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Modern Monetary Theory, Bears 2.0 Style

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The Bears, images of bears in human garb that debate the issues of the day in computer-generated voices, have become something of a staple of the Web.

A Bears-style video on MMT was posted earlier this month. While I like the innovation of a Sharon Stone-ish head and her smashed up interlocutor, and I think this video is well done, I have my doubts as to whether this approach is an effective way to educate people about MMT. Even though the video is meant for “dummiez” it uses terms like “currency issuer” and “currency user” all too freely. The most potentially persuasive section to a non-convert or an agnostic are the charts that show how government deficits almost exactly mirror private savings over long periods of time. That does not come until well into the video.

I suspect MMT people, rather than preaching to possible converts, which can be alienating, would do better taking a Socratic approach. Making people see via teasing out their pre-exsiting beliefs that what they believe about money is counterfactual or contradictory would probably provide for a better foundation for getting them to consider new ideas than the the head-on approach of telling them that that what they believe is is wrong.

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114 comments

  1. Clive

    Okay but please next time could they stop picking on HM Queen Elizabeth II ? I know, I know, it’s just a bit of harmless symbolism but actually the Royal Family have comparatively little disposable personal income. Much of their “wealth” is actually made of assets which are held in trust for the nation.

    And she does “get” that the financialisation of everything was nothing less than a huge scam:
    http://www.huffingtonpost.co.uk/2012/12/13/queen-visit-bank-of-england_n_2294771.html Prince Charles was banging on about environmental concerns long, long before it became fashionable.

    I’d rather have her as my Head of State than the odious Obama. Or Bush. Or Clinton. Or… (you get the idea).

    Of course, some readers here will probably start throwing around King George III, colonialism, taxation without representation and all that. Which of course is valid history. But I’ll take Elizabeth II over your succession of elected crony capitalists any day thanks.

    (sorry, totally off topic really, just getting at the Queen really bugged me ! I could have thought of better examples for the video producers to use)

    1. Reality

      “I’d rather have her as my Head of State than the odious Obama.”

      You don’t have any choice in either matter. It’s good that you are content.

      1. Clive

        Ultimately, I/We do have a choice. We could, if we felt strongly enough about it, revolt. We tried revolution before in 1685. We didn’t like it and preferred a (albeit increasingly constitutional) monarchy.

        Thinking back to the most recent US presidential election (I’m struggling to avoid the word “coronation” but I’ll do my best), how, overall, would you rate the spectrum of “choice” that you had ?

        I’m not trying to be funny here. We spend an awful lot of time and energy pointing out what’s wrong with things. But what do we want instead ? I cannot think of any instance where Queen Elizabeth has been found to have done any of the following:

        + Misrepresented an investment
        + Conducted a fraudulent “review” of mortgage servicing
        + Contrived to not uphold an office of state in order to get a better position in business once they are on the other side of the revolving door
        + Sold an opaque and complex financial product to a customer who did not want or need it but had to purchase it because they felt coerced that they wouldn’t get a loan otherwise
        + Actively undermined labor unions and used any method to reduce entitlements of their workforce

        Yet all these things, and many more besides, are tolerated — actively encouraged even — by a head of state who was elected to serve the people.

        So why not use Obama’s image in the video ? Or any number of recognisable CEOs ? Probably because the latter would litigate and Queen Elizabeth won’t. That last sentence, my friend, says it all I think about her and her position.

          1. Clive

            Thank-you ma’am. I trust my knighthood is in the post, just like we said ?

            PS. The “Q” in “Queen” is customarily capitalised when you’re writing “The Queen”. But I guess you’re not used to posting comments in blogs. And I thought you’d agreed that the only sock-puppeting you’d do is in The Daily Mail ? Oh, and while you’re here, can you do something about Stephanie Flanders ? The Tower of London was pretty empty last time I looked, can’t you lock her up there for a while ? I know how strongly you feel about public service, well that’s a good place to start.

          2. pjh

            The Queen is a billionaire with a multimillion pound annual income. She’s part of the 0.01%.

            In your mind this makes her “comparatively” poor. Weirdo.

          3. Clive

            If you’re going to quote me, at least quote what I actually said which was “comparatively little disposable personal income”. Take the income from the Civil List, the income from investments and deduct the high, fixed costs of asset maintenance, security, state visits etc. etc. and there’s less disposable income than you’d imagine. I never said poor but she’s hardly Warren Buffet. Or Chuck Prince. Dumbass.

          4. pjh

            Her personal income alone places her in the top 0.01% of richest people on the planet. That’s excluding all the money she gets from the state to pay for her staff, servants, the upkeep of her palaces, and other expenses.

            But for you this can somehow be described as “comparatively little”.

            “assets which are held in trust for the nation”

            You mean held in trust for the exclusive use of her, her family and her heirs.

            “she’s hardly Warren Buffet”

            You’re right. The state didn’t hand Buffet a vast fortune on the day he was born, and doesn’t send huge welfare cheques to Buffet every year.

            Boy, you really drank the Kool-Aid.

          5. pjh

            “The state doesn’t send huge welfare cheques to Buffet every year”

            Actually that’s debateable. But that’s another story.

          6. Thomas Bergbusch

            A small look at Transparency International’s corruption indices reveals that virtually all the most democratic and environmentally friendly countries in the world are Constitutional Monarchies.

        1. jake chase

          I have been suggesting for years that the US return to colonial status. Monarchy is far better than crony capitalism. Suppose we merged with GB? We could fund the government by selling titles of nobility (no tax exemptions though). The kind of Presidents we increasingly choose would make much better kings. Doesn’t GWB make a better king than a president? No qualifications for a king. It’s okay (even expected) for a monarch to be an idiot. And a parliamentary sustem ought to increase the speed of the revolving door. Get those worthless flacks out of the Cabinet and the Agencies in twelve or eighteen months, before they can do real damage.

    2. Furzy Mouse

      Clive….I agree, leave Queen Eliz out of it!! It jolted me as totally out of context… not even amusing!! otherwise, a useful rant for us dummies…=:)

  2. My Wag

    I don’t watch videos…I prefer to read. But being one of the masses, I suspect that this might work. MMT already has the attention of economists and politicians. I suspect if it has been dismissed as unworkable, part of the reason is what kind of shocks it might induce across the globe. The reason is the too easy interpretation of it being a ‘free lunch’ for those who just want to spend.

    Like the Platinum Coin, if it gets outside the world of academia or politics it could catch on. I hope.

  3. Bobbo

    MMT is financial alchemy. Of course a currency issuer does not default outright. Instead it defaults through debasement. MMT takes for granted that confidence in the currency, particularly the global reserve currency, is immutable. It’s not.

    For my part, I’m all for increased deficit spending as long as we can find a greater fool willing to accept the currency. Let the party continue until confidence is lost and the world collectively hits the reset button.

    1. from Mexico

      If you’re going to critique MMT, then you should at least inform yourself as to what it’s truth claims are.

      1) MMT Moral truth claim: price stability is good. Both inflation and deflation are bad.

      2) MMT Analytic truth claim: Inflation has two causes: a) demand-pull: too much money chasing too few goods, and b) cost-push: pressure on supply side, such as oil supply shocks

      3) MMT Moral truth claim: Unnecessary sacrifice is bad. Prosperity is good.

      4) MMT Analytic truth claim: Sacrifice is unnecessary when there is some artifically contrived shortage of money. Sacrifice is necessary when there is a shortage of real resources.

      Now if you want to critique those, then go ahead. However, what your comment amounts to is setting up straw men and then knocking them over.

