Yves here. This is a useful and accessible talk by one of the leading Modern Monetary Theory developers, Bill Mitchell of the University of Newcastle, interviewed here by Marshall Auerback of INET.
This talk is wide-ranging, and starts by pointing out that in key ways, Modern Monetary Theory incorporates basic concepts that have perversely omitted from mainstream macroeconomics, largely for ideological reasons. This conversation does not get much into central bank operations, which is the basis for MMT’s claim that it is a much more accurate representation of how monetary operations work for a fait currency issuer like the US than textbook or popular press accounts that are based on outdated “gold standard” notions.
In typical Australian fashion, Mitchell is blunt, so I suspect readers will find this talk to be more lively and accessible than typical economists’ fare.
From the summary on the INET website:
For most people, the greatest challenge to near-and-dear convictions is MMT’s claim that a sovereign government’s finances are nothing like those of households and firms. While we hear all the time the statement that “if I ran my household budget the way that the Federal Government runs its budget, I’d go broke”, followed by the claim “therefore, we need to get the government deficit under control”, MMT argues this is a false analogy. A sovereign, currency-issuing government is NOTHING like a currency-using household or firm. The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER (as a household or private business is). This issuing capacity means that the government does not face the same kinds of constraints as a private sector user of money, which in turn exposes the fallacy of the household analogy, so beloved in popular economics discourse.
Indeed, if government spends currency into existence, it clearly does not need tax revenue before it can spend. Further, if taxpayers pay their taxes using currency, then government must first spend before taxes can be paid. Again, all of this was obvious two hundred years ago when kings literally stamped coins in order to spend, and then received their own coins in tax payment.
Another shocking truth is that a sovereign government does not need to “borrow” its own currency in order to spend. Indeed, it cannot borrow currency that it has not already spent! This is why economists such as Mitchell see the sale of government bonds as something quite different from borrowing.
When government sells bonds, banks buy them by offering reserves they hold at the central bank. The central bank debits the buying bank’s reserve deposits and credits the bank’s account with treasury securities. Rather than seeing this as borrowing by treasury, it is more akin to shifting deposits out of a checking account and into a saving account in order to earn more interest. And, indeed, treasury securities really are nothing more than a saving account at the Fed that pay more interest than do reserve deposits (bank “checking accounts”) at the Fed.
MMT recognizes that bond sales by sovereign government are really part of monetary policy operations. While this gets a bit technical, the operational purpose of such bond sales is to help the central bank hit its overnight interest rate target (called the fed funds rate in the US). Sales of treasury bonds reduce bank reserves and are used to remove excess reserves that would place downward pressure on overnight rates. Purchases of bonds (called an open market purchase) by the Fed add reserves to the banking system, prevent overnight rates from rising. Hence, the Fed and Treasury cooperate using bond sales/bond purchases to enable the Fed to keep the fed funds rate on target.
You don’t need to understand all of that to get the main point: sovereign governments don’t need to borrow their own currency in order to spend! They offer interest-paying treasury securities as an instrument on which banks, firms, households, and foreigners can earn interest. This is a policy choice, not a necessity. Government never needs to sell bonds before spending, and indeed cannot sell bonds unless it has first provided the currency and reserves that banks need to buy the bonds.
All sorts of policy implications flow from these insights. Of particular importance to Mitchell, a leading labor economist, is that governments face no FINANCIAL constraint in regard to supporting policies that generate full employment (MMT also cuts the fictionalized Gordian knot that alleges there is a trade-off between unemployment and inflation via the “Phillips Curve”). True, we might well face REAL RESOURCE constraints, but Mitchell argues that this is the constraint that should govern policy-making decisions, as opposed to some fictionalized financial constraint.
172 comments
Comments are closed.
So it makes you wonder how Ed Balls in today’s Guardian gets off insisting that a prospective Labour government in the next term will ‘balance the budget’. It seems to be a completely nutty untraditional Labour like proposition.
Another reason next year’s parliament needs to be hung.
As there is zero difference between the UK’s three main legacy parties regarding economics, the EU or the UK’s overseas policy the prospect of a hung parliament fills me with dread.
However, given the above facts and being both a left-winger and someone with serious environmental concerns I’m throwing my lot in with the Green Party who’s policies and desire for democratic accountability are far more inline with my own.
I also welcome anything that bashes the fixation with “austerity” and neoliberal economic orthodoxy, so well done Mr. Mitchell on shining a bright light on this subject matter.
Yep, we should try to organise a NC block vote — for what it’s worth, I too think that voting Green is the best option, better than not voting or (as things stand today without any information on what the Labour party’s manifesto will actually contain — and I’m willing to bet on it not yet being able to shake off the neoliberal taint for the Blair era) voting for Labour. No chance whatsoever in unseating the Conservatives (a pig’s bladder on a stick could be elected if they were the candidate) from here in North West Hampshire, but I’ll certainly feel better.
Well said Christopher and Clive. The prospect for changed government of UK comes down to either UKip or the Greens – the former promises greater government by merchants, as though we did not have enough of that already, and the latter intends social and environmental prudence if the international community will permit it.
The world has been here before with its Longees and Whitlams (don’t mention Nixon’s Clean Air Act) and those superior men are still denigrated but my faith is intact.
I too support Greens. It may not be too late to ignore everyone else and do what we think is right.
George Erath (1813-1891) was an important figure in the history of Texas. He was born in Vienna, received a technical education, and came to Texas in 1833. He served as a surveyor and laid out townships and counties with Waco being the most well-known. He served in the War for Texas Independence and fought at San Jacinto. He served as a representative in the Republic of Texas and in the U.S. Congress. He also served in several Ranger companies to protect the Texas frontier. He was the commander of a home front brigade during the Civil War. In short, Erath (who has a county named in his honor) was a man who carefully observed what was happening around him and who tried to make his world better.
He observed the main economic problems confronting the Stephen F. Austin Colony in the early 19th century. A shortage of money and poor roads kept income at a low ebb. Barter was the principal method of exchange. Erath kept a list of various goods and their equivalents: “clothing made in Europe traded for hogs, horses exchanged for corn, an ox for a sow, a feather bed for three cows with calves, a gun for a mare. These items were valued in dollars-and-cents money of account, but money never changed hands.” Obviously, the shortage of money strangled commerce and infrastructure development.
Bill Mitchell is telling us the modern version of Erath’s history.
Erath’s comments were taken from:T. R. Fehrenbach, Lone Star, p. 143
Jerry,
Enjoyed your comment. History of Texas is indeed colorful, with many fascinating characters. I appreciated Bill Mitchell’s interview, but would add that IMO some further issues relating to “money” lie in three principal areas:
1.) The methodology of its distribution, evident in the declining velocity of money as it is placed into financial assets such as stocks and bonds, and into real estate, where it pretty much stays.
2.) MMT does not consider money issued by privately owned banks.
3.) MMT does not consider control of financial markets.
1.) The methodology of its distribution, evident in the declining velocity of money as it is placed into financial assets such as stocks and bonds, and into real estate, where it pretty much stays.
MMT addresses this by by many routes, including a Jobs Guarantee which injects financial assets at the bottom rather than the top a la military Keynesianism.
2.) MMT does not consider money issued by privately owned banks.
Money created by banks is central to the MMT analytical toolkit and is referred to as endogenous money theory or sometimes circuit theory.
3.) MMT does not consider control of financial markets.
MMT explicitly recognizes the existence of monopolism in financial markets.
What I find lacking with MMT is a theory directly addressing the private money part and policy suggestions for addressing the current control of private money over financial markets,
How can we take MMT seriously if it doesn’t address private ownership of property and the accumulation of such by global inheritance laws which have been the underpinning of Western society for 500 or so years?
With all due respect, what about the name “Modern Monetary Theory” don’t you understand?
It’s a monetary theory, period.
What you are saying is tantamount to giving a vacuum cleaner a bad rating because it does not boil water.
In fact, one of our current big problems is trying to use monetary interventions (the Fed’s QE and ZIRP) to solve problems that are not monetary problems (debt overhang, where the far better policy would have been restructuring and deficit spending). So you are also basically saying you want more of that sort of thing.
I need to disagree on this.
The present problems are the result of the inflationary monetary policy that started at the beginning of the 80ies and showed a non-stop higher growth rate for the credit volume than the economic since. Using the value of money (continues debauchment) to manipulate the economy is the root cause of today’s debt overhang.
I agree however that restructuring is necessary but by writing off credit that will never be paid back. Since there is no more a link between money and any tangible asset, the concerned authorities have proven their incapability to act responsibly but enjoyed their unlimited power in this regard. It is at least questionable whether those same people who drove us into this mess should be provided with even more power what MMT is indirectly trying to achieve.
E.g. the Fed is clearly culpable in this whole mess as it falls under its responsibility to ensure sufficient risk capital (share capital) at banks and limit their level of leverage but simply acted to the banks’ advantage in all of this.
Money is not simply a payment system to settle debt or pay salaries and taxes but it is a medium of information in that it provides the necessary and essential signals to the economic actors to ensure the good functioning of society. This aspect is generally lost in most discussions.
What monetary policy has caused inflation? How? Why did we experience a twenty-year period of unusually low inflation during this period you designate as inflationary? If it was inflationary how can you then argue that it created a “debt-overhang” which is by definition deflationary? It’s very easy to throw out a series of ill-defined terms and supposition, far more difficult to present a coherent and non-contradictory argument.
@ Ben
You seem to mistake the inflation measured by the consumer price index for a reliable tool to formulate monetary policy. That is simply humbug.
