Yves here. MMT, or Modern Monetary Theory, is in the process of becoming vastly more visible by virtue of leading MMT advocate, Stephanie Kelton, becoming Chief Economist on the Senate Budget Committee on behalf of ranking member Bernie Sanders. And that means, as this post demonstrates, that MMT has gone through the “first they ignore you, then they ridicule you” stages and is now in the “then they fight you” phase. And one of the chief strategies of MMT opponents is to misrepresent it.
By Scott Fullwiler, Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College. Originally published at New Economic Perspectives
Tim Worstall has a post decrying the dangers of MMT ever being used in the real world—even as he recognizes or at least suggests that it might be the correct description of how the monetary system works—and is particularly concerned about Stephanie Kelton’s new appointment as Chief Economist on the Senate Budget Committee. (Note: Randy Wray also posted a critique of Mr. Worstall’s post today.)
Mr. Worstall’s main issue is one we’ve heard hundreds of times before—because MMT explains that currency-issuing governments operating under flexible exchange rates and without debt in a foreign currency do not actually have budget constraints, this opens the door to all sorts of problems if put into practice. We can’t trust our government with this information, in other words—it must be required to match spending with revenues over some period (whether each year, over the business cycle, etc.) or at least plan over some period of time to not allow the debt ratio to rise beyond a modest level.**
Mr. Worstall notes the frequently heard MMT argument that the point of taxes is to regulate the economy—and takes particular issue with the view that taxes can be increased/decreased in real time. Note, though, that this is simply a metaphorical or simplified explanation—it blends the Chartalist argument that “taxes drive money” with the functional finance view of using the outcomes of the government budget position as the criterion by which to judge it (rather than the state of the budget position itself). It is not intended as a literal point—no MMTer has ever made a specific proposal for raising/lowering income tax rates in real time to manage the economy. (Though Ray Fair does offer a sales tax proposal and shows that it would be stabilizing here—I simulated it along with the Job Guarantee and another transfer payment rule here.)
As argued bazillions of times, the real point MMT is making is that the government’s budget constraint is the wrong constraint—the correct constraint is whether or not a particular budget position will raise inflation beyond an official target rate (say, 2%, which seems to be the choice of most central bankers).
Let me explain to Mr. Worstall and others how this could work rather easily—just as the CBO and OMB now evaluate government budget proposals regarding their effects on the budget stance, the CBO and OMB could instead shift focus on evaluating these proposals against the inflation target (I argued the same thing here, printable version here). Much like how policy makers supposedly take estimates of effects on the budget position rather seriously in making budget conditions, they could replace these with projections of inflationary effects. An inflation constraint provides more fiscal space than a budget constraint, but in no way does it provide unlimited fiscal space (again, as we’ve always argued).
We could add quite a bit of detail here if we want, but I’ll just say a few more things. First, it’s quite clear that economists don’t have much expertise modeling how to use the government’s budget stance to manage the macroeconomy via a functional finance rule—but this is largely because they have come to view monetary policy as the main macroeconomic policy tool, not because it’s not possible.
Note, though, that functional finance isn’t less specific than, say, the Taylor Rule—Taylor’s Rule says to adjust the interest rate to manage the macroeconomy; functional finance says to manage the budget position to do this. Consider the never ending debate among policy makers at the Fed, Fed watchers, and economists on what the Fed should do next, when it should do it, how it should communicate what it’s going to do, and so on. If Taylor’s Rule were really that useful, we wouldn’t need most of this debate and there wouldn’t be so much disagreement among the various parties.
Second, concerns that government policymaking is necessarily less “efficient” than monetary policy are unpersuasive to me (even aside from my view that monetary policy traditionally understood as manipulations of the overnight rate isn’t a good idea). What if some of the thousands of economists currently working on understanding monetary policy started to try and understand how to build automatic stabilizers? They might help us understand which taxes (or tweaks to them, like indexing marginal tax rates to the inflation target rather than inflation) or spending priorities (or tweaks, like indexing spending to the target rate) are most consistent with functional finance—we don’t need to adjust tax rates in real time as much as build in a significant amount of stabilization automatically (i.e., more than we already have). MMT has its own proposal—the Job Guarantee—which we have argued in dozens if not hundreds of publications possesses macroeconomically significant stabilization properties if well designed.
For sure, times like the last several years may call for more than just automatic stabilizers (or it may instead call for better financial regulation to avoid a speculative bubble and then a deep recession in the first place). However, while I am under no illusions that we could ever get totally rid of some of the messy politics of fiscally-driven stabilization, it’s not as if monetary policy even when set by a small group of “experts” (like the FOMC) has been apolitical (and, as noted above, it’s been highly contentious among even the true believers in monetary policy which strategy is/was the appropriate one).
In sum, let’s stop pretending that replacing a budget constraint with an inflation constraint is so hard. It involves a change in perspective, nothing more and nothing less. It doesn’t give license to policy makers to do whatever they want. It does mean CBO will finally be doing something useful with its deficit projections—namely, building models to understand how deficits will affect the macroeconomy (while its current practice is to assume an economy at full employment and warn of impending financial ruin as a result of deficits). Stephanie’s appointment gives reason to hope at least a little that this change might actually one day be possible, for the benefit of all of us (including Mr. Worstall).
**The latter is actually what neoclassical economics argues—contrary to popular understanding, there are no economic theories that require the government to ever balance its budget. What they argue is that the government must eventually keep its debt ratio at a modest level, which does allow modest deficits on average forever. What this does require is primary surpluses (i.e., budget position before accounting for debt service) to offset primary deficits if the interest on the national debt is above the economy’s growth rate. In fact, though, this condition hasn’t been met on average in the post WWII period; only the 1979-2000 period saw average interest on the national debt rise above the economy’s growth rate.
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“However, while I am under no illusions that we could ever get totally rid of some of the messy politics of fiscally-driven stabilization, it’s not as if monetary policy even when set by a small group of “experts” (like the FOMC) has been apolitical…”
We do not have a problem with our monetary system in America. We have a problem with the political system. Also there is the problem that such large scale political/social systems as modern nation states are fundamentally nonviable absent lavish inputs of depleting ecological/material resources and fossil fuel energy. MMT advocates are getting themselves worked up over a special-case monetary theory (that admittedly seems to work in a specific context) while in the meantime the conditions that allow such theories and systems to exist in the first place are in the process of being pulled out from under them. It’s a dead end.
The biggest destabilizer is a return on invested money that has nowhere to go. So that’s an interesting example of inflation in a world drained of resources still using the usual mindless remedies. For a once-free-market world this is the end of the road. Like the questions a few days ago about what to do with all that credit. But still MMT is a more useful tool than bubbles. Because if analysis if focused on the limits to any human economy there will be far less looting and graft. Maybe. Remember, Bubbles isn’t a model; Bubbles is a clown.