      1. Bobbo

        Mexico, the video acknowledges that there is “no free lunch” but does not elaborate on what that means. There is a risk when you debase your currency. There is a risk when government bond purchases disrupt price discovery for interest rates over a very long period of time. There is a risk that people wake up and realize that fiat currency is only a claim that has to compete with other claims, and they decide to hold real assets rather than financial assets. In the history of currencies, post 1971 we are still at the dawn of a new era and the dollar has become a grand experiment. There is a lot of confidence in the system, confidence that MMT proponents take for granted IMO. I submit that inflation has a third cause that you did not mention: a black swan disruption in confidence in the currency. It is hard to quantify that risk, no? But it does exist, and I think it is amplified once the government starts backstopping everything TBTF while simultaneously running permanent trade and fiscal deficits.

        Do I sound too alarmist? I hope not. Personally I do not think we need to get our fiscal house in order. I think we should keep borrowing until the system collapses. The pain and chaos of a great reset will be short lived. And if it never collapses, great!

        So you see, I am sympathetic with the MMT policy agenda, but let’s not pretend it’s a free lunch.

        1. from Mexico

          Now we’re getting somewhere. Let’s take your claims one by one.

          • Bobbo says:

          There is a risk when you debase your currency.

          MMT Moral truth claim: Debasing the currency is bad.

          • Bobbo says:

          There is a risk when government bond purchases disrupt price discovery for interest rates over a very long period of time.

          MMT Analytic truth claim: The central bank can always set the interest rates.

          Can you show me a single incident where the central bank does not set short-term interest rates. As to long-term interest rates, which the Fed has only recently began dabbling in, can you cite a situation where the Fed would not be able to set long-term interest rates?

          MMT Moral claim: The ability of the central bank to set interest rates is good.

          Do you think that the situation that the European periferal countries face is better, where the transnational bond markets set the interest rates? You assert there is a risk in the central bank setting interest rates, but don’t identify it. Could you spell out the risk involved in the Fed setting interest rates? Whatever this risk is, is it greater than the risks posed by having the transnational bond markets set the interest rates?

          • Bobbo says:

          There is a risk that people wake up and realize that fiat currency is only a claim that has to compete with other claims, and they decide to hold real assets rather than financial assets.

          MMT Analytic truth claim: The currency has value because you need it to pay your taxes.

          How are people to pay their taxes if they don’t have currency? And since the government can create and destroy currency, and taxes, at will, it completly controls the supply and demand for the currency.

          • Bobbo says:

          In the history of currencies, post 1971 we are still at the dawn of a new era and the dollar has become a grand experiment.

          MMT Analytic truth claim: We now live in the era of sovereign fiat currencies.

          MMT Moral truth claim: Sovereign fiat currency regimes are good. They expand the policy space and create more policy options for the government, placing the responsibility for the economic well-being of the nation in the hands of elected officials accountable to the people, and taking it out of the hands of transnational bankers whose motives are totally self-serving and who are accountable to no one.

          • Bobbo says:

          There is a lot of confidence in the system, confidence that MMT proponents take for granted IMO. I submit that inflation has a third cause that you did not mention: a black swan disruption in confidence in the currency. It is hard to quantify that risk, no? But it does exist, and I think it is amplified once the government starts backstopping everything TBTF while simultaneously running permanent trade and fiscal deficits.

          MMT Empirical truth claim: This sort of inflatonary fear mongering has been around forever, but the sky-is-falling predicions have never come true.

          Counterfactual to your claim: Japan for the past 20+ years.

          Counterfactual to your claim:

          Al Smith was heaping ridicule upon the President’s “baloney dollar”; and Wall Street resounded with angry cries: the United States was on its way to the sort of uncontrolled inflation which had run wild in Germany in 1923; over-spending and “rubber-dollar” experimentation would soon result in ruining the government’s credit…

          Footnote upon the prophecies of the wise men of Wall Street: Within the following five and a half years there took place no uncontrolled inflation, no collapse of the credit of the government. What did take place was an embarrassingly huge accumulation of gold in the underground vaults of Fort Knox in Kentucky: over fourteen billion dollars worth of it, at the $35-an-ounce price which the United States was willing to pay and others did not care to pay.

          – FREDERICK LEWIS ALLEN, Since Yesterday

          • Bobbo says:

          Do I sound too alarmist? I hope not. Personally I do not think we need to get our fiscal house in order. I think we should keep borrowing until the system collapses. The pain and chaos of a great reset will be short lived. And if it never collapses, great!

          MMT empirical truth claim: The American people are the victim of a highly elaborate, well-orchestrated propaganda and disinformation campaign, financed to the tune of hundreds of millions if not billions of dollars by the likes of Peter Peterson and the Koch brothers.

          1. finnucane

            Bobbo commits the fallacy of begging the question (petitio principii): “MMT is wrong because it contradicts X; X must be accepted as true because, assuming X to be true, X is true.” Here, “X” is something like the proposition that money supply and inflation are under all circumstances tightly correlated, so that any fiscal policy results in self-defeating inflation. MMT, as I understand it, goes to some lengths to show that this “X” is incorrect. Perhaps the MMT thesis is wrong, but one cannot show that by simply saying that it must be wrong because it contradicts the very result (principium) that must be assumed.

            We may call this the “Austrian malady,” since it seems to be a favorite of the devotees of that school. For some reason, there’s a certain personality type that seems drawn to the Austrian idea of “neutral money” – money as a veil for barter. All empirical evidence, and even common sense, militates against this rather silly view, yet it remains compelling for some. Compelling, one must add, to those who also find attractive the notion of economic crisis as a deck-clearing catharsis.

            And any other views are not simply incorrect, but are viciously ridiculed, since the principium simply must be right. Here we see why talking about economics seems always to veer toward talking about religion. It is fascinating why some raise that particular principium – out of all the delusions to which humankind is prone – to the level of self-manifest divinity.

          2. Bobbo

            finnucane, you lost me. Religion? Barter? Logical fallacy? Were you responding to something I said? Or were you projecting onto me something you think all anti-MMT folks believe? You seem to have missed that I fully endorse the MMT policy agenda. I just think that people need to realize that we are in uncharted territory and it can fail. Do you recognize that risk? Or are you so confident that you can say there is zero risk of failure? If so, I have the perfect job for you: Chair of the Federal Reserve.

          3. Bobbo

            Mexico, I have heard all this before, and hearing it again does not make it any more convincing. Can I cite a situation where the central bank would not be able to set interest rates? Yes, of course. The situation Japan now finds itself in where a small move in interest rates could completely consume tax revenues. It’s impossible to increase rates. There’s only one direction, and that is down. Is there ever a consequence to that? Well we will find out, won’t we? You say they have been following the same policy for 20 years? To which I say: 20 years is a very very short time in monetary history.

            Yes, I need some currency to pay my taxes. But confidence in the system does not come from the little people. It is always a given that most people have no choice in their currency system. Taxes have been around forever, but surprise surprise, currency systems have failed in the past.

            As you say, we live in the age of sovereign fiat currencies, yes we do. Is this the end of monetary history? The system cannot evolve from here? Do you really have that much confidence? Call me skeptical.

            Inflationary fear mongering has been around “forever”? Aha. Here we are getting somewhere. You think the 42 years from 1971 to 2013 is a long time. But I think it is a very short time. Let us step back and watch how history unfolds from here!

          4. from Mexico

            • Bobbo says:

            Can I cite a situation where the central bank would not be able to set interest rates? Yes, of course. The situation Japan now finds itself in where a small move in interest rates could completely consume tax revenues. It’s impossible to increase rates. There’s only one direction, and that is down.

            MMT Analytic truth claim: The government debt is just an interest-earning type of currency.

            The Japanese central bank could issue non-interest-earning currency to buy back the government debt. All of it. Conversely, it could raise interest rates. It could create new money to pay the interest. No taxes would be necessary. But with a stagnant economy, a currency war and chronic deflation, would that be a good idea? That would be rewarding savers and penalizing spenders. How would that boost aggregate demand?

