madoff for the same reason. Only we’re not hearing too much about him lately, what a shame!
Ezra Pound was especially amusing when explaining what money is all about. Gertrude Stein called him the “village explainer.” She too was amused.
There is something truly insane about all this explaining explaining explaining, especially when the answer is so obvious. That’s what makes it all so: amusing.
I find it amusing to read about what you find amusing. It’s rare to find someone whose comments are so amusing. You should sell tickets. :) :) :)
Modern money is in no way like cloak room tokens. It may have started out that way but has evolved into a highly complex system of highly complex debt instruments that go way beyond the original concept and purpose of money. Money appears to fit in the mold of a self-organizing emergent system that includes the financial markets, governments and a large array of international organizations, clearing houses and toll booths. In other words, money has a life of its own. At the same time it can be created through government edict (fiat) which does effect the system ut does not destroy it.
I think our system of money “wants” to move into an electronic format like Bitcoin but governments and those that profit from the current system don’t want that. Bitcoin may fail but the idea of such currencies will remain. What most of us favor is a money system that is like a public utility–something that keeps things flowing. Personally I favor the concept of “from each according to his ability, to each according to his need” as the bottom line of the social contract–this may not work perfectly but needs to be the ruling idea behind any kind of monetary system. If the basic MMT ideas don’t work in that direction then we need to drop those ideas.
At any rate our obsession with money is, frankly, sick and perverse and wasting the abundance that we see around us. For the first time in history we are in a position to really provide for everybody at least within a couple of decades and achieve some kind of ecological balance. Our current trend is heading us towards catastrophe yet we stubbornly hold on to rules that keep non-monetary values and goals on the sidelines–money should be on the sidelines as nothing more that a tool to help social organization. Capitalism brought us to this point and that’s great but it is no longer useful and we need to drop it and fast.
As Wray points out, the cloakroom token is a useful analogy.
So, yes. “Modern money is
in no waylike cloak room tokens. Read the post.But what if you bought your coat on your credit card? What if it’s not really your coat?
If a mother ask a teenager to babysit her kid inside her house, the teenager is not borrowing the kid.
There is no debt.
asks.
In usual practice, there certainly is a debt here. The mother becomes indebted to the teenager for performing that service. You might say that the mother is borrowing the teenager’s time. In that weird place called the USA, teenagers even ask mothers to settle this debt by giving them cash = state money, state debt.
In that case, debt free money involves debt if one feels indebted at being able to use positive money.
I am borrowing the debt-free money’s time when I hold that debt free money in my piggybank.
“I am borrowing the debt-free money’s time.” Huh?
I know.
A teenage babysitting, instead of doing something else – her time has been borrowed (by the mother).
A debt free money sitting in a piggybank, instead of sitting somewhere else – its time has been borrowed (the holder of said debt free money who is also the owner of the piggybank).
I was like, huh, when I read the teenage babysitter.
I don’t like the centralized committee to print all money theory, whatever you call it, 100 percent reserve banking either. Why? Because right now, just like a sovereign, I can spend money into existence, and under that approach I couldn’t do that. How? Because I have a credit card with a statement that says I have available credit. When I use the card to buy something or write a check drawn on the credit card account, I am spending money into existence. That figure which shows available credit doesn’t mean all that money is sitting in the bank waiting to be spent. That is a figure showing how much money I can create, which will be backed by my promise to pay. If there was a centralized committee requiring banks to have 100 percent reserves, it would shut down such credit cards or credit lines and you would have to use debit cards only, because you would have to have money in your account sitting there. So I think those people, if they’re called positive money folks, are either not thinking through the implications of their ideas, or they’re just bananas.
All right, Professor, I ordered a copy of your book MMT for myself. I’ll confront you right now: books by L. Randall Wray are not inexpensive, one set me back almost $30 for a used paperback. But now I won’t feel chastened by ignorance of the summarized insights therein. I looked at some of the explanations over at NEP, and I figured I should just buy the book. I saw the crash coming, like you, but I have wanted a framework to better rebut the silk garter set running banking and public finance in this country. We’ll see.
This is kind of interesting. I did the math, and for only three dollars more than the cost of your book, used, in paperback, I could have gotten all three of: the Geithner book, the Hillary book, and the Bernanke book (all good, used, in hardback). Perhaps there is no one here who really cares that these books have been so quickly and sharply discounted, but you never know. Probably there are discussions therein of topics relevant to what we are discussing.
LOL.
I don’t think I “defined” net savings that way. I just claimed that Government net spending was the ultimate source of those savings. Here are the relevant relationships based on national accounts analysis and the two perspectives one can take on national income, the sources and uses perspective. As you and others who care to check this out can see, my statement:
is correct.
Also, if anyone would like a more intuitive exposition of the relationships see Stephanie Kelton’s here.
It’s good to read both of these. They reinforce one another quite well. Enjoy!
I think people saying they want “debt free money” are asking why we issue sovereign bonds to “lend money into existence” because they fear high national debts.
This article took so long getting to this that I almost gave up reading to start doing my actual job this morning (haha). I think a discussion centered on this aspect, which is addressed here as somewhat of an afterthought, would be more effective/persuasive, especially if you focus on what managing the debt and targeting 0% implies.
Good point.
Dan: Bravo! What should have been the crux of the main article above.
There is plenty to object to in the descriptive part of MMT too. For example, they believe there is no transmission mechanism from interest rates to demand; I think that’s why they’re in favor of “ZIRP forever”. Yves, do you really buy that ?
“For example, they believe there is no transmission mechanism from interest rates to demand;”
Wrong. We say it’s complex. For instance, there are borrowers that want low rates and people on fixed incomes that want high rates. And what if people are fixing their balance sheets? Or what if businesses see low rates but sales are falling?
” I think that’s why they’re in favor of “ZIRP forever”.”
No. ZIRP forever is about getting rid of the rentier, a la Keynes. Doesn’t mean all interest rates should be zero, just the overnight risk-free rate. A policy maker has plenty of tools at his/her disposal to affect the cost of credit without enriching rentiers. That’s what we say.
I’ve seen Wray say that the CB can’t exert any control on inflation using interest rates. That must mean they can’t control demand using interest rates.
If its ‘complex’ then you’re saying there is no predictable transmission mechanism. So your quibble is you want to insert the word ‘predictable’ ?
The reason you think its ‘complex’ is that the theory you’re using doesn’t give a straightforward prediction about the influence of interest rates on inflation. That’s a bug in your theory. CB’s have been pretty successful targeting inflation by adjusting rates for at least 25 years. That’s quite convincing evidence that the theory they’re using correctly predicts how rates effect inflation. (Which doesn’t mean there is nothing to criticize about the policy).
Targeting inflation is entirely different from controlling aggregate demand. MMT tells us that monetary policy is very poorly understood and often produces undesired results, that it is too big a hammer for the precision control CBs claim they can produce, and frequently fails altogether.
Wray is arguing that rates, going back to Keynes, are not the factor businesses base their investment decisions on. In fact the Fed released the results of a survey back in February in which business leaders interviewed stated low rates played no factor in such decisions, and only a marginally greater factor when rates where high. The primary determinant was demand.
MMT does suggest that interest income can potentially play a role, primarily at the household level. So paradoxically the Fed might raise interest rates with the idea of slowing activity by making loans expensive, but instead end up spurring demand by increasing interest incomes to savers.
“Targeting inflation is entirely different from controlling aggregate demand”
Well Wray says CB’s can’t influence the former, and you’re arguing they can’t influence the latter, so whether they’re the same or different is moot (although even MMT admits there is a relationship).
There is so much wrong with the argument about business investment. First of all adjustment in rates is meant to influence business spending only at the margin, so you wouldn’t expect to see a big response in the kind of survey you mention. The fact that you get a small response actually supports the idea that rates are a quite refined policy tool.
Secondly, even if you believe there is no transmission mechanism via business investment, you still have consumer credit, and mortgages and refinancing. Lower rates lead directly to more demand there.
“MMT does suggest that interest income can potentially play a role, primarily at the household level. So paradoxically the Fed might raise interest rates with the idea of slowing activity by making loans expensive, but instead end up spurring demand by increasing interest incomes to savers.”
The effect you describe here will always be dominated by decreases in demand through other channels. I would have thought this would be clear to adherents of a theory which ‘accurately describes’ the monetary system, and emphasizes that ‘loans create deposites’.
But apparently not …
First time I’ve heard the argument that failure of monetary policy to control demand is proof monetary policy works.
You must have studied economics.
“On the margin”
What a wonderful phrase! Maybe a change of 1%. Or perhaps .01% Possibly .0000000000000001%. How useful an abstraction, especially the way you’e piled it on top of multiple assumptions! Not useful to those of us living in reality, but nice.
You must have studied economics.
The proof that monetary policy works is in the fact that CB’s have done a reasonable job hitting their target inflation rate using interest rates for the past 25 years. I was merely pointing out that your survey is consistent, with this.
You don’t address the non-business, consumer channel, so I guess you’re conceding that point, and thus the whole argument.
Lots of evidence that low inflation has had nothing to do with monetary policy. Look at oil prices graphed against inflation, for instance.
Lots of evidence that investment spending is insensitive to interest rates.
Lots of evidence that speculative bubbles are insensitive to interest rates (bubble in 1980s with high rates; bubble in 2000s with low rates, for instance).
Again, it’s not that monetary policy can’t work, it’s that it’s very context specific. You can’t model it with any effectiveness with a simple downward sloping IS curve. In some cases it slopes up. Sometimes down. Sometimes curves. There are probably 10+ different interest rates that matter, all with different factors influencing their spreads over risk-free rates. There are people living on interest income. There’s interest paid on the national debt. And so on. And so on.
I think there are things monetary policy could do and be effective in particular contexts–directly target mortgage rates in particular geographic regions, for instance. (e.g., home loan standards appear too loose in SF area and home prices are rising–use any number of tools to raise rates on SF home loans directly). Or using various tools at its disposal to forbid loans based on speculative or Ponzi finance (as Minsky defined them). But I think adjusting the risk-free overnight rate is an extremely blunt instrument given all the things I mentioned above.
I’d like to see the exact quote from Randy you’re talking about. I think the MMT position is that there is no straight line effect of interest rate manipulation on inflation rates so that such and such rise in interest rates produces such and such decline or rise, depending on one’s hypothesis, on inflation.
The case I think of most often to illustrate this is Volcker’s attempt to control demand during the stagflation episode. Eventually he got the inflation with the help of de-regulation of natural gas, and a serious recession, in part precipitated by his monetary policy, but to get the inflation he had to raise rates to the low 20s, before he got his recession to kill off demand. I always thought the cure was worse than the disease since as he raised rates again and again, he only fueled the inflation. It would have been far less serious if interest rates had not been used that the Government had used wage and price controls instead.
In any case, I don’t think Randy said exactly what yoy say he said, and I’d like proof. Thanks!
Thanks to the google I was able to find it.
http://www.economonitor.com/lrwray/2013/07/05/warren-mosler-mmt-deficit-lovers/
Scroll down to my comment, and open the replies for his (pretty snarky) answer.
Thanks. I checked the link out. Now here is what you said above:
“they believe there is no transmission mechanism from interest rates to demand;”
I asked for a quote, and you gave me the link above: Here’s what he says about
about that transmission mechanism:
Frustrating, but you quote from his main article, not his reply to my comment, which is what I pointed to.
In the comments he says
“Central banks target overnight nominal interest rate targets. They hit them (within the wiggle room they choose). they do not target and hit inflation. they do not have the lever to do that, any more than that they can change the orbit of Pluto around the sun.”
They ‘do not have the lever to do that”
Pretty conclusive.
BTW, the argument that there is no straight line cause and effect misses the point. Its like saying that a particular storm can’t be attributed to man made global warming. Yes, that’s true, but despite the large amount of noise from other factors, the change in level (of CO_2 or interest rates) tends to push things in a certain direction over time.
Evidence, or just theory? If evidence, please cite or quote it! Otherwise just admit that all you have is a theory.
I’m clearly out of my league on this site re economics. a mere neophyte, commoner. Just basic econ years ago and years later trying to self-educate about WTF was really going on.
I’ve really have enjoyed the Wray posts (and all the discussion). I’d never heard anything like this- I’m in my 50s!
re MMT and the deep emotional reactions some readers have… Perhaps how inculcated we are by the Pete Peterson Club’s deficit/debt fear-mongering propaganda (to include equally insidious, less-obvious members?)? I think this stuff runs deep.
For commoners like me, obviously so entangled with the personal balance-your-checkbook/household budget knowledge/fear of debt/all the conventional stories we’re told from early on (and MSM bombardment), that it becomes “common sense,” thus so effective politically. Even now aware of these aspects, I sometimes need to reread and reread posts to re-grasp a particular idea in the face of my inculcation (and age?). Perhaps for those here though it’s more reflective of knowledge I don’t have…
Anyway, I find the concepts of “thin air money creation to keep the lending, spending, and growing moving forward,” taxes drive money, free resources from private use for government public use, sin taxes…all interesting sometimes I have to reread to understand in the face of my own inculcation and ignorance and a lot of details I don’t understand.
I wonder about the growing part…growth and consumption as a prime focus has been so harmful sans to the looters (cultivated, used by). I would see an aggressive use of sin taxes here…
Anyway, thoughts from a less-knowledgeable reader at this site. All indeed interesting, thought-provoking, appealing in ways to my econ-commoner self. Thanks both to Naked Cap and commenters.
I don’t believe it is fear mongering, re deficit/debt. Sometime, ride around federal roads near where you live and count the number of potholes and very rusty bridges. 20 years ago, there were constantly road crews sandblasting and fixing bridges and re-paving roads.
Even at very low historical interest rates, last year the Federal Government paid %15 to %20 of all tax revenue to bond holders. Over $400 billion. Imagine if there was a dislocation in the bond market and rates doubled or tripled overnight. Not only could that happen, it has happened in other countries. Imagine how badly roads, bridges, and all other infrastructure would decay if instead of %15 to %20 of tax revenue, that fraction jumped to %40 or %60. http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm
You’re using the wrong data. $400B includes payments to trust funds, which is the govt paying itself. The correct figure was $221B.
http://research.stlouisfed.org/fred2/series/FYOINT
Interest on the national debt is near historical lows as a % of GDP.
http://research.stlouisfed.org/fred2/series/FYOIGDA188S
Thanks STF, for the link. Yes, interest is at historical low only because of ZIRP, right? If rates migrated back to anything near historical averages, a whole lot more tax revenue would be consumed. Along with trust fund payments as well.
Well, the Fed won’t end ZIRP until the economy’s doing better. And when the economy’s doing better, deficits will fall and GDP will rise. All of these will keep interest/GDP down, though it could rise in the short run when the Fed first raises rates.
The rates are not controllable by the market, but by policy choices. The Fed can choose to use ZIRP forever. Or alternatively, the Executive Branch can mint a $60 T platinum coin and get the Fed to create enough in reserves to pay down the debt to zero and cover deficit spending for 15-25 years. Interest Costs would then eventually fall to zero because no further debt would be issued.
So, if interests cost really bother us, it is always possible to eliminate them entirely. I’m for that. No more welfare from risk-free investments for the rich and foreign nations.
“The rates are not controllable by the market, but by policy choices. ”
This is another common MMT misrepresentation. The Fed can set the overnight rate or the rate on US government debt. But this rate is only a benchmark rate and in the case of a very high inflation it would become a near inconsequential rate as the market of financial assets is made up of many more instruments than instruments issued by the US government. The US government cannot control the interest rate on every instrument in the world and if inflation rose it would not matter if the overnight rate stayed at 0% as firms would still raise rates on all other instruments.
Plus, saying that Fed controls rates on government issued instruments is stupidly unrealistic. Microsoft also technically controls the rate on its callable and newly issued bonds. Whether the market will hold it at a specific rate is a different question. The same is true for US government debt. The real value of US government debt would collapse in a high inflation environment so there’s no realistic scenario in which real rates rise substantially and the government can afford to maintain a 0% interest rate forever without potentially creating a catastrophic environment.
Your reference to other interest rates is beside the point, since the claim being addressed is that the market can drive up the interest rates on Treasury securities. Again, the Treasury and the Fed set those rates. The Fed leads with its FFR, then The Treasury prices the bonds a bit above that to offer a better deal to banks and foreign nations holding dollar reserves. Of course, other instruments might offer very high interest to investors; but there’s always a need for risk-free vehicles to park reserves while deciding on investments, so there will always be buyers for Treasury securities at the rates offered.