While I see a lot of validity in your critique, I don’t think MMT is necessarily a dead-end for that reason (ecological unsustainability). If anything MMT tends to focus attention on real resource constraints, rather than fictional financial ones, which is at least starting down the right road–although by itself it doesn’t go very far.
In my utopian vision of the world we, as a society, would recognize resource and ecological viability limits and make conducting ourselves within those limits priority number one. Priority number 1.01 would be structuring our economy in such a way so as to ensure access to a basic basket of necessities for every living person. MMT is a tool for accomplishing this second goal, in as much as it provides a much more sophisticated understanding of what is and isn’t possible in a fiat-money system.
And I’m not of the opinion that we need to give up all of our mod-cons to accomplish the first goal either, although I despair of the possibility that we actually will. The Dancing Rabbit Ecovillage, for instance, provides a recognizably middle-class standard of living for ~10% of the average US energy consumption, iirc:
And a well designed system of automatic stabilizers can greatly decrease social system complexity and concomitant resource requirements. A couple lines of code that automatically deposit $1000 into every bank account once a month, for instance, requires much less in the way of material resources to administer than our current system of welfare benefits.
In other words, you haven’t read the literature.
The money seems to be spent on wars and empire no matter how they get it.
Indeed. One has to think that the new chicken/egg dilemma is that of MMT and an ever expanding military. The two are joined at the hip – forever wed in holy matrimony. As long as monopoly money is printed go long on Halliburton.
The real problem is their delusion that by simply making correct arguments they will somehow be allowed into the halls of power controlled by crony capitalists. MMT alone is not enough and can never be enough: ecological economics, Marxism, and revolutionary (violent) politics are required as well.
Um, you seem to have missed they are already being allowed into the halls of power. Chief Economist on the Senate Banking Committee is a heavyweight role, particularly if your boss backs you to make waves.
MMT does er… more than make “correct arguments.” It creates myths, as derogated in William Black’s latest – What if the Public Understood How Money Works? in New Economic Perspectives.
Modern monetary problems are to be solved by experts.
Political problems? They are much more instinctual and attract potentially more participants.
‘Functional finance isn’t less specific than, say, the Taylor Rule—Taylor’s Rule says to adjust the interest rate to manage the macroeconomy; functional finance says to manage the budget position to do this.’
It ISN’T less specific? Taylor reduced his rule to a closed-form equation. Enter values for inflation and GDP, and it gives you a policy interest rate. Any idiot could solve it (and they are!).
Where is the MMT budget rule? One can regress inflation on the federal budget deficit, and indeed find a positive correlation. But it’s weak, and the series are terribly noisy, and nonstationary as well. Politically savvy policy makers are not going to tie themselves to a rule which isn’t very reliable, and occasionally produces extreme outcomes.
‘What if some of the thousands of economists currently working on understanding monetary policy started to try and understand how to build automatic stabilizers?’
It would resemble thousands of Zambians, trying to understand how to build a lunar lander. Where better to start than at Warthog College?
I wonder if there’s some sort of metric for how rapidly MMT h8ters descend to ad hominem.
As noted before some prescribe the monotheistic quantification of value and money, crazy thing is the hard left does the same with out divinity at all, like removing the face or nose of a statue in antiquity.
Skippy… Philip P, pointed this out endlessly imo.
The fallacy of putting a dollar price on everything wasn’t published by the hard left, it was the neoliberal University of Chicago’s ‘New Frontiers in Economics’. Whether this was academic overreach or codifying cynicism, the assumption of money as part of wider social goals has always been the lefty credo. I think the badge of pride is ‘fuzzy-headed.’
@scraping_by,
As you should well know its not about the pricing of everything [monetizing causality direction], but the very act of creation its self.
“[M]oney has no price In order to form a part of this relative form of value of the other commodities, it would have to be brought into relation with itself as its own equivalent. (C.I: 189; emphasis added)3 Gold has neither a fixed price nor any price at all, when it is a factor in the determination of prices and therefore functions s money of account. In order to have a price, in other words to be expressed in terms of a specific commodity functioning as the universal equivalent, this other commodity would have to play the same exclusive role in the process of circulation as gold. But two commodities which exclude all other commodities would exclude each other as well. (Cr. 75) The price of the commodity which serves as a measure of value and hence as money, does not exist at all, because otherwise, apart from the commodity which serves as money I would need a second commodity to serve as money – double”.
I would think most would understand by now, that I do have an affinity for many social aspects of the old left, wrt sociopolitical views. But unlike the children of Proudhon I don’t see the non government utopia in any guise, in human history.
That said I had sorta the same conversation with libertarian socialist [free market Socialism – Marxism???? ><] and have a good time with these Quotes on the thread.
These capitalists generally act harmoniously and in concert, to fleece the people.
—Abraham Lincoln, from his first speech as an Illinois state legislator, 1837
Everyone now is more or less a Socialist.
—Charles Dana, managing editor of the New York Tribune, and Lincoln’s assistant secretary of war, 1848
Whom knew Obama was a socialist like his BFF Abe Lincoln and as such neoliberal plutocratic corporatism by proxy.
Skippy…. one for the road…. The workingmen of Europe feel sure that, as the American War of Independence initiated a new era of ascendancy for the middle class, so the American Antislavery War will do for the working classes. They consider it an earnest of the epoch to come that it fell to the lot of Abraham Lincoln, the single-minded son of the working class, to lead his country through the matchless struggle for the rescue of an enchained race and the reconstruction of a social world.
—Karl Marx and the First International Workingmen’s Association to Lincoln, 1864
Ahh… speeches and quotes without historical environmental contextualization
Banks don’t like “print and spend” because it devalues the debt they have collected since 1981. Banks are obligated to the credit based currency they have now because it satisfies part of their wildest dreams.
Banks don’t like government spending because government IOUs reduce demand for bank IOUs. More dollars mean less need for bank loans.
Which in light of the last decades is kinda funny, in a sick way, as the land development lobby – industrial lobby’s has worked at the hip with private money issuers to create the ultimate neoliberal bottle neck rent extraction racket.
Skippy… which from my vantage point the greenbackers want too apply the coup de grâce.
Where is the MMT budget rule?
Not having a budget rule is the point. Why on earth should one fret about what the budget deficit or surplus is? As you say, correlations to inflation are real (practically and theoretically) but not that strong. Modifying Abba Lerner’s old economic steering wheel metaphor, budget rules are like asking for precise, specific rules of how you will turn the steering wheel for your car trip, before you go on it. Automatic stabilizers are like asking for your car to be in good shape. It should bank the correct way on turns and not topple over, have an automatic transmission that shifts gears at the right time. It is like asking for your wheels to be aligned, to give less tire wear and better mileage (good working conditions, low inflation.) The fiscal policy rule of spending enough for full employment is like remembering to put enough gas in the tank. Monetary policy obsessions are like watching which way the nose of your dog in the seat next to you is pointing, and thinking that moving his snout is how you steer the car.