Consumer prices, due to productivity gains, should have sunk not risen. The policy that ensures continuous and guaranteed inflation of the cpi is therefore inflationary and has, over time, an effect on the behavior of the economic actors in that they adjust to the loss of purchasing power of money by saving in the form of other investments and tend to try to achieve a higher return with the application of leverage (credit), ergo credit boom and bubbles.
I asked you specifically to explain the theory upon which you base your “inflationary monetary policy” assertion on, but it’s pretty clear you don’t understand the monetarist theory you’re regurgitating. If I’m wrong then answer the questions.
What monetary policy has caused inflation? How? Why did we experience a twenty-year period of unusually low inflation during this period you designate as inflationary? If it was inflationary how can you then argue that it created a “debt-overhang” which is by definition deflationary? It’s very easy to throw out a series of ill-defined terms and supposition, far more difficult to present a coherent and non-contradictory argument.
Oh, I think I stated that already.
When money supply (especially credit volume) is continuously growing at a higher rate than the economy, it represents a inflationary monetary policy. To simply use the cpi to measure inflation is a rather narrow focus that neglects to account for e.g. productivity gains that would reduce prices or for the building of imbalances, malinvestments and bubbles.
Some may say that inflation showed up in asset.
I’ll ask you again, because you’ve dodged for the third time:
1) What monetary policy has caused inflation? Monetary policy controls the short-term interest rate, so tell us a) what rate targets were correct and incorrect b) how you know when the rate was correct or incorrect c) how the interbank rate affects the money supply d) how an increase in money supply creates inflation, which is by definition a continual increase in the average price level e) how market demand for cash is determined.
2) Why did we experience a twenty-year period of unusually low inflation during this period you designate as inflationary, which doesn’t include disinflation during the post-GFC period. “CPI started lying” is unacceptable as an answer.
If it was inflationary how can you then argue that it created a “debt-overhang” which by definition creates deflationary pressure?
This indicates you don’t understand the austrian theory you’re mangling. Price theory states prices are instantaneously adjusting to equilibrate supply with demand, therefore intertemporal changes in productivity are instantaneously reflected in the price level measured by CPI.
Define “imbalance”, “malinvestment” and “bubble”.
We have had DISINFLATION since 1980. You have no idea what inflation looks like. I lived in the 1970s.
Disinflation is why asset values have kept going up faster than underlying growth rates.
I think you’ve hit the nail on the head. There seems to be a general lack of understanding of what inflation is. People being unable to buy because everything is beyond their means is not inflation.
You associate disinflation with lower inflation but it remained non-stop positive inflation. The aim to achieve positive inflation in the cpi is a much too narrow objective and does not account for the negative consequences that develop over time.
@ Ben
“Monetary policy controls the short-term interest rate, so tell us …”
That is correct. Why should I know what rate of interest is correct but I certainly can state that when money supply grows at all times more than the economy (which by definition is inflationary monetary policy), it implies that rates are too low which supports the build up of debt. Monetary policy includes the leverage that banks are allowed to apply and can serve central banks to control money supply as well. cpi inflation (a very limited measure) and monetary inflation are different things.
“Why did we experience a twenty-year period of unusually low inflation”
It should not have been simply low inflation but due to productivity gains prices would sink. There is nothing bad about lower prices if they are the result from productivity gains but it rather distributes the advantage to the whole population instead transferring the gains to the 1%.
“If it was inflationary how can you then argue that it created a “debt-overhang” which by definition creates deflationary pressure?”
Don’t we face deflationary pressures now which is after creating the debt overhang with inflationary monetary policy?
“Price theory states”
The fixing of prices distorts the economy. Interest rates are prices that are affecting the complete economic structure.
“Define “imbalance”, “malinvestment” and “bubble”.”
You can easily google for their definitions.
Why should I know what rate of interest is correct but I certainly can state that when money supply grows at all times more than the economy (which by definition is inflationary monetary policy), it implies that rates are too low which supports the build up of debt.
If you know that a low interest rate “causes” the money supply to grow “more than the economy” then you can explain a) what rate targets are correct and incorrect, b) how low rates result in overexpansion of the money supply, c) market demand for cash, d) how expanding money supply results in rising prices.
Bank capital and reserve requirements are regulatory, not monetary.
Productivity does not solely determine price level, it isn’t even the biggest factor.
Can’t be, as you’ve been arguing the country has an inflation problem.
If market prices adjust to equilibrate supply and demand, then they aren’t fixed.
“Define “imbalance”, “malinvestment” and “bubble”.”
As I suspected you don’t understand the terms but saw them at Mises.org and thought they’d sound cool.
@ Ben
If market prices adjust to equilibrate supply and demand, then they aren’t fixed.
Well, you seem to not grasp the simplest of meanings. No, interest rates (price of money) are not freely adjustable but they are fixed by central banks. But in such environment you may even be right that productivity gains are not determining the price level of goods and services to the same degree, as the pricing structure of the economy has been distorted.
Low rates of interest and policies that allow increased leverage will enhance the build up of credit (money supply) due to the fact that the currency is debauched. It is simple logic that the economic actors will try to avoid loosing wealth by holding currency and therefore invest in tangible assets and possibly with the additional booster of leverage (credit). This leads to an higher growth rate of the credit volume in the system compared to the economic growth rate (inflationary monetary policy). At one stage the ever increasing debt load weighs such heavy on the economy that it becomes harder and harder to service it, and even much harder to reduce it. Now, the deflationary forces appear as the natural course of action would be to reduce the debt.
At that point in time, central banks have the choice to either allow the doubtful debt to be written off which will readjust the credit volume to a bearable level or to push it with the well-known unconventional measures even higher. The problem, however, is not resolved but simply its resolution postponed.
Your idea about money is widespread, in that it is indoctrinated knowledge that it is ok to manipulate its value for achieving short term benefits and neglecting the longterm consequences. But money is not simply a medium for settling salaries or paying bills and taxes but a medium of communication that provides essentially important signals for the determination of how much to save, how much to invest, where to invest, etc. etc. If this medium is being distorted it will, over time, lead to the problems we face today.
This reply means you don’t understand the difference between the short-term interest rate and the average price level. This is “flunk out of econ 101” level confusion.
Productivity never determines the general price level.
Interest rates do not determine leveraging, that’s a matter of regulation and not monetary policy. How does “debauchment” increase the quantity of financial assets?
Holding currency is saving. Investing in assets is spending. Leverage is dis-saving. One cannot do all three simultaneously with the same financial assets.
You’ve contradicted yourself. In the previous quote you claimed the money supply expands due to individuals simultaneously saving, spending and dis-saving. Now you claim the money supply expands due to “policy” a policy which you still can’t identify.
Not possible, as you just argued that spending, saving and credit expansion occur in equal proportion, whereas in an earlier comment in the thread you claimed the U.S. suffered from inflation. You need to make up your mind: inflation or deflation?
Central banks have no authority to write off debts and cannot “readjust the credit volume”. Nor can they create new debt via “unconventional measures”.
The long-term is a series of short-terms.
The purpose of money is settlement of debt, most prominently tax liabilities levied by the currency monopolist. It is a creature of the state leveraged by the private sector and nothing more.
You certainly are well indoctrinated without the hint of an intellectual achievement of your own.
But the crisis is prove that you are short sighted and wrong.
The first sentence is exemplary ad hominem, if any readers are still unclear on the concept.
You can hurl whatever insult you like, claiming the Federal Reserve can “write off debt” is first-class misinformation when the Fed is prohibited by law from doing any such thing.
“central banks have the choice to either allow the doubtful debt to be written off”
does not mean that “central banks write off debt”.
I apologies for any insult. The problem lays herein that this forum is not really the place to explain matters in sufficient depth as it would take too much space and that you confirm the stereotype of the present batch of economists who are unable to recognize their own fallacies even when faced with actual results that prove them wrong.
No, Linus. The problem is you don’t have the faintest idea what you’re talking about. By now that’s been well established in the minds of sensible readers.
“Or in other words, who devalues money, devalues humaneness.” – Linus Huber
Skippy… @Ben… ~~~Sigh….
Thank you for help with my comment, even if you think my ideas are crazypants (your word in the past).
What I am asking about is the context within which this monetary theory would exist. And so I don’t believe I meet the analogy you made.
I am not questioning monetary policy or specific aspects of MMT. What I am questioning, and hearing crickets, is the contextual description of MMT in relation to private money/finance/property.
And I am going to continue to challenge MMT advocates to provide a bigger picture view of MMT in our real world of private money/finance/property. Without that perspective and resulting policy proposals, MMT is finance agnotology, IMO.
Again, go and actually read MMT literature on banks/credit/regulation/property before you make this criticism if you want someone to take you seriously.
“…..if you want someone to take you seriously.”
Precious comment. Did it answer my question or provide me with a specific link that would do so? No.
Did it attack my character, etc.? Yes.
Your asking money to have agency pyscoh, did embossed clay have it?
Back when we had embossed clay we had the wheel. Must the animal spirits of todays rulers of our social organization force us to never evolve beyond that era?
Why can’t we discuss big picture sorts of issues like this? I think it is important to do so because changing the power centers in our species is the only way to break us out of the dead end we are in…..heading over the extinction cliff.
That’s like saying plumbing, as an engineering discipline, is construction agnotology absent a “bigger picture” of architecture. In fact, you’re perpetuating a category error (Yves’s vacuum cleaner that doesn’t boil water). That’s not a challenge, it’s logical fallacy, and a time-wasting and tendentious one at that. Assuming for the sake of the argument that your demand for context is valid, you’re assigning work to others. Why don’t you think it’s appropriate to do the work yourself?