In addition, even if the market didn’t want to buy the Treasuries, there are some 20 private certified dealers, whose deal with the Fed is that they will purchase securities on offer and then resell them to others. These dealers, in return for their commitment to buy all the securities on offer get to charge fees when they sell. In addition, the Fed advances the money to them to buy the securities. So, the risk to the dealers is removed and the sale of the securities at auction is guaranteed.
Finally, your comment, ignores the point I made about ceasing to issue debt and funding repayment of debt instruments and deficit spending with platinum coins. In that scenario, the market loses all power to drive up interest costs because the only ones are interest costs on securities sold in the past and still not redeemed. There are no new interest costs at higher rates. In that scenario, interest costs would fall every year until the public debt subject to the limit would be entirely liquidated.
I like the idea of creating debt free money, as in the platinum coin idea.It makes sense that the government of the united states just “issue” its own money,without going though the circus of the current ;”creating debt and getting to use money in return” scenario.
My big concern is that many people whose workaday lives are in the financial services industries, are often as clueless as anyone else when it comes to the meaning of “fiat currency”, and might get spooked. And considering the house of cards nature of the current financial system, any change, positive or not in the monetary system,may cause actors on that stage to do unwise things.
You don’t understand. If there were a very high inflation rate the real rate on government bonds would be so low that it would be counterproductive. The overnight rate would not only stop serving as a benchmark rate (because other firms would raise rates regardless), but the demand for holding treasuries relative to other instruments would CERTAINLY fall. This means the government would likely be forced into being a perpetual buyer of US government issued debt. Which is sustainable, of course, except then you’re likely exacerbating the inflation environment in doing so.
You don’t seem to understand much about basic economics and markets. If this is the level of understanding represented by MMT then it is a hopelessly lost theory. In fact, I am pretty certain it is.
No, you’re the one who doesn’t understand. I’ll repeat:
So, ultimately, one way or another the Government does control the interest costs on Government bonds, and that’s the main point in reply to your notion that these costs will get out of control.
So what??? Microsoft can theoretically control the interest rate on it’s outstanding debts. Whether anyone will want to hold it at that price is a different story. The US dollar is not immune to a run, but that’s what you assume. Your view is naively unrealistic.
Joe_Johnson “A run on the dollar . . . ” What do you mean? Will the Chinese buy product from us? Will they buy whatever assets we will let them buy? Will they sell their dollar credits on the international market and make the international value of the dollar tank? What will they do? And why should we care?
the currency spent by government and accumulated as net financial assets won’t be “debt-free money” but liabilities of the Fed (Randall Wray)
This is correct as far as double-entry bookkeeping goes.
But said liabilities (let’s call tem Liabilities type A) can always be honored by a mere stroke of the pen by the Fed. The creditor counterparty to the Fed liabilities is thus incurring zero risk.
Whereas the liabilities of non-Fed entities (let’s call them Liabilities type B) must have assets or a stream of income to back them up so that they may be paid. The non-Fed entity does not have the “stroke of the pen” option.
What the promoters of “debt-free money” likely want is to have a world with more of “type A” (riskless) and less of “type B” (risky) Liabilities.
Reply ↓
True, but even the risk free stuff isn’t debt free. Those are different things.
Yes!!! There are two aspects. One aspect is the double entry accounting stuff (coat into coat room, coat check ticket, thing). the other aspect that Yves didn’t fully address, or justify, is the so called “elastic monetary system” aspect, i.e. the Fed’s charter that there must be bonds backing all dollars so that they can adjust interest rates by buying and selling said bonds. The first aspect in built into all money, even tally sticks. The second aspect is not only unnecessary, but a massive mechanism of transfer of wealth.
Unless you’re going to have ZIRP forever, you can’t avoid bonds or IOR.
If you spend more “cash” then the public wants to hold, they deposit it. When the depositor’s bank has more cash than it wants, it sells it to the CB for reserves. Unless you either pay interest on the reserves or buy them by selling bonds, you have ZIRP. That’s why Randy says “ZIRP forever”–because the debt-free money folks are implicitly arguing in favor of that.
I can’t agree. Get rid of the bonds altogether. Throw them out and never pay a dime interest on them. Ever. Let interest rates be set by market forces.
You’re not understanding. You can’t force the pvt sector to hold cash. I will deposit excess balances I don’t want to spend a the bank. The bank will exchange the excess vault cash for reserves. This will send the overnight rate to zero. The only way to avoid zero is to pay IOR or sell bonds to drain the reserves. There’s no “market forces” setting the overnight rate. It’s a policy rate–no way to avoid it. This is not a controversial point. It’s supply and demand.
Yes, but calling it “debt” creates needless (and politically explosive) linguistic confusion.
People think that debt is dangerous, because for them debt means: I may end up owing too much and unable to pay back and then creditors will crush me.
Ditto for corporate debt.
But the “debt” incurred by the central bank, while also an entry on the right-hand side of a balance sheet, carries no such anathema. The central bank cannot go bankrupt and can always honor its “liabilities” even if under a sitation of (book entry) negative equity. As a currency issuer it can “print” as many “liabilities” as it wants and thus satisfy all creditors.
So I think it would be best (politically) to start describing said liabilities with a word different from the morally tainted “debt” (the word for debt even means “guilt” in languages such as German).
From now on simply (and systematically) call them “duties”, or “obligations, or “scores”, or “points” of the central bank. But stop mentioning “debt” when referring to them, otherwise the common citizen will keep reacting to public “debt” in a negative way, thus facilitating the destructive work of the “austerians”.
This is a common suggestion. I think it is a mistake, similar to not using “printing money”. Debt is the right word in every way. And the more negative connotations, the better, because they are more accurate. If you are trying to promote a true theory, you don’t pretty it up with nice memes. Meet the new meme, same as the old meme. If people see you putting lipstick on something, they assume it is a pig. Abba Lerner had good advice in this direction.
If you really do have the real thing, you attach as many negatives to it as you can, to anticipate the inevitable objections. The opposition will be confounded and gnashing their teeth before they have even started! (Can’t use “confound” and “gnash” enough :-) ) There is even a classy greek name for this rhetorical device, but I forget it.
If you are trying to promote a true theory, you don’t pretty it up with nice memes
Well, as a famous guy said some 170 years ago: Philosophers have interpreted the world, when the point is to change it.
Public “debt” issued by a monetary sovereign is radically different in nature from private debt. This statement is no doubt “true”. So why do we keep using the same word for different categories, when the political/practical result is the reinforcement of the irrational fears promoted by austerians?
MMT proponents should do everything possible to win at the political game; if sticking to platitudes about the purity of definitions damages the chances of victory, said platitudes should simply be scrapped, IMO.
Well, I never like that quote much. It misses the point imho. The best way to change the world is to understand it.
Public “debt” issued by a monetary sovereign is radically different in nature from private debt. This statement is no doubt “true”.
I disagree. It is false. Public debt is not radically different in nature from private debt, and focusing too much on the central bank, not the treasury, is a path to confusion.
So why do we keep using the same word for different categories, when the political/practical result is the reinforcement of the irrational fears promoted by austerians?
I disagree again. That is not the result. Austerians mouth such words for scaremongering. But the sentences they say with them make no sense at all. The most convincing way to win is to speak sensibly with the same, exact words.
MMT proponents should do everything possible to win at the political game; if sticking to platitudes about the purity of definitions damages the chances of victory, said platitudes should simply be scrapped, IMO.
My point – which not many of my fellow MMTers might agree with, is that it is the scrapping, the changing memes, that is a losers game, damaging the chances of victory.
Public debt is not radically different in nature from private debt
If one is risk-free and the other isn´t, then they are radically different.
focusing too much on the central bank, not the treasury, is a path to confusion
Not in the European case, where analysts have consistently gone wrong by not focusing enough on the ECB and paying instead excessive attention to the (pathetic, powerless, submissive) Treasuries of the euro member states.
the scrapping, the changing memes, that is a losers game
The facts speak for themselves – the austerians are winning the political and propaganda game. To counter them, one should keep the product and just change the marketing.
The non-Fed entity, the Treasury, does have one very important asset that makes repayment risk-free. The authority to mint platinum coins with arbitrary face values. That’s a fact. Even though many people won’t acknowledge it. See: http://amzn.to/Z7kG5q
Reading Professor Wray’s article and all the comments, as well as thinking through all the responses I’ve received from my stating this before, I feel it necessary to repeat myself; Money is a contract, not a commodity. Yes, I’ve been taken to task by MMT’ers that this is exactly what MMT says, but as all the comments show, this point has not been made clear. That hatcheck girl does not have a social responsibility to return your coat, but a legal responsibility.
As it is now, society thinks of the asset side of the ledger as a commodity and the debit side as an inconvenience. We don’t need long winded academic debates to explain they are two sides of the same coin. Yes, there are lots of complications to the system, but don’t let them obscure that elemental fact. If that can be made the baseline from which all understandings of money are to proceed, then MMT has won the battle.
As for this idea that government can spend money into existence, some structure needs to be put in place, because politicians are in fact, all too human. To repost what I put in the Piketty thread;
“Obviously government needs to spend wisely as well, yet individual politicians are going to have a limited perspective and spend according to their own needs.
As it is, the current budgeting method seems to be to put together these enormous bills, add enough pork to buy sufficient votes and then the Prez can only pass or veto them in whole. That’s bribing the fat kid to eat an apple with candy bars. It occurred to me back in the days of the line item veto debate that to budget is to prioritize and then set an objective level of spending. We could have the legislature prioritize by breaking these bills into their various items and having each legislator assign a percentage value to each item and then reassemble them in order of preference. Then have the President draw the line as to what would be funded. As Truman would have put it, “The buck stops here.”
This way, it would be graded on a curve and so there would be less incentive to scratch each other’s backs, while the percentage method would give legislators some leeway in calibrating their interests.
This would likely limit federal spending on local projects, but that would go with more localized government and community banking, so that such projects would be more bottom up and have community support and input.
Monarchies wore out their effectiveness, when they lost touch with their base and now these global banks are doing the same thing. This would also address some of the issues raised in the Chomsky article, since ‘local’ extends to the whole world.
The thing is that the US is consuming 25% of the available resources and in a fair world, this should drop.
The US general population wants deficit spending because it wants to keep its current lifestyle which means they do not want this share of world resources to drop. It wants to have the same money printing benefits as the rich who are themselves consuming too much.
I think they will get a form of MMT because the US needs to keep on deficit spending so as not to implode. But something tells me the consuming 25% of natural resources will drop over time, unless Americans can pull another rabbit out of their hat. I am not sure it will MMT with all the prescriptions they would like to see… more like MMT for the rich… just like what we have been seeing for the last few decades.
“…the US needs to keep on deficit spending so as not to implode”
Examples please of any successful domestic economy on the planet that doesn’t deficit spend, or in it’s absence isn’t a net exporter.
The US needs a lot of oil to maintain and grow its system. It’s easier to steal it.
I don’t completely disagree with the last part of your statement but you didn’t answer the question.
Every country in the world needs oil to power their economies and they also depend on the U.S. running a trade deficit to support their economies. If they could find customers elsewhere they would.
If public policy accepted the reality that the U.S. spending is not constrained by anything other than available resources and production, and it put Americans to work on expanding the solar/alternative sources of energy, it’s dependence on foreign oil would vanish.
The only thing stopping us is a widely-held belief that we are “out of money”, which plays right into the banksters and oligarch’s hands.
It’s true that Canada depends on exports to “survive” but we are slowly killing ourselves. We export energy but we are increasingly dependent on imports for our staples. This is amplified by our immigration policy. Before oil, life was very tough in Canada and farmers knew what too many mouths to feed meant. The growing seasons are short. It’s amazing the number of greenhouses in Canada… I am sure they are dependent on cheap oil and low interest rates. This energy is not equally distributed throughout Canada so tensions are building internally.
Alternative energy can help for a while but it will be highly inflationary… Ontario went alternative and our electricity costs are skyrocketing… and one third of the grid still needs to get replaced!
I really believe we have been spoiled. The plentiful we see right now is our material peak. In the 50-60s we invested by building infra that would last 50-60s. This permitted us to focus on hedonistic consumer spending. Now our infra is at the tail end of its useful life. And we will need to rebuild a lot… and this is going to eat into consumer spending. I’m not even sure what we should rebuild and what we should let crumble… IMO, a lot of it is not long-term sustainable.
We are being forced into communal investing at the peak of our individualism.
“Alternative energy can help for a while but it will be highly inflationary… ”
Inflation or starvation…tough choice…. If you are working inflation is mainly the pain of having to adjust your view of what a dollar (or whatever) buys, but in the context of an hour of my labor, I can buy more now with it than I could when I was 20, and I’m pretty sure that’s the case of most. Inflation is a general increase in the price level, so wages rise with prices more or less.
Personally, (I’m approaching 68) inflation has never been problem for me in my lifetime, and I can make the argument that it has helped me, because it reduced the burden of any debt I had.
Inflation hurts mostly those that hoard, and do not spend, their income, the very behavior that kills economic flow. Some saving is prudent but those that are accumulating huge amounts of cash are essentially strip-mining the economy, so deficit spending is a necessary condition for the system to continue to support it’s inhabitants. Unfortunately all of that excess cash has enabled the few to distort the system, sending that deficit spending directly to their pockets (tax breaks? Subsidies? Higher profits?)
At any rate, wasting human resources (labor) because we think we are “out of money” is the biggest tragedy of our time. Money is the only resource we can’t run out of, but we let a privileged few control that resource to the detriment of the many.
I think inflation has not been a problem because we have been exploiting our infra for decades.
Huge investments were made by the previous generation that permitted us to live a hedonistic lifestyle. A large percentage of the infra is coming to the end of its life and the bills are coming due.
A lot of the current outstanding treasuries were issued to pay for depreciated assets that now need to get replaced….
Paul – approaching 68, yet still blind. Of course inflation has helped you. If you bought your house for $50,000.00 and it’s now worth ten times that, duh, what’s not to like? But society isn’t just all about you; there are others. How is someone making $15.00/$20.00 per hour possibly going to afford your house? They can’t. They didn’t get in at the beginning of the ponzi, like you did.
Completely amazed at how self-centered almost all of society is.
And those damn savers (hoarders, as you call them)! Better to have ZIRP, starve the people who need the interest in retirement, and give away virtually free money (0.05%) to hedge funds, currency traders, speculators, Walls Street so that they can build up beautiful asset bubbles that, when popped, will cause all of the “something for nothing” crowd to whine for another 7 years. Yes, the 0.05 percenters are really going to add value to society (sarc), aren’t they?
Along with job guarantee, we need interest rate guarantee (for retirees, up to a limit).
“Alternative energy can help for a while but it will be highly inflationary… Ontario went alternative and our electricity costs are skyrocketing… and one third of the grid still needs to get replaced!”
What exactly did Ontario do? Here the price of solar and wind is dropping rapidly. It will soon be less than oil and then the shift to solar and wind will accelerate.
moneta,
I assume you read the Chomsky piece. We don’t consume 25% of the earth’s resources because we deficit spend, we can afford to deficit spend because we effectively steal 25% of the earth’s resources. There is going to come a time in the not too distant future when that isn’t going to work nearly as well as it did. Bush/Cheney knocked Humpty-Dumpty off that wall. All Obama’s horses and all Obama’s men are not going to put him back together again and a lot of those surplus dollars are going to start coming home again, when those Eurasian countries decide they don’t need them to transact.
What this discussion is about, is what we are going to do, after that next heart attack. Unfortunately a lot of that security apparatus will be more focused inward as well, so we better get those debate as public as possible, as soon as possible.
I don’t disagree with any of this…
Deficits are about the pvt sector desiring to save a portion of its income. By accounting identity, if the pvt sector is saving, the govt sector will be in deficit. That goes for whether you are using resources in production or not.
stf,
In order for the private sector to save, the public sector has to either borrow it back, or keep printing more.