            • Bobbo says:

            You say they have been following the same policy for 20 years? To which I say: 20 years is a very very short time in monetary history…

            As you say, we live in the age of sovereign fiat currencies, yes we do. Is this the end of monetary history? The system cannot evolve from here? Do you really have that much confidence? Call me skeptical.

            Inflationary fear mongering has been around “forever”? Aha. Here we are getting somewhere. You think the 42 years from 1971 to 2013 is a long time. But I think it is a very short time. Let us step back and watch how history unfolds from here!

            Well unfortunately, that’s not the way the world works. We have to make decisions today, using the best knowledge that we have available.

            Using your logic, a person should not buy a computer, because in 2050 or 2100 or 2200 there might be better computers.

            • Bobbo says:

            Yes, I need some currency to pay my taxes. But confidence in the system does not come from the little people. It is always a given that most people have no choice in their currency system. Taxes have been around forever, but surprise surprise, currency systems have failed in the past.

            Is there some meaning in that? I have no earthly idea what you’re trying to say.

          5. Ruben

            “MMT Moral truth claim: Sovereign fiat currency regimes are good. They expand the policy space and create more policy options for the government, placing the responsibility for the economic well-being of the nation in the hands of elected officials accountable to the people …”

            If this is a fundamental moral principle of MMT, then MMT is just another naive utopian construct.

          6. Bobbo

            Mexico, I think you, like finnucane, are responding to someone else’s objections and not mine. As I have already said — multiple times — and I will say it again — I fully endorse the MMT policy agenda. Lest there be any doubt, I will say it again: I fully endorse the MMT policy agenda. The difference between us is that I see it as experimental, theoretical, and ultimately bound to fail. I think we should proceed anyway because I think the next global reset will be shortlived.

            The problem both you and finnucane seem to have with me is that I am not a “true believer” in MMT. I am the agnostic! From my perspective you two are approaching this with an pseudo-religious mindset. You say: “We have to make decisions today, using the best knowledge that we have available. Using your logic, a person should not buy a computer, because in 2050 or 2100 or 2200 there might be better computers.” I fully agree with your first sentence. I think your second sentence turns my position on its head. I think we should buy a computer today, but I don’t think we should expect to be using the same computer in 2050 or 2100.

            From my perspective, you are the one saying that we have reached the end of monetary history, that now “we live in the age of sovereign fiat currencies” and that MMT is the final chapter. I doubt that very much. I think that the recent “proof” MMT relies on, which focuses on a very recent period of history, is a very very small data set and cannot be extrapolated as far out as you seem to be comfortable with.

            I answered your question about how central banks can lose the power to set interest rates, and your response is …
            to eliminate interest entirely? Now there you are proposing a fundamentally different monetary system. Nobody knows in advance how that would work out … except the true believers.^^

        2. Paul Tioxon

          The question posed by MMT is not how much is that going to cost, but rather, do we have the resources and people able to accomplish any projected goal. Money is not the issue, since it is created to facilitate the work that must be done to transform the resources, into the goods and services we need. We can’t print a bridge or print electricity or print food. We can not crucify humanity with an austerity ration of money, when money is in infinite supply. The rationing of the currency is a deliberate political act, a use of power against the populace that could otherwise be engaged in productive activity, except for the rationing of money. It is not confidence in the money or lack of confidence in money, but its wholesale absence from circulation through out the 3 sectors. Profits, the accumulation function of capitalism is the skimming of money out of the system, and then its strategic re-introduction as a productive investment, or self serving speculation into some asset, such as housing or gold.

          When capital from the private sector goes on strike, it is rationing money from being recirculated. As productivity goes up, and wages stay constant, what form does increased productivity take? To begin with, more goods and services were created with less labor, but not necessarily fewer resources. Labor was replaced with fossil fuels and industrialized production. Without the machinery and technology, labor would have been less productive. And without the energy to operate the industrial production, labor would be idle or operating at diminished productivity.

          But, money, currency, capital has increased to what ever amount necessary, commensurate with explosive economic growth, production and overall wealth. Money, is a unit of accounting for the actual work and materials, and in itself, is not wealth, but the accounting representation of wealth in a numerical form. We eat agricultural production and are sheltered by the construction industry, banking and finance is not necessary for production, but rather is useful in the service of managing large scale organized activity. It is not my confidence in the dollar, but my confidence in the political system, that DOES or does NOT act with cruel and inhumane disregard of my life. The same system produced a great deal of material progress in the lives of Americans. The NEO-LIBERAL political policies have now placed money in the service of accumulation of capital as the sole priority of the economy, and employment, general welfare are considered to be obstacles to the skimming operation of capitalism.

          By understanding that the government sector, especially a sovereign state that issues its own currency, can replace the skim by the private sector, we realize that we are not financially or economically constrained, but politically constrained. We have seen this battle before. What is money and what is not money in American can be changed with a stroke of the pen.

          Check 21, the new law of facilitating banking in America, demonstrates how not confidence, but the policy of the government can change the law and make money more functional, by allowing it to conform to the latest technology. Digital images transmitted by smart phones are legal checks that can be deposited with an app. Counterfeiters are no longer artisan printers, but very smart computer scientists, that can make deposits appear in bank accounts. Just like the government.

          http://www.federalreserve.gov/paymentsystems/regcc-faq-check21.htm

        3. Joe Firestone (LetsGetitDone)

          I think the black swan is an over-rated idea. What does it mean other than reality can surprise us with unimagined consequences of decisions we take? We all now about that. To guard against it as best we can we have to open our thinking to all possibilities assess them carefully, and then have back-ups or fail-safes for far out occurrences. What we should not do is refuse to adapt because we might run into blacks swans.

        1. from Mexico

          • Jim Haygood says:

          Long-term, monetary growth and inflation are tightly correlated.

          You confuse correlation with causation. Inflation is a policy decision, and I think mild inflation has pretty much been the policy decision for the duration of the graph you cite. The deflationary decades in the wake of the Civil War pretty much cured the nation of the sort of deflationary policy which you advocate.

          • Jim Haygood says:

          Boost the money supply, and inflation eventually nullifies any gain in purchasing power.

          So we’re to believe that the great unwashed have the same purchasing power, and live in the same material conditons, now as they did in 1913? For those who are gullible enough to believe that, I have some nice ocean-front property in Arizona to sell them.

        2. F. Beard

          The banks create 97% of the money supply so it is fair to blame them for 97% of the price inflation by your logic.

      2. Stephen Nightingale

        Right, but what MMT would seem to lack is a proper way to meter the amount of new money that should be entering the system in any particular conditions, to navigate between inflation on the one side and unnecessary austerity on the other. That’s not necessarily a failing of MMT only. The Fed seems to lack the very concept of that metrology. Instead they rely on “mumbling with great incoherence” as Greenspan once said.

        1. from Mexico

          MMT Empirical truth claim: Deflation and inflation are not so much influenced by how much money the Fed creates as by fiscal policy: how much money the government spends and taxes. The Fed has no fiscal powers.

        2. Calgacus

          Right, but what MMT would seem to lack is a proper way to meter the amount of new money that should be entering the system in any particular conditions, to navigate between inflation on the one side and unnecessary austerity on the other.

          No, the core contribution of MMT, besides synthesizing and simplifying earlier economics, is the way to do precisely that – the Job Guarantee.

          Have the government do whatever you want it to do. Unless it is on a spending spree of WWII scale, realistically only occurring in a major war, there will be a lot of unemployed people.

          Employ them at a fixed wage. This will by that very fact eliminate destructive austerity, AND it will be deflationary compared to allowing unemployment.

          The metering of new money will not be done centrally by the gubmint, but by the unemployed themselves. They damn well know when they are un(der)employed, and they don’t need any smart-ass economist to define and measure un(der)employment.

        3. F. Beard

          The solution is for government money to be de jure and de facto legal tender for government debts only*. Then the private sector can escape the “stealth inflation tax” by using private monies (good for private debts only).