Psycho
You’ve obviously not seen much of the MMT research. There’s at least as much MMT research on bank money creation as on govt money. Wray’s first book was called “Money and Credit in CApitalist Economies.” His 2004 edited volume was titled “Credit AND State Theories of Money.” Minsky–Wray’s mentor–was one of the most prolific on bank credit creation and financial instability. Fullwiler has published all sorts of stuff on banks. Tymoigne’s 2008 book is entirely on banks, financial innovations, and how to evaluate/regulate them; he’s also published several papers on detecting financial fragility at the macro level.
MMTers have all kinds of research on appropriately regulating the financial sector. Wray/Tymoigne just published a book on exactly that topic in 2013. MMTers published all kinds of stuff at Levy related to a Ford Foundation grant. They are key contributors to Levy’s annual Minsky conference on analyzing and regulating the financial system. And then there’s Bill Black, a colleague at UMKC, that has done as much on bank regulation as anyone–as a result, there’s all kinds of overlap between Black’s and MMT’s research on bank regulation.
With all due respect, only someone with scant knowledge of MMT would write a comment like you just did.
Please see my reply to Yves above.
I believe that the Western world is controlled by private money/finance/property and MMT does not address its existence within that context.
And without that, it is more Finance agnotology.
In case you haven’t noticed, the current state of financial regulation is a sick joke, but I am sure, any day now, that will change and balance will return to private and public intentions……/snark
Economics is specialized. You are asking for economics to be political science. It isn’t. Eve the older notion of “political economy” does not go as far as you want.
MMT is only about monetary operations. That alone is a huge source of error in economic thinking and in policy.
You’ve simply agreed with my “you want a vacuum cleaner to boil water” point.
Yves,
I want the vacuum cleaner users to know where the electricity to run the motor comes from and where the results go………argh….grin! A far cry from boiling water.
ECONNED posits that we should connect politics and economics and I am just pointing fingers where others seem to be not comfortable doing so.
Is private money/finance/property the ultimate TINA? And I am being non-NC/PC? Yep, if so, and proud of it!
I want to add that I have read a bit about MMT, think big chunks of it have merit and believe that the BRICS and their cohorts will use the best parts of it as they build an alternative world financial system.
Good on you for that. But you’ve also erroneously suggested MMT hasn’t covered many things that in fact is has covered over the past 25 years encompassing literally 100s of publications. If you don’t acknowledge this research, then I can’t have a discussion with you.
You are missing 2 things . .
1. As I noted, there’s a ton of MMT research on most of what you mentioned, and you’ve simply brushed it aside by suggesting it doesn’t exist. It does. Offer a critique of what’s missing with some actual citations of the pieces/authors I’ve mentioned above if you want to be taken seriously.
2. As Yves notes, you are missing context. MMT exists within the broader economic schools of thought called Post Keynesian Economics and Institutional Economics. All kinds of things have been covered in each of those–MMT has been deliberate in not reinventing the wheel where much previous excellent research has been done (for instance, Commons, Veblen, Polanyi, and many others on property, though Wray discusses the debt and property relations a lot in his 1990s book, and it’s also in some chapters of the 2004 edited volume). MMT ADDS to both of those the details of how the monetary system operates and the possibilities for macroeconomic policy as a result. Again, critique those schools of thought if you want to be taken seriously here.
Ah, yes, another “Hugh” that wants MMT to be a theory of everything. These sorts of progressives are part of the problem because they can’t understand how social science and policy science are done in the first place. We’re done here.
Dude! Again you are attacking character. How rude.
The cog of proposed MMT does not mesh well with the exogenous Western reality of global private money/finance/property controls within which it would work.
Don’t shoot the context checker.
Hmm. It’s a restatement (correct IMNSHO) of your argument, and a claim (again correct IMNSHO) about the role the class of advocates of such claims plays in contemporary political discourse. That’s not an attack on character.
If you wish me to work up on actual attack on character for comparison purposes, feel free to ask.
yep.
I’m shooting your analysis, not you. I’m sure you’re a fine person.
And you’re “context” is too vague to be a useful criticism. I strongly doubt it’s something some institutional economist somewhere hasn’t thought about (let alone MMTers or those closely affliiated like Michael Hudson, Bill Black, Jamie Galbraith, etc.), but go ahead if you can provide any details beyond the sound bites you’ve offered so far.
From you at 2:55 above
What I find lacking with MMT is a theory directly addressing the private money part and policy suggestions for addressing the current control of private money over financial markets,
It’s all been covered. Many times. Dozens of publications. I offered some of them above. What are your criticisms of those specifically? What are they missing, specifically, in your view? If you can’t answer those with citations of actual MMT publications, then you aren’t serious and don’t deserve to be taken seriously.
Settlers were moving to Texas to claim free land:
Almost no economic infrastructure was present, but it developed in due course.
‘Government never needs to sell bonds before spending.’
Fortunately no finance minister on the planet subscribes to this notion.
Fortunate for your desire to continue the corporate welfare state, perhaps. Some of us don’t consider it a priority providing risk-free financial assets to the capitalist class. Hence MMT is inherently anti-crony.
That must be why QE has produced such a notable reduction in wealth disparity.
‘Equity ETFs for all’ — from the gospel according to J-Yel
MMT opposes QE, which you know and are therefore attempting to pass a falsehood as truth.
QE meant that the Federal Reserve bought treasury securities on the open market. No one selling theirs knew that the Fed was buying them. So the Fed bought these treasury securities, and collected the interest on them as profit. That profit was removed from the general economy. The Fed was getting it. Not the previous treasury securities owner.
At the end of each year, the Federal Reserve returned those profits to the US Treasury, which it must do by law. This extinguished this money. It was returned to its creator, and died.
The Federal Reserve was taking ~$100 billion in interest income out of the economy each year that it was doing QE. Who benefited? No one. The only thing that happened is that the value of the US dollar went up because there were fewer of them (~$100 billion) available to the economy.
“That must be why QE has produced such a notable reduction in wealth disparity.” Your statement is rich in irony because the facts show that the transfer of wealth to the banks was stupendous. This increased the wealth disparity in this country. Do you know of any other industry that had its bad investments lifted off their books for many, many months? By relieving themselves of boatloads of crappy paper the financial sector was freed from making responsible decisions.
Except ours, of course, Jim.
The US Treasury issues treasury bonds, and auctions them to the public, in the amount of the spending after the spending has been authorized (“appropriated”) by Congress, and the ‘spending’ amount has been officially marked up in the US Treasury’s General Account at the Fed. The Fed’s colloquial term for it is “reserve add before reserve drain.”
Call the US Treasury and ask. Or read Frank Newman’s book where he describes this: Freedom From National Debt. Bill Mitchell is 100% correct.
Ding!
Actually I recall some Treas. sec (under Reagan, iirc) talking about how they actually first spent money and then figured out how many bonds they needed to sell to “sterilize” their spending. He was quite clear that the bond sales were not, in any sense, “financing” gov’t spending, they were “sterilizing” it so as not to cause inflation.
Yeah, diptherio. Newman calls that sterilization, ‘rebalancing the money supply’.
And another reason why it’s done is so that the vendors selling their goods and services to the government have a safe place to park their money as they fulfill their government contracts. If a vendor for highway repair, or a yearly contract at a military base, gets $10 million via government spending, there is no safe place to put their money while the job is getting done. The FDIC only insures up to $250,000 in commercial bank accounts. So vendors buy treasury securities.
Christopher, what the Federal Reserve and Treasury kept hidden too give guaranteed income to banks and financial servers sectors.
This is at a cost of higher payroll taxes and higher property taxes.
This is a quote from Brown’s The Web Of Debt, page 422.
No More Income Taxes!
Assume that the Federal Reserve had used its new Greenback-issuing power to buy back the entire outstanding federal debt, and that it had acquired enough bank branches (either by purchase or by FDIC takeover in receivership) to service the depository and credit needs of the public. What impact would those alterations have on the Federal income tax burden? To explore the possibilities, we’ll use U.S. data for FY 2005 (the fiscal year ending September 2005), the last year for which M3 was reported:
Total individual income taxes in FY 2005 came to $927 billion.
Taxpayers paid $352 billion in interest that year on the federal debt. If the debt had been paid off, this interest could have been cut from the national budget, reducing the tax burden by that sum.
Total assets in the form of bank credit for all U.S. commercial banks in FY 2005 were reported at $7.4 trillion. Assuming an average collective interest rate on bank loans of about 5 percent, approximately 370 billion dollars were thus paid in interest that year. If roughly half this sum had gone to a newly-formed national banking system – for loams made at the federal funds rate to private lending institutions, interest on credit card debt, loans to small businesses, and forth – the government could have earned around $185 billion in interest in FY 2005.
Adding these two adjustments together, the public tax bill might have reduced by around $537 billion in FY 2005. Deducting this sum from $927 billion leaves $390 billion. This is the approximate sum the government would have had to generate new Greenback to eliminate federal income taxes altogether in FY 2005.
@beene,
I don’t have the time now for a long or comprehensive reply. First of all, Ellen Brown’s book is woefully out of date. She has been educated in what she doesn’t understand about how the monetary system works by Randy Wray of MMT. You would do better checking out MMT.
Some points:
(1) “buy[ing] back the entire outstanding federal debt” would result in no one having a penny to their name.