Why do people need to save? For all those times when they need more than they can earn, such as old age, down payments, raising children, etc. People have been around for far longer than government spending, so how did we used to do it? As Hillary liked to say, “It takes a village.” Basically that organic network of a healthy community has been replaced by government and currency. As has been pointed out in a number of links, concerning colonialism, feudalism, etc, this has been a conscious policy for a long time.
So basically the monetary system functions as a contract between a community and its members. As such, it has often been exploitive, but if people broadly began to understand how the mechanism functions, the sunlight might go a long way towards stopping much of this exploitation. That is why this conversation is so vitally necessary.
“Basically that organic network of a healthy community has been replaced by government and currency.”
Government and currency are “at least 4000 years old,” as Keynes said. So, apparently it was replaced quite a while ago.
More seriously, it sounds like you may be conflating “money” with what POlanyi called an exchange-based economy. But Polanyi was clear that the three types of systems of production and distribution that existed–reciprocity, reproduction, and exchange–all used currency, all had concepts of savers/borrowers. The tallies Randy speaks of are from thousands of years ago–thousands of years before capitalism or exchange economies.
Even today, more communitarian approaches to production/distribution like time banks keep track of “savers” and “borrowers.” And note that there’s no such thing as a saver without a borrower in a time bank.
stf,
Very true, but the same laws of nature have been in force since the dawn of time and these processes go through cycles, so the question is when you have reached the peak of one cycle, what does the downside hold?
And it’s not like I don’t think of such devices as time banks and tally sticks as organic. They are generally local mediums of exchange and can even work within families. It has been pointed out that even apes have a fairly well developed sense of reciprocity.
As a system what we have has worked for centuries and I for one, would be putting up with it, if I didn’t have a fairly strong sense that it is going to break down in a rather significant fashion. The opportunity for real change, be it shock doctrine, punctuated equilibrium, phase change, etc, is when the formerly stable system becomes unstable. I would just like to see it be positive change, rather than having everything fall into the proverbial abyss.
The irony is that what is breaking it down, is that effort to extract ever more ‘assets’ from the system. They really are cutting off their nose to spite their face.
Nothing to disagree with there. But I don’t see any of that as a critique of MMT.
stf,
I’m not critiquing MMT, just offering up some further observations about it. As various of the proponents have argued, these are not so much theories, as observations about how it does work. As such it should be a topic open to further sources, not some closed set of beliefs.
The problem (one big problem) is that our “representatives” do not have a mandate to provide equity, that is social equity. In fact social equity doesn’t even have a description. Money is all over the place, but how to use it is a mystery.
Money is all over the place, but only a few have it.
When all the people have it, how to use it would not be a question we have to inquire into.
Susan,
Not to get too right wing here, but as they say, a government with the power to give us anything, has the power to take everything. The fact is that government amounts to a form of super-organism and it will act as such, circling the wagons around its own interests, even if they are not the same as all inhabitants of the territories it comprises. While it likes to present itself as a parent figure, it is not necessarily so benign. As such we need to keep our wits about us and dance over the cracks.
Social contract theory has all kinds of problems, but regardless, according to it, it is the Sovereign that is the end result of the social contract, not money. Money then gets created by the sovereign so that the Government can collect taxes and thereby makes its fiat money valuable. Once that is done, the Government can get what it needs through voluntary contract with citizens without employing forced labor. So, you may keep coming back to the social contract point, but I think it is factually wrong, both on grounds that whether or not there is a social a contract in any literal sense is highly debatable, but also because even if there is, money is no initial part but only a consequence of the social contract at the option of the sovereign.
A contract is an agreement, based on the presumption of cooperation. If that cooperation becomes radically abused, the contract will effectively become null and void. If those holding the asset show no concern, or interest in the ability of the debtor to fulfill their obligations, eventually the debt will not be repaid. The contract is voided.
When the relationship between the asset and the obligation is ignored and the asset is simply treated as a commodity, to be manufactured, such as by issuing increasingly bad debt, it blows up. This isn’t sociology, this is physics.
Surely saying it’s Physics is a metaphor. Apart from that I don’t see that your reply is to the point. The money is not the direct result of any hypothesized social contract. The direct result is the sovereign who may or may not decide to monetize. In modern states, all sovereigns monetize, but at times in the past they did not, even though the sovereign was politically legitimate.
That brings up some interesting points. Wray talks about type A as ‘high powered’ money which comes from the state in his MMT primer. Type B or bank money as you say has more risk especially if it doesn’t follow proper underwriting. Wray has been very critical of how the Fed bailed out financial institutions without following the rules of Bagehot on how a lender of last resort should handle a banking crisis. He is more in line with Bill Black that these banks should have been restructured with their management facing criminal charges.
This also brings up the safety of money market funds. The Fed is making attempts with its reverse repo program to have more type A backing of these funds. I think this is alright if the money market funds have more of a direct account at the Fed and this money possibly being used for community development bonds. It’s a different story if they are trying to prepare to bail out risky investments of dealer banks which money market funds participate with.
I think you make a great point that people are trying to move toward understanding money as a public resource and seeing this as an important step. Naomi KIein came to a similar conclusion in Shock Doctrine as she saw countries gaining political freedoms but often not following though with financial independence.
MMT is a cult. More precisely a gnostic cult.
You are either one of the enlightened, or you are not. If you are not, you are profane. Or stupid.
The idea is not new, not one bit. It carries no new information about how money works.
It has all the hallmarks of a cult.
It does not have to be, but it is.
Gold and other forms of money can have cultish characteristics with some as well.
All that this says is that money is important, and that some people take ideas about it to extremes.
There are extremes left (MMT) and extremes right (gold).
Well, this really added to the discussion. Hey everyone, MMT’s a cult!!!! You hear that?
Thanks. Everything’s cleared up now.
Jesse – thank you for some sanity. It is a cult.
See just below. Prove it, or back off!
So obvious you can’t even give any evidence for the proposition. Pure agnotology.
I answered the cult charge much earlier in the thread. There I said:
“Finally, I’ll say that its very easy to label a group of people following a particular approach as sounding “like a cult,” but, pray tell, what are your criteria for measuring cultlikeness? And have you applied these criteria to other approaches to economics apart from MMT?
Have you applied the same criteria to the approach to economics that you subscribe to or have invented yourself? Or don’t you have an approach to economics at all?”
So, can you answer these questions or not?
In the above I meant (the gold standard) and not gold itself.
Gold itself is just a thing, with the most important characteristics of money,
at least judging by the verdict of history.
The verdict of history is that no one uses the gold standard anymore. They got tired of the periodic depressions and rule by the financial elites hoarding gold.
I am liking MMT more and more because it clarifies what money does right now based on a historical perspective and not an idealistic set of political doctrines that someone is trying to cram down my throat. The historical perspective gives me an understanding of how our current market economy can operate. I too am wary of money attached to debt. but not in the sense of what Mr Wray has explained where financial economics is really a macro book keeping operation for the social order. Speaking for my self, the mechanism of debt, being in debt because you borrowed money, whether via credit cards, student or car loans or a mortgage to buy a house, that type of borrowing is part of a capitalist system of commodification that transforms money.
When the debts go beyond a simple and pragmatic token for accounting for social “debt”, a debit must match a credit, this is balance of the balance sheet, there is mutual social obligation implied and represented by the money and the receipt. You know, you go to the Wawa for a 99cent cup of coffee and a TastyKake you pay for it and the cashier gives you a receipt. For bigger purchases, receipts are important, showing you did not receive stolen goods, tax purposes, rebates and warranties etc. This mutual acknowledge is around us all of time, but there has been no theoretical framework for macro book keeping of the social order as whole as it applies to the market economy, until MMT. It has exceptional explaining power. It is coherent and operates as a theory at different scales of analysis from the coat room to the board room and beyond.
But the problem with MMT is that it is not comprehensive theory of the social order, structural and function of humanity as it is organized throughout the world. Well, it’s not supposed to be. It is a modern monetary theory, not a social system science. The fact that the mafia uses money as well as the Sister Scallion’s Project Home uses money as well as the kids lemonade stand uses money has no relationship as to why there is an American Hegemony. Before American Hegemony there was British Hegemony, and they use the Pound Sterling. Hegemony and the rapacious exploitation is complex political accomplishment that certainly has used finance as a chief component for world domination. But money’s exploitative role as a commodity used to reduce people to debt peonage is not sufficient to keep them in a diminished human capacity. The violence that can be meted out, the overwhelming power of the state’s security apparatus, military, para-military sanctioned armed groups, such as the KKK once was, and civil police forces all act as the final arbiter. To lay the fault of the worlds problem at the feet of the golden idol of money is no different than blaming our fate on the stars. Look into the eyes of the people with power, the people who don’t want to deal with people with power and everyone else going about their lives everyday. Our fate is behind those eyes and no where else.
I think you’ve made some good points. I especially agree with …”But the problem with MMT is that it is not comprehensive theory of the social order, structural and function of humanity as it is organized throughout the world.”… as it pertains to predicting future economic results in a precise fashion. It also seems clear to me that economics & MMT are not abstractions that exist by themselves, but rather, economics is the language and MMT is the tool that theoretically helps explain (rear view mirror) why the output and consumption of a social order (people) acting over a period of time manifested itself in the form of a particular set of tangible and or intangible financial results. If you really think of economics, in general, as an art that can identify tendencies when applied to a specific set of variables- then- MMT is a specific tool/framework that can be used to also spot trends.
Based upon historical observations it is logical to conclude that MMT can help predict future economic results within a range of probabilities. But it cannot be precise. Because the population being observed is constantly evolving, there are potentially an infinite number of variables that need to be taken into account when trying to measure and predict economic activities at the nation state level.
So I see MMT as a valuable tool that helps explain in economic language how things work. What I’m uncomfortable with is when I read quotes that are set forth with the appearance of absolute certainty -that MMT proves that a government can print an infinite amount of money without adverse consequences. That would be like the National Weather Service doing an analysis and issuing a statement that lists with absolute certainty and with precision, all of the negative weather- related outcomes that will result if the carbon count in the atmosphere exceeds a particular threshold. Individually identifying, analyzing and predicting the course of each of the infinitely large number of weather related variables that would have to be accounted for is impossible.
Sorry, I glad you think MMT is a useful tool. But this:
“. . . that MMT proves that a government can print an infinite amount of money without adverse consequences. . . .”
is nothing an MMTer has ever said. In fact what MMTers say is that if too much printing is done then one consequence is hyperinflation, and there are other consequences too; but none of the consequences are the insolvency of the Government, which is the consequence that the austerians terrorize people with.
Joe Fire, stf and Ben,
Reading these comments shows the incredible interest MMT is generating … from people who seem not to agree with it and yet keep coming back – which is a good sign… and kudos to all of you for tirelessly repeating the main points and basics of MMT …
But for me the elephant in the room is how will MMT deal with inflation … I have not yet seen a cogent presentation from MMTers on that issue although that seems to be the main sticking point from serious MMT critics … In other words, if monetary policy (interest rates) cannot control demand/inflation and if MMT believes only fiscal tools (taxes/spending) can do the job, then you need to explain in more detail how that will work and what evidence you have to show that it does work. My main concern is that just like rates are a blunt and maybe inefficient tool to regulate demand, then I fail to see how tax rates will be any better in the context of a complex multi-sectoral economy with varying sources of price pressures. Secondly, assuming that taxes can control demand/inflation efficiently, you still need to show that this tax regime can be managed efficiently by a bureaucracy known for anything but efficiency. I sincerely fail to see how our IRS/Congress would be able to set optimal tax rates given that they would need to be continuously identified, (re)calculated, tested, legislated, implemented, administered, repealed, re-enacted, etc.
The obvious interest groups behind every legislative action make this sort of management tool nightmarish… Thanks
I think it’s also interesting to look at the question from the other way around. With austerity measures we are in danger of creating an inflation due to lack of supply. We’re losing the productivity side of the economy by investing in financial instruments instead of industry. If we look at demand driving supply by making CEOs interested in spending to supply that demand then employment is what can produce this demand. When full employment is reached then there will be the motive to cool off the economy. A living wage of say $20/hr or $40,000 a year could be a good method of redistribution by sharing in profits especially if we can tame the excesses of the FIRE sector. This would also help to redistribute political power.
Yves: you introduced “Randy Wray: The Rise of Monetary Cranks and Fixing What Ain’t Broke” with the observation that: “Perversely, there have been some readers who have tried depicting advocates of Modern Monetary Theory as bank-friendly and supporters of the current order.” They may not mean to be but they are if you define “current order” as a system under which people and nations can pay their way by simply creating more (money as) debt. In this one you fess up stating that ” MMT is descriptive of our current system…”. If that system (of privately controlled investment) was doing its job and was coupled with a distribution system that insured everyone had at least ‘enough’ of what the state of the art in modern technology has to offer in the way of sustainable material well-being we wouldn’t need MMT. To use the conservative refrain what MMT seems to propose is really just ‘throwing money at the problem’ of a fundamentally flawed “current order”.
Lots of things that urgently need to be done right now (“fill in your priorities”) are NOT being done. Under the circumstances, whether you are an MMTer or a public banker it would seem stupid (maybe even criminal) to let a little thing like money – which can be created out of thin air – stand in the way. I believe it was Dr. Wray who in another article facetiously proposed putting the 0.001% on an island somewhere and letting them play their Monopoly money games to their hearts’ content. That is an environment in which I could whole-heartedly endorse MMT. Allowing the 0.001% to play those games in the context of the real Main Street economy is another matter.
You say that ” MMT provides a basis for rejecting neoliberalism and austerity, and people who ought to embrace it are instead
being told falsehoods about it and are becoming skeptical.” I confess I am not quite sure what “neoliberalism” really means. So in the absence of a better definition, I’ll supply my own: paying your way in the world by creating money out of thin air (i.e. debt) and then blowing people up when they refuse any longer to exchange the wealth their people produce or pump out of the ground for more “debt that can’t be repaid (and) won’t be”.
I’m glad to see Dr. Hudson weighing in on this discussion. Perhaps a lot of the confusion and dissention can be laid to rest if he or some other MMTer can provide more detail on those “MANY far-reaching … systemic reforms”. I am hoping they don’t include ‘a new world order’ under which a coterie of international bankers is endowed with the “exorbitant privilege” of creating money out of thin air. I am also hoping those reforms are not based on the assumption advances in science and technology can overcome the finite limits of the world we inhabit. In his “America’s Protectionist Takeoff” (APT) Hudson details the methods by which the United States broke free of the grasp in which its economy was held by Britain’s ‘money power’.
Those same methods have again proven effective for the Chinese. But I am not sure they would work again for the U.S. There is certainly nothing ‘exceptional’ about either the intelligence or diligence of the American worker, no character trait that would allow him or her to out-compete a foreigner worker with access to the same education and technology. I still like the tariffs part of the plan. Unlike some of your readers I am not interested the remaining natural resource this country still possesses, such as they may be, with the rest of the world in a ‘race to the bottom’. We can use tariffs to spread the good parts of the American standard of living by insuring any products produced by foreign workers incur the same environmental and worker rights protection costs as they do now (or used to) in the United States.
But to wrap this up, absent those “MANY far-reaching … systemic reforms” (as Bill Clinton or somebody used to say about unworkable solutions) “that dog (MMT) won’t hunt”. ‘Euthanizing the rentier’ by creating money out of thin air worked for a while. My guess is that the world financial system has already reached the Ponzi stage of finance where even the interest on existing debt must be paid with more debt – or selling off the family jewels, i.e. privatizing the public domain. ZIRP is a public acknowledgement of this state of affairs. It may help sustain the “current order” a little longer by allowing the U.S. and its fiefdoms in Europe and Asia to sustain their empires and fiefdoms of debt. But in the private sector money holders are going to demand either: interest (the ability of money to make more money) or some proof they can exchange the money they hold for real wealth, (the public domain?, our national parks?)
Frederick Soddy used European WWI war debts to show what motivated people to acquire money was it’s essence as debt rather than any inherent value:
Frederick Soddy, “The Inversion of Science”, LONDON, HENDERSON, 66 CHARING CROSS ROAD
1924, p. 20
I suspect we may have gone beyond that to a point where those money as debt holders are beginning to demand proof they will be able to redeem the debt they hold with real wealth. And the only way to provide that proof is insuring that wealth will not be consumed providing government services to those who (if their jobs have not been off-shored or automated) pay for them, i.e. through ‘austerity’, etc.