I don’t see why Zambians would be particularly unable to build a lunar lander. I am sure that they would get a better education in it at Warthog, which would focus on things like putting it on a rocket going to the moon, rather than the instruction on how to point the astronaut’s dog’s nose which you might get at today’s Harvard Economics department.
Sweet. ;-))
Remember the Air Force imperative: Pointy end up.
The Taylor Rule doesn’t work. But you’re right. It’s prettier.
Yes, any idiot can solve it, which is why the Taylor Rule doesn’t work. If it did we wouldn’t have endless debate on appropriate monetary policy. So if you’re arguing TR is specifically more incorrect than MMT, I’m totally with you.
You didn’t mention my critique of the usefulness of TR (which Ben J alludes to). Respond to that and I might take you seriously (obviously you haven’t done the same for me yet).
Well, let’s give him what he wants. I’ll write it out ignoring all rules on formal mathematical expression because A) I’ve never given a damn about protocol, B) if an economic equation can’t be grasped within minutes, its primary use is toilet paper decoration and C) I can’t get special tags to work here.
FB(G – T) = SP(S – I) + SP(X – M)
where FB(G – T) is the government fiscal balance, SP(S – I) is the savings preference of the private domestic sector and SP(X – M) represents the savings preference of the foreign sector.
Simply put, the government surplus/deficit should equal the savings preferences of the non-government sector. Now Jim has an “equation” at least as useful as the Taylor Rule.
Not sure you’ve got that quite right. Assuming X and M are exports and imports, respectively, then you should probably have SP(M-X), so that when the trade deficit goes up, so does the need for a greater FB; what’s normally called the budget deficit. And if I and S refer to income and spending then you’d want to reverse their order in your equation as well, so that SP increases as spending decreases (or income increases).
Also not sure that I’d refer to the “savings preference” of the foreign sector, but rather the “spending preference.” I think it’s not a bad overall way to look at it though–a little different take on the standard sectoral balances approach.
Well, yes. But the point I was attempting to make is that the rule doesn’t have to be any good to equal the usefulness of the Taylor Rule. Junk = junk.
This equation doesn’t contain either GDP growth or inflation as terms.
The author claimed that functional finance can ‘manage the macroeconomy’ no less specifically than the Taylor rule, which addresses both growth and inflation targets. So they have to appear in the proposed rule, otherwise it’s not a useful rule.
Meanwhile, let’s examine a little empirical riddle, shall we? During federal fiscal years 2004-2007, the budget deficit averaged 2.3% of GDP, while the CPI rose at a 3.0% rate. During fiscal years 2008-2011, the deficit averaged 7.7% of GDP, but the CPI rose at only a 2.1% annual rate.
Oh, dear. As economists are wont to say, there is a relation here, but it seems to have the wrong sign! That is, it suggests that to raise inflation, we should perhaps run a surplus. But what will that do to GDP growth??
Help me out here, Ben. Otherwise we’re never gonna get a paper out of this.
This equation doesn’t contain either GDP growth or inflation as terms.
Why would it need to?
The author claimed that functional finance can ‘manage the macroeconomy’ no less specifically than the Taylor rule, which addresses both growth and inflation targets. So they have to appear in the proposed rule, otherwise it’s not a useful rule.
The fiscal balance adjusts to demand for liquidity: more demand means expansion, less demand means contraction, so it cannot be inflationary. It replaces financial assets lost to money hoarding and therefore pushes output toward potential. You do know what an automatic stabilizer is, right?
Meanwhile, let’s examine a little empirical riddle, shall we? During federal fiscal years 2004-2007, the budget deficit averaged 2.3% of GDP, while the CPI rose at a 3.0% rate. During fiscal years 2008-2011, the deficit averaged 7.7% of GDP, but the CPI rose at only a 2.1% annual rate.
Congratulations. You’ve figured out that expansion of the money supply is largely immaterial to inflation.
Oh, dear. As economists are wont to say, there is a relation here, but it seems to have the wrong sign! That is, it suggests that to raise inflation, we should perhaps run a surplus. But what will that do to GDP growth??
You want more inflation?
The example cites fiscal policy (deficits), since the author spoke of managing the budget position to manage the macroeconomy (GDP and inflation).
Changing the subject to money supply dodges the question.
No one mentioned monetary policy. The fiscal balance is, as the term itself states, fiscal.
It’s fascinating that in the Fed Dual Mandate thread you complained about central planners, yet here you argue an equation is “no good” unless it micromanages via central planning.
You object to discussing money supply even though the Taylor Rule you keep holding up as a gold standard purports to manage economic conditions by manipulating the money supply via Fed Funds rate. How can you not know this?
Do those Debt to GDP figures for the period include the Iraq war and the Afghanistan war. Bush ran those ‘off the books’. When Obama came into power, he immediately ordered the wars abroad included into the budget figures. If that’s the case it could explain the difference. Heavy military spending is usually inflationary.
I suppose we can look forward to the sales pitch hyperbole of criticism toward MMT moving into the lunatic stage. Various schools of economics will be running around waiving their arms wildly with their hair on fire claiming the world will be coming to an end. I’d like to say it will be very amusing but most likely I will be disgusted and run further into the arms of disbelief about our political economic policies.
I like the idea that at least on SOME level there is a challenge to the orthodoxy of Keynsianism. I mean as “scientists” (that’s what economists are, right?) at some point they must decide their experiment is a failure. Worst wealth distribution since the Pharoahs, endlessly expanding debt, anemic economic growth, high unemployment, severe capital misallocation everywhere we look, currencies dying as we watch with the German 10-yr yielding 0.74%…when do these scientists admit they are wrong?
But we still insist the Earth is the center of the universe. “Most central bankers agree that 2% is the perfect inflation target”. Excuse me? As Paul Volcker said about inflation targeting “this means that the average worker over his 30-year working life loses 70% of his purchasing power”. Is that really the goal here? Can we not return to the old definition of falling prices due to rising productivity being a good thing, otherwise referred to as “progress”? What do I care what theory is being followed if the money I have is worth less as a result? And let’s face it, both Keynes and MMT just allow government to expand to fill the known universe. Government activity as a percentage of GDP in the US is 42% (up from 13% in 1920). In France it’s 75%. Do we really want to head to 100%? A grotesque form of hyper-communism with all of the gains going to the Politboro and none distributed to the people? Let’s recall the basic formula: first comes production, then comes income, then come savings, then comes investment. Governments and Wall St can’t do numbers 1 through 3 so they perform parlor tricks to somehow go straight to #4. Do we really think such sleight-of-hand is somehow sustainable and has no long-term consequences?
I applaud the MMT’ers challenging whether the Earth is at the center, but their idea that perhaps Mars is will get us nowhere fast. Hint: the thing that is actually at the center is really big and really bright. Now get to work.
I like the idea that at least on SOME level there is a challenge to the orthodoxy of Keynsianism.