(2) The federal debt, or the National Debt, is the record of every dollar created by the USA since 1791, minus the dollars destroyed by taxes. It is a record of what we own as a nation–what is in every bank account and pension fund–not what we owe.
(3) “Taxpayers paid $352 billion in interest that year on the federal debt.” Baloney. The interest on treasury securities for the coming year is calculated every August by the Fed for the US Treasury. Then, the US Treasury issues treasury securities for auction in that same amount. No children or grandchildren or taxpayers involved.
(4) You’re mixing up how federal accounting works with banks’ credit money creation. People create credit money every time they ask for a bank loan, or use their credit card; banks don’t create this credit just to have it hanging around, you do. Banks get interest on these loans, same with credit card companies. It’s how they make a profit. One person’s asset is another person’s liability at this level. It all nets to zero. Only the US federal government can introduce new money, or new financial assets, into the economy by spending.
(5) Taxes have nothing to do with spending. They are used to cool down a hot economy, or if they are reduced or eliminated, to heat up a cold one.
“She has been educated in what she doesn’t understand about how the monetary system works by Randy Wray of MMT”
I would be interested in more detail here or link. I think Wray definitely has a lot to offer on how federal finance works just interested in the details here.
“taxpayers paid $352 billion in interest that year on the federal debt. If the debt had been paid off, this interest could have been cut from the national budget, reducing the tax burden by that sum”
I think this is a misguided statement but not completely off the mark. Banks do create money it’s just not ‘high-powered’ sovereign type money. That is why they are supposed to be regulated. This money they create is backed by ‘high-powered’ money. It’s not exactly tax money but it is the public’s money and can be better used than to bail out predatory loans and speculative activity and make whole the bank execs’ bonuses.
State banks, like Ellen Brown pushes, such as that of North Dakota don’t securitize loans or speculate with depositors money. They make prudent loans and take the money these loans generate and put the lions share back into the public purse.
It’s completely misguided.
(1) Taxpayers do not pay interest on “the federal debt.”
(2) ‘Paying off the federal debt’ is nothing more than cashing in treasury securities.
(3) The interest on these treasury securities is NOT part of the national budget.
(4) The interest on these treasury securities has ZERO to do with taxes, or the tax burden.
But some of this is semantics.
The important point to get out is that government spending is the public purse. Most people think this relies on taxes and it’s important to dispel this belief as it tends to increase pressure for austerity measures and lack of willingness to take on big important projects.
It’s also important to understand the nature of the private banking system. They are backed by this public purse. So they have to behave responsibly and need tight regulation. In Ellen Brown’s case she makes the very important point that public banking systems have in the past and are now in several countries acting more with a view to the public interest rather than shareholder and executive compensation.
Exactly.
The problem now it that the value of money has been so incredibly distorted that both the private and the public sectors have no clue what a good investment is.
We need shelter, food and clothing. But do we need 3000 square foot houses and hundred million dollar stadiums? Do we need Sports Clubs and second or 3rd homes? And if we start rationalizing these, imagine all the questioning we can do around the other infra that supports all of this.
Above our basic needs, everything else is a sham which can come tumbling down with a loss in confidence. Ironically, for most of us, the staples we can afford are based on the value of our sham assets.
He wrote about it on his own website. I can’t find the link. He said he stopped in frustration because she wasn’t getting it, but he said she did pick up a lot.
I hate to tell you more generally, Ellen Brown is just not reliable. I never link to her. There is a lot about finance and economics where she is just wrong, on fundamental issues, to the point where I wonder whether she is actually doing oppo for the right, to get lefties to voice objections that will make them easy to discredit in serious policy discussions.
Nice to hear someone else say that.
Skippy, can you expand on that?
MMT might get more credibility if the proponents could show one place where it’s working without negative ramifications (ie, price inflation, debased currency, stable terms of trade, etc.) Venezuela has been issuing currency like crazy in the past few years with the usual negative implications. Turkmenistan just devalued their currency yesterday by almost 20% to try to maintain some internal financial stability. Granted, these two countries are somewhat special cases (dependence on one main resource for its foreign trade in Venezuela; close trading relationship with Russia in the latter case), but there must be some country or region of the world that MMTers can apply their system to show the rest of the world that it works.
In the meantime, in the more developed economies of Europe, US and Japan, the bottom 2/3 of households are spending an increasing amount of their income on rent or a housing payment, and an increasing amount of household income on taxes, mostly regressive payroll and sales (VAT) taxes. Correcting these two issues will bring a lot more benefit to society than how a country funds its currency issuance. How much or how little monopoly money is circulating in the system, and how it gets into the system, are way down the relevance list when it comes to the much more important economic issues of the relative distribution of a region’s/country’s GDP every year, and the internal economic relationships of producers-workers, landlord-tenants, and the government-private sector.
MMT might get more credibility if the proponents could show one place where it’s working without negative ramifications (ie, price inflation, debased currency, stable terms of trade, etc.) Venezuela has been issuing currency like crazy in the past few years with the usual negative implications. Turkmenistan just devalued their currency yesterday by almost 20% to try to maintain some internal financial stability. Granted, these two countries are somewhat special cases (dependence on one main resource for its foreign trade in Venezuela; close trading relationship with Russia in the latter case), but there must be some country or region of the world that MMTers can apply their system to show the rest of the world that it works.
Venezuela pegs to the USD and borrows heavily in foreign currencies. Turkmenistan also has significant forrign liabilities and manages its currency valuation rather than free-floating. These are anti-MMT policies.
So in other words, No True MMT Economy has ever failed.
Currency pegs are seen as a bad idea by many non-MMT economists too. Any sensible person will get that funding in a foreign currency (which is what private sector types start doing with hard or soft currency peg) is like tying to pick up small change in front of a moving tank.
The people who win are always the foreign financiers, by dangling the irresistible lure of artificially cheap borrowing.
Argentina did the Job Guarantee Program and it worked like Flynn while they did it.
Refutation is not a No True Scotsman argument. Frances mischaracterized MMT tenets, and Johannson called him on it.
“MMT might get more credibility if the proponents could show one place where it’s working without negative ramifications (ie, price inflation, debased currency, stable terms of trade, etc.)”
I would like to see a country where the folks in charge of fiscal policy understood MMT. Since none of the world leaders understand how the money system they are in charge of actually works– well, what are you asking for?Remember, Modern Money Theory tells us how the money system actually works. An analogy might be someone viewing the earth from afar and wondering why it continues to circle the sun for eons on end. The theory of gravity operates whether we want it to or not. Likewise with the money system. Cut government spending on Social Security, unemployment, Medicare, Medicaid, road building, education and watch the economy tank and then say the Theory is not working. Ummm, the resulting debacle that we have in most of the world today is a result of the perverse actions of don’t understand the theory.
Ever heard of WWII? US federal govt ran deficits 20%+ of GDP for 5 years to fight a war and get out of depression. Economy went to full employment. Interest rates on govt debt remained at CB’s peg. Inflation didn’t rise (except for one year after the war–probably had run deficits too large from the MMT perspective given goal of winning a war rather than just full employment).
In general, there are many countries already “running MMT” (e.g., US, Canada, Australia, UK, Japan) in the sense that they have monetary systems like the one MMT describes–currency issuer, no foreign denominated debt, flexible exchange rates. None of these countries has been forced into involuntary default. None have experienced bond vigilantes raising interest rates. None have experienced high inflation aside from the 1970s in some cases (which weren’t necessarily related to high deficits). The problem is that none of them realize they have the power that MMT suggests, so they haven’t gone further than this and put forth functional finance-based fiscal policies.
I took the time to read L. Randall Wray’s book on MMT. It is a great representation of the relationships between banks, the central bank, and the sovereign. It is about how money is created today and its functions. Yes, a sovereign with its own currency need never be insolvent in its own currency, but at the same time MMT says the backing of a currency is that the sovereign accepts it for payment of taxes. Thus, sovereigns that cannot successfully collect taxes do fail. MMT does not prescribe what taxes should be or how they should be collected, nor does it make prescriptions about how governments spend their money. So its hard to recommend getting on an MMT bandwagon, when it is merely descriptive.
Functional finance and the jobs guarantee seem to be an addendum to MMT, and I take it that they are lumped together because others in Wray’s department were working on those ideas from the beginning of work on MMT. Yes, a sovereign can write checks to guarantee jobs for everyone. I would point out that this is not a new idea, and it has been done in the U.S. The name of this program was General Mobilization, for WWII. By some date in 1942 the U.S. reached full employment, at a cost of a gargantuan increase in the public debt. Certainly we could do it again, but it is far from clear that the public wants that, outside of a real emergency. I think the authors need to make a better case, that the cost of creating a job for a person is a benefit that outweighs merely paying that unemployed person welfare to sit at home, because it does cost a lot more to create a job.
Why does it cost more to give money than to exchange it for work?
It costs more to create a job and less to give money.
Which doesn’t answer my question: why does it cost more to give money than to exchange it for work? Is there some physical law written into the fabric of the cosmos which makes it so?
Excuse me, I appear to have inverted that question. Why would it cost more to employ than to hand out? If we employ we get work which makes our society wealthier.
I understand what you mean. In general, if the bottom line is making sure people have the basic necessities, and there is a limited budget for welfare, then giving the money will help the largest number of people. There are more costs associated with creating jobs for people, for example right off the bat the employer must pay for things like workers’ compensation, which on a per hour basis can cost $1.50 for a nurse or $7.50 for a roofer. Then there is the cost of supervision, equipment, tools, training, and so forth.