Oops! Should have been here…
It may not be an obvious mistake so I should clarify that I actually meant “Unlike some of your readers I am not interested IN SHARING the remaining natural resource this country still possesses…”
While I’m at it, I should probably add that the problem of paying the ‘economic rent’ on money goes far beyond government interest bills. For example, without the guaranteed profits from producing for the military-industrial complex there would be no place for all the money to go without swamping the private sector economy with so much wealth it would make the populace so fat, indolent and happy they would have no further need for money created as debt and out of thin air.
“To use the conservative refrain what MMT seems to propose is really just ‘throwing money at the problem’ of a fundamentally flawed “current order”.”
No! That’s not what MMT is proposing, MMT is proposing fiscal policies targeted on the right kind of spending for solving a wide range of problems we collectively face. The fiscal policy requires deficit spending in the particular case of the US because our nation is running trade deficits and also because most people have taken a great hot to their assets in the Great Recession and need to save to heal their balance sheets. Trade deficits and savings are demand leakages that prevent maintenance of full employment. So Government deficits must be large enough to compensate for those anticipated demand leakages or the economy will contract and we won’t have full employment.
This post lists the problems that MMT fiscal policies ought to be targeted at.
And this one discusses how deficit reduction relates to microeconomic and macroeconomic austerity if Government deficits are too small. Finally, here, and here, you’ll find discussions of some specific fiscal policy measures that the policy space opened up by the MMT approach would facilitate.
Let’s look at the coat check girl analogy for a second:
What happens if you give the coat check girl your coat and she hands you a ticket. But, instead of owing you back only your coat when you redeem the ticket, the coat check girl has to not only give you your coat but also part of ANOTHER coat. Maybe a button, maybe a sleeve, maybe another whole coat. The only way it would be practical for the coat check girl to do her job would be to somehow procure other pieces of coats or whole coats to satisfy the redemption of the ticket. She may decide to steal pieces from the other coats that have been checked in or borrow pieces from a local tailor. But one thing is for certain … she will always run a “coat” deficit.”
So maybe “debt-free money” isn’t an accurate term … how about “interest free.” Because our system runs pretty much like the system that employs the coat check girl in my example, not the one in yours. All financial transactions involve a credit and debit. But not all involve interest payments. What if, when I redeemed my coat and the coat check girl didn’t have my portion of the other coat? Well, I might have an agreement in place that states that, for every month that she doesn’t return to me the part of coat that she owes, she is liable for ANOTHER piece of coat. In other words, now her coat debt is COMPOUNDING. Starting to see how this plays out.
The problem isn’t that our money has debt attached to it, the problem is that it has INTEREST debt attached to it. Creating a money that doesn’t require INTEREST debts to be passed along is what “debt free” money is about.
“Debt free” money only has to not preclude the motivation for PROFIT. Otherwise, it makes a lot more sense than expecting a “coat+” whenever you redeem your coat check ticket.
James,
Mostly its called inflation. Remember the old story about how daylight savings time is like the old guy that cuts one end off his blanket and sews it onto the other end to make it longer?
Otherwise people might just stick it in a mattress and the hatcheck girl would be out of a job.
I think the coat check girl would rather not be employed under those circumstances, especially if she is the only one in town.
James King – uuurrrgggghhh! A coat check girl is hired by an establishment (as a perk to draw you in) to check your coat. You are getting this service for free. SHE is not asking you for your coat (you could wear it into the theatre or restaurant, if you’d like). YOU are asking her (or the establishment) to check your coat. The request is coming from YOU.
If SHE wanted to rent your coat for a few days, a month, a year, you might enter into some kind of an agreement. In that case, SHE would be the one who actually wants something that she doesn’t have. That’s a different story. Since you don’t get “something for nothing”, then perhaps you might charge her.
But where or where is the logic in saying the coat check girl might need to pay YOU interest? It’s YOU who are wanting the service.
Pay attention to the example:
“In discussing money, G.F. Knapp (one of the developers of the State Money Approach, adopted by Keynes and by MMT) made a useful analogy with the cloakroom token. When you drop off your coat at the cloakroom, the attendant offers you a token, usually with an identification number. The token is evidence of the debt of the cloakroom, which owes you a coat.” – Randy Wray
If “cloakroom token = money” and “coat = debt,” then there should be no problem understanding my point.
“But where or where is the logic in saying the coat check girl might need to pay YOU interest? It’s YOU who are wanting the service.” – backwardsevolution
As an incentive for holding on to my coat. Otherwise, why offer a coat check sevice at all?
Bottom line is that the example is a fallacy. There are general coat check areas as conveniences for which the operator of the coat check will earn compensation in some other manner. You may check your coat at a restaurant because the proprietor knows s/he will make profit in some other fashion.
However, a pure coat check service would have to incentivize someone to hold their coat, otherwise it’s a pointless endeavor. That’s the only way the example works.
Keynes wrote an essay in 1930 called, ”Economic Possibilities for our Grandchildren,“ in which he predicted that the work-day would be reduced to 3 hours a day by 2030.
It may not be an obvious mistake so I should clarify that I actually meant “Unlike some of your readers I am not interested IN SHARING the remaining natural resource this country still possesses…”
While I’m at it, I should probably add that the problem of paying the ‘economic rent’ on money goes far beyond government interest bills. For example, without the guaranteed profits from producing for the military-industrial complex there would be no place for all the money to go without swamping the private sector economy with so much wealth it would make the populace so fat, indolent and happy they would have no further need for money created as debt and out of thin air.
Well, no Steven: pumping more money into the economy doesn’t “make the populace so fat, indolent and happy “. It does cause price inflation. And a lot of people are going hungry in the USA precisely because of price inflation.
I believe we may have ‘a failure to communicate’. I didn’t say anything about just “pumping more money into the economy”. That’s my gripe with MMT and for that matter any other species of monetary reformer that believes a person or a nation can pay their way in the world by just creating money out of thin air, positive money (trillion dollar coins, etc) or negative money.
I DID say that if all the money the U.S. had put into national defense (sic) – or even just that not required for real defense from other nations run by politicians with the same power-hungry, hegemonic instincts as those who run this country had been invested in real wealth creation as opposed to bombs, the U.S. would be a FAR more prosperous country right now. Since at least the end of WWII the U.S. has run a full-employment program – for the money of the world’s oligarchy not for its people.
P.S. I personally believe it would be better for the country if many of us employed at making and using guns and bombs WERE indolent and happy, if not necessarily fat.
Fair enough. Thanks for the clarification.
Imagine a very large vehicle. One so large that it has 100 wheels and tires. Imagine 90 of the tires are flat. A good portion of the main article is akin to a group of a dozeneconomists gathered around 2 or 3 of the tires that are not flat, claiming that “this vehicle is just fine, these tires we examined are perfect and completely functional!”
Money is a representation of a debt relationship, It is a two sided coin. One side asset, the other side debt.
Maybe Debt Free Money is a Mobius Strip concept. Money that has only has one surface and one edge. Like a Mobius Strip that is a complex concept. One in which there is no other side to the coin? One side without the other. How can that concept exist to any logical mind? Of what use would be a Debt Free Mobius Coin be in the conceptual structure of a monetary system used by an economy?
Only a paradigm shift in thinking would see the future possibilities. Maybe we are so constrained by the dogma burden of a debt based balance sheet thinking past that thinking in terms of any other concept is as impossible as as comprehending the nature and application of a Mobius Strip debt free coin?
Is a one sided debt free coin a win/win proposition? It would drive debt to be merely one application of a monetary operating system, not the operating system itself that produces debt based two sided coin money as one of its functional applications. The horse and cart would paradigm shift.
Nice lede, Yves.
My reaction to debt-free money mirrors Randy’s: No such animal. To put it simply (and all of MMT can be put simply), you can’t have a credit without a debit. It’s simple accounting, which is what MMT in fact is. When the US spends money into existence, you have a credit, but only because the US incurs a debit (liability).
All of MMT starts from this point. Taxes are not revenue, because they must offset their initial creation of the liability. All government spend is therefore the creation of new money. The deficit can never be paid off without ending the currency entirely. And so on, and so on. Nothing but double-entry accounting.
And why not double-entry accounting. All other movements of money rely on it; why not macroeconomics? Well, that’s simple. Because MMT (ie, double-entry accounting) puts an end to ALL the pet theories that are running around in the discipline, most especially the ones coming out of the right wing.
Money multiplier? Sorry, the books don’t balance. The money multiplier doesn’t exist. (Macro leaves out one of the transactions the banks must use to make loans. That’s where the error is.)
Loanable funds driving interest rates? Again, sorry, the books don’t balance. The borrowed money must go somewhere. (In loanable funds, it just disappears.) And so on, and so on. Nothing but double-entry accounting.
See? It’s really pretty easy. But you can’t think of it as something to ADD to your knowledge of how money works. MMT REPLACES it. A quick refresher of that bookkeeping course you had to suffer through is probably all you need to develop in an MMT scholar.
Hear hear.
In nature books don’t balance. Resources are used up entirely. Eventually. If there is a niche wherein a nutrient or a resource is unused, a colony of watercress or moss or fungi accumulate and problem solved. Why on earth we translate that time-lag into a concept of “profit” is beyond me.
Susan, I think you’re misusing double-entry bookkeeping. For example, when we convert coastal wetlands into federally-subsidized real estate development, we certainly destroy habitat and make storms worse and so forth. It is idiotic on a cost-benefit framework.
But that’s still captured in the “T” journal entry – the credits and debits still offset, with the development on one side and the habitat destruction on the other.
The books absolutely balance. What they tell us is that it is insane to be destroying the planet for the sake of a little more Gee Dee Pee.
http://www.quickmba.com/accounting/fin/journal-entries/
P.S., here’s the more general overview on double-entry bookkeeping:
http://www.quickmba.com/accounting/fin/double-entry/
Debt free is a misnomer. The proponents of debt free money don’t really mean debt free, they mean interest free.
What I was taught in law school (and learned in much detail later) is that to be a government promissory note, it must carry interest, in order to distinguish it from currency which carries no interest and hence the use of the term currency (face value is always current as there is not interest). In fact the Constitution is quite specific about this. It forbids states to issue promissory notes that don’t carry interest (called bills of credit in the Constitution). The federal government is not forbidden in the Constitution from issuing bills of credit and the Supreme Court later held in the 1870’s or thereabouts, that the federal government could issue them. Part of the reasoning was that the Constitution forbids states from coining money and the Constitution expressly allows the federal government to coin money. The court reasoned that a bill of credit is the paper equivalent of coining money. There are some interesting cases about states issuing bills of credit and on more than one occasion a state has run afoul of the prohibition of doing so. As long as a state issues a promissory note that carries some kind of interest it does not violate the Constitutional prohibition of a state issuing a bill of credit.
What the proponents of “debt free money” are primarily arguing for is that the federal government should issue currency or bills of credit and not promissory notes that requires the government to pay interest on the notes. The accrued interest is the “debt” that they don’t want the government to incur.
I think your comment was a very useful distinction.
It seems to me the kernel of the “debt free money” scenario, is precisely that in just creating money, with no intrest attached to the use of it,by its creator;the government,is a good idea.
I don’t understand why the MMT faithful see the present situation ,where there are associated costs to everyone for allowing an intermediary, to function as the money creator, and also be due interest on all monies created. Whereon there has grown this system where de-facto entities are regularly profiting from the doing of the daily business.
It seems to me the proponents of the MMT framework are saying they think it is a good idea for the government to issue/distribute/inject, etc.. the money into the economy. I quibble with the fact that they think it already does. But really, there is a lot of common ground for reasonable people to see that fiat money is a useful invention of mankind.
We can do it better than we have now.The corruption, and the conflict of interest, from the private banking houses and financial service dealers who really do get a free ride,with their access ,need to be cut out.There was a bill in congress, HR 2990 112th congress, that was the best and only plan I have ever heard of that got that far and was that well laid out.
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I believe Dr. Wray has addressed this. If you don’t like government paying out interest on bonds then we can stop issuing them on a market. All tbat need be done is revert to the institutional architecture that existed during WWII when the Central Bank was permitted to buy IOUs directly from the Treasury.
Under the current arrangement Fed still funds Treasury spending but is forbidden by Congress from doing so directly. The bond market functions as an arm of the Federal Reserve allowing an end run around the rules by buying the IOUs indirectly using the Primary Dealers as middlemen. In fact Congress was specifically warned in 1947 by the Fed chairman of exactly this outcome should it forbid direct purchase but conservatives didn’t want to hear it, so focused were they on subjecting federal spending to “market” discipline.
If there is a way to persuade Congress to shift banking to a decentralized non-profit system then you’ll get no objection from me; what I object to is undemocratic control of our economy by a central committee functioning as a central bank on GHB.
Actually, there is no “central committee” proposed under the “need act”. They have options on the mechanism that will inform the amount of money to make available. Personally, I like the idea of it being connected to population growth/change.
The fact is, people who “would favor”, this or that…is all well and good. But MMT has no legislation proposals. Nothing I am aware of has ever been introduced on the floor of the house.The details of the “need act” are written. People can read them. I can understand that you haven’t. But you should.
The main problem with the MMT world view, is that its supporters are still saying,”our holy men are for this and that”,but the problem is, there is nothing on the table.When there is no concrete anything, there is no devil in the details, they shift depending on who you are talking to, and when they are talking. It is all good to say, when the fed is rolled into the treasury,but this is just a thought,not a plan.This is why it is such a big deal to have presented an actual plan, as the “need act” clearly lays out.
If this post was a debate on the NEED act, it would start with the “bill”. It would be enumerated. It could be debated. It wouldn’t start of talking about “coat check girls”, and other ridiculous metaphors, which in no way are a basis to debate factual realities.
MMT accepts the notion of a war economy (full employment)
It seems to junk the albeit quaint notion that capital was /is apparently used to reduce work !!
One must always ask the simple questions.
Such as who exactly are we working for when the economy is at full employment.
Also it accepts the notion that the state must paper over the loss of purchasing power inherent in free banking.
Its therefore the worst of all worlds – its free banking given state sanction.
Essentially its a letter of marque given a academic gloss.
Just to add it describes reality in the Australian , US & UK banking unions today.
Needless to say these mature banking jurisdictions are super materialistic hellholes.
I imagine once the European banking flux totally dislodges the previous european cultures we will become one of them once of course when we stop running away from ourselves.
http://www.youtube.com/watch?v=bV3tfauw3vQ
Debt free money does not exist if we assume there are 2 parties to a contract: a borrower and a lender. The lender is going to want to be paid interest on his loans, due to the time value of money.
He also wants to be paid back the principal. It does not matter whether the 2 parties are Yves and I or the 2 PARTIES ARE THE FEDERAL GOVERNMENT AND I.
I WANT MY INTEREST ANFD PRINCIPAL PAID BACK DUE TO THE HARD WORK THAT PROUCES PRODUCTS AND SERVICES THAT ARE BOUGHT AND SOLD.
I DO NOT WANT TO BE PAID BACK FROM SOME COMPUTER THAT PRINTS DIGITS.
Don Levit
ZIRP reduces federal spending because it causes the federal government to pay no interest on the federal debt.
Independence
The vast majority recognize that they are not going to make the cut, to escape the gravity of perception imposed upon them, and so seek out the game that best suits their position, based upon the perception of others, imprisoning themselves to game theory. Before life begins, they have already lost, of their own free will.
Locked into a distribution of game players, they seek competitive advantage, with weapons happily supplied by others doing the same. The perception of debt, guilt, is simply the best weapon to grow the ponzi, to exploit natural resources among those incapable of seeing beyond the past.
In this game, global family law, a blood knot between enemies and mercenaries, reigns supreme. At the top end of feudalism, marriage contracts are arranged among enemies, who only hate others more than they hate each other and themselves. As you travel down, the civil marriage contract becomes more mercenary in nature; love is contingent, which means that there is no love, just cheap substitutes.
The economy most see, the booms and busts of natural resource exploitation, favoring the FILO organization of History, is no economy at all. It is simply a prison of peer pressure, within which the inmates regulate each other, with relative advancement, in a system that can only fail.
The magician, legacy, and the crowd, the middle class, imprison each other, on a sinking boat, scavenging the planet for resources to exploit, ignoring the future in booms, burning the magician in a superstitious pyre, when the future becomes the present, in bust, only to repeat the process. America simply recycles the scapegoats.