          * After a universal bailout with full legal tender fiat so as to force the banks to accept it.

  4. From Da Eurozone

    Actually Britan ain’t really a currency issuer in same sense than US is. They are part of EU and in Maastricth Treaty it says that it’s illegal for central banks to lend money for goverment, so only banks can put money into circulation. It’s in theory possible for UK to go bankruptcy, cause they are not able to just print money and put it on treasuries account. They have to first lend it from private banks.

    That doesn’t change the fact that euro is one of the dummies ideas in the history of mankind and i feel sorry for those countries who run deficit in the European Union.

    1. Calgacus

      The UK is as much a currency issuer as the USA. The US government also has the self-imposed constraint that its central bank may not directly “finance” the government – the Fed is not allowed to buy bonds directly from the Treasury.

      Like most monetary/financial laws, this has no “real” effect and is just a device to confuse people. The confusion effect is very real though – almost every thing out there on money, the beliefs of the vast majority, is laughable nonsense. And the nonsense beliefs have gotten much, much worse in academia and among ordinary people in the last few decades.

      So if the Fed or the BoE wants to buy government bonds, it buys them from some middleman who buys them from the government. Whoop-de-doo – a little vig to the middleman, but no significant difference from direct bond purchase.

      1. From Da Eurozone

        Why doesn’t Greece make the same thing. Wouldn’t that be perfect solution?

        Greece sells some bonds for private bank, from which Greece owns most of, so it gets most of intrest back for itself and then this commercial bank gives these bond for Greece central bank for warranty or what ever and gets euros, cause at these days ECB accepts almost anything for collateral.

        Wouldn’t in this case Greece also be currency issuer?

        1. Stephen Nightingale

          The question here is, why doesn’t Greece operate its own local currency in addition to its obligations to the Euro. At least this way, Greece could operate a humane local employment policy, based on local resources. It might, however, be viewed as ‘freelance activity’ frowned on by the ECB, who think any resources deployed in Greece must be devoted to paying back the German (sorry, European) bondholder.

        2. Calgacus

          If the ECB allowed itself to hold arbitrary quantities of Greek government debt, if Greece could tell the ECB to do this, then yes, Greece would be just as much the currency issuer as the ECB. And Greek bonds would be like US Treasury bonds, essentially risk-free, so their interest rates would be very low. But if there were another country with this special relationship with the ECB, then they could both print Euros this way, and there would be a race to the bottom of each spending like mad to grab whatever they could.

  5. JGordon

    MMT may in fact be very worthwhile approach to theorizing about money that is internally logically consistent (which would admittedly put it ahead of neoclassical economics, since that is not even logically consistent with itself).

    But that does not change the fact that the issuers of said money are a bunch of corrupt kleptocrats. And as history has shown, as opposed to pretty theories, whenever a government gains the ability to create money by fiat, corrupt kleptocrats gather like flies around the stinking money printing mechanism.

    But there is one thing that will kill corruption and slow the economy down to where we’re not constantly scrambling to plunder the earth of every last bit of lootable resource we can lay our filthy hands on: scarce, honest money that no one can print, and with no counter party risk.

    1. UnSkill3D

      I suggest you guys to look into Switcherland type of democracy, which is pretty unique in the whole world. There people really have some responsibility of their lifes and they are really able to do something. They don’t just vote every fourth year some money addicted fool to represent themself. Its more about straight democracy than representive, but this what we now have pretty much reprsent the mental state of most sick people of our society and they have had way too much power which ain’t make any good for them or us.

      People need to take some responsibility, so they won’t just be able to blame others for their stupidity of not knowing a shit about any important stuff that goes on in the world.

      1. Stephen Nightingale

        To what extent has Switzerland, and the Swiss people benefited from their being the World’s Money Laundry from at least 1939 to the present?

    2. Phil

      Well, we’ve already seen Schumpeter’s gale invalidated by exactly the forces you cite. Sure, companies are given free rein to keep whatever they make during booms, but when things go pear-shaped, none of the Prime Movers who are caught with their pants down have the discipline to go quietly into that good night, and no government has the courage to let them.

      The issue here is the balance of power between various factions: the rich, the not-rich and the government. MMT doesn’t “fix” that; no economic theory does. The things that do exist outside the economic system: social value systems that encourage economic improvement for all strata of society, fulfillment of public obligations, and vigilance from the governed.

      Economics, like war, is policy by other means. It does not magically create the optimal society; it merely provides better (or worse) tools for us to realize that society, if we are so inclined.

      1. JGordon

        I know what you’re saying there. From my perspective, the main benefit of hard currencies is that they are open and transparent: the costs and benefits of any descision are immediately obvious.

        The main accomplishment of modern monetary alchemy has been to shift costs and burdens onto others and obscure risks, all through hidden means. Of course, the monetarists think that this is all to the betterment of society though; that’s why they have no problem with the idea of giving corrupt plutocrats the ability to devalue on a whim the life savings of some poor ditch digger who spent his life working his ass off for government fiat currency units.

    3. F. Beard

      But there is one thing that will kill corruption and slow the economy down to where we’re not constantly scrambling to plunder the earth of every last bit of lootable resource we can lay our filthy hands on: scarce, honest money that no one can print, and with no counter party risk. JGordon

      Baloney. What makes money honest is not its scarcity or what it is made of but whether we are compelled to use it for private debts. It is that fiat has a huge advantage over other potential private money forms that is dishonest, not that fiat is cheaply created. Or do you believe the government should buy $800 hammers?

      A government enforced gold standard grants allows special interests to profit from the taxation authority and power of government; it is a fascist abomination.

    4. reslez

      You seem to be suggesting there’s such a thing as “scarce, honest money that no one can print”. But in a corrupt world, as you recognize, honest money can not exist. What exactly would prevent your corrupt officials from debasing the currency whenever it was convenient for them? Governments devalued again and again on the gold standard, and not always for evil purposes.

      Not to mention the burden of “scarce money” falls squarely on workers, so you’ve clearly positioned yourself on one side of the line already. How does that make you any different from the greedy kleptocrats you decry?

  6. craazyman

    wouldn’t it be funny if these cartoons got so popular people started talking that way in real life.

    I wonder if it’s possible to get that blonde girl to testify before the house budget committee. they could put a laptop computer in the witness chair and let her go at it with them.

  7. patrick k

    MMT, like so many other well thought out academic theories, ultimately breaks down when it runs into the even stronger theory/reality of Public Choice. Just as Keynes fails when he calls for declining public spending/surpluses that never takes place during booms, MMT will also fail when the misplaced spending continues on crony capitalism and the like causing huge distortions in the last vestiges of our free market/capitalism. All that said, I think we are in the early stages of MMTism. It is the ultimate financial panacea for the corrupt political class aided and abetted by the finance and banking machines.

    1. casino implosion

      We live in the system described by MMT RIGHT NOW and have since Nixon went off gold in the early 70s. MMT doesn’t describe some possible future theoretic world which we can avoid by heeding Public CHoice Theory, it describes the world as it is now.

      The corruption predicted by Public Choice theory also exists, right now. It has all already come to pass.

      1. reslez

        The issue lies with the intentional confusion instilled in people who believe we somehow do not operate under fiat currency. Dispelling that confusion is the first step to freedom.

  8. Max424

    I would rather the elected government spend money directly into the economy, than see it created by private gambling concerns who then fracture it repeatedly before multiplying the new larger thing by several additional madness inspired multiples.

    Hell, there’s one quadrillion (that we know of) dollars worth of recently arrived derivatives out there Where I come from, that number represents crazy levels of hyper-inflation, not to mention, an incredible degradation of the world’s fast depleting supply of various currencies.*

    (And if even all the OTCs –and their promiscuous siblings and off-spring– are not ticking time bombs, as the God Buffet and many others believe they are, they surely represent an awful lot of something very akin to money that’s been leveraged out of thin air)

    So why not remove the all important digital printing presses from the dark cellars of the private banks, and try an audacious –and possibly planet saving– experiment in a light also visible to the ever wise wisdom of the crowd?** For the first time since man crawled out and began to cooperatively barter over one million years ago, designate with a commandment, an amendment, a law, or just have it plain/generally understood: In a Democracy, the power to create money belongs only to We the People.