I think the argument can be made that some jobs are worth creating, but there are limits. We used to have a way to sort out which jobs should be created where, and it was called congressional pork barrel. I had no problem with that, because for the most part that system worked and did create a lot of jobs.
Paul, I don’t see any reason to think a job created in a decentralized fashion at the community level wouldn’t be considerably more productive and less financially expensive than those created indirectly by Keynesian military spending aka pork barrel. If a community needs a job done and a worker is available for it then a position is created; the work gets done and social dysfunction associated with welfare payments is reduced or eliminated. In this sense government policy should not be to spend little as possible but to improve beneficial social outcomes.
Yes, I agree. I would like to point out one more thing. The way jobs are created has an effect on job resilience. When a job is created out of the cash flow of natural economic activity, it tends to stay put. When a job is created from private borrowing, it may stay put or disappear at the next recession. When a job is created as make-work, it is temporary, according to the vagaries of the budget. We should be scratching our heads to figure out how to create jobs of the first kind, because doing so avoids the double effort of creating jobs to replace jobs that disappear.
I think the authors need to make a better case, that the cost of creating a job for a person is a benefit that outweighs merely paying that unemployed person welfare to sit at home, because it does cost a lot more to create a job.
The problem is that people say such things, and do not see how strange, how crazy they are. Keynes called this belief – “the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years”. Unfortunately more “education” in the modern world has mainly led to more befuddling. Majorities in many countries in the 30s, especially untutored, poor people easily saw how odd such ideas were. It takes a lot more deprogramming for us modern netizens.
Why does doing good stuff magically cause less good stuff to be done – “cost a lot more”? It doesn’t. The burden of proof is very obviously on one who claims the existence of this black magic awakened by people doing work that they and society want, for their own and society’s good.
The problem is that such statements unconsciously mix the “real” and the “nominal/financial”, mix how they measure things, usually erroneously. People think with almost perfect accuracy and ease about economics if they think solely in “real” terms or solely in financial terms; the problems come when they are carelessly, incoherently mixed. Could you imagine the head of a business or a household listening to one moment to someone saying that more work will be done, more money will be made if a tenth of the workforce is randomly made idle? That, 2 kids will magically clean up the house faster than 3? (That third kid – who is making this argument so he can watch TV is clearly a budding mainstream economist.)
beautiful comment.
Thank you very much. I think that a very large part of the problem is due to this kind of befuddlement. The best cures I know of are Keynes’s letter and Ernst Wigforss’s Har vi råd att arbeta? (Can we afford to work?) (h/t lasse) Deserve to be required reading and the second to be translated better than google can.
Of course, one can be employed to work, but he will most likely accept the job only if he earns more than when he sits idle. The question is not simply the costs, but the benefits derived from the work. Simply digging a hole or building a bridge to nowhere does not create increase the real wealth for society and governments with their aim of gaining more power are known to use funds inefficiently.
So the whole MMT idea is simply a scheme to increase the concentration of power in the hands of a overbearing, infantilizing governmental bureaucracy, which provides many jobs to the types of Mitchell. His theorizing is certainly legitimate in the sense that every human being has to secure his personal future first and foremost.
So the whole [libertarian] idea is simply a scheme to increase the concentration of power in the hands of a overbearing, infantilizing [corporate] bureaucracy, which provides many jobs to the types of [Huber].
So the whole [dominatrix] idea is simply a scheme to increase the concentration of power in the hands of a overbearing, infantilizing [dungeon] bureaucracy, which provides many jobs to the types of [Huber].
So the whole [bedwetter] idea is simply a scheme to increase the concentration of power in the hands of a overbearing, infantilizing [adult diaper] bureaucracy, which provides many jobs to the types of [Huber].
Your comment is an excellent example of a useless argument, so generalized, non-specific and dependent upon emotional appeal that one need only alter proper nouns to use it against anything one doesn’t like. Nothing revealed and nothing affirmed.
@ Ben
Well, I am not sure where you live but to not see the increasing concentration of power, wealth and income is certainly a fact that is hard to contradict. Increasingly decisions are lifted on higher hierarchical levels producing an ever less self reliable, less responsibly acting and less free population. It may be that aging bureaucracies in the form of governments that are not regularly rejuvenated (elections are simply a matter of money) tend to serve increasingly simply the money/power elite. To study these aspects is not useless but an important aspect to understand how society works.
My argument lays herein that we should not try to enhance these developments but to do exactly the opposite by transferring the decision making process onto a lower hierarchical level where corruptive and other behavior that damages society’s fabric can be, due to higher transparency, sighted easier and, due to lower leverage, any misguided policy decision will produce less harm to society.
My argument lays herein that we should not try to enhance these developments but to do exactly the opposite by transferring the decision making process onto a lower hierarchical level where corruptive and other behavior that damages society’s fabric can be, due to higher transparency, sighted easier and, due to lower leverage, any misguided policy decision will produce less harm to society.
You’ve just endorsed Bill Mitchell’s Job Guarantee, after trashing his motivations and character. His proposal decentralizes job creation to the community level.
Well, then leave it to the community level how to resolve the problems of their unemployed. I doubt that this is in Michell’s mind.
Well, then leave it to the community level how to resolve the problems of their unemployed.
This is simply, arithmetically, logically not possible. Not possible as a matter of accounting, unless one takes “community” to mean the whole nation, through its representative, the currency issuing government.
Smaller communities or entities can employ their members themselves to do a lot. Can “leverage” the income they get from outside. But if they need US money to buy something from outside the community, they need to get it from outside the community. Ultimately from the US government.
And let’s not forget that the state sovereigns are not currency issuers, i.e. can not spend to create financial assets, so the federal government has to be involved.
You guys fall again in the same trap. Money printing does not really resolve anything but is simply a scheme to redistribute purchasing power. Problems are solved by real people by real communities in close encounter to each other and in consideration of the individuals circumstances. To simply transfer those tasks to a central government tends to result in solutions that lack sustainability.
The increased concentration of wealth is the result of:
1. Less progressive tax rates
2. Financial services deregulation
3. Pretty much no anti-trust enforcement
4. Union-busting, allowed and tacitly encouraged by USG starting with Pacto.
1 is independent of size of government; 2-4 are the result of an aesthetic preference created by 40 years of right-wing propagandizing (Google “Powell memo”) for smaller and less interventionist government.
The central planning agency in the form of the Fed that ensures by their policies a continuous transfer from the bottom to the top and enabled these developments you mention is not even on your list. What part of the created mess by the short sightedness of policy decision makers that manipulate the value of money simply to resolve short term problems has not arrived yet?
The Fed can’t transfer anything. While I’m sure the board of governors is thrilled to know you’ve fallen for its propaganda as wizard-behind-curtain, it has no power such as you attribute.
Good try at changing the subject, though.
I love how we follow Austro-Chicago policies for 35 years, and when the train goes off the tracks, the Austro-Chicagoans blame Keynes and MMT.
Yes, it is a fascinating set of neuroses.
Bestiest’ part is their the ones always trotting out the Hard Cog Dis as metaphor…
Skippy… a reflection that is always projecting it self on others and then crying witches… head desk~
“The Fed can’t transfer anything.”
Obviously you have a very limited idea of how monetary policy works. When you subsidize the cost of credit risk you automatically transfer.
The Fed credits and debits accounts. There is no transfer mechanism.
Paul, your comment is very interesting, especially read in conjunction with Roubini’s piece linked today, questioning where the jobs will come from.
Let’s assume there will be less essential work needing done, so proportionally fewer jobs available. I like the concept of a guaranteed basic income, but two problems present: if a person on a guaranteed income gets a job and earns income to replace the state subsidy, then that person will face an effective income tax rate higher than any other because of losing the subsidy; and trying to solve that by reducing the effective tax rate has the effect of extending subsidies too far up the income scale to be politically supportable. Nevertheless, I like the idea of a society, however organized, where people who want to work work, and people who don’t want to work are not in competition for jobs with the people who do want to work.
I don’t know the percentage, but there are standard known benefits of job creation. Every dollar spent by the govt on goods and services creates a multiplier in the economy. My brain is dead at the moment, and I’m doing other stuff while doing this so not on the ball. But I’m sure others know this percentage.
“that the cost of creating a job for a person is a benefit that outweighs merely paying that unemployed person welfare to sit at home, because it does cost a lot more to create a job.”
I would need to see some numbers backing up that statement. Bill talks in the video some about the costs associated with leaving people to sit on the dole. Skills deteriorate, social connections dry up (there are petty monetary costs associated to social participation, but if you’re flat broke, how long can one bum a cup of java off one’s friends?) and the general malaise associated with idle hands is frightful. So I am not sure your statement will hold up to scrutiny unless you have some empirical evidence.
“This issuing capacity means that the government does not face the same kinds of constraints as a private sector user of money, which in turn exposes the fallacy of the household analogy, so beloved in popular economics discourse.”
Just because the govt is not a household does not mean that it _should_ ignore the problem of deficits. The analogies provided to the “little people” is a santa claus story. To explain it totally is too boring (and only recently even the economists seem to have figured it out), and worse, it will collapse the paper money illusion if understood by everyone.
The problem with MMT is that it is basically an understanding of the current system based on accounting identities. By themselves they can be abused to justify almost anything (“the govt can buy anything in its own currency”).
If you want to understand accounting, ask your CPA, he is usually far more honest and practical than economists, who now seem to have found a new bandwagon to ride on and publish academic papers.
Confusing accounting with economics and considering it some stroke of genius is most irritating.