My great sin was to expose the stupidity of the system with nothing more than a ten line algorithm. In the critter’s own law, that could reproduce the entirety of the law, on appeal to SCOTUS, for all to see on a precursor to the Internet. And to verify the process in Canada. Funny, I was legally notified of divorce by e-mail.
This may help some of you. When payments begin on garnishment, the DA is supposed to be notified and pull down the flags on your licenses, in a computer built for the purpose, and once only the State is a party, any judge can resolve the matter. Of course the critters, now pleading freedom and separation, will go to their graves before issuing me another license.
No matter. Some people’s money is worth much more than other’s, and mine is worth nothing; the proprietors will sell me nothing, and labor will give me anything.
I have worked in seven trades, union and non-union, completed four college degrees, and worked for the Navy as a consultant for 25 years, with emergency certifications and as a miscellaneous consultant, because the system can only discharge without intelligent labor, as you are observing.
If you think about it, economics is a circuit of spacetravel, albeit at a snail’s pace, all the critters can tolerate. Each middle class event horizon has characteristic habits, a gravitational character, enforced by debt as income, in a conspiracy of stupid. They all live week to week, whether they care to dwell on the fact or not. Under MAD weaponization, their assets are worth zero if they do not comply.
Under civil law, choice is the illusion the crowd clamors to gain, in an act, expecting the status quo to repeat in its favor. Choosing to kill your own child, to ensure the status quo, is not choice, nor is gathering to watch an empire production. Choice is when your child chooses to ignore the status quo, independence, to seek that which others do not.
The clamor for equality is not about opportunity; it’s about forcing others to accept the status quo, to gain control over production for the sake of consumption. Even if you do split out Capex, under empire conditions, you are still talking about investment in future consumption, which is not investment, although it would be less destructive.
Countries are vertically integrated event horizons, proffering democracy and delivering a ponzi lottery, depending upon immigration for fuel, controlled horizontally by networks of feudalists, fighting feudalists, for the best birthing on the Titanic. California farmers, surrounded by legacy poison, seek profit on drought, new world order same as the old.
The old-timers tend to settle into one event horizon or the other, watching stupid from the time they open their eyes until they close them, looking for talent to advance. Others appear and disappear, in one form or another, place to place, to move you along.
Step out in faith, experience seeking that which others do not, and the bridge will be there, built by those who have always discounted away the empire, with better things to do than collect toys. You can’t choose your parents or your children, but you can choose the future.
If you look, you will find family, in the spacetime of your choosing. A labor of love can only result in economic gain, while others can only result in loss. The only question is timing of recognition. If you want toys, join the sh-show, on a slow crawl to oblivion.
In seven years, with the advantage of the Internet, has anything changed, in the empire?
The only person you can change is yourself, and only with a leap of faith, what becomes a walk into the future, upon a bridge placed there upon expectation of your arrival. If you look, you will see that I gave you the algorithm for revolving the building around the elevator, and traveling between elevators, a long time ago, traveling backwards in time.
You are now at 1971. You might want to make a better decision. At the community level, the debt prison is a mere perception, but real everywhere else, because “all politics is local.”
“The bank will protect those indebted to the hilt because our economy, now overly reliant on consumerism, cannot afford to make destitute great throngs of shoppers” until it can’t.
The proprietary programmers and doctors build on sand. You do not design the bridge left behind to collapse by accident. Not everyone is quite so stupid as you may have been led to believe.
MMT is not descriptive. The US government does not spend simply by crediting bank accounts. It spends by taxing people’s deposits. My money really gets debited before the government credits someone else’s account. The government does not “spend first” as MMT claims. That is not how our monetary system is designed.
MMT is based on a mythological description of the world that misconstrues how things actually work. They misconstrue the reality because they want to pass off their agenda as though it’s just the “way things are”. As if we all have to buy into their political agenda because it’s “operational reality”.
MMT is junk economics. No one serious accepts it because they know it’s mostly just politics pretending to be “reality”. I am surprised you fall for this nonsense Yves.
No, both Alan Greenspan and the Bank of England have endorsed MMT’s description of money creation and government spending. I’m sorry you are wedded to your belief of how things work, but it is not accurate.
Yves, Alan Greenspan did not endorse MMT. He pointed out the obvious fact that a government with a printing press can theoretically print as much money as it wants if its legal system permits it to. This is an obvious fact that MMTers constantly point out that is so mind numbingly obvious that it’s amazing that you all think it’s some revelation. Oh wow, a government with a printing press can print money? Tell me something I don’t know!
The Bank of England endorsed endogenous money. That is not a “MMT description”. Endogenous money has been well known and was described long ago by economist like Irving Fisher.
You don’t seem to understand MMT very well. If you did you wouldn’t endorse it.
No; It’s you who doesn’t understand. When Greenspan said that the Government could always pay its debts by creating money out of thin air he was not talking about endogenous money, but exogenous money created by the Government by fiat. Endogenous money refers instead to banks creating deposits out of thin air when they make loans. That kind of money always comes with a liability for the entity receiving the loan proceeds. Exogenous money is a liability of the issuer, the Government. But it is not a liability of the non-Government recipient of federal spending.
Indeed, Greenspan did not “endorse MMT.” He endorsed MMT’s “description of money creation and government spending,” exactly as Yves said. Separate concepts, eh?
There’s also IIRC a quote from Bernanke I could dig out…
No, Greenspan said the government could spend as much money as it wanted to in theory. He did not describe the monetary system in anything near the terms of MMT and its nonsensical “spend first” ideas. The fact that someone acknowledges the existence of a printing press doesn’t automatically make them a MMTer.
Your general sloppiness in connecting the dots here is ridiculous. You all make assertions that don’t hold up to any level of scrutiny under expert examination. There’s a reason why MMT isn’t accepted by the mainstream. It’s nonsense.
No. When asked by Paul Ryan whether the Government could default on its debts. Greenspan responded that as the issuer of the currency it could always pay its debts; or words to that effect. That’s why US debt is a risk-free investment barring Congressional stupidity, and it is also the reason why insolvency is not a risk for the United States however high the level of the debt subject to the limit.
I don’t know why that’s helpful. Of course, if a country doesn’t have a pegged currency or foreign debts (which not all countries can afford the luxury of) then of course they can’t be forced into defaulting on their debts. Why is that informative at all? You point it out like it’s some great insight. It doesn’t mean government spending and government debts can’t cause huge problems for an economy. So I don’t know what’s to gain from you constantly pointing this out like you’re the first group of people who ever realized this.
The US government does not spend simply by crediting bank accounts. It spends by taxing people’s deposits. My money really gets debited before the government credits someone else’s account. The government does not “spend first” as MMT claims.
False. Have a nice day.
Actually, it is a legal requirement that the government must have credits in its Federal Reserve account before it can spend. Just like you must have credits in your bank account before you can spend. Of course, the laws can be changed to change this, but the laws could also be changed to make it so you can spend out of your bank account without having credits. The MMT description is a big misrepresentation based on very serious accounting errors, flawed understandings and ideology.
Actually, it is a legal requirement that the government must have credits in its Federal Reserve account before it can spend.
Reserves the government issued by spending, before it taxed.
No, the Fed doesn’t credit the Treasury’s reserve account until it has sold bonds or taxed thereby obtaining deposits. Just like an interbank payment doesn’t settle before your deposits are debited.
You MMTers are sloppy and misconstrue so many things that it’s a real shame you get a soapbox like NC to spread your misinformation on.
I am a progressive and a staunch supporter of most of the policies MMT supports, but the descriptive aspects of MMT are just wrong.
How can you support MMT-like proposals if the govt has to borrow? Talk about inconsistencies.
We had the “general vs. specific” debates a few years ago. We don’t care what you say anymore. The legal scholars are on our side, as it turns out. Go watch the videos.
The legal scholars are on your side? What legal scholars? A handful of biased scholars you choose to listen to? Too bad the actual courts aren’t on your side. That’s all that matters here. The fact of the matter is that you cut corners to make your theory valid. Laws matter. No matter how loud you scream in blog comments sections.
A link to the videos would be useful to the rest of us, if not necessarily your interlocutor.
No, You’re ignoring the third possibility, which is legal right now, and used to some degree. That possibility is seigniorage from coins deposited at the Fed. That seigniorage can and does generate credits in the Treasury General Account (TGA). So, your claim that Treasury credits must be generated by taxing or borrowing is false, even in the context of today’s legal structure. I’m afraid that the sloppiness is yours not ours!
seigniorage is not presently used to fund US government spending at any level that could be deemed even remotely consequential. This is now the third or fourth time this Firestone person has said something remarkably stupid on this comment thread. Who let’s him represent MMT? He doesn’t know anything about economics or finance.
Now, Joe_Johnson that was unkind and in addition a transparent attempt to avoid substance. I never said that seigniorage produced “consequential revenue” right now, but it does produce enough revenue to establish that seigniorage can be used for this purpose, provided the denominations of coins are large enough. A law passed by Congress in 1996 allows the Secretary of the Treasury to order the minting of 1 oz. platinum coins w/ face values specified at the discretion of the Secretary. The law specifies no limits to the Secretary’s discretion. Such a coin can have a face value of a $100, or 100 Trillion, or greater, or anything in between. I propose $60 Trillion myself for reasons outlined in my book, which you really ought to read before you conclude that I don’t know what I’m talking about.
Finally, my comments here, don’t “represent MMT.” I like to think I follow the MMT approach, but I’m not one of the originators or one of their students now graduated to academia. I’m a writer who does the best he can with MMT. But I don’t consider myself a leading authority like Randy, Stephanie Kelton, Scott Fullwiler, or Michael Hudson, all of whom have been commenting on this thread.
There was no substance in your original comment. You’re discussing an irrelevant loophole in the laws. Why should anyone care about something so unrealistically inconsequential? The fact that you use such a silly loophole to “prove” your point only shows that you need to stretch the truth to make the pieces of MMT actually work. In other words, your theory has serious holes in it that don’t hold up to serious scrutiny.
OK, I’m a little confused here. I agree that a sovereign owing money to itself is not an issue. It may also well be true that a financial system of debt-created fiat money is the best such system (at least when it has not been corrupted or hijacked by corrupt plutocrats – but that’s true of any system!). It’s also true that any economic action can be construed as a debt (I wash your car, then you owe me $5).
But the notion that money in the abstract requires debt for its creation still escapes me. Money is a fantasy: why can’t it be created out of thin air? Why can’t the government just issue every citizen a dividend when the money supply needs to be increased? As long as people agree to use it as a means of exchange, so what?
When the old Spanish empire looted gold from America, that was money – not because gold has intrinsic utility, but only because psychologically people were willing to accept it as a means of exchange. That was surely money ‘created’ without debt, wasn’t it? Granted, it didn’t turn out so well for the Spanish, and it produced a lot of distortions in their economy, but surely that gold was money by any operational definition? People used it to buy things and pay taxes, yes?
At times we have had quasi-barter economies where things like whiskey and cattle or even packs of cigarettes were used as de-facto currencies (‘commodity money’). Inefficient, perhaps, and not suitable for a modern industrialized economy, but if someone distills whiskey and they can trade that for other goods, well what is that if not money?
Ultimately money is not bound by the laws of physics, it’s a shared fantasy and can be anything and follow any rules that we make up. That doesn’t mean that some styles of money won’t lead to bad economic results, but surely that’s a different issue?
Why can’t the government just issue every citizen a dividend when the money supply needs to be increased?
It can, but the dividend is still debt. Our debt for taxes owed and the government’s debt for settling of tax liabilities.
Better than dividend, the government can create and rightfully, the people own and spend it.
Oh, thank you, thank you for your post! Yes, you CAN create money out of nothing, money that is not subject to the laws of physics, except perhaps those used to create a computer bit. But you CAN NOT create real wealth out of nothing! That whole process is most definitely governed by laws of physics, chemistry, etc. Your example of the Spanish and their 15 seconds of imperial greatness purchased with gold and silver looted from the New World is particularly informative when viewed from the right perspective. If I remember my history correctly, part of the reason the Spanish Empire was such a flash in the pan was because it didn’t use all the monetary wealth it plundered from the Incas to develop the skills and wealth-producing abilities of its people. Instead its oligarchy spent the money on a combination of conspicuous consumption and useless wars.
Unlike the U.S. or England, I don’t believe Spain ever had a modern economy employing the latest advances in science and technology. So its people can perhaps be forgiven for not knowing what they lost, i.e. the opportunity costs of all that misspent money. Nor were the Spanish plagued with bankers or economists who fooled them into believing that just by creating money out of nothing they could create real wealth. (The Spanish at least had to rob and murder natives for their money.)
What we are witnessing, apparently, is the demise of a civilization that was wise enough not to let a little thing like money stand in the way of employing advances in human knowledge – but not wise enough to realized that the source of its wealth was those advances, not the fraudulent deceptions of its bankers and financiers, euphemized by their apologists as “efficiency of capital”.
Not sure if you intend this as a criticism of MMT; but it’s not. MMT makes the distinction between nominal wealth and real wealth, and never, never, confuses the two. MMT knows that you can’t create real wealth out of nothing.
Thanks for this post. I still want the one that explains how money siphoned into an MIC, producing jobs and artificially pushing death-industrial production, is economically coherent. And, imo, if that can never be explained we can never go forward. Regardless of monetary theory. I personally like MMT a lot. I think it is an island of sanity that has so far produced a lot of sane thinking, if not action. I wish I were an economist. I’m not. I’m an artist with a preference for poetry. Since, as you say here, central governments do not like competition, I take this to mean that we won’t solve our imbalances individually by nations because every nation can beggar the next. Zirp is the first stage of sanity, imo. It should be followed up by other forms of social equity. Name your favorite. And then enforce it. And to this end, I think that “private” banking is a disgraceful oxymoron. I don’t like where we are today as a species because I feel that nobody knows (or nobody wants to know) how to prevent inequality. Which really should not be difficult.
Non-correlation realities:
Economic growth – jobs
GDP – happiness
Jobs – happiness
Government spending at best lead to economic growth. That’s it.
We have had economic growth and few new good jobs.
Getting money to the people in the shortest, quickest way is the best alternative, short of giving ‘happiness’ to the people directly.
That means, let the people spend money into existence.
President Gerald Ford did that in 1975, sending checks equivalent to 12 percent of taxes up to $1000 each per taxpayer. I remember my parents getting these checks. So it has been done and can be done.
I think what appears simple theoretically is quite complex when you get down to the nitty-gritty.
We talk a lot about fairness assuming that we all agree on what is fair or not. Actually, we all have a different definition of what it means to be fair.
For example, should my household food be distributed equally between family members or by needs? Let’s say I determine that fair does not mean divide equally but by needs… if I consider one of them overweight, would it be fair to reduce this family member’s intake if he/she is an adult and does not want to reduce his/her intake? Isn’t it unfair to the rest of the family members to have this person consume more than what they need to be healthy? But what is a healthy weight? I could go on and on….
Still waiting to hear what you’re for, Moneta. Given that all economics is wrong….
“all economic theories are WRONG because they don’t account for resources or externalities.”
“I recently had an interesting conversation with a good friend that pointed out how crazy people are, generally, when it comes to this matter. People simply don’t think about it and thus don’t get it.
Reality is this: All deficit spending simply dilutes your purchasing power, and as such when looked at from a perspective of everyone in the economy, it is a net wash at best, not a positive.
In other words if you deficit spend to provide someone with health care, the cost of that health care comes out of everyone’s hide through depreciation of buying power — including the person you allegedly “help”!
So let’s say I need some expensive medical procedure and have no money. You “give” me that procedure as the government and do so by running a deficit. I “get” the procedure but everyone pays for it immediately and on a forward basis in the form of permanently damaged buying power, including me!
In other words by permanently increasing the amount of circulating money and credit to fund that procedure, while the percentage of the bill that I see immediately is small (since there are a lot of people in the country), eventually I will almost-certainly get rooked out of more, on balance, than if I didn’t get the “benefit”.
The other side of the coin is also true, but rarely discussed or admitted to: If you run a budget surplus and pay down debt, you add buying power to everyone in the nation.
That’s cumulative — that is, compounded — as well.