    *Where did they all go? The various currencies I mean. Were they stolen? Had to be. No Democracy would ever be foolish enough to voluntarily … give one up.

    **I’ve been told free market folks believe in the wisdom of the crowd. Well, so do I.

    1. Bev

      Is MMT being used to introduce the new not yet distributed $100. which has many gold symbols (gold backed, but still a DEBT currency?) and revolutionary language (a DEBT currency is not revolutionary).

      ………….

      http://moneyaswealth.blogspot.com/2010/04/new-100-federal-reserve-note-same-old.html

      hint: If it says “Note” on it, it is a debt instrument.
      Each one of these in circulation represents more debt than there is money to pay it off.

      ….

      http://moneyaswealth.blogspot.com/2010/07/gold.html

      Gold?

      So, You Think You Have A Chance In This Market?

      When a “mystery bank” can move 380 tonnes of gold in one transaction, why would you be so foolish as to think that this is a ‘free market” or that you could base a currency on gold?

      Besides, if you allow the banks to lend the gold, as they did here, you’ll be in worse shape than you are now.

      You and your country can be wealthy in minerals and resources, but it will not help if your currency is DEBT. Debt beats out even gold.

      http://moneyaswealth.blogspot.com/2009/01/hyperinflation-zimbabwe-myth-and.html

      Hyperinflation and Zimbabwe – Myth, Misinformation and the “Expert”

      Austrians say the problem is too much paper. Keynesians say the government should spend more. Neither camp has a solid grasp on the effects of interest and both groups are in denial, when it comes to fully understanding debt.

      In fact, in macroeconomic terms, you can hardly find a model that illustrates this: the money needed to pay interest is never created inside the system and that principal is extinguished from circulation when a payment of principal is made.

      snip

      NEWS FLASH: Hyperinflation is not caused by paper money. It is not caused by too much money. It is caused by unpayable interest rates.

      snip

      This did not happen to Zimbabwe because they did not have enough gold.

      This did not happen to Zimbabwe because they did not have enough natural resources.

      This did not happen to Zimbabwe because the government spent too little.

      This did not happen to Zimbabwe because they had too much paper money.

      This happened because they had too much debt and the unpayable interest is destroying them.

      Say, aren’t the people dependent on bank loans for a medium of exchange and don’t the banks set the interest rates on their loaned money?

      When the banks hike the interest rates to manipulate the money supply to the point that only 15% of the people can work, the medium of exchange is destroyed and the banks end up with the gold, is that financial terrorism?

      ………….

      Much better is money that is not debt. This helps the most people, businesses and governments fast.

      http://www.monetary.org/

      http://www.monetary.org/mmtevaluation

      AMI’s Evaluation of “Modern Monetary Theory” (MMT)

      by AMI Research, with Steven Walsh; and assistance by Stephen Zarlenga

      Modern Monetary Theory (MMT) is a theory developed by a group of economists over the past 25 years or so. In the current crisis it has been receiving some wider attention from the prevailing economic community and politicians looking for a new direction.

      The American Monetary Institute (AMI) is sometimes asked about MMT and whether it fits in with monetary reform. We assess anything to do with monetary matters carefully.

      At the outset AMI enjoys a good, cordial relationship with some of the leading MMT economists, and we certainly wish to build on this relationship. But one thing we can’t compromise on is facts. MMT, like much of modern economic thinking, builds upon some erroneous assumptions and a definition of money that is not neutral and works to the detriment of the 99%. In addition MMT has its own specific problems between its claims and the facts which have bearing on the validity of MMT.

      snip

      MMT mis-defines money as debt

      Poor methodology and misuse of terms leads MMT to mis-define money as debt; e.g., Wray says: “Fiat money will be defined as … nothing more than a debt.”7

      But money and debt are two different things, that’s why we have different words for them. We pay our debts with money.

      If money is defined as a debt, it artificially places an unnecessary burden of debt on the whole of society. It turns the positive real net worth of all we produce into a financial negative instead of positive. In effect, it artificially places financial claims on all of our achievements and progress, thus denying us full benefit and enjoyment of all we create.

      While most money in the U.S. mis-designed system is really debt, put into circulation by banks when they make loans, it is a huge error to then define the “nature” of money as debt. That mistake would render it impossible to redesign the system in a just and sustainable way.

      The AMI considers the concept and definition of money as the most critical factor in determining whether a society’s money system functions in a just and sustainable way.

      How money is defined determines who controls the money system, and whoever controls the money system will dominate the whole society. For instance:

      • If money is defined as wealth (e.g., commodities like gold and silver by weight), as Adam Smith did, then the wealthy will control not only their own wealth, but the money system and thus the whole society as well.

      • If money is defined as credit or debt, as MMT and most economists now do, those who dominate credit (the banks) will control society’s monetary mechanism – and we know from experience they will misuse it to create bubbles, until the whole system crashes.

      • If money is defined as an abstract legal power of society, as the Constitution does, then the money system is placed under our constitutional system of checks and balances to work justly and sustainably for the whole society, not for only a privileged part of it.

      The AMI uses the following concept of money:

      Money’s essence (apart from whatever is used to signify it) is an abstract social power, embodied in law, as an unconditional means of payment.

      1. Bev

        When money is debt it requires fraud, bankruptcies and laundering just to function. Better is money that is not debt.

        Our current Debt Money is created by banker’s credit in loans to government, business and people that is extinguished from circulation once paid back. But, never created is the money to pay the interest. So, we can never get out of debt when our money is debt. MMT is debt money. Why are you supporting MMT when you do such a good job investigating fraud, bankruptcies, laundering?

        http://moneyaswealth.blogspot.com/2009/04/bankruptcies-no-end-in-sight.html

        Bankruptcies – No End In Sight.

        Don’t you wonder what happens to the money that was borrowed and then spent into the economy, when a person goes bankrupt?

        The money is now “out” in the economy, right? It did not get paid back to the bank, right?

        That is the money, that the rest of the “customers” of this scam the banking system is running on the world, use to pay their interest. As you know, there is no mechanism in the system, to create money to pay interest, the way it is set up now.

        We should change that so that we have a system that works without requiring bankruptcies, fraud and money laundering – just to function.

  9. Nell

    Why is it that any mention of MMT brings out the austrian crowd? Its not as if MMT theorists are responsible for political and financial cronyism. MMTers do not claim that the current monetary system is a perfect design. MMT describes the monetary system as it exists. The theorists point out ways that the existing system can be used for the betterment of the majority as opposed to enriching the few.
    Arguing that the fiat system is an inherently corrupting system is a completely different argument. If austrians want to have that argument they should direct their claims towards economists who are interested in arguing about the advantages or disadvantages of our current economic system (marxists for example). Austrians do themselves a disservice and undermine the legitimacy of austrian economic theory by taking the straw man root. In addition, if austrian econonomics offers a better system for organizing human behaviour then surely understanding the current system would highlight its problems. While we all languish in a state of ignorance how can we possibly evaluate alternatives?

  10. William Neil

    In place of the Queen, they might have used that great symbol of transatlantic partnership, and shared ideolgoy, Reagan and Thatcher. Maybe as boggle heads.

    Other than that, and a couple of places where the economic lessons conflict with the otherwise snappy dialogue, it’s a good stab at broader outreach.