All you’ve done is say that MMT offends your sensibilities and you don’t like deficit spending. This isn’t even remotely a rebuttal. Deficit spending is in fact necessary and desirable if the household sector and businesses in aggregate are net saving and the economy is not running a big trade surplus, which has been the case in the US for a very long time. Fail to deficit spend and the GDP contracts, which makes government debt to GDP ratios worse.
“Deficit spending is in fact necessary”
does not mean that govt can run infinite deficits to give jobs and BMWs to all – without some serious negative consequences, which will probably lead to the end of the govt and “its own currency” that it abused. It is that part that i see missing from MMTers.
Those consequences are the reason why it is not done, not because some love to see people unemployed, or worse because that the politicians do not understand MMT – how can the people in power not understand they system they themselves set up?
Yes, MMT does offend my sensibilities, but that is because it is being sold as a free lunch facile solution to some very real and difficult problems.
“does not mean that govt can run infinite deficits to give jobs and BMWs to all – without some serious negative consequences, which will probably lead to the end of the govt and “its own currency” that it abused. It is that part that i see missing from MMTers.”
That comment proves you don’t understand MMT. MMT would NEVER say you can always give jobs and BMWs to all (expecially the BMWs, but the jobs could have negative effects depending on which jobs and how much they pay, which is why MMT is very specific about what they prefer here) without some potentially (very) negative conequences. That goes completely against the core MMT arguments–that the actual constraint on govt is the productive resources of the economy, not its “money”–as a matter of fact.
If you’re going to argue against MMT, at least get MMT right. You aren’t remotely close. YOu are arguing against a caricature of MMT that MMTers in fact would themselves be completely against.
Then you haven’t done your homework. “Sold as a free lunch facile solution?” The hell it is.
No one is even remotely advocating that straw man. The fundamental point of MMT is that we are mischaracterizing political problems requiring political solutions as economic problems requiring economic solutions and are therefore not solving problems that can and must be solved.
As if we didn’t understand it was a political problem. But a significant part of the political problem is getting the economic paradigm right. And this is all as much about educating economists–who then serve as the policy advisors– as it is about educating policymakers. Note that Stephanie Kelton is now chief economist for the senate budget committee–we’ve obviously made significant headway on the political front particularly when one considers that we are shut out of top journals and econ depts. Appears that we do know a bit about what we are doing.
Accounting is the straight-up record of what you’ve done in the past. If it’s “abused to justify almost anything,” it’s fraud.
Federal accounting is the record of how things work. The accountants are not allowed to be a penny off.
As much as I appreciate the work of Yves and those at the NC site, the belief that MMT is going to solve our problems seems sorely misplaced. Sure a sovereign won’t default if it can bully its citizens into accepting whatever valuation they deem appropriate. But isn’t this (the abuse of power) what we’re concerned about in the first place? When the government says the truth is what they perceive it to be, that’s a very dangerous place to be. To accept the basic tenets of MMT, one has to accept that the ‘Ministry of Truth’ has your best interests in mind. Sorry, but I’m not buying it. I would have to agree with Jesse on this one. MMT, for all it’s good intentions, is a rabbit hole that is best avoided. There’s a reason the founding fathers put a system of checks and balances in place on government power. To suggest that creating a system which allows for acquiring unlimited power (whether it be in currency valuation or elsewhere) is a slippery slope indeed.
http://jessescrossroadscafe.blogspot.com/2015/01/the-great-fallacy-that-is-at-heart-of.html
Where were you during the bailouts? We had the biggest transfer of wealth in history.
Your argument is logically equivalent to saying, “We shouldn’t have sex education. That way, children will know about sex and it might give them ideas.”
Since when is basing policy on bad foundations every a plus?
We have the current bad orthodoxy used to hurt ordinary people. For instance, the fear of unbalanced budgets is being used as a pretext for gutting Social Security and Medicare. But you are fine with letting that argument stand unrebutted?
What problems? All problems? No one is saying that MMT can solve every problem, that’s your projection. Accepting MMT has got nothing to do with the “Ministry of Truth” having our best interests in mind. Accepting MMT makes crystal clear that TPTB don’t have our best interests in mind. MMT is reality. Should we keep sticking our fingers in our ears and shouting “la, la, la, I can’t hear you?” The way I see it is that there is too much hierarchy in our (and nearly every) society. When a few have a disproportionate amount of wealth and power, it is almost invariably used in violent (passive and direct) behaviors to entrench and grow that wealth and power. Steep hierarchies protect those at the top from accountability and responsibility.
A JG would go a long way to empowering the bottom while curtailing the power of TPTB which is why TPTB would do their utmost to prevent it or subvert it. It would reduce many social ills (crime, poverty, stress-induced illnesses, etc.) It would reduce the real costs of health care, incarceration, court systems, etc. (do you think TPTB want that?) Until we can make the brutes accountable for their brutality and flatten the hierarchies, MMT-informed policies through government are what we have to make life better for everyone. Personally, I think all large organizations need to be dissolved, including the U.S.A. (not unilaterally as other brutes will just exploit the vacuum). Our first order of business is to stand up together and say no to brutality (economic, physical, and ecological) whether it be by the drone bomber in chief or a huge multinational corporation. Unfortunately, the baffle ’em with bullshit strategy of TPTB is very effective in confusing and disempowering people. Gallup recently measured Obama’s approval rating at 48%!
I was delighted that The Spirit Level and Small is Beautiful are on the top 50 list that Yves linked to in the Polanyi post. (Thanks Yves, I will read The Great Transformation).
Do people matter?
Does life matter?
Does anything else but money and power matter these days?
Why do we accept the status quo?
That article you link to says this:
That’s called the floating exchange rate. What’s the problem with that?
@ Yves, Nobody & MRW…
No, my argument is not akin to saying we shouldn’t have sex education. What I’m saying is that the well-intended views of the MMT crowd (cult?) are not a solution to the fallacies of human nature. With a Congress that’s about as popular as Ebola, I fail to see how giving crooks the power to spend/print at will serve the greater good. There’s a reason that counterfeiting currency is illegal for average people. To suggest that a sovereign can do it without negative long-term consequences is absolute rubbish. The MMT argument seems to me more like a bad case of American exceptionalism in that it offers the allure of having your cake and eating it too. At the end of the day, the bill still comes due. The only question is who is going to be asked (or forced) to pay for it.
With all due respect, you don’t get it. The government “prints money” NOW. Even Alan Greenspan has said so. Operationally, bonds are issued only to provide an investable asset. MMT is a description of how government finance and monetary operations work for any fiat currency issuer.
Aaron -As a member of the … : There’s a reason that counterfeiting currency is illegal for average people. To suggest that a sovereign can do it without negative long-term consequences is absolute rubbish.
How can a sovereign counterfeit its own currency? The one signature you can’t possibly forge is your own.
As Yves said, we are printing money NOW. “Printing money” is the only way money has ever been created, can ever be created. Where else does money come from? Immaculate Conception? The crooks already have the power to spend / print at will. Opposing us MMT cultists – is saying that the crooks are spending and taxing in the perfect, ideal way NOW. That there is some mystical reason to not give ready, willing and able people jobs, to not spend on what you, me, and everyone else wants because it will upset the mystical balance that the crooks amazingly always get just right.
On the bill coming due – well, that is what taxes are for. The exact amount of the deficit or national debt has no direct economic meaning. The only way that it has real effect is through inflation, and then through taxes to abate inflation. But this is no argument against Functional Finance / MMT /Full Employment. When there is a lot of unemployment and spare capacity, there just ain’t any inflation to speak of, and the consensus is that it would take a great deal of government spending to generate inflation now. In real terms, society will be wealthier in the future if it does not irrationally strangle itself now. So taxes and inflation will tend to be less, and general welfare definitely superior, if we abandon the belief in the perfection of the current policies – of the current crooks – and join the MMT cult – of skepticism and common sense.
@ Yves & Calgacus…
I think I understand the situation very well, and I think it’s presumptuous of Yves to suggest otherwise. This functional finance/MMT/full employment thingy you profess to support only works in a vacuum. You honesty want to give that much control over the currency to the current group of sociopaths? You are just rearranging the deck chairs on the Titanic. Talk to me when we have term limits on members of Congress and a viable third party in the oval office. Until then your MMT mirage is simple that, a distant and unobtainable Utopia.
You claim to understand and then produce the same error. The “sociopaths” already have that power and MMT is informing you of that fact.
Aaron understands quite well Ben, his pay check depends on it.
skippy…. Hio Asron [waves], don’t see you around the old joint much, if at all anymore.
P.S. “thingy” does not work for you.
Sorry. Aaron doesn’t actually get it. Let’s just keep every one ignorant–that’s working so well right now, isn’t it? We’ve got the powers that be right where we want them already, so don’t muck it up with MMT! (Sarcasm.)
MMT is currently in operation everywhere there is a sovereign currency issuer. What is going on is that the current bunch of poorly educated slobs who run things from the top are fighting it every millimeter of the way to the bank-their oversized paychecks are not necessarily a sign that MMT is not in operation. Just because an airplane flies above the ground does not mean gravity is not affecting it.