But wait — you say — what about all those programs? Well, I already went over that. We could eliminate them all, get rid of the medical monopoly crap, and guarantee everyone a decent family income sufficient to immediately and permanently eliminate poverty among US citizens. At the same time we could run a $400 billion a year surplus, which would result in a gain in purchasing power of a bit under 1% (if measured against private and public debt) or about 2.4% if measured against public debt.
Drill that into your head folks — if you had zero gain in salary or wage but we took this step over a 10 year period, you would gain 27% in purchasing power — that is, your real standard of living would go up 27 percent!
Over a 40 year working life the increase with no raise in salary or hourly wage would be an astounding 158%.
And that, by the way, is not corrected for the declining outstanding debt balance, which means this (simple) calculation understates the benefit.
What BIS is saying here is what I’ve been saying since I started writing on this in 2007 — deficit spending is in fact worse than a tax in that the damage it does is recurring every single year, where with a tax you can simply stop collecting it any time you’d like.”
http://market-ticker.org/akcs-www?post=229141
“So let’s say I need some expensive medical procedure and have no money. You “give” me that procedure as the government and do so by running a deficit. I “get” the procedure but everyone pays for it immediately and on a forward basis in the form of permanently damaged buying power, including me!”
This is just false. There’s no straight line between diminished buying power and deficit spending. In fact, if deficit spending compensates for demand leakages and goods and services of real value are created then buying power will be increased, not decreased.
This lost me at the beginning, when cloakroom tokens magically became dry-cleaner’s tokens.
Yes, a cloakroom token has the value of the coat it represents, and can be ‘sold’ to another for whatever value he or she puts onto the cloak. This is simply a private, closed, conditional currency.
However the value of a dry-cleaner’s token isn’t a clean – and hence more valuable – coat. Without tender of the token plus something else of value to reflect the value of the cleaning, you don’t get the coat back. The token itself has no value. It is merely an identifyer. The value of the cleaned coat lies in the coins, cheque, credit card or whatever you have to proffer in addition to the token to get the coat back, for which some acceptable third-party obligation is invoked – be it a sovereign currency or the obligation to the gang you undertake by committing them to ‘visiting’ the dry-cleaner on your behalf if he doesn’t swap clean coat for token.
If this point was covered in the article it went over my head – not at all unlikely – but otherwise the whole thing seems to me to be no more than another case of economists strutting the stage in their star-spangled cloaks and pointy hats, igniting magnesium flares to impress the hio polloi.
The post only matters if you want to undercut the neoliberal dogmas enforcing austerity in DC, or if you think money should be created for public purpose.
So let’s say I need some expensive medical procedure and have no money. You “give” me that procedure as the government and do so by running a deficit. I “get” the procedure but everyone pays for it immediately and on a forward basis in the form of permanently damaged buying power, including me!
This is an assertion and there is no evidence to support it, nor do you provide a theoretical explanation of how a deficit immediately and automatically causes every other unit of currency in circulation to devalue itself.
I think I know the reason these discussions about money trigger such strong emotional reactions, and I suspect that it is rooted somewhere in our DNA. Some people have “easy money” personalities and some have “hard money” personalities. Some people are “live for the moment” types and some are instinctively “delayed gratification” types. Some people have no problem with “kick the can” prescriptions, and some cannot shake the concern about “unintended consequences” down the road.
MMT is the ultimate “easy money, live for the moment, kick the can” paradigm, so it will never appeal to those who are wired differently.
Yves says that MMT has a message “progressives ought to welcome” but I think that it will only appeal to easy money progressives. There are fellow progressives among you who are hard-wired differently and who see MMT as madness, madness that can just as easily be used to defeat progressive causes than to advance them.
If the government can never run out of money, why not double the defense budget?
Bobbo – “MMT is the ultimate “easy money, live for the moment, kick the can” paradigm…..” I totally agree, and those “unintended consequences” are what they cannot see, or perhaps see, but choose to ignore. Thank you for summing it up so succinctly.
I have a small suggestion to MMT proponents.
Let the government create money and let the people spend that money.
It’s not the Government creates, the Government spends.
It’s not the People create, the People spend.
It’s the Government creates, the People spend.
We make a distinction between the Congress shall coin money and ‘then, it’s the government’s money to spend.’
Conflict of interest, that kind of stuff, you know.
In the talley stick system, when the king made the stick, he spent it for work that he needed done or goods that he needed to buy. And it worked as a coupon for taxes. And as these sticks could be used in payment of taxes they became money. But intiially they were spent into existence by the king. But of note, is that the king got value for them. He got a bridge built or he got a cow or a pig or a bushel of wheat.
Universal health care, medicare and SSN et al policy’s are easy money live for the moment agendas and should be viewed by their “kick the can” – “unintended consequences”…. eh.
skippy… tropefests are not an argument imo.
Skippy, I have no idea what point you just tried to make.
Just to clarify: I wholeheartedly agree that universal health care should be a top priority. But not by simply throwing more money at the fundamentally flawed system we have now. Not by saying “No worries, the government can never run out of money.” The system itself needs to be restructured from the ground up.
I wholeheartedly agree that maintaining Social Security should be a top priority. But not by saying “No worries, the government can never run out of money.” No, it should be the other way around. Social Security was sold as a public pension scheme that people pay into so that they will have a right to receive benefits when they retire. For that reason it should be the last thing to be cut.
Are cuts necessary? Of course they are. The country cannot afford its foreign wars and cannot afford to perpetually bail out TBTF zombie banks. The government should engage in deficit spending to rebuild infrastructure that has lasting economic value. The point is that we need to pay attention to how we are using resources in the economy. Are we doing it the right way? Are we thinking about long term sustainability? But this distinction gets lost in the MMT discussions where we are constantly reminded and reassured that the government can never run out of money.
I think you’re right but MMT makes that point in a different way. They say look we have the money just consider how we spend it on wars or to bail out the banks. Their prescriptive part is to try and convince people that we have the money it just needs to be spent in more productive/socially relevant ways.
The thing is that the US consumes 25% of world resource production. To be able to do this they need the military.
If they cut the military and transfer the spending power t the general population then the 25% will drop and the general population will realize that despite having more dollars to spend, their purchasing power is still going down.
Of course this wold not happen overnight, so in the beginning it might look like it is working.
I think that strengthening other countries is the only sustainable way forward. As Joe Firestone mentioned above if other countries adopt MMT like policies and strengthen their domestic economies this can lead to a better global balancing. Also as Wray has pointed out exchange rates and externalities do matter and as China gets stronger it won’t tolerate USD hegemony. This would also lessen the immigration burden. This provides a better basis for non-exploitative global trade.
Better social networks can be put in place to improve living conditions for most without increasing overall resource use.
There is a large number of countries out there that are family or dictator run. Many protected by the US. They don’t care about MMT and the population, they just care about their personal loot.
Saying that MMT will work if others follow it is like saying that the free markets don’t work only because we never really had free markets so we should keep on doing everything possible to make them 100% free. It’s failing to accept that the world is not black or white.
Because doing so, won’t contribute to the public purpose, and will also produce real waste. Not of money, but of resources and services the money will buy. Under current conditions, doubling the defense budget would not be consistent with MMT.
Everyone here including MMTers misses the empirical fact of a scarcity ratio of individual incomes and costs/prices that is continuous throughout the productive process/the economy itself. I’m all for profit, I’m all for endogenous money and all for the fact that the economy is inherently unstable not stable, but cost cannot be ignored or abstracted out of the equation…and if, as I propose that the economy is described by the formula:
P = I < C/P (The productive process/commerce/the economy itself equals (both individually per enterprise and so also macro-economically) less Individual incomes than costs and so even minimal prices)
…then the only way that the economy can possibly equate ito raise individual incomes….without adding a cost to the system. And the only way to do that is to GIVE INDIVIDUALS a supplementary income whether they work or not. You also must periodically equate the system because as the equation says cost/prices will inherently and so constantly go up at a faster rate of flow than individual incomes will as a rate of flow. Velocity of money is completely irrelevant and obscuring as a metric because it does not add a single additional dollar of INDIVIDUAL income to th flow of the economy because all re-circulating money immediately becomes business revenue which must be costed and so re-intiates P = I < C/P. Individual incomes can go up by injecting debt but that just increases already scarce individual incomes, and growth can do it also, but again…as soon as it is injected into the economy it re-initiates P = I < C/P
P = I < C/P
That is the constant empirical reality of commerce.
You’ve explained the formula inadequately. I have no idea what you’re saying.
Joe,
Production/the productive process, otherwise known as the economy…never creates as much individual income as it does costs and so prices. The conventions of cost accounting enforce the rule that ALL costs must go into price. Since there are more costs and so prices simultaneously and continuously created in the economy…that means that production itself is price inflationary. And the only way that the economy is kept from forthrightly spiraling down into a deflationary depression is to continuously pump ,more and more money in the form of debt into the process…which of course eventually destabilizes the economy as well. And the only way to actually resolve this situation instead of palliating it like Austrian market worshiping or Keynesian economics of whatever flavor…is to GIVE THE INDIVIDUAL MONEY….because that is the only way to increase individual incomes without incurring an individual or systemic cost…which of course would re-initiate P = I < C/P and price inflation.
You all on the MMT bandwagon need to differentiate between your idealized, ivory-tower theories about how monetary systems work to produce (or not produce) good outcomes, and the reality that everything is regarding the distribution of resources is all about power games and politics. Large scale, centralized monetary/economic system are only ever designed to do one thing: transfer resource rights and industrial production from the weak to the strong. If all of the policy prescriptions of MMT were fully implemented, that is exactly how it would function–in other words, exactly the same as the current system.
Of course it goes without saying that MMT will not in any way avert or mitigate the ecological holocaust that is already under way. Obsessing about MMT is a lot like stopping on the track to worry over a stubbed toe while the train is barreling down on you. This is not the time to be nitpicking details about your preferred method of capitalist ideology. This is the time for an entirely new paradigm.
Ah… the comment about “all currencies being fiat”. Please look up what “fiat” means in the dictionary for God’s sake. Yes, there are currencies in use right now that are not fiat. For all the boneheads who use words because they sound good but don’t really know what they mean out there.
Thanks for your opinion. Too bad it’s totally unsupported by anything but your own judgment.
“MMT is descriptive of our current system.”
That’s what I most dislike about it.
At best, a monetary system which promotes unlimited government borrowing power has proven useless for the purpose of improving the general welfare, since the period of deepest government indebtedness has coincided exactly with the impoverishment of the majority.
At worst, MMT undermines all the progress made by the people under modern constitutional systems. MMT has already conclusively proven itself to be beneficial to a tiny minority. That is our real-world experience under MMT. Fiat currency empowers elites and slips the bonds that people have attempted to place upon the unchecked exercise of sovereign power.
MMT proponents argue that the sovereign can do whatever it wants, that the sovereign never has to ask any of its subjects for revenue, that the sovereign can arbitrarily demand any and all resources that might be available, and that it reserves to itself the entire definition of maximum utility. Basically MMT proponents are saying that Hobbes’ definition of sovereignty is the best, and that their MMT system can do more to empower an unlimited Hobbesian sovereign than any other sort of monetary system.
I find it alarming that anybody would want to even confess such things, let alone boast about them.
It’s enough to send even an avowed socialist running back towards the nearest pile of barbarous relics!
The period of deepest Government indebtedness was in WW II. That period was followed by a time of increasing equality for more than 25 years. That growing equality was fueled by growth, which also served to allow us to reduce the debt. Moreover correlation isn’t causation, and the evidence is that growing inequality is the cause of increasing Government debt rather than the reverse.
All that said. The level of US debt has ZERO consequences for the capability of the Government to spend. It has no fiscal sustainability consequences at all, even if the Government had to issue debt in order to deficit spend. The further fact is that it need not and that using MMT perspectives it can pay down the current debt as it falls due until it is paid down to nothing and do this while continuing to run Government deficits if these are necessary to compensate for demand leakages and maintain full employment.
We are not “under MMT” in the sense that MMT policies are being pursued by the Government. Neoliberal policies are in place instead. MMT may describe what is going on; but the MMT approach is not responsible for the reality it describes. So, these charges of your are just pure nonsense, and if taken seriously would kill the only hope you have of defeating neolliberalism and creating a different reality.
you folks are obsessed with money.
money is a means to something.
MMT is just economists realizing after a hundred years that they did not understand how finance works.
They should have asked bankers and politicians before writing those misleading books.
People get upset at MMT because of the same reason that economists are obsessed and amazed with MMT. It upsets their previous understanding of money.
Both these groups were deep in the money illusion. The normal people see money as a stability in life and when they are told that paper money is ex-nihilo a politician’s fraud they can’t handle the truth and get upset.
Economists see it as a great discovery. The only thing they have discovered is their ignorance.
My problem with MMT is that it is not a scientific theory yet it operates ideologically in a manner similar to genuine scientific theories. Scientific processes require repeated experimentation with replicated results in a controlled system. Markets do not allow for any of this since they are based on politics and culture, which are not inherently rational and certainly not scientific. The field of mathematics does not make something scientific. Mathematics is simply the philosophy of pure logic (philosophy is the key word). It is essential for science but its application does not guarantee that something is scientific. The economy as we currently understand it is a legal/social concept, not scientific. I advocate for a scientific understanding of economy, but MMT does not provide this possibility since its foundation is legalism, not materialism. We take MMT terms as given, but I ask. What is production? What is consumption? What is currency? These are political and legal concepts not materialist concepts. They may have material affects, but we do not measure them materially we measure them in legal tally. Markets have always been political and social concepts while the economy has always operated in the realm of the material. We cannot continue to pretend we understand something scientifically when it is anything but.
So, what alternative approach to economics do you think is “scientific”?
NOTHING brings out more commentators than MMT.
Enjoyed reading immensely.
Here is Oz, we are also a sovereign issuer of our currency and we also suffer the fools in our Federal Govt who insist that their programs need to be paid for by revenues, or else we borrow the deficit and end up needing more revenue (or spending cuts) to pay the interest.
And no, we don’t borrow US$s, we borrow the Aussie kind.
Some of this thinking (that the Govt needs to balance its budget and avoid debt) goes to the way in which the Govt must spend from something called the Consolidated Revenue Fund and there must be money in the fund to make payments from it. Our own founding fathers who set this up (and the public servants that advised them) had a very immature view of the nature of money for a sovereign nation. We have been paying for this ever since.
All sides of politics have the same view about the need to raise taxes sufficient for the Govt’s spending programs, or else borrow. So, I don’t know how this viewpoint and that of the person in the street is going to get changed anytime soon. Unless we see another sovereign nation spending more than they raise in taxes, without borrowing the difference from the capital markets.
Well Canada spent a little too much in the 80s and 90s and the markets nearly turned us into Greece.
It’s all about spending in productive projects… which not many governments seem to know how to do.
that’s the point. Whenever Canada or Australia faces a shortfall of tax revenue when compared with spending, it borrows the excess $s on the capital markets and then needs to pay interest on the bonds that it issues.
If I read MMT correctly, our governments don’t need to borrow the extra, they can just spend it to welfare recipients, our dole, disability support pension, old age pension etc – simply by crediting the $s to those that are entitled.
Instead, we see immense pressure on political parties, who are stuck in this old paradigm, to cut the programs or raise more taxes, both of which are politically unpalatable.
Our Treasurer recently told us that did we know that the first $7,000 that is paid by the average taxpayer FUNDS those that are on welfare. Talk about framing the issue to divide the populace.
From a strictly theoretical perspective, does MMT research view language and money as similar social constructs? I do. Interestingly enough, so does Zora Neale Hurston in her essay: “CHARACTERISTICS OF NEGRO EXPRESSION”.
http://poetry.rapgenius.com/Zora-neale-hurston-characteristics-of-negro-expression-annotated#note-2121912
Language is an exchange of meanings. Money is like language not only as a social construct but both convey meanings and are only useful in social relationships. Money today is assigned a number denoting its meaning as a unit of measure no different than a ruler, or Yves thermometer. Money can be seen as a very specialized form of communication, precisely assigned a number for measurement, and useful for maintaining the social order of our highly complex and overly populated world. An intellectual tool without which we could not function on the scale of national and international relations. Why is it so hard to understand when we use it everyday? Also, the link below to the book by Keith Hart: “THE MEMORY BANK, MONEY IN AN UNEQUAL WORLD”.
http://thememorybank.co.uk/book/
The two great memory banks are language and money. Exchange of meanings through language and of objects through money are now converging in a single network of communication, the internet.