    1. Susan the other

      Boggleheads v. Figureheads. The Queen really is a figurehead at the prow of the ship of state. However soggy. The Royals are rich but just as panicked as the rest of us. Including the great wizardly financiers. Funny. Too Funny. But enough already! It is time to get this act together. (Remember, Ronnie was a former democrat looking for an answer.) The Queen identifies and speaks for the ultra rich who were nicked a little in the meltdown – but nothing like the rest of us. And in the end, I’ll take Bruce Springstein: “We take care of each other.” Great little video. Loved it all. Might want to disperse this cartoon aggressively enough that it filters into China. They are as ready as we are.

  11. jsmith

    Although MMT has many implications in its descriptions and potential courses for state economies obviously esp. those like the US that are issuers of its own currency, what’s probably most telling that the theory has legs is the vehement, mostly senseless and spittle-filled objections that otherwise seemingly intelligent people have over it’s implications and descriptions.

    Moving beyond the farce that is the use of baseless and knowingly incorrect neoclassical economic ideas entrenched in most every econ/business school, think tank and MSM propaganda source in the neoliberal world, it’s amazing to see how desperate those who have a stake in the current system have become when confronted by MMT’s ideas.

    Continuing, I’ve often been skeptical of the appearance of websites at “opportune” times especially if the ideological bent of the site’s authors sneakily supports the agenda of the neoliberal PTB.

    Over the years if there has been one site that has grown to be one of the very centers of libertarian horseh!t nonsense spouters it has to be zerohedge which appeared on the scene – from what I can tell from the wayback machine – in early 2009 – and since then has become somewhat like the Red State of economic thinking.

    Intermingled with seemingly sophisticated technical looks at the market and its fraudulent machinations there is the inherent and repeated belief by the site authors and posters that:

    The US and the western world is currently a Keynesian madhouse.

    Only a return to a gold-backed currency can save the economy.

    Hayek and Mises were prescient genii who foretold of all of today’s events decades ago.

    Obama and anyone left of say Hitler – although it’s National SOCIALISM, doncha know! – is obviously a communist, socialist, froth froth froth.

    I say all this because in reviewing the misguided and surprisingly harsh treatment that MMT gets there (if it’s ever even addressed) and elsewhere, it seems that people should maybe be aware of the deliberate attempts by TPTB to establish a “counter” culture in economic thinking post-financial crisis with the intent of using well-placed/funded websites as the hubs of the elite propaganda’s dissemination.

    Again, the best propaganda is that which contains much truth and as a person who has read other sites like ZH it’s pretty interesting to see that while the authors don’t stint on pointing out fraudulent financial activity they invariably promote a economic philosophy that bears absolutely no connection to the reality they describe.

    Instead of a description of the fraud and maybe a debate on what economic system might better ameliorate the situation – a la NC and other blogs – ZH is a mixture of almost insider-ish commentary mixed with 2-punch of libertarian nonsense served fresh off the griddle.

    I say all this because some of those on the Left are still naively caught in thinking that those people who vehemently defend crazy ideas on blogs are simply people who honestly want to debate and are seeking to enrich their minds instead of just trying to senselessly promote ideologies that further enrich the elite status quo.

    Certainly, not everyone’s a shill but then again not every shill is witting, right?

    Here’s a link to a nice post by heteconomist on some common straw men that are whipped out whenever MMT is discussed and invariably attacked by visiting Austrians and their ilk.

  12. ftm

    Count me among the less than enthused about MMT.

    Fine academic pursuit, not inconsistent with logic, and with 100 years of trial and error potentially practical in a real radical democracy but totally impractical for the current institutions we have in the US.

    As others have mentioned above, we do not enjoy competant, publicly minded monetary or fiscal authorities. We have crony capitalist rule. So until the revolution that installs the all seeing, MMT loving bureaucrats, I’ll settle for the Keynesian view.

    1. Finnucane

      I’m always confused by this “MMT as utopian” put-down. In my admittedly isolated and entirely amateur view, MMT would seem to rest on the core thesis that a nation sovereign in its own currency, with floating exchange rates, is not fiscally constrained. Put more simply: we ain’t broke. Given that the dominant discourse in the U.S. and Europe at this time is “we indeed is broke”, I find MMT to be both realistic and relevant. Not the Gospel and the Prophets, but I don’t think it’s meant to be.

      Also, isn’t MMT “merely” a variant or ramification of Keynesianism?

      1. ftm

        Under current liquidity trap conditions, there is little daylight between MMT and standard Keynesian policy prescriptions. (ie Expansionary fiscal policy)

        But as the economy recovers, the recommendations would start to diverge. Keynesians would look to the government bond market to start to act as brake via rising interest rates. ( fiscal policy takes a back seat to monetary policy when full employment is reached ).

        Whereas the MMT view (as best I can tell) is that the primary policy tool is fiscal policy. Therefore either government spending would need to fall, or taxes rise to keep the economy from overheating. (MMT’ers view monetary policy as ineffective and some view the payment of interest on government debt and therefore government bond markets as undesirable).

        Now I can imagine an enlightened democracy with MMT bureaucrats would be sufficiently nimble to always strike the right fiscal policy — allocating savings in just the right way — to keep things on track . But I can’t imagine the leaders of our current pseudo democracies are well-intentioned, knowledgeable or skilled enough to manage their economies without a quasi-independent monetary authority. It just isn’t realistic that our government currently constituted could even be remotely successful manipulating tax and spending policy to keep the macroeconomy from imploding.

        The fed is deeply flawed, but a flawed fed is better than no fed.

        1. finnucane

          It just isn’t realistic to suppose that we will get anywhere near full employment so long as the ideology of “we indeed is broke” dominates. The problem is not one of means, but of will.

          Materialist that I am, I believe that ideologies have purpose, and the purpose of the “we indeed is broke” ideology is to prevent full employment. Why? Because, the advent of full employment marks the euthanasia of the rentier, as we should know, and as they certainly do know.

          Conversely, the demolition of the “we is broke” ideology entails rather different institutional arrangements than those at present.

          Finally: I’m not sure that a “fiscal policy only” approach to maintaining price stability is really a central tenet of MMT. That is, I think that you’ll find some talk of a permanent zero interest rate policy or somesuch, but that is not a defining trait of the MMT school. You can be MMT and recommend mixed fiscal/monetary policies, in a way that you cannot be MMT if, say, you think a nation’s budget is just a household budget writ large.

          1. ftm

            You won’t get any argument from me (or any Keynesian) about the need for deficit spending now or the importance of full employment.

            But to draw a distinction between MMT and Keynesian policy, you need to step outside the current environment. I don’t think it helps the MMT case to rule out a independent monetary authority or government bond markets and I see a lot of that here in the pieces Yves links to. I understand the MMT’rs are a diverse group but when the label gets tossed around here at NC it includes a lot that is impractical.

  13. JEHR

    I like the MMT. It tells me how money works today. I hope that at some time in the future, everyone will be aware of its merits.

    Some of the criticism of MMT that I have seen involves what some call imposed “central planning” and others inflation-producing spending. But these have already been debunked.

    MMT helps me to understand how banks can have trillions and trillions of dollars in OTC transactions that no one seems to control or understand. MMT itself is very transparent but it hasn’t developed a way to correct all the corruption in the present system although in the future it may have something to say about it. Getting rid of the present financial kleptocracy cannot be done with only an understanding of MMT.

    I like the video and hope to see more in the future.

  14. RVMarkov

    I see Yves Smith is concerned about the best ways for MMT popularization, yet there isn’t a single MMT site listed in naked capitalism’s blogroll.

    Friendly MMT regards!

  15. Jim

    From Mexico stated on Jan. 31 at 7:05 A.M.

    “If you are going to critique MMT then you should at least inform yourself of what its truth claims are.”

    Or you might consider going beyond their conception of truth as objectivity (as the correspondence of mental representation to a real order imposed on reason to which you must conform)

    What if the fundamental error of MMT is having imagined truth as correspendence–an error to which libertarinaism (truth as market)neoliberalism (truth as market) MMT (truth as State), Marxism (truth as proletarian revolution)all seem to have succumed.