Jesse gets way too hung up on inflation and currency as a store of value. He’s at least half a gold bug in that regard. MMT’ers do not claim that governments have no limitation whatsoever on the amount of currency they can print. The limits, as the OP point out, are based on the limits of the real resources the economy produces, such that printing beyond will lead to inflation. As Yves points out, our government currently operates on MMT principles, and somehow we’ve avoid Weimar-style inflation for many years now. The solution anti-MMT’ers seem to favor is government either going back to a gold standard, or alternatively, to do what its doing but claim its doing something else. The idea that MMT is going to open the money printing floodgates and ruin us all so it must be avoided ignores the very clear fact that the floodgates are already open. However, since we continue the myths that govt can go bankrupt, the “elites” keep beating us over the head with how we can’t afford the welfare state while they continue to get trillions printed, basically interest-free, to gamble with. Its the worst of both worlds all around. By clarifying that govt cannot go bankrupt, money printing becomes a moral issue and the only question becomes how to use the funds to provide general prosperity.
Whoever “Jesse” is, he/she has written one of the dumbest critiques of MMT of all time based on the biggest straw man of all time–for the bazillionth time, MMT NEVER SAID THE GOVERNMENT SHOULD SPEND WITHOUT LIMIT and MMT NEVER SAID THE GOVERNMENT CAN SPEND WITHOUT LIMIT WITHOUT SERIOUS NEGATIVE CONSEQUENCES. In both cases, MMT very strongly emphasizes the exact opposite.
Yes, a Big Lie.
MMT is only trying to describe what is going on. The only issue is whether MMT is a better description of how a sovereign currency works than the description orthodox economics is providing. Criticizing it for not providing political solutions is mistargeted.
Can a central bank become bankrupt? And why not have central banks buy non-financial products, i.e., other industrial products, in order to stimulate the economy?
A modern central bank in a monetarily sovereign country cannot run out of reserves or fail to service liabilities. While its liabilities can in theory exceed assets, the central bank’s status as monopoly issuer means bankruptcy isn’t an issue.
Thanks for your reply. So theoretically there is an unlimited amount of Treasuries that the Fed can purchase, for example?
You can think of a Treasury purchased by the Fed as never having been issued in the first place, and it can purchase as many as are offered to it for sale.
But the Treasury pays interest to the Fed on the UST’s that the Fed is holding.
Interest which is then remitted back to the Treasury. By law around 97% of profits earned by the Fed are handed over, which means the Treasury is effectively paying no interest at all.
So the Fed does practice conventional accounting.
that sounds good to me. I’ve got some shoes I could sell and a few suits too. I paid to have them tailored but frankly am thinking they just don’t fit well enough. I should have been more careful when I bought them. There could be a national yard sale. I guess they diid try the “cash for clunkers program”, that’s kind of like a yard sale.
The Fed could make money on my shoes and suits if they really got inflation up and going. What about you? Do you have anything you could sell to the Fed?
What about you Yves? What do you have to sell to the Fed? Maybe some Hermes scarves? I certaiinly hope you’re not one of those people who bought the jewel encrusted Hermes saddle they had for sale at their Wall Street store, but “judge not, lest ye be judged” so I won’t judge you if you do. But if you want to admit a mistake ilike that and get rid of it, maybe Janet Yellen could use it somehow. Maybe with a bull whip.
what if you want the money but don’t want the job?
That’s how it worked when they bailed out Goldmint Stacks and J.P. Moron and all those guys (and girls, don’t blame this one all on post-frat-boy blockheads). They got the money but didn’t have to do anything extra for it. They kept doing what they were doing before and just got richer by a scalar factor. it was an Eigenbaiilout! (I hope there’s a math geek out there who thinks that’s funny cause I sure do. hahahahahaha)
That’s it for me. if they want to give out Eigenmoney and Eigenjobs, which is basically more money for doiing what somebody is already doing, OK, I bet a lot of people would even do something useful. God knows what though, since there’s already too much being done and most of it just f*cks things up, but even if they went shopping more that would help people who run stores.
this is 16 equattons and 19 unknowns. that’s why it so hard — but nobody will admit it even if they see it like that because they all want the Eigenjob.
MMT seems to be reasonably consitent logically and emperically applied to a domestic economy. However, i would like to know more regarding its practical operations between a number of countries/ currency zones. Especially, i would like to know more about MMT and inflation, international trade and scarce resourses.
I like to refer to the below blogpost concerning Egypt. Basically a country with a sovereign currency can afford to employ labor in that country especially if its citizens need that money for taxes or fees. (Note money first then taxes.)
This labor can have many productive purposes in that country. But the labor has to produce something significant enough that other people outside that country also would find value in holding that currency. (foreign exchange) MMT recognizes foreign exchange as a limitation to a sovereign currency. (Taxes can be used to deal with inflation, help with inequality and direct productive investment)
http://neweconomicperspectives.org/2014/02/mmt-external-constraints.html
MMT AND EXTERNAL CONSTRAINTS
February 24, 2014
By L. Randall Wray
“I have no doubt that China would eventually be in a position where floating (her currency) would not only be desired, but it would be necessary.China will probably float long before it reaches such a position. China will become too wealthy, too developed, to avoid floating. She will stop net accumulating foreign currency reserves, and will probably begin to run current account deficits. She will gradually relax capital controls. She might never go full-bore Western-style “free market” but she will find it to her advantage to float in order to preserve domestic policy space.
If she did not, she could look forward to a quasi-colonial status, subordinate to the reserve currency issuer. China will not do that.”
———-
http://neweconomicperspectives.org/2013/09/a-financial-sovereignty-strategy-for-egypt.html
A Financial Sovereignty Strategy for Egypt
September 1, 2013
By Fadhel Kaboub
I enjoy this site. I’d like to learn about the trade implications of MMT for a small country like Australia (23 million people), which has a current account deficit. The United States can purchase its imports in its own currency because the USD is the world’s reserve currency. The Australian Government doesn’t get to do that. I can see that the Australian Government is not revenue-constrained with respect to the domestic private sector. Is the Australian Government revenue-constrained with respect to the foreign sector?
I wouldn’t complain about having an account full of Australian dollars. (AUD)
The resistance to using Modern Monetary Theory to attain full employment is not so much resistance to Modern Monetary Theory as it is resistance to full employment.:
Political Aspects of Full Employment1
by Michal Kalecki
http://mrzine.monthlyreview.org/2010/kalecki220510.html
I’m not sure how your conclusion follows from the link. Kalecki was a classical thinker (ie sane and not neoclassical). As such and as I read the linked article he would be in favor of full employment and things such as a job guarantee.
“”Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
2. ‘Full employment capitalism’ will, of course, have to develop new social and political institutions which will reflect the increased power of the working class. If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped.””
Mitchell is a huge fan of Kaclecki, btw. He has pointed out on numerous occasions that he prefers him to Keynes, in fact.
“Their class
instinct tells them that lasting full
employment is unsound from their
point of view, and that
unemployment is an integral part of
the ‘normal’ capitalist system”
Interesting: as goes full employment, so goes MMT– just not in the class interests of our Oligarchy.
Thanks! I think I misinterpreted the essence of Kevin’s comment above.
Thank you all, especially Yves, for this interesting site and a novel view of economics.
I claim little knowledge of economics (Engineer by training and trade), but am striving to learn more.
I do have a question: why does the US seem to be getting less incremental GDP growth for each add’l dollar of debt? Does MMT address (predict? explain?) asymptotic limits on spending, and the apparent decreasing marginal value?
Thanks!
First, I’m not sure what you mean by “debt”. MMT does not treat government debt the same as private debt.
Second, quite a few economic studies have found that having households get in debt is bad for growth. Yet our policy-makers see more household borrowing as a plus, so that consumers can go out and spend. So our policy bias (making it easier for consumers to borrow) is all wrong.
Third, businesses have quit being capitalists. Large companies are basically dis-investing and have been doing so for nearly a decade. See here for a discussion in 2006. If big companies are not willing to invest for growth (and that includes borrowing as well as spending retained earnings), you can’t expect much in the way of growth rates. In fact, big companies borrowings have gone primarily to stock buybacks.
Thanks for the reply. I’m sorry I used the term “debt” — after reading the first few tutorials on MMT I should have been more precise! I indeed meant the “national debt”, though I now mostly understand why it’s actually the public asset sheet.
I’ve noted in recent years that the velocity of money is way down. It seems that where the gov’t is injecting money has created this low velocity, as the cycle from gov’t->banks->equities has gotten efficient and short, and the resulting wealth in contributing to wealth disparity. Really, I would think the more egalitarian approach would be to push new money or assets directly to consumers (jobs, or even stimulus dollars), who would then spend or pay down debt.
Is it fair to say the reason that new funding is resulting in less GDP is at least in part to the low velocity of money?
Thanks again!
I think you’re making an important point about how the money multiplier is decreased due to a lack of focus on true productivity.
Scott Fullwiler has an interesting discussion on this.
http://www.nakedcapitalism.com/2012/04/scott-fullwiler-krugmans-flashing-neon-sign.html
Scott Fullwiler: Krugman’s Flashing Neon Sign
April 2, 2012
By Scott Fullwiler, Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College. Cross posted from New Economic Perspectives
In short (!), the money multiplier model is wrong because it has the causation backwards—banks create loans based on the demand by borrowers, perceived profitability, and capital they are holding. The quantity of currency held or in circulation and quantity of reserve balances held or in circulation at the time of the decision to create the loan have nothing to do with it. If there are reserve requirements, then the quantity of reserve balances may increase as lending may increase reserve requirements and the central bank will have to raise the quantity of reserve balances circulating to achieve its target. Similarly, if credit creation raises the public’s demand for currency, then the central bank will have to increase currency in circulation, as well. It also means that the loanable funds model is wrong. Banks are not constrained by deposits whatsoever, but the quantity of deposits they can raise after making a loan to replace a withdrawal will affect the profitability of the loan. Again, the constraint is a price constraint, not a quantity constraint.””