We must learn how to use this digital revolution to advance the human conversation about a better world. Our political task is to make a world society fit for all humanity.
I read over 300 comments to this posting and not once did I read anyone referring to how MMT relates to privately held wealth….the accumulated kind through inheritance….how can it call itself descriptive of finance when it leaves out the 800 lb gorilla of inherited wealth/money and the power it wields. Until and unless the current power of that wealth is neutered MMT is an academic pipe dream.
A wealth tax is a tax for all seasons, for good times and bad times.
They say otherwise with MMT.
Wrong. Just wrong. Wray explicitly argued for taxing wealth as a “sin tax.”
I meant the part about all season – ‘all the time.’
Right now, we are being told, is not a good time.
I didn’t mean under MMT we would never tax the rich.
While our political systems allow donations to fund electoral campaigns, inheritance taxes are off the table.
But, I wholly agree with you. We definitely need one, not to fund things that governments need to do.
No, we need inheritance taxes to counter the capacity of the very rich to keep earning off the rest of us. To destroy those $s and counter the ability of the very rich to legally avoid paying a fair percentage of their income or increase in wealth in taxes – like the little people do.
This is particularly so for old money as, invariably, when you look back on how that wealth was accumulated, it was from where an ancestor was given property rights for a song and their families have been living off what otherwise would have been common property ever since.
MMT doesn’t forget about wealth taxes. See Randy’s recent series on taxes.
Until and unless inheritance is neutered, and/or the rules for keeping it that way are included as a center piece of any theory to make finance an entirely sovereign based concept, it will be co-opted by those that currently rule our world.
Does Randy’s series on taxes aim to permanently neuter inheritance via taxes?
Hi Professor Wray,
I would firstly like to thank you for providing all of this free material about MMT. It has been very informative!
I am a skeptical supporter of Positive Money, supporter because it has provided a very good insight of how the current monetary system works and skeptical because its propsed solution hasn’t been critiqued enough yet. I would hence like to first point you towards a rebuttal that they have made of Ann Pettifor’s article – http://www.positivemoney.org/2014/06/disagree-ann-pettifor/
Secondly, I would like to ask you for your opinion, especially on how Positive Money’s solution can be viewed from a MMT perspective. I think this would further the debate in a productive direction rather than simpleton arguments in the comments section.
Thanks in advance!
1)
Simpleton here. A law degree, thirty five years of litigation practice in civil courts, knowledge of the constitution, knowledge of the history of money, knowledge of commercial paper, but dumbfounded by economic gobbledygook. Dumbfounded by how something that should be so simple and basic is twisted into something no genius can understand simply because public understanding is not the intention of economics.
Piece on Pettifor and PM. http://www.economonitor.com/lrwray/2014/06/30/something-is-rotten-in-the-state-of-denmark-the-rise-of-monetary-cranks-and-fixing-what-isnt-broke/
Appeared here also, but don’t have the link handy.
Also, what other limits are there to goverment deficit spending apart from causing unwanted inflation after achieving full employment?
Inflation would not stop the printing… it would just send a signal that not enough money is being printed because the general population would be falling behind and begging for more.
Any bad fiscal policy, that is, not targeted on public purpose. So, there are all kinds of limits or undesirable consequences possible as there are all kinds of wonderful consequences possible. Which we get depends on us.
You write, I must confess that I am at a loss to understand the deep emotional reactions some readers have to MMT.
Frankly speaking MMT, is not based upon reality, and is as unattainable as a commodity based money system.
So get a grip, accept that the world operates on a debt based money system, the tug of war between the world central banks and the Bond Vigilantes, has, and always will create money. Trust in the nations’ ability to make good on its debt has underwritten the legitimacy of fiat money. Now on July 1, 2014, fiat money is dying, as exemplified in the Euro, FXE, trading lower; and diktat money, that being the mandates of fascist regional leaders for regional security, stability, and sustainability, is being established to provide one’s economic life experience.
“Frankly speaking MMT, is not based upon reality, and is as unattainable as a commodity based money system.”
Nice to have your opinion. Too bad it’s completely unsupported.
I am more familiar with the American Monetary Institute’s version of debt free fiat based on The Chicago Plan, as presented through Kucinich’s NEED Act. In that version, there is no central body issuing currency. Instead it is issued by the Federal Reserve, which would be incorporated within the US Treasury. The important point is that endogenous money creation would be taken out of the hands of banks.
The Federal Reserve’s selective propping up of assets is destroying the integrity of free markets, and allows it to create monetary policy without approval or oversight. In the present system, ZIRP may be keeping the Government’s debt manageable, but it has also arguably undermined our financial markets’ integrity and robbed citizens of their savings, through both lack of safe returns and devaluation.
ZIRP forces modest savers who wish to protect their nest eggs from inflation to take on risk in a financial system that looks like a casino, competing there with financiers who use their cheap leverage to manipulate markets and contribute to overall inflation while they bank risk free profits and keep the wealth funneling to the few. Maybe if those modest savers realized their “hoarding” made them a target along with the slippery rentiers, they would feel patriotic.about sacrificing themselves to the greater good. That may help them deal with the futility of saving up for their kids college and their own retirements.
Fractional reserve lending allows for the financiers to design new ways to game the system with their cheap leverage, while regulators and law makers struggle to keep up.
In debt free fiat systems, there is no reason for taxes would not be collected, so any legitimacy fiat gains through taxation would still be there. Taxes could still be used as a lever to tame inflation. And I agree that postal banks should be available to provide risk free fiat storage for citizens.
I am having a hard time understanding how debt free fiat differs significantly from the concept of seigniorage used with the Platinum Coin proposition, other than accounting treatment. As far as “double entry accounting” issues, I see no issue with equity/reserves being credited when money is created, instead of a credit to a liability account .
I apologize if I am missing something obvious here that could convince me that our broken financial system is worth saving.
I would distinguish between the creation of money and the ownership of that money.
I favor government creation and the people owning and spending that money.
Kucinich’s NEED Act (HR 2990 would have put the Treasury in charge of creating our money supply, through spending it on infrastructure improvements, per capita disbursements of funds for direct funding of programs, monetary grants to states, educational funding, social security, a citizen’s dividend, along with universal health care funding and a citizens dividend.
The NEED Act wouldn’t have changed anything that matters. Nothing it sets out to accomplish can’t be done under the current institutional arrangements nor would it magically persuade a Congress which doesn’t want to fund these things to do so.
Ending fractional reserve lending and the ability for banks to endogenously create the money supply would change things enormously, imo.
If Congress passed the bill they would have accepted the ability to do all the spending funded within the NEED Act without debt, as well as the need to issue a citizens dividend to provide liquidity during the transition. It may be that the only way such a bill could pass is after a financial crisis, the way TARP was passed, in which case we wasted a perfectly “good” one.
Here’s Bill Mitchell’s analysis of 100% reserve banking, with an appended note on why MMTers might not want to support it, even though they may be agnostic about it.
In addition, it’s plain me that people who want 100% reserve banking are particularly bothered by the idea that private sector organization have the power to create money out of thin air, when the Constitution gives Congress that exclusive power. For me the right remedy for that is to have the banks be public entities, and allow them to make loans while creating deposits. At that point it doesn’t really matter is the banks have reserves since the Government can provide them on demand, without the private sector being involved.
If this solution is too socialist for you, then fine, let’s have private small community banks, development banks, innovation banks, credit unions and many kinds of diverse entities as long as they’re too small to hurt the financial system if they go belly up. But the big banks are too risky and distort the political system, so they, along the Fed District Banks must be nationalized, for the safety of all of us. No more gambling in the international casions with Government backed play money. No more lemon socialism. No more privatizing gains, and socializing losses.
Bill Michell provided an evaluation of the NEED Act long ago. Here’s the link. The bottom line is that we need banks to issue credit. Maybe not the ones we have now. We could have Government owned banks or Post office banks, but we do need banks to supply credit and create deposits while they’re doing it..
Wow.
I can only conclude 2 things by reading through this thread.
1. How completely successful the right’s indoctrination has been.
2. People really would rather be economic slaves than move forward with some moderate policy that proper use of MMT would allow.
Astonishing really.
I think a moderate solution that can be accepted by many here is this:
The government to create money
The People to spend it into existence.
MLTPB: You are making a lot of sense to me.
But I can’t see how we will ever get there until we get the Constitution straight: that only human beings, and not corporate entities, are people entitled to Constitutional rights; and that money is not speech protected by the First Amendment. http://www.movetoamend.org
And as of this week we need to add that corporations do not have religious rights either which is the latest travesty.
How does the government pay for things like infrastructure and defense and federal employees and all the branches of government if it can’t spend money? But by spending it on these things it is immediately put into circulation.
MLTPB The confusion you have between endlessly repeating a talking point and policy analysis is increasingly tiresome and leads others to fall into the same bad habit, making the comment section stupider, which is counter to NC’s goal as a blog. If you seriously believe this, then get your own blog, do some serious research, and write up your proposal, I’ve now said this twice. That should be enough.
Adding, of course MMT would permit this, if it were wise and served public purpose.
Lambert, thank for telling me this now. Maybe I have a chance to clarify (as I mentioned before, I easily miss comments made a day or more after the initial posting day). I think I missed the first one, unless you are referring to the June 30, 2014 thread, when you posted on July 3, 2014 about my comment being ‘nothing operational.’ I did post a response to that, mentioning a couple of operational ways (a third way can be the Ford checks Paul Niemi wrote about).
One of them was from Joe himself, to your ‘There’s nothing operational here, I’m sorry. “Each person’s choice or at the Fed” is so broad as to be meaningless.”‘
People don’t need accounts at the Fed. If Congress legislates helicopter drops to people, then the Government must spend that into the economy by placing each person’s share of the helicopter drop in a bank account set up at the bank of that person’s choice.
In that same thread, I asked Joe to give a critique to the idea and he didn’t seem to think that was tiresome. Perhaps he was being kind. He suggested ‘bank of that person’s choice’ instead of everyone having an account at the Fed, which, I first heard mentioned by Dan Kervick.
In response to Joe’s comment, I revised my description of the idea to this:
Let me see.
1. Initial financial asset creation, with government spending the money buying products and services from the private sector (into the economy) and an equal amount of destruction (taken out of the economy) when the debt instruments are sold.
2. When the Fed buys the debt instruments, money is created.
What I mean by money creation by the people spending it into existence, compared with the government spending it into existence is, instead of the government actually spending the money from the debt instruments (buying drones, for example), we give that money directly to the people, either into each person’s choice or at the Fed (it really doesn’t matter).
Now, as davidmills asked today, in this thread, just above, ‘how does the government pay for things like infrastructure…,’ under this idea, the money will come from taxes.
I would also liken the idea to the people’s dividend idea, except this can be thought of as a regular dividend. But to avoid confusion, I think I would stick to my original description.
Make that ‘under this idea, the money would come from taxes and government borrowing.’
One problem with the applicability of the coat claim token analogy invoked by Dr. Wray is that USG’s own cash is its asset at face value. Not only the bank accounts, but the paper money. Rather odd, since an outstanding coat claim token is a liability for a coat; whereas a redeemed coat claim token is worth close to nothing.
A bit of detail from USG’s Summary General Ledger Account Balances. Just three pages of assets and liabilities; 188K PDF.
http://www.fms.treas.gov/annualreport/cs2013/sc1.pdf
BTW, my favorite detail line from the report is this one:
1040 Mutilated Paper Currency Held By The Bureau Of Engraving And Printing 30,866,310.01
There it is. Cash an asset to government, and that even includes mutilated paper currency.
(Though I’m at a loss as to where the one cent comes from in a “mutilated paper currency” asset account.)
You may also notice that outstanding cash does not appear to be a liability of government, as an outstanding coat claim check is to the cloakroom.
Easy to explain. The government’s own cash is its asset, while outstanding paper money is not its liability, because the paper money is the Reserve Banks’ liability. Meaning the banks’ shareholders, per 12 U.S. Code § 502. While the coins are nobody’s liability, but anyone’s paid-in-full fiat asset.
Dr. Wray’s analogy does not comport with the public record.
The Federal Reserve is a part of the United States Government. Basing your arguments on a false assumption makes the rest of your argument not worth reading. Furthermore the idea that $30 million in destroyed money is an “asset” is, as always, another desperate reach by you. You can’t be taken seriously any more.
The government receives roughly $30 million in mutilated cash every year. It gets mailed in and the government holds it until it can confirm the authenticity of each note, then sends out replacements. This information was one search away which means you couldn’t be bothered to spend fifteen seconds looking into it.
Furthermore the idea that $30 million in destroyed money is an “asset” is, as always, another desperate reach by you.
I said nothing of the kind, as everyone else here can easily discern. Mutilated is not “destroyed.” I quoted a Treasury document in its own terms. Cash is an asset to government, contra Wray and Kelton.
I’m sorry. Do you have a quote from Wray and Kelton saying that cash in their possession isn’t an asset? I think their position is that when reserves or even cash is spent, and crosses into the private sector it then becomes a government liability because the Government must accept it in payment of taxes.
Also, we might reflect on the value of any cash asset it holds to a Government that can create high-powered money including cash at will. I think the value of that cash or any reserves it might be holding is actually nothing, simply because the cost of replacing it from the point of view of the Government is very small in the case of cash and almost nothing in the case of electronic reserves.
Let’s look at it another way. If we did a balance sheet for the Federal Government, then what value would we place on the authority of the Government to create new money without limit. I notice that GAO has never considered that question and so its Government accounting is a bit incomplete from where I sit. :) :) :)
@Joe I’m sorry. Do you have a quote from Wray and Kelton saying that cash in their possession isn’t an asset?
I present this quote by Dr. Kelton all the time. So the selection below is effectively a re-comment. MMT treats cash as a liability that is extinguished upon return to its issuer, as it’s an IOU to bearer. A bank doesn’t gain an asset when you pay a fee to it from your account with it; it extinguishes a liability. USG doesn’t gain an asset when you redeem a Treasury. Nor would the NY Fed gain an asset if it accepted cash for the Gold Tour.
MMT argues that our means of exchange works this way when redeemed to government. Because of a principal that Alfred Mitchell-Innes extracted from his nether vent. One that is essential to MMT because it is whence emerge the anti-tax canards: taxes destroy money, taxes don’t fund spending. False and false.
—-
The Kelton reference is to this clip:
I think you’ll agree that this conflicts with the protocol described in the Treasury Financial Manual, under which a USG agency that receives payments by cash or check is ordinarily required to deposit them in nearby commercial banks. That is, into accounts against which USG can then write checks of their own, or effect transfers to the TGA.
When MMT’s core theorists tell us that taxes don’t fund spending, they’re not merely saying that USG can spend beyond tax receipts by borrowing, minting coins or selling infrastructure. They’re asserting that federal taxes return USG liabilities to USG. “They don’t get anything that they can turn around and spend. They get their own IOU back from us. That’s the end of the transaction.”
Dr. Kelton’s depiction of the tax transaction is similar to a bank’s sequence when it dings your account for a $10. It doesn’t obtain a new $10 asset, but rather owes you $10 less; that much deposit currency ceases to exist. Or suppose you tried to pay your taxes with a T-Bill. USG could cancel the T-Bill, its own liability; it would not thereby obtain an asset against which it could write checks. That’s what MMT’s theorists are saying happens when you pay taxes by cash or check. USG liabilities are extinguished; no assets are conveyed to the Treasury. Rather, MMTers propose that “the Fed” is USG itself, augmenting USG’s own checkwriting balances as a scorekeeper conjures up points. Something it could do with or without taxes.
And it’s a false depiction. Taxation doesn’t destroy money. When tax receipts are deposited in TT&L accounts, the transaction is cleared when the Reserve Banks reapportion reserves (IOUs of Reserve Banks) from the taxpayers’ commercial banks, into the commercial banks in which USG maintains TT&L accounts. Aggregate reserves and deposits are unchanged, fees excepted. And assets are conveyed to the government via taxation in the form of commercial and Reserve Bank liabilities: the commitment of these institutions to clear USG checks up to the balance amount.