    Aristotle’s correspondence theory of truth can be presented as(“P” is true if and only if P).

    Is the existence of P outside the quotation marks always expressed, affirmed and sustained by someone who needs to be outside hence, is interested in imposing P.

    Do we really need the opposition between “P” and P to share our experiences?

    Can there be a group or society satisfied with “P” without any interest in the apparent real P?

    1. from Mexico

      Hi Jim.

      I’m glad you showed up, and early enough in the thread so maybe we can have a discussion. I’ve not responded to your comments for the last few days, but have copied and pasted them because I want to eventually respond to various points you’ve made.

      Gianni Vattimo and Santiago Zabala, just like the MMTers, don’t seem to have a great deal of knowledge about the history of epistemology and ontology (the history of the philosophy of knowledge and of being). So maybe a very brief overview is in order.

      There are various ways of knowing. The most commonly cited are rationalism, empiricism, dialecticism, and revelation. There are true believers who embrace one way of knowing over the others. They believe that their particular way of knowing, whether it be rationalism, empiricism, dialecticism or revelation, produces sure truth. Their truths are of course “objective” truths, whereas other people’s truths are “subjective” truths.

      For instance, “Hobbes spoke for nearly every empiricist when he argued that Descartes had established his system (of rationalism) upon a faulty foundation by positing the I as fundamental… More importantly, without the certainty of the I and of God, Descartes’ apodictic science lacks a foundation. Empiricists such as Hume could thus argue that what seemed to Descartes to be causal connections, were only regularities of experience.” (Michael Allen Gillespie, Nihilism Before Nietzsche)

      If we trace the development of Descrates’ idea of the fundamental I through Rousseau and Kant, it finally transmorgrifies into Fichte’s “the absolute I” or “the imperial I.” As Gillespie goes on to explain, in Fichte’s philosophy the “I must become the absolute, the man must become an absolutely unconstrained and thus radically free being, must become, in other words, God.” Fichte “attempts to derive all reason from the infinite will of the absolute I.” “Freedom and freedom alone must rule, a pure will or activity that shapes only itself and abides by no laws, that knows in its heart of hearts that it is the source of all laws, of all logic, and of all ontology.” This notion informs Nietziche’s “will to truth.” It is also foundational for such systems of thought as anarchism, Marxism, libertariansm, neoliberalism and computer or California utopianism.

      Ficthte’s epistemology and ontology also inform a political ideology. Not all men, Fichte argued, “are capable of freedom.” “There were two types of human beings, those who had raised themselves to the consciousness of freedom and those who had not. Only the former act uniformly according to their moral will. The others must be constrained to act morally… Thus, coercion may be employed to modify the behavior of individuals who are driven by caprice rather than by moral will…” “The government must regulate the economy and professions to guarantee the individual free exercise of his powers and to organize society for the technological conquest of nature.” “The ruling class will be a noble cadre of scholars virtuously devoted to the cause of freedom.” The goal of universal human emancipation requires the comprehensive administration of things and total education of human beings.” “Freedom in fact can transform man and the world to make politics superfluous.” “If nature and especially human nature should prove more resistant to change than Fichte believes, then greater coercion and tyranny may be necessary. Moreover, such tyranny can be morally justified, with torture interpreted as the means of emancipation.”

      If you know much about neoliberalism or Bolshevism, I think you can see they both draw heavily not only upon Fichte’s epistemology and ontology, but his political philosophy as well. This is a recipe what Gillespie calls active nihilism.

      From what you’ve said about Vattimo and Zabala, they paint with a very large brush. They assume that all epistemology, all ontology, and all political philosophies are similar to those of Fichte. This makes it very easy to condemn all epistemology, all ontology, and all political philosophy. And as a result, Vattimo and Zabal end up embracing the epistemic relativism of Rorty. This is a recipe for passive nihilism.

      There are, however, other ways of knowing. The scientific method, for instance, combines three forms of knowing: empiricism, rationalism, and dialecticism. First one gathers evidence (empiricism), then formulates hypotheses (rationalism), and then tests these hypotheses (empiricism). Throughout this entire process, there exists a dialectic between one and one’s colleagues. Furthermore, scientific theories must be recognized as hypotheses and as subjective human creations no matter how long they remain unrefuted.

      So what epistemology and ontology does MMT employ? Is it closer to Ficthte’s epistemology and ontology, which heavily influenced Bolshevism, neoliberalism and neoclassical economics? Is it closer to the scientific method? Or does it employ some other epistemology and ontology?

      In conclusion, I would add that I do not find the realist ontology and syllogistic logic — the broad generalizations and blanket condemnations – regarding epistemology and ontology that Vattimo and Zabala use to be a very useful politically, much less as a satisfactory way to view the world.

      1. skippy

        Dang-it… was constructing reply before you commented.

        Anywho… the clocks ticking environmentally… and some just want to heal drag…eh.

        Skippy… Man I just want to collect all the heal dragging folks up, air drop them into some predator vs alien scenario and watch the good time roll… seriously..

        PS. the truth is with out the – sacrifice of others – they would not even have the opportunity, nay privilege of – opining – about their self indulgent drivel.

      2. allis

        George Soros, in his “Soros Lectures at the Central European University” has a provocative discussion of “knowledge” and “truth.”
        btw, I enjoy your comments.

    2. skippy

      LA LA LA LA LA….

      The Correspondence Theory of Truth
      First published Fri May 10, 2002; substantive revision Thu Jul 2, 2009
      Narrowly speaking, the correspondence theory of truth is the view that truth is correspondence to a fact—a view that was advocated by Russell and Moore early in the 20th century. But the label is usually applied much more broadly to any view explicitly embracing the idea that truth consists in a relation to reality, i.e., that truth is a relational property involving a characteristic relation (to be specified) to some portion of reality (to be specified). This basic idea has been expressed in many ways, giving rise to an extended family of theories and, more often, theory sketches. Members of the family employ various concepts for the relevant relation (correspondence, conformity, congruence, agreement, accordance, copying, picturing, signification, representation, reference, satisfaction) and/or various concepts for the relevant portion of reality (facts, states of affairs, conditions, situations, events, objects, sequences of objects, sets, properties, tropes). The resulting multiplicity of versions and reformulations of the theory is due to a blend of substantive and terminological differences.

      The correspondence theory of truth is often associated with metaphysical realism. Its traditional competitors, coherentist, pragmatist, and verificationist theories of truth, are often associated with idealism, anti-realism, or relativism. In recent years, the traditional competitors have been virtually replaced (at least from publication-space) by deflationary theories of truth and, to a lesser extent, by the identity theory: they now lead the attack against correspondence theories. Another approach to truth that has recently received considerable attention is truthmaker theory; it is sometimes viewed as a competitor to, sometimes as a more liberal version of, the correspondence theory.

      http://plato.stanford.edu/entries/truth-correspondence/

      2. Judgments and Reality

      The identity theory is clearly absurd from the point of view of those who, for instance, believe that truth-bearers are sentences and truthmakers non-linguistic states of affairs. But it may be available to those who hold the kinds of metaphysical views which make truth-bearers and truthmakers more alike. In the early twentieth century, a number of philosophers held theories of judgment which appear to do just this (see §3.2).

      2.1 Pushing judgments towards reality

      Some philosophers have tried to make judgments more like the reality they are about. Bertrand Russell (1903), reacting against idealism, at one stage adopted a view of judgment which did not regard it as an intermediary between the mind and the world: instead, a judgment involves the relation of a person to a proposition, where a proposition consists of the very things the judgment is about. This involves a kind of realism about judgments, and looks as though it offers the possibility of an identity theory of truth. For if one judges that Socrates is ugly, then one is related to a unified entity, the proposition, whose unity consists in the very object at issue, Socrates, instantiating the very property at issue, namely ugliness.