There is no orthodox Keynesianism, his ideas were bastardized, rejected and swept under the rug with considerable speed.
I mean as “scientists” (that’s what economists are, right?). . .
Economists are theologians.
. . .at some point they must decide their experiment is a failure. Worst wealth distribution since the Pharoahs, endlessly expanding debt, anemic economic growth, high unemployment, severe capital misallocation everywhere we look, currencies dying as we watch with the German 10-yr yielding 0.74%…when do these scientists admit they are wrong?
They’ll go to their graves denying it.
But we still insist the Earth is the center of the universe. “Most central bankers agree that 2% is the perfect inflation target”. Excuse me? As Paul Volcker said about inflation targeting “this means that the average worker over his 30-year working life loses 70% of his purchasing power”. Is that really the goal here?
The goal should be for real wages to rise and meet the living standard we want in our society, and ensuring those wages keep pace so that workers don’t lose ground.
Can we not return to the old definition of falling prices due to rising productivity being a good thing, otherwise referred to as “progress”?
This happened during the Long Depression. Unfortunately fast productivity growth uncoupled to a growing money supply resulted in overproduction, unemployment and persistent economic slumps. Because their home markets couldn’t purchase everything made, Western countries established overseas empires to absorb the production.
What do I care what theory is being followed if the money I have is worth less as a result? And let’s face it, both Keynes and MMT just allow government to expand to fill the known universe. Government activity as a percentage of GDP in the US is 42% (up from 13% in 1920). In France it’s 75%. Do we really want to head to 100%?
Neither Keynes nor MMT advocate or allow for any such occurrence.
A grotesque form of hyper-communism with all of the gains going to the Politboro and none distributed to the people?
No.
Let’s recall the basic formula: first comes production, then comes income, then come savings, then comes investment. Governments and Wall St can’t do numbers 1 through 3 so they perform parlor tricks to somehow go straight to #4.
The last three decades have demonstrated a growing lack of investment on the part of government and business.
Do we really think such sleight-of-hand is somehow sustainable and has no long-term consequences?
Underinvestment is quite sustainable if you don’t mind a country in ruin.
I applaud the MMT’ers challenging whether the Earth is at the center, but their idea that perhaps Mars is will get us nowhere fast.
MMT isn’t about spaceflight.
Hint: the thing that is actually at the center is really big and really bright. Now get to work.
Yes, please work on the sun. It needs a new coat of orange.
Thankfully Mr. Worstall’s fears will dominate for the foreseeable future. Knowing how an Indy car is built and driving one are too different skill sets. Should MMT gain any traction it will not resemble itself by the time it comes out the end of Social Policy and Buchanan’s Public Choice. It would be like giving the keys to your ten year old. Now if you have a fondness or belief in an enlightened overlord class MMT in the hands of your favorite politico might sound wonderful.
Yeah, good thing Keynes died before he could tell us anything more about how to manage the economy. Think how much more he would have been bastardized than he already was. Shouldn’t have even written The General Theory. No progressive should ever put forth their ideas to solve problems because it all goes for naught once the powers that be get hold of them. #sarcasm
A still better response is here: http://www.economonitor.com/lrwray/2015/01/12/oh-me-oh-my-mmt-is-about/
Your link makes my point…it pretends accountability exists. I’m saying it does not. Right now the markets etc think that deficits matter despite Cheney saying they didn’t, lol, . Thinking that they do, even if wrong in some sense, acts as a governor adding a modicum of accountability. That said, this all academic, stuff on a blackboard where it needs to stay for the time being. Warren Mosler’s belief while accurate would be disastrous at this time in my opinion…. He stresses that federal spending is in no way constrained by tax revenues, therefore the government will always be able to make payments in its own currency, regardless of solvency, stating “Federal Government checks don’t bounce”.[7] He goes on to state that any and all debt passed on to future generations will never be burdensome, since they will undoubtedly consume whatever is produced.[7]
The fact that responsibility doesn’t exist doesn’t mean the current situation is better than if the truth were understood is the point. It’s not like Congress said “we can’t invade Iraq because we don’t have enough money” or “we can’t bailout the banks because we don’t have enough money.” They only say that when it’s about helping the poor, unemployed, homeless, those without healthcare, or want to deceive the public about social security and medicare “solvency.” Again, should Keynes have not written his books? And the markets KNOW deficits don’t matter for default or they would set interest rates higher for Japan in particular–it’s got nothing to do with Cheney or Reagan.
See responses to you by BDY and Cagacus below and also Bill Black yesterday.
http://neweconomicperspectives.org/2015/01/public-understood-money-works.html
The argument is that MMT will permit the PTB to do whatever they want to do – as though the neoclassical paradigm doesn’t.
Show me that the “deficits are bad” argument ever stopped a war, restricted a bailout, or generated prosecutions for fraudsters who cost the sovereign balance sheet trillions.
MMT is not a tool that can be used or mis-used. It’s just a more truthful description of the existing tool set: fiat currency. Fiat requires a functional democracy (or the never seen well-intentioned boss) to be of any real use. Duh. But as the collapse of EU welfare state suggests, compromising sovereignty makes democracy less functional.
Orthodox economics only pretends to limit the nastiness that our betters can get themselves up to, at the same time excusing them for not investing in a just and sensible future. At the very least, MMT calls bullshit on that.
+1
Well said. Thank you.
indeed it does
“Orthodox economics only pretends to limit the nastiness that our betters can get themselves up to, at the same time excusing them for not investing in a just and sensible future. At the very least, MMT calls bullshit on that.”
This is indeed the main virtue of all the excellent descriptive work done by MMTers: to remove the excuses that the puppet economists of the tiny, transnational class of kleptocrats use for their inhumane, malign neglect of the interests of 99.9% of humanity.
That being said, I can’t get too excited by anything that merely refines our understanding of how insanely we’re being screwed. Good ol’ Ike Eisenhower pointed out, around the same time I was born, how insane giving even more money and power to the MIC would be. What has happened since his administration? Spending on the MIC has risen exponentially! I think the time has passed where reasonable people could pin all their hopes on persuading, through argument, power-hungry, war-mongering psychopaths to willingly change their ways and suddenly turn into benevolent despots.
NOT. LIKELY. TO. HAPPEN. We need radical, sweeping changes that can only happen after the kleptocrats lose the stranglehold they now enjoy over our political system. This will require a massive redistribution of political power towards labor and away from capital. I see MMT more as a motivational tool to heighten the indignation of disenchanted bourgeois with the current failure of our elites to do the right thing.
Actual change in the right direction will not be a mild-mannered move, orchestrated in quiet Senate chambers by well-meaning technocrats like Stephanie Skelton. It will be, I’m afraid, the result of a dam of public indignation finally bursting, and sweeping away the good, bad, and indifferent pillars of the old regime in a chaotic and uncontrollable process.
Tru dat.
Best case scenario: Paris ’68. New social contract and I get to keep my property, meager as it is.