The Reserve Banks are owned by the commercial banks in their districts; they’re USG’s creditors. The balance sheets of Reserve Banks are not a subset of USG balance sheets. For example, cash, including TGA balances, is an asset to the US Government, a liability to Reserve Banks. T-Bills are liabilities of the USG, but are assets of Reserve Banks, commercial banks or anyone else who lawfully owns them.
Extended discussion, with a tour through Treasury vs Reserve Bank financial statements here:
monetaryrealism.com/negative-money/#comment-99507
USG absolutely gains checkwriting power via taxation, as banks’ liabilities to taxpayers are reapportioned into liabilities to government.
Yves, Randy, Lambert, Joe F, stf, Ben, all of the MMT proponents on this thread …
Not sure if this thread is done with this topic but if not, I would appreciate any insights on my question below asked earlier without respons or some links to primary MMT sources dealing with the issue.
Given that we all agree solvency is not an issue for a sovereign issuer, that spending is not tax revenue constrained, that bond issuance is not borrowing, that national debt is not like personal debt, etc … clearly then, one of the only real important issues we have to deal with is inflation when we get close to or above full resource utilization… yet I have researched the MMT literature and cannot find anything substantial other than “taxes” would be the main battle horse against inflation. Is that it?
Here’s my comment and question from earlier today and thanks in advance for any insights:
Reading these comments shows the incredible interest MMT is generating … from people who seem not to agree with it and yet keep coming back – which is a good sign… and kudos to all of you for tirelessly repeating the main points and basics of MMT …
But for me the elephant in the room is how will MMT deal with inflation … I have not yet seen a cogent presentation from MMTers on that issue although that seems to be the main sticking point from serious MMT critics … In other words, if monetary policy (interest rates) cannot control demand/inflation and if MMT believes only fiscal tools (taxes/spending) can do the job, then you need to explain in more detail how that will work and what evidence you have to show that it does work.
My main concern is that just like rates are a blunt and maybe inefficient tool to regulate demand, then I fail to see how tax rates will be any better in the context of a complex multi-sectoral economy with varying sources of price pressures.
Secondly, assuming that taxes can control demand/inflation efficiently, you still need to show that this tax regime can be managed efficiently by a bureaucracy known for anything but efficiency. I sincerely fail to see how our IRS/Congress would be able to set optimal tax rates given that they would need to be continuously identified, (re)calculated, tested, legislated, implemented, administered, repealed, re-enacted, etc. The obvious interest groups behind every legislative action makes this sort of management tool nightmarish…
Thanks
Anyone else on your list is more qualified to answer than I am; but as a stopgap measure I’ll point to this post from Wray and give a great slab of a quotation:
The inflation argument — summarized by me, I think fairly, as “ZOMG!!!! Zimbabwe!!!!” — seems to have gone out of fashion these days, I think because responses like those above have proven efficacious. If we have another flare-up, perhaps those more knowledgeable will leap to assist….
MMT weapons against inflation include:
1) Tax increases;
2) The Job Guarantee Program;
3) Supply substitutions;
and
4) Price and wage controls.
Which weapon should be employed depends on the type of inflation. There are a number of types but the two main ones are demand pull inflation and supply or cost-push inflation. The first two types of tools above are appropriate for demand-pull inflation, but not for supply push inflation.
On the job guarantee as an anti-inflation tool see Bill Mitchell here, ” title=”http://bilbo.economicoutlook.net/blog/?p=10554″>and here.. These references also provide a discussion of different types of inflation.
In addition, Randy Wray has a great discussion on inflation and the JG here, as well.
Moving to supply side cost-push inflation. An effective way to handle that is to bring supply substitutions on online. The best example is in relation to energy. If middle eastern oil supplies suddenly are restricted or if we see the cartel raising oil prices to the US prohibitively then a good response would be to prevent oil imports and exports entirely, and to launch a national emergency project to bring solar and wind power online very quickly so that domestic supplies would be sufficient to handle internal needs. That would break the back of any oil-induced inflation very quickly I think, since solar and wind are becoming competitive anyway.
On wage and price controls, I know these are unpopular currently. But they were used successfully in WWII and could be used successfully again if a national emergency were declared.
Finally, a remark on taxes. These are difficult to enact when needed, but perhaps that problem can be alleviated by passing tax bills that would institutionalize automatic raises and reductions without further actions from Congress based on conditions measured by economic indicators. For example, in the present situation MMT would recommend full payroll tax holidays for workers and employers. Once that is passed and other programs create full employment, then as we approach it, payroll taxes could rise gradually and automatically. If the tax bill allowing this would also provide for removal of the payroll tax cap, then when payroll taxes are gradually reimposed we could move down the scale of income from high to low gradually re-instituting the payroll tax. A program like this would both hedge against inflation, and also would work against economic inequality, especially if the new law made all income subject to SS and Medicare taxes and not just wages.
MMTers complain about the people who call them socialists, but your policy prescriptions are all fundamentally socialist in nature – government employment programs, taxing the wealthy and installing price controls.
I am asking you honestly – how is this not very near socialism?
Socialism is a broad brush. MMT is definitely more focused on the overall public purpose than a ‘rugged individualism’.
Inflation is definitely an important measure but at least as important is the basic health of the underlying economy. This is what the overly debt focused austerity policies can badly damage.
Joe Firestone has an excellent Kindle book on fixing the debt. He makes an important point about fiscal policy which emphasizes fiscal sustainability which means it is not ‘easy money’ in terms of funding anything and everything but always looking to the public purpose and the basic health of the economy. I liked this quote..
“Also, a deficit/ debt oriented fiscal policy ignores real outcomes relating to employment, price stability, economic growth, environmental impact, crime rates, civil strife and violence, etc . which actually can affect fiscal sustainability by strengthening or weakening the underlying economy, and, with it the legitimacy of the Government and its fiat currency. In short , responsible fiscal policy is not about its impact on Government debt. It’s about its impact on people!”
Firestone, Joseph M. (2014-01-13). Fixing the Debt without Breaking America: Austerity, the Trillion Dollar Coin, and Ending Debt Ceiling, Sequester, and Budgetary Crises (Kindle Locations 648-652). EIS WebPress. Kindle Edition. “
Thanks, fm!
The term “socialism” is used in a very imprecise way these days. Basically, it’s about calling somebody names; or labeling one of their policy proposals “socialist” as you are doing now. Back in the early 1950s when I became aware of “socialism” and “capitalism” my junior high school social studies teacher was careful to define “capitalism” as private ownership of the means of production, and “socialism” as Government ownership of the means of production.
Of course, modern economies are neither “capitalist” nor “socialist” by this definition. All are mixed economies, more capitalist or more socialist along different dimensions. Since none of the measures I mentioned above for controlling are “socialist” with the possible exception of the “job guarantee,” I don’t think the combination of them would not be “very near socialism” at all.
On the job guarantee itself, the MMT version of it is that the JG doesn’t generally compete with the private sector because the JG wage is set as a price anchor by the Government. It becomes the de facto minimum wage. If private sector businesses decide to offer greater compensation to recruits than the JG wage Government will not compete with that, acknowledging that the preferable employment state is private sector employment, except when market failures cause unemployment, when the Government is allowed to step in to guarantee the right to work that would exist in a traditional non-monetized economy.
The types of JG jobs in the program would be defined at local levels and would involve services of various kinds under the management of local non-profits and community groups. The Federal Government would only pay the bill for the JG workers. So we would not have JG jobs in Federal Government – owned organizations. So, once again it is hard to see how this is “socialist.”
One can reply to all this by saying that any Government intervention in the economy is “socialist” or “socialism.” But that is just redefining the term to match the ideologies of free market fundamentalism or neoliberalism. The purpose of such a redefinition is nakedly political. It is just to call people names or label good ideas in a pejorative way.
The point is that MMT’s policy ideas emphasize the use of government and would likely result in an expansion in the overall use of government as a policy tool. It’s veering us in the opposite direction of where the USA has been headed for the last 30 years and could potentially veer us well in the opposite direction. I don’t know whether that’s a good thing or a bad thing, but it is clearly what MMT wants to achieve. So it’s certainly more “socialist” than Americans are used even if it’s not a full government takeover.
What is gained by labeling MMT ‘socialist’? The term is clearly a pejorative in American politics. MMT would represent a change in direction from the moronic trend toward corporate oligarchy we’ve seen for the last 35 years, and hopefully would lead to a more democratic and just America.. But that doesn’t make it ‘socialist’ even though it may lead to a larger percentage of GDP being accounted for by Government spending and a larger percentage of the labor force being employed by the Government.
Even after all current MMT-proposed policies are instituted, the meas of production will still be owned mostly by capitalists and the percentage of GDP accounted for directly by Government spending will be less than 50%. What kind of ‘socialism’ is that? The proper term for it is a ‘democratic mixed economy’ with much greater economic equality and with much less influence and control by large businesses whose policies are opposed to the interests and purposes of most of the American people. That’s a big improvement over the economy created over the past years by Jimmy Carter, Paul Volcker, Ronald Reagan, Alan Greenspan, George H. W. Bush, Bill Clinton, George W. Bush, Barack Obama, Ben Bernanke, and the great neoliberal Washington Consensus of Peter G. Peterson.
Socialism is about the collective ownership of the means of production. None of your kneejerk-driven bugaboos have anything to do with that; and if they did, Eisenhower (taxing the wealthy) and Nixon (price controls) would be socialists. Honest you may be; informed you are not.
Thanks Lambert,
That’s what I meant … the main MMT inflation battle-horse seems to be “taxes” … higher taxes on the rich, more specifically.
Assuming MMT can actually implement these higher taxes easily (the “political economy” issues here are mind-numbing) and repeatedly (in on/off fashion, I would imagine), there are still many questions outstanding that would be useful to expand upon… such as:
1) What happens when domestic inflation comes from foreign trade (say oil as in 1973 or 1979)? Tax the rich?
2) What happens if higher taxes on the rich impact economic sectors unequally or if they actually end up hurting sectors that employ low-middle income earners?
3) When do we know it’s time to increase taxes? What capacity utilization index are we monitoring? What employment survey/number would tell us we are at full employment?
4) Should fast rising wages in a particular sector (say high tech) necessarily lead to higher taxes on the rich… applied against what/who/why? (iPads?) … which would presumably dampen activity and hiring in that fast growing sector (why would we want to do that?) … or should we wait until all sectors show rising average wages, at the risk of being too late to contain it?
5) More importantly, the vast arsenal of taxes (excise, income, cap gains, inheritance, estate, etc.) Wray lists assumes that they can be shown to be effective in targeting the right audience and in achieving their purpose (stopping the rich from consuming that product/service?). What evidence do we have to prove this tax regime has and can work efficiently? As per the huge literature on public finance and tax administration, the success rate of complex tax regimes is not evident.
6) Aside from the difficulty of convincing any/all politicians that the rich should carry the heavier burden of any inflationary signs, who will administer this tax regime? As I said in my earlier posts, they “will need to be continuously (re)calculated, tested, legislated, implemented, administered, repealed, re-enacted, etc.”
7) Politicians have been debating ways of simplifying the tax code for decades and we still have a huge manual full of loopholes … imagine believing you can change tax rates on a multitude of taxes of a specific class of taxpayers (the rich) at will and in a stop/go fashion depending on the inflationary winds blown by indexes and surveys devised by technocrats??… I mean, look at the issues we faced when trying to change the capital gains tax rate – it took Obama five years 2008-13 to increase it to 20%. Surely, you can see the huge resistance building up after the first few tax rate iterations … not only would you have taxpayer fatigue but CAPEX investments across the economy would drop simply because there would be no way to plan …
Anyway, there are more and better academic arguments against the MMT inflation-fighting strategy (see here) but if you feel these are not convincing, I still think MMT would benefit from expanding further into the nitty-gritty of its own inflation theory … why? … because if one of the main points of MMT is that a sovereign issuer is not revenue-constrained and if too much spending can cause inflation, then surely MMT must provide a more sophisticated inflation theory than …“tax the rich” …
As it stands, one of the most important aspects of MMT is still largely unanswered which I suspect is partly why it has trouble getting traction and recognition. Note that I don’t think you are necessarily on the wrong path, just that you need to flesh it out more.
Thanks again.
I just realized that the link did not go through … here it is … http://www.thomaspalley.com/?p=393
Thanks.
From what I can tell MMT is basically a version of the quantity theory of money using fiscal policy and government liabilities as the key “quantity”. But they don’t advocate budget surpluses during a boom so their “quantity” is one directional (government liabilities are essentially always growing under a MMT regime). And the whole premise is based on the idea that controlling the quantity of government liabilities is a strong tool to control inflation in the first place. I don’t know about you, but this reminds me a lot of Monetarism using a different instrument (t-bonds instead of reserves). And it’s fundamentally flawed.
Please read a little MMT before you decide to label it this way:
Here’s an MMT critique of the Quantity Theory of Money. The QTM is just inapplicable to the real world most of the time, because the Government doesn’t have control of the money supply and much of the money out there is matched by liabilities.
Next, if MMT advocates taxing to control and stop inflation, and taxing destroys Government libilities then how can MMT be advocating permanent growth of Government liabilities. MMT advocates deficit spending and growth of Government liabilities when and if there are net demand leakages to the foreign sector and private sector savings that are less than the net deficit spending of the Government. That means that when the foreign sector is in deficit (i.e. the US is running a trade surplus), and if that surplus is large enough, then MMT will advocates surpluses. But until then “boom” or “bust” MMT will advocate the growth of government liabilities either in the form of bonds or reserves issued to the private sector.
You tell me to please “read a little MMT”, but once again (for probably the 4th or 5th time in this thread) you are proving that you don’t know what you’re talking about. I did some research on this and found a post by a Scott Fullwiler who appears to be a main MMT researcher. He says:
“Interestingly, MMT is also a quantity-theoretic model of changes in the price level. The differences are (1) net financial assets of the non-government sector, rather than traditional monetary aggregates, are the MMT’ers preferred measure of “money,” and (2) desired leveraging of the non-government sector is akin to what one might call “velocity.” In MMT, the two of those together (net financial assets of the non-government sector relative to leveraging of existing income) set aggregate demand and ultimately changes in the price level, at least the changes that are demand-driven.”
http://neweconomicperspectives.org/2011/07/scott-sumner-agrees-that-mmt-policy.html
So you are clearly the one who is confused. And just as I initially thought, MMT is a quantity theoretic perspective using different government liabilities as its target. This is a lot like Monetarism and will suffer from the same flaws that Monetarist concepts of inflation controlling suffer from.
Joe, Thanks for reading a little MMT. Scott is one of the primary MMT researchers and has contributed to these comments under the handle stf. I also consider him a good friend, whose done invaluable work in analyzing platinum coin seigniorage and also developing the framework I’ve used for analyzing the likely impact on inflation of High Value Platinum Coin Seigniorage (HVPCS).
You’ve noticed that Scott says:
While you said:
Now, first, Scott doesn’t say that. he says “MMT is also . . . ” a theory of changes in the price level. Nowhere does he say MMT is “. . . basically a version of the QTM etc.”
Second, nowhere does he say it’s a version of the QTM.
Third, nowhere does he say that fiscal policy is a quantity.
And Fourth, nowhere does he say that “government liabilities” are “the key quantity””. He says instead that “. . . net financial assets of the non-government sector, rather than traditional monetary aggregates, are the MMT’ers preferred measure of “money,” You’ll notice that “money” is in quotes here. That’s because Scott knows that he’s referring to ‘money’ by analogy and in a way that differs from common usage by QTM advocates, the Federal Reserve, and others.
You’ll all also notice that net financial assets are comprised of more than Government liabilities since their calculation also includes all private sector assets and liabilities as well. That is, one can’t point to the Government liabilities and say they ARE the net financial assets or the “key” element in their calculation, even though the existence of non-zero net financial assets is attributable to cumulated Government deficit spending over time.
To summarize, your quote contains numerous errors of detail and also over-emphasizes the importance of the Quantity Theory of Net Financial Assets by saying that MMT is “basically” etc., rather than saying that while MMT says that the QTM is false, a QTNFA is part of the broad MMT approach.
Moving on, you also said:
You failed to answer my critique of this statement of yours as flat out false. This reflects your pattern of exchanging with me by ignoring points I made that you can’t answer while focusing on something I say where you think you’ve caught me in some error. This is a game of gotcha. It is not honest debate.