Because the “debt” is too small. “Debt” at the federal government level is equity. It’s money. It’s what the government creates when it spends. They call it “debt” because it’s an accounting term; in double-entry accounting, they ‘account’ for it–after the fact–by placing the amount they have created under the Liabilities column. What they are buying with it goes under the Assets column. ‘Natch.
Non-federal government debt (incurred by state and local governments, businesses, and households) is what you and I know as real debt. We owe it. We have to provide collateral. We have a time schedule in which to pay it back. AND. We have to pay interest on it. Real Debt.
The federal government has no such restraints. (You know the Debt Clock? That’s a record of what we own, not what we owe. It’s a record of every dollar created by the federal government since 1791 minus the dollars destroyed (taxes).)
So, in addition to Yves’ answer, the reason why we are seeing what you term as “less incremental GDP growth” is because the deficit is too small. A quick way to ascertain if the deficit is too small is to look at the unemployment line. Don’t believe the 5.8% or 5.9% or whatever it is. That’s baloney. The real figure with the people who have given up and who have been out of work too long to even get a job is well over a healthy 13%.
We need more effin’ jobs in this country, and as Yves alluded to in her post (business ain’t gonna’ do it), only the government can supply them by spending. A lot more than they are doing now. Then you will see real GDP growth, and not just a bunch of guys getting rich with stock buybacks that raise the stock price artificially and thereby their bonuses.
Thanks for your reply, MRW.
I agree on jobs, but part of our problem is jobs mix. I have openings I struggle to fill for well-paid software and project engineers in the middle of the country (in oil and gas — this may be a temporary problem!) while others struggle to find work in their field.
From what I can see, the money that the gov’t is spending is not accomplishing much work — I think we are not getting very good value from the stimulus. I find it interesting that we lament lack of infrastructure spending (grid expansion for renewables, new bridges, better rail, etc.) and low jobs, yet put our public money elsewhere.
@Zaphod,
I am in real sympathy with your declaration about “striving to learn more.” Four years ago, I thought we borrowed from China, and my brain was a general muddle about macroeconomics until I spent six hours watching all these sessions. Another year swimming around knowing I knew shit from shinola. Then I read Stephanie Kelton’s two-part articles (2011) entitled What Happens When the Government Tightens its Belt? Part 1, and What Happens When the Government Tightens its Belt? Part 2. I took three hours to read these two short articles with a pencil writing out all the equations in real English so I could be sure I got it. Lightbulb on. I mention this because maybe it might be useful.
Thank you, MRW. What an epiphany I’ve had! I’ve long had the nagging inability to reconcile Fed spending, bond sales, social security “borrowing”, pensions, etc., and MMT seems to provide the tools to line it all out.
After reading the first few links you provided, I have a new set of worries mostly around limiting gov’t behavior:
– What keeps the “employer of last resort” from employing everybody? We have underemployment in the US, yet already a large public sector. It seems that a better path would be for the gov’t to fund programs that result in private employment, or better still to give money to individuals to spend in ways that promote employment? Perhaps it is a nuance without meaning, but having individuals beholden to the gov’t for their paycheck seems likely to centralize political power with financial power, and that’s not a great thing.
– Using similar thinking, can’t the gov’t manage any given minimum wage, assuming that spending for employment results in a wage floor? Do we end up with too many constraints if we want a minimum wage, controlled inflation, and modest taxes? Seems to me that minimum wage is a bit of a red herring, as what we really want is a reasonable leveling of income, such that the poorest still have a liveable fraction of the aggregate fruits of our labor. I think this points back to ensuring that jobs are productive (either in services or capital creation), else we have a game of musical chairs, or a zero-sum shell game, and somebody always losing out. One of the links talks about jobs to dig holes and fill them in….I think this does not do much good, compared to a jogs to build public infrastructure, or to provide services to other individuals.
– When it comes to taxes, like gov’t spending, the theory doesn’t really much advise as to how they should be apportioned. It seems that the public would want taxes to skew behavior toward egality and fairness, and gov’t spending to be broad and bottom-up, while those in control of the purse strings would naturally tend to sell favors and centralize spending for personal gain. I think this is the real danger in the “marketing” of MMT — it’s not that it isn’t accurate and correct, but that it doesn’t solve the main issues of human behavior in gov’t.
– Is it accurate to say that the reason that much fed spending is needed is in part because, as the reserve currency, everybody in the world WANTS dollars?
I’ve used more than my newbie share of bandwidth here. I’ll shut up now.
Zaphod
Let me put here a simple question. How exactly increases the printing of money the wealth of a nation? Isn’t it simply a redistribution of purchasing power? Real wealth is created by productivity gains, by being able to produce more and better products and services with less effort/costs.
Now all those that enjoy central planning will please answer, because money printers do in reality produce nothing of real worth but distort economic incentives to a degree that generally results in stagnation.
Er, money isn’t actually printed. It’s created digitally, with a keyboard (modulo coinage etc.).
Yes, we can put “printing” to consider your narrow way of looking at it but that does not change anything.
Saves digging big dirty wholes in the ground…. so you can polish it to feel safe…
Actually, my point on this particular example of corrupt language is that it’s a tell for sloppy analysis. But then you knew that. It’s an easy filtering mechanism for readers; whenever you see somebody using the locution “printing money,” you can safely skip them, in the same way you’d skip a piece on combustion that used the locution “phlogiston theory.”
@ Lambert Strether
You know exactly what is meant with “printing money”, namely a monetary policy that aims at achieving a growth rate in money supply higher than economic growth. But, of course, it is convenient to simply discard a comment by disqualifying a commonly used word to avoid the real discussion.
Let’s assume, to make it real easy, that printing of actual bills is meant, so you would still be able to explain that real wealth is created but not simply the redistributing of wealth. But, of course, you can’t.
You”ve got it backwards, dude. A single currency under a monetary sovereign enables creation of a surplus. Wealth is produced by society and then mooched for private purposes.
I don’t enjoy central planning, and of course ‘money printers’ don’t produce real wealth, but here’s the simple answer to your simple question:
If a nation is operating below capacity, then ‘printing’ new money can enable economic activity – the more and better products you mention – which would not otherwise have taken place. New economic activity, new products, new wealth.
“below capacity”
It may be that excess capacity was created by the short term thinking of past temporary measures of monetary stimulus and the whole matter of monetary stimulus is nothing but a grand ponzi scheme that violates the rule of sustainability. Does such idea ever cross your mind?
Linus Huber:Let me put here a simple question. How exactly increases the printing of money the wealth of a nation? Isn’t it simply a redistribution of purchasing power?
No, it is not “simply a redistribution of purchasing power.” Not necessarily, nor even too often. Thinking of it that way makes the crucial errors already. It presumes that there is something called “purchasing power” which is independent of, different from money/credit/debt. That there is a finite supply of it. That it only acts by confronting what it is used to purchase. (And then what happens to it?) Such “purchasing power” is a concept used to obscure rather than explain. And what it attempts to explain is actually simple, universally understood, familiar to all – money/credit/debt. If not constantly created (and destroyed) by man, in particular by national governments, (and by banks, by anybody or firm with good credit) where did the original (unredistributed, undiluted) “purchasing power” come from? Was it ‘immaculately conceived” at the beginning of time?
Money facilitates, allows the division of labor on a (inter)national scale. Conversely, the division of labor, any production process more complicated than chipping flint arrowheads for your own hunting (and not really even that) is logically, conceptually impossible without “printing money”. “Money” here being used in the widest, most abstract sense. Money is always credit/debt/moral obligation, and conversely any obligation can be thought of as (perhaps “pre”)money. The very important point about credit & the division of labor is emphasized by Geoffrey Gardiner. Whenever two people cooperate for a common purpose, toward a result attained at some time in the future, at some point one of them is going to be obliged to the other. This interpersonal/social/moral obligation must be “printed”/ created by one and accepted by the other. The state’s “printing money” as FlimFlamMan & Ben Johannson explain above is just the most prominent and most necessary such process involved in national economic coordination. And so really can and really does increase the wealth of a nation, and the world as a whole.
Like I said: Readers who are pressed for time can safely ignore commenters who use the locution “printing money,” as this thorough demolition job shows.
@ Calgacus
I am fully in agreement of what you comment here. But the real important aspect lays in the extent to which this medium “money” is used to manipulate or plan an economy. To have a monetary system that provides a stable currency with the quality of measuring economic activity like measuring a distance with the unchangeable length of meters is an appropriate approach. The aim of monetary policy, however, is not to achieve a most reliable measure but to influence economic outcomes and the applied policies to achieve the desired result turn ever more extreme until at one time in the future confidence in the monetary system will collapse. This kind of unavoidable development enhances power concentration and is not really the stuff free and democratic societies are aiming at.
@ Calgacus
Thank you for your good comment that explains the mechanics of how the medium money enhances economic activity.
Let me add another comment to my previous one.
You will most probably refer to the mandate that the Fed has to adhere to. The problem therein lays with the fact that that mandate was formulated on the basis of the at the time current economic doctrine. As we all should slowly recognize, numerous aspects of economic theories and models are at the very least questionable. It therefore is reasonable to probably think of changing that mandate but no one in government has any interest for such a change as it would reduce the governments power. So rather than address such a problem, it is preferable to keep the unwashed masses in the dark and/or brainwash/indoctrinate them with some economic theories and models, even if history provides sufficient prove, that it will end in a disaster.