If things get out of hand, maybe MMT gets a voice alongside anarcho-syndicalism, neocollectivism, the gift economy, good ol’ democracy and the opinion of whatever local war-lord ends up terrorizing my pocket of the post-apocalypse (odds currently favor Joe Arpaio, but Gary Busey was spotted at the airport recently and I know Alice Cooper won’t go down without a fight).
Hold on. This is the Archdruid report, right?
@ patrick k It would be like giving the keys to your ten year old. The 10 year old already has the keys and has been and will be driving the Indy car all his life. MMT is giving him very basic driving lessons, like where the gas cap, accelerator, brakes and steering wheel are. Lerner criticized Buchanan for his misrepresentation of public finance, by the way.
It seems to me that what you are saying amounts to “Education, knowledge is good only for enlightening overlords. Ignorance and superstition, which always defeat them, are the recipe for freedom and democracy.” But we have no choice about driving the Indy car – doing stuff, being someone, thinking. So to me: “The broad distinction between the instinctive act and the intelligent and free act is that the latter is performed with an awareness of what is being done…” or “Sapere aude! ‘Have courage to use your own reason” make a lot more sense.
Now we are discussing adding control theory, and possibly chaos theory, to modern monetary theory.
Control is Theory is very concerned about timing, WHEN the corrective action (feedback) is applied to the system, because if applied with incorrect timing can make the system much less stable, catastrophically so.
Control Theory was developed to ensure Rockets Could Fly (hence “Rocket Scientist”). However Control Theory also assumes very rapid application (almost instantaneous) of linear feedback to correct the behavior of the system.
Note: Instantaneous and linear feedback.
Discrete feedback, feedback with a delay and any degree of non-linearity, introduces a third Theory into the system – Chaos theory.
To insure linearity of feedback, measurements and hence the feedback signal derived from the measurements, must be precise and accurate.
Further, and all data points measured should well know and their relationships accurately described (by equation).
And finally: All systems need to be thoroughly tested before becoming live.
The system is underfunded when unemployment arises. Funding then enters the system via MMT’s job guarantee. Money keeps coming in until the unemployment goes away. At that point, the system is fully funded, and the job guarantee is idled. All of this is automatic. This is MMT’s non-inflationary “control function”.
Correct. This is pretty much all MMT is saying. And it’s obviously correct.
It could be used by Gandhi, it could be used by Hitler. (In practice, it WAS used by Hitler.)
But isn’t it better than completely delusional economics, which is what we usually have in government? I really do think smart evil is better than stupid evil.
Here’s what Bruce Poliquin, Maine’s new Congressman, had to say about MMT the first day after being sworn in.
That just means he needs to be reeducated by his constituents, which is most effectively done vial local papers and TV. Op eds and letters to the editor are very effective.
Which is to say Bruce Poliquin knows absolutely nothing about macroeconomics. The balanced budget amendment will send the economy into PERMANENT depression.
And he’s talking about lowering interest rates?!? Newsflash: that ain’t the problem at the moment. In fact, I bet a good number of his constituents would prefer higher interest rates.
Scary stuff. Thanks for posting.
Obviously he didn’t bother to understand even non-sovereigns. Spanish and Greek bond rates didn’t fall when they did austerity–who wants to buy bonds of non-currency issuing governments presiding over economies falling further into depression.
You’re joking, right?
Spain’s 10y bond yield fell 254 basis points in 2014, the largest drop on the planet, as it tightened its deficit from 10.3% of GDP in 2013 to 6.8% in 2014 (i.e., austerity).
http://www.tradingeconomics.com/spain/government-budget
Which is exactly the relation one would expect. Investors are falling all over themselves to buy European sovereigns. The German 5y bund yield went from 1% to zero during 2014. They are buying the living sh*t out of it.
The 10-year yield began falling almost to the day the European Central Bank announced OMT in August 2012.
That is also when austerity began, in a de facto quid pro quo. And the appropriate response was, buy bonds.
I should have expected someone who has no idea what they were talking about would mention the period during which the ECB was buying bonds (as Ben noted). No surprise that person turns out to be Haygood.
As the NYT reported in April 2012:
“Since the beginning of the debt crisis in Europe more than two years ago, defenders of the euro currency union have stuck to a basic argument: if the euro zone’s weaker economies would only keep pursuing policies of austerity, even as growth collapsed and job losses mounted, they would be rewarded by investors more willing to buy their bonds.”
“Yes, the social cost would be high, but over the long term economies would benefit from the lower interest rates that can come with the seal of approval from global bond investors. Or so goes the argument.”
“That approach, though, has failed in Greece, Ireland and Portugal. And now it is being severely tested in Spain, where the more the government promises to cut its budget deficit, the more foreigners are unloading their Spanish bond holdings.”
“Driving the investor exodus from Spain is a view that Europe’s current policy of forcing countries to improve their competitiveness by cutting spending and lowering wages will not result in a growth payoff — whether in Greece or Italy or Spain.”
http://www.nytimes.com/2012/04/28/business/global/spain-pursuing-austerity-still-waits-for-the-payoff.html
‘if the euro zone’s weaker economies would only keep pursuing policies of austerity, even as growth collapsed and job losses mounted, they would be rewarded by investors more willing to buy their bonds.’
And so it has been (Spain vs US 10-year yield chart):
http://img.qz.com/2014/06/the-market-now-charges-spain-and-the-us-the-same-amount-to-borrow-spain-10-year-yield-us-10-year-yield_chartbuilder.png?w=640
As of today, Spain can borrow 25bps cheaper than the US:1.64% (Spanish 10y) vs 1.89% (US 10y):
http://www.bloomberg.com/markets/european-debt-crisis/
You may not approve of the austerity policy. But the answer to your rhetorical question ‘who wants to buy bonds of non-currency issuing [European] governments’ is, EVERYONE. They are buying them down to zero yield and beyond. It is the single biggest market trend on the planet right now. Sorry you missed the train.
because they know the ECB will step in, as it already has. we already saw that before the ECB was expected to step in the rates didn’t fall.
That’s right. Thanks to the ECB Spanish yields fell even though budget deficits increased from 9.4% in 2012 to 10.3% in 2013. Bond markets do not care about deficits, they care about risk-free assets, which they believe applies to Spanish bonds so long as they’re backed by the ECB.
The Great OZ (CBs) buys everything in sight and “investors” ride his coattails…I’m not sure that makes a fundamental argument for austerity resulting in investor delight. The BOJ buys *the entire bid stack* of JGBs…is that also a sign of investor approval of Japan’s fiscal policies?
Best description I’ve read on the Euro crisis: “The French franc is overvalued relative to the deutschmark and there’s nothing Draghi can do about it”.
You’re both cherry picking. ECB bond buying and Spanish austerity, which has brought down Spain’s deficit from 9.4% in 2012 to 6.8% in 2014, coincided.
But the author’s bold assertion was that fiscal policy can be used to manage the macroeconomy. Unable to offer any practical formula for how it could do that, now you invoke the deus ex machina of the ECB.
My reply: assume a can opener!
*pops open can of tuna on desert island*
No Jim, you are cherry-picking. We aren’t the ones leaving out inconvenient years because they bring our identity-politics crashing down.
“ECB bond buying and Spanish austerity . . coincided.”
Pretty much what Ben and I said was the reason why Spanish interset rates fell, so you obviously agree with us. And they didn’t fall before the ECB did that, as my link above showed.
And obviously austerity can reduce deficits. Duh.
“When politicians spend like drunken sailors and screw up badly then we can get rid of them via the democratic process.
When bankers spend like drunken sailors and screw up badly we can’t – as we have seen.
That’s the deal. Pick your poison.”
Oh me Oh my MMT is about
An with the banksters you have to bail them out and then reward them lavishly for their wrongdoings, absolutely not punish them.
A – historical, I think – footnote: MMT is precisely the earlier OBJECTION to leaving the gold standard and allowing exchange rates to float, only delivered in a chipper, upbeat tone. IOW, regarded as a good thing.
In reality, both tones of voice are correct: governments do have a long history of degrading the currency to their own benefit; and Modern Money does offer opportunities, if.
Way back in 1944 Lerner argued in “The Economics of Control,” that ” if the money that comes in to the government treasury from selling, borrowing and taxes is equal to or greater than the money needed for buying lending and bonus distribution, there is no need for any money to be printed. If the money coming is is less than the money that has to be given out, and there does not happen to be enough money in the stock in the government vaults, the printing press can be called upon to provide the money needed to carry out the government policies.”
Isn’t Lerner saying that the Treasury can finance its spending out of the money it collects from selling goods and services and also through fiscal-raising activities?
And isn’t Lerner also simply saying that key-stroking money into existence is always an option when needed.
But to go from that more balanced perspective to the endorsement of a seemingly gargantuan semantic leap made by many contemporary MMTers, in advocating that modern policy-makers should therefore view the act of levying taxes (or selling bonds) as implying that “tax receipts cannot be spent” or that bond sales receipts cannot finance deficit spending– quite an inappropriate, largely ideologically driven, divergence from what Lerner is actually saying?
In the real world can the US Treasury decide to draw on the existing credits in its account obtained by previously collecting fiscal receipts from the private sector?
Does the mere existence of central bank money somehow equal a pre-financing of Treasury expenditures?
Isn’t the Treasury a user of money issued by banks?
The Treasury uses reserves supplied by the Federal Reserve and by Treasury spending.
There’s no point in arguing over MMT. Try it and see if it works!
If it doesn’t work for some reason, load all the bad debt into a rocket and fire it into the sun. You can start the entire economy over again, since nobody cares about debt, they just want the money and you can make that for less than the face value. In other words, you can make money by making money. Nobody will care if all the debt goes away. They’ll be glad it’s gone.
The alternative is to fire all the unproductive debt at the moon. It’s well known the moon is hollow, since it rings like a bell when things hit it. The other night I heard a plausible theory that inside the moon is a jail for criminals from alien civilizations — sort of like Australia used to be. The aliens sometimes escape on beams of light and mess with people on earth. That’s why the full moon makes people weird. It makes so much sense if you think about it. So you shoot a rocket full of debt at the criminals and not only would the moon ring like a bell and mess with anybody inside, they’d have to deal with all the debt. It would be their problem not ours.
I don’t know how societies around the world organized themselves without money, but they did somehow. It’s weird to think people lived and died and never knew what money is. That’s strange, to think like that. But it’s true. How did they do things? That’s weird to think, how they did things without money. They never could have defended themselves from the aliens in the moon. They would have to cope somehow without the debt and without the rocket. I bet somebody could figure out how. It’s been done before. These are seriously deep thoughts for contemplation. I doubt Professor Kelton would think in these terms but that’s only because most economists don’t have astronomical knowledge.
Well, according to David Graeber, debt preceded money.
But for a usury-free system, see “Interest and Inflation Free Money” by the late Margrit Kennedy.
The usury free obsession is a monotheistic shite fight and largely a hang over from the ev’bal jew’bs feud from antiquity. That said the mathematically perfected economy™ (MPE™) is a bit of a side show, as well, as the The Occupy Money Cooperative (OMC) attempts at their own pre-paid debit card coop.
“In the final analysis, I fear that the Occupy Money Cooperative may well have set off down a blind alley. Offering a less-bad version of a product that many poor and un-banked people use is a questionable strategy, to say the least. Many un-banked people make use of payday and title-loan services but that doesn’t mean that Occupy should start its own less-bad version of payday lending.”
http://www.geo.coop/blog/mis-guided-efforts-occupy-money-cooperative
Skippy.. in addition regardless of the well meaning intentions of Margrit Kennedy [my she rest] as complementary community currency (CCC) already exists in a multitude of forms, that and we have already done the multiple currency thingy in the past. Not a good experience imo.
From what I have learned of MMT, I think its a great idea. I am concerned about how the entire U.S. monetary system functions and frankly believe that the perception that the FOMC is non-partisan is simply nuts. The Fed has done things like purchasing MBS that are or should be less than AAA – a violation of its charter – on the basis of it needing to be done to keep the system afloat. From where I sit, it was all about making the big banks and banksters liquid and wealthy. And it makes absolutely no sense to tax a middle class that is shrinking its consumption, making it harder to escape this depression. But worst of all is ZIRP. Are they trying to chase all savers into the equity markets? If the UST issued bonds at a price/coupon set by Treasury itself, the rate could be set just ahead of inflation giving savers the comfort of knowing that they are indeed getting ahead, at least a little. I must admit on reflection that MMT could have a powerful effect on the equity markets if it increased confidence in government bonds and on hitting inflation targets. I for one would sell every share of stock I currently hold were I to be comfortable that the government could and would hit inflation targets that are below the bond rate. Hope I’m not too far out on a tangent but it really strikes me, based on recent bad monetary policy from the Fed, that MMT could hardly do worse – but might have some unexpected results. I also suspect that the flock of smart guys working on this concept have considered how such a risk reduction in bonds might affect equities. You do intend for the government to continue selling bonds don’t you?
“Zirp” is a myth and policy choice. The FED doesn’t create a ounce of money. They oversee interest rates as selected by private banks.
If US Treasury came out and announced they are putting 10 trillion dollars over 5 years into circulation to rebuild the nations infrastructure, that is MMT.
“Zirp” is a myth and policy choice.
ZIRP doesn’t exist but it’s an existing policy choice?
The FED doesn’t create a ounce of money. They oversee interest rates as selected by private banks.
To control the overnight rate the Fed must provide reserves to the banking system on demand. When a bank makes a loan this increases total reserves required for the payment system; if the Fed does not provide additional reserves, scarcity drives up the price and the overnight rate will move from the Fed’s target rate.
In my opinion the discussion focuses insufficiently on the aspect of power concentration. Generally governments continuously try to increase their power over the population while favoring special interest groups. This development lifts the decision making process on an ever higher hierarchical level of decision making that results in numerous negative consequences (e.g. reduced transparency and accountability). Like drinking 2 glasses of wine in a day is probably healthy whereas 2 bottles definitely less so, it always is a matter of degree or extent. I think we arrived at a level of centralization that its further increase is no longer positive for society on the whole. Therefore, whether monetary systems or other governmental programs, they require to be evaluated by considering whether it enhances further power concentration or decreases it. Me for one favors a decrease.
Please, all power is centralized. The government is just one “state”. There is also the market state. Totalitarianism of the merchant caste is no better than the nation state’s body of laws.
MMT is really national socialism and is quite reactionary in many respects, much like non-marxist socialism was back in the day. Closed financial and economic systems. Everything is done tribally.
MMT is really national socialism. . .
There goes Godwin’s Law.
. . .and is quite reactionary in many respects. . .
To?
. . .much like non-marxist socialism was back in the day.
What day would that be?
Closed financial and economic systems.
The global economy is a closed system, unless you’ve opened trade with Mars and hadn’t told us.
Everything is done tribally.
Huh?
“The global economy is a closed system, unless you’ve opened trade with Mars and hadn’t told us.”
This is the ultimate delusion of the MMTers, and debating them is like banging your head up against the wall … it advances nothing, and leaves you with a headache (though exposing the fallacy of their thinking to non-MMTers is quite useful to society).
As it pertains to money, the global economy IS NOT A CLOSED SYSTEM, NEVER HAS BEEN A CLOSED SYSTEM, AND NEVER WILL BE A CLOSED SYSTEM, though in MMTers’ dreams they think they can force people to use their preferred garbage fiat currency. Every attempt in the history of the globe by tyrants to force their citizens to use money which they conjured limitlessly out of ether ended in epic disaster, and the emergence of brand new currencies to replace the worthless varieties. But somehow the MMTers will succeed in FORCING us to use their junk fiat.
Wrong, kemosabe (or perhaps more accurately, quien no sabe)! We’ll go to using rocks, twigs, seashells or literally anything else you can’t print limitlessly before we use your junk fiat to exchange real goods and services, the production of which requires human effort and ingenuity, real work unnecessary in the MMT religion of magic ponies for everyone, or craazyman’s belief in aliens.
MMTers = Modern Monetary Tyrants
And by the way, those jails craazyman references are exactly where the MMTers will try to put anyone who refuses to use their junk fiat. This has been standard operating procedure for many desperate leaders of nations dying from adopting something-for-nothing monetary policies.
Yes, let the hate flow through you. With each passing comment you make yourself more our servant!
Yes, let’s usher out another straw man to deflect attention from the fact that your closed system MMT representation is false. Do you really think people with functioning brain cells buy into your verbal feints?
And as far as hate goes, I have never met any of the advocates of MMT, don’t hate any of them, and in fact am a huge fan of Bill Black and “Yves Smith” when it comes to their exposure of corruption in the banking and political realms, despite their MMT support.
To be fair, I do view many of the MMTers as monetary buffoons, so if you want to paste me with that label I’ll wear it proudly. And without question I detest the ideology of MMT, as I see many millions today suffering the consequences of its delusions.
History is not your friend DCR, thousands of years of barbarity can not be hand waved away. Nor can the last decades of propaganda dressed up as economics or enlightened thinking, that the agenda you and yours forward in more about playing the man and not the fundamentals is a clear indicator of its rabid ideological nature.
Contra to your ” Do you really think people with functioning brain cells buy into your verbal feints?” quip – Yes I am compelled by the observations of MMT. What I am not compelled by is your behavior, increasing psychotic and erratic dialectical mannerisms, increasing pejorative hyper ventilation, increasing projection about everyone being put in some pit because MMT’ers [ideology???].
Skippy… I could find the same level of intellectual bereavement in the back woods of some esoteric enclave in my youthful years, in the Midwest, proselytizing pontification upon pontification resulting an a totalitarian truism. .
How are millions suffering its ‘delusions’ when no one in charge subscribes to MMT or understands how our money actually works? That’s why the appointment of Kelton is a noteworthy event, because she’s an outsider who’s finally been given some degree of real power. From where I’m standing it’s clear that millions of people in places like Greece are suffering for the exact opposite reason: the ideology that we shouldn’t print more money and ‘balance’ what we already have, as if money was a natural resource that needed to be mined from the earth or raised like a crop.
DCR, I think you have a very wrong understanding of MMT – and of money. There really isn’t any other kind of money than “fiat” money, credit money. Rocks, twigs, seashells etc can’t be and never were used as money. There isn’t any other way to create money but “out of the ether” – by a joint agreement between a creditor and a debtor. And in the real world, nobody is forced to accept junk fiat money – if you have too much, send it to me. Or I’ll come by & pick it up. (OK. I’ll pick up “money-things” for nitpickers.)
MMT is just about using money as a very easy to understand tool – that’s the problem, understanding money is too easy – which is why few understand it- a tool to organize the division of labor, organize “human effort and ingenuity, real work” for us human beans to lead an easier life than our ancestors. “Magic pony” thinking is the opposite of MMT, which is just plain old accounting, really. What definition of “closed system” are you using that doesn’t make the planet Earth, the global economy a closed system as it pertains to money? If “not closed” doesn’t mean “trading with Martians”, what does it mean?
Calgacus … you and the MMT group continue to confuse money and debt … and to define money as whatever you wish to force people to use, as oppose to what they are willing to use as a means of exchange. Debt is not money … it is the promise to return money. In the current U.S. setup, currency, FED reserves, and bank demand deposits are money … almost everything else is a form of credit/debt depending on which side of the equation you are on.
Rocks (gold), twigs (birni), and seashells (cowry) have all been used as money, so perhaps you should invest some time in exploring the history of money throughout the ages. One of the key attributes of “good” money is its inability to be created at will by politicians or central bankers, and doled out to their favored constituents. I am just as opposed to central bankers doling out money to Goldman Sachs through QE as I am to MMTers doling out money to whoever it is that they favor. Even if the intentions start out well the ability to create money out of nothing ALWAYS ends horribly, with an intermediate step in which the creators line their own pockets with the money only they can create. Right now Goldman and Morgan bankers are siphoning off enormous amounts of real wealth (i.e. property, capital goods, services consumed) through the ability of their friends at the FED to create FED reserves by purchasing bonds or mortgages from Goldman and Morgan.
If the MMTers ever get control of U.S. money creation, you are welcome to have all of mine (which will be zero). Money creation is not a closed system … people will not hold money that can be created willy-nilly, and so governments which go down that path almost always resort to force to compel citizens to hold junk fiat … hence my monetary tyrant reference.
http://www.santharia.com/standards/currency_birn.htm
http://en.wikipedia.org/wiki/Shell_money
Wrong. Money really is a social agreement. People ALWAYS hold money which can be created willy-nilly. Every dollar you have in your bank account, every dollar you have in your wallet WAS created willy-nilly.
Join us in reality sometime.
“…a particular budget position will raise inflation beyond an official target rate (say, 2%, which seems to be the choice of most central bankers).” I fear that Governments will simply adjust the official target rate to one that is more to their liking. MMT may offer more scope for mischief, I suspect, than a balanced budget does. Because households know more about balanced budgets than about inflation targets, fudging with the budget is more transparent.
Though I concede that this issue is of interest to some, I find it largely irrelevant. Of more concern is whether MMT provides an adequate description of an economy: why a lack of demand has arisen; why wealth inequalities occur; how a dollar that can buy a loaf of bread is considered equal to a dollar that can no longer buy anything and why one has to put up with that inequality.
I fear that Governments will simply adjust the official target rate to one that is more to their liking.
They always have, it isn’t something new.
There’s an underlying premise in these kinds of positions that no one answers when challenged. This post is based on the claim that the federal government currently operates under a budgetary constraint.
That is flawed. Hilariously so.
We are living in the greatest period of money printing our society has ever known. If one believes that the way things are suck right now, there are only two possible conclusions at this point:
1) $18 trillion of money printing isn’t nearly enough, or
2) The problem has nothing to do with the relative amounts of taxation and spending.
There’s an underlying premise in these kinds of positions that no one answers when challenged.
It’s been answered a hundred times, you don’t retain the information.
This post is based on the claim that the federal government currently operates under a budgetary constraint.
The discretionary budget does operate under constraint. No one can control the cyclical component like flipping a light-switch.
$18 trillion of money printing isn’t nearly enough
Not when you run trade deficits in the range of $500-$600 billion per year.
You are doing exactly what I am critiquing the original post of doing. Assuming something to be true without offering any proof. I could assert that the moon is made of cheese. That doesn’t make it true.
To put this in more structural terms:
Your Claim: The federal government budget is constrained.
Your Reason: ????
Your Support: ????
Your Warrant: ????
Or to describe it as a concrete challenge:
Name a program that hasn’t been included in the budget due to a constraint on the number of dollars the government could produce?
Washunate:This post is based on the claim that the federal government currently operates under a budgetary constraint.
No, it isn’t. That is not what Fullwiler is saying, not true & not MMT. The only constraints that the US government operates under are self-imposed ones, like the debt ceiling which right now is the only one that has any meaning, which is not much.
Name a program that hasn’t been included in the budget due to a constraint on the number of dollars the government could produce?
There isn’t any, and here we agree. Where we may disagree is on the effect of massive budget constraint propaganda. We agree that there are no meaningful intertemporal or government budget constraints. But students in economics are taught that there are. Politicians speak of them and say things like the US government is broke. Several people in this current thread seem to give such ideas excessive (= nonzero) credence. Mindless and impossible attempts are made to “balance” budgets – with some kind of deficit size targetting. This post is saying this is stupid numerology, nearly as silly as thinking that if the deficit or surplus is an odd number, it is a catastrophe, while having an even number would bring a year of wonderful happiness for all. It is the actions based on these widely held irrational beliefs, an imaginary budget constraint that cause damage.
If you are dying of thirst in a desert and imagine you are enclosed in a cage – the fact that you are one foot from an oasis doesn’t help you. The point is – dispel the imaginary cage constraint, and concentrate on getting yourself and all your camels a drink. The idea is that we should base our actions, our design of government programs on constraints having to do with the real world – that is inflation – monetary prices of real stuff.
And there are zillions of programs which aren’t included in the budget because of the imaginary constraints. Welfare for rich predators tends to be protected, while programs that would quickly and easily increase the general welfare and the welfare of the bottom 99% are often relentlessly starved of funds.
Sorry for not replying to your long reply to me at the You Are Worth More Than The “Market” Says post. I’ve answered many of the points you made there before – but will try to respond soon in the next relevant post. Seems like whenever I get such a serious, welcome reply, things suddenly come up in unreal life & I am unable to respond with the timely reply it deserves.
No worries, for those of us who do this as a hobby, a break from real-life, things have a tendency to come up :)
What I see on the question of net deficit spending is a continued muddling of two separate issues. Does the government actually have a budget constraint? And do some people claim the government has a budget constraint even when they don’t believe it?
I find the notion that programs for the ‘99%’ – whatever exactly that is (the top of that group is actively preying on the bottom of that group) – are starved of funds because of a belief in balanced budgets to be uncomfortably naive. Which politicians, exactly, do you see proposing balanced budgets? Reagan? Bush? Obama?
My hunch is that some academics are so tightly wedded to this notion that balanced budgets are a propaganda problem because if they acknowledged that balancing the budget was not a constraint on politicians, then they would have to identify the actual constraint instead. And that problem might not be solved by more net deficit spending.
I guess you didn’t see the spending cuts that came from the debt ceiling “crises,” not to mention the fact that GOP held Obama “hostage” on the debt ceiling until he agreed to cuts. Also not to mention the rise in payroll taxes in 1980s to avoid insolvency with SS, or the GOP now trying to cut SS, or Clinton trying to “invest the surplus” in the S&P500 to make SS more solvent.
And you conveniently moved the goalposts after Calgacus and Ben called you out on your lies about MMT.
Moving the goal posts? I am being rather consistent here in suggesting that politicians haven’t been making decisions based on things like the debt ceiling, and in particular, calling for those making such a claim to support it.
What spending cuts exactly are you talking about? We have spent tens of trillions of dollars over the past decade. National security and healthcare each account for a trillion dollars plus annually by themselves at this point.
Spending cuts on actually-useful-things.
“National security” money is mostly spent on things which are then blown up. This is extremely useless.
The “economic multiplier” is an attempt to estimate how useful a dollar of spending is in terms of improving total production in the economy. Most spending has economic multipliers of more than 1, meaning that spending a dollar causes more than one dollar’s worth of production.
Military spending in the US has economic multipliers of LESS than 1 — it’s worse, economically, than any other sort of spending.
It’s interesting going back a bit and trying to follow up on old issues.
I see that neither you nor Ben have bothered to offer a logical argument that can be followed and analyzed and disputed for why the debt ceiling is a problem. You also have declined to name even one program that would have been funded if only politicians understood MMT.
That’s your prerogative of course. As it is mine to point this out, despite what Ben says about things being answered 100 times. They aren’t really answered. They are left hanging, without committing to a specific line of reasoning.
I see Joe Firestone has another post up recently about how high value platinum coins would be a game changer. Whatever happened to the last debt ceiling anyway?
The problem is that currently all the printed money is “lent” to banks. MMT advises *paying* it to *ordinary citizens*. (Keynes advised the same thing.)
There is a major difference in the results of these two, and it has to do with distribution of wealth…