      However, since both true and false judgments are composed of real constituents in just the same way, truth would not be distinguished from falsehood by being identical with reality. An identity theory of truth is thus unavailable on this view of judgment because it would be rendered vacuous by being inevitably accompanied by an identity theory of falsehood. As a result, those who have held this sort of view of judgments have typically embraced instead a theory of truth sometimes labelled ‘primitivism’, according to which truth is an unanalysable property of some judgments. [Russell (1904), p. 473; Moore (1901–2) expresses a closely related view; Cartwright (1987) treats primitivism and the identity theory as one view rather than as rivals.] While primitivism is not the only path available at this point, it is clear that all paths lead away from the identity theory of truth. The only identity theory to be found here is an identity theory of judgment.

      Russell himself moved on to a series of multiple relation theories of judgment according to which a judgment was not a binary relation between a person and a proposition, but a multiple relation between a person and the several real world constituents which had made up propositions on his previous theory. With propositions out of the picture, the unity of a judgment was now to be effected by the judging relation (so that the unity was that of an act rather than an object) and Russell hoped he could thus draw a distinction between true and false judgments without resorting to primitivism. Whether Russell succeeded in this is controversial, but even if he did there is no chance for an identity theory of truth here either. For now there are no propositions to be identified with truthmakers, and judgments themselves cannot be identified with them either since judgments essentially contain the judging relation. Russell thus adopted a correspondence theory of truth. [Less brutally condensed accounts of these matters can be found in Baldwin (1991), Candlish (1989, 1999b and 2007).]

      2.2 Pushing reality towards judgments

      Other philosophers, notably those who have held the idealist view that reality is experience, have implied that facts are more like judgments. One such is F. H. Bradley, who explicitly embraced an identity theory of truth, regarding it as the only account capable of resolving the difficulties he finds with the correspondence theory. [See Bradley (1907).] The way he reaches it is worth describing in a little detail, for it shows how he could avoid allowing the theory to be rendered vacuous by an accompanying identity theory of falsehood.

      Bradley argues that the correspondence theory’s view of facts as real and mutually independent entities is unsustainable: the impression of their independent existence is the outcome of the illegitimate projection on to the world of the divisions with which thought must work, a projection which creates the illusion that a judgment can be true by corresponding to part of a situation: as, e.g., the remark ‘The pie is in the oven’ might appear to be true despite its (by omission) detaching the pie from its dish and the oven from the kitchen. His hostility to such abstraction ensures that, according to Bradley’s philosophical logic, at most one judgment can be true—that which encapsulates reality in its entirety. This allows his identity theory of truth to be accompanied by a non-identity theory of falsehood, since he can account for falsehood as a falling short of this vast judgment and hence as an abstraction of part of reality from the whole; as this abstraction is a matter of degree (scientific laws, he thought, because of their generality, require much less abstraction than particular truths), the degree to which a judgment is true is the degree to which it is identical with reality as a whole, while its degree of falsehood is in inverse proportion. Although the consequence is that all ordinary judgments will turn out to be more or less infected by falsehood, Bradley thus allows some sort of place for false judgment and the possibility of distinguishing worse from better. One might argue that the reason the identity theory of truth remains only latent in Russell and Moore is the surrounding combination of their atomistic metaphysics and their assumption that truth is not a matter of degree.

      For Bradley, then, that judgment is the least true which is the most distant from the whole of reality. But, as reality is a unified whole, at most one judgment can be fully true. But even this one judgment has so far been conceived as describing reality, and its truth as consisting in correspondence with a reality not distorted by being mentally cut up into illusory fragments. Accordingly, even this one, for the very reason that it remains a description, will be infected by falsehood unless it ceases altogether to be a judgment and becomes the reality it is meant to be about. This apparently bizarre claim becomes intelligible if seen as both the most extreme expression of his hostility to abstraction and a reaction to the most fundamental of his objections to the correspondence theory, which is the same as Frege’s: that for there to be correspondence rather than identity between judgment and reality, the judgment must differ from reality and in so far as it does differ, to that extent must distort and so falsify it.

      Thus Bradley’s version of the identity theory turns out to be, in one way, misleadingly so-called. For when we come to the absolute, unqualified truth which has no degree of falsehood at all, the theory turns out to be eliminativist: with the attainment of truth of full degree, judgments disappear and only reality is left. It is not surprising that Bradley, despite expressing his theory in the language of identity, talked of the attainment of complete truth by saying, ‘[I]f their identity is worked out, thought ends in a reality which swallows up its character’, committing a ‘happy suicide’ (1897: 152). In the end, then, even the attribution of the identity theory of truth to one who explicitly endorsed it turns out to be dubious. [For a more detailed version of this section, see Candlish (1995). For different doubts about whether Bradley was an identity theorist, see Walker (1998).]

      http://plato.stanford.edu/entries/truth-identity/

      2. Identity and Change

      2.1 Diachronic and Synchronic Identity

      It is customary to distinguish identity at a time from identity across time. An example of an identity holding at a single time is: the table in the next room is (now) identical with my favorite table. An example of an identity holding across different times is: The table in the next room is identical with the one you purchased last year. Diachronic identities pose some of the most intractable problems about identity. Before looking at those problems, and some of the most frequently proposed solutions to them, let us ask whether there is anything that distinguishes identity from other relations.

      The most commonly agreed on distinguishing feature of identity is that it conforms to the Indiscernibility of Identicals, what was earlier called Leibniz’s Law. Taking ‘∀F’ to be a quantifier ranging over properties, here is one way to formulate Leibniz’s Law:

      LL: ∀x∀y[x=y → ∀F(Fx → Fy)]
      LL, understood to range over identity properties, if any, such as being identical with a, says that if x is identical with y, then any property of x is a property of y.

      http://plato.stanford.edu/entries/identity-time/

      skip here.. Puhlease Jim… the tool – you try to use (Aristotle’s correspondence theory of truth can be presented as(“P” is true if and only if P) – as a basis for argumentation is unsettled and to assert that it is reality – fact is more that disingenuous.

      Yes of coarse the conversation is ubiquitous, to the individual observer[s, as we don’t all share the same information or experiences as views. What – is – spoken – is – consensus, a totally different thingy… eh. And to be quite clear I find your usage of this tool deceptive, as in trying in a very non nondescript manner, too muddy the waters.

      Why don’t you try and express your thoughts on social policy matters – with out – resorting to such vaporous non distinction? Ah… for the safety provided by fogs camouflage.

      Skippy… don’t make me go Dalmatinac on ya…

        1. skippy

          Kant’s paternal grandfather had emigrated from Scotland to East Prussia, and his father still spelled their family name “Cant”.[10] In his youth, Kant was a solid, albeit unspectacular, student. He was brought up in a Pietist household that stressed intense religious devotion, personal humility, and a literal interpretation of the Bible. Kant received a stern education – strict, punitive, and disciplinary – that preferred Latin and religious instruction over mathematics and science.

          Skippy… hay I don’t like maths or science, yet – I – will with my trusty – arm chair – deduce reality!

          PS. I only observed one planet in my life time…

          Youtube porn… http://www.youtube.com/watch?v=xwOCmJevigw

  16. allis

    Everyone talks about money as though they know what it is. Could someone elucidate? Is it medium-of-exchange? Store-of-value? Can’t be both, at least not at the same time. Could it be that “money” is the medium-of-exchange and debt/credit instruments the store-of-value? Does MMT propose that “money” be issued that is not “backed” by treasurey debt? If so, and if money (medium-of-exchange) were to be issued without any corresponding increase in treasury notes and bonds (store-of-value), as it would be in such a MMT system, how could savers and investors accumulate assets? Could capitalism and MMT possibly co-exist?

    1. Calgacus

      “Store of value” is much more what money is than “medium of exchange”. Old Kingdom Egypt is a minimal example of an economy with money, as a unit of account, a store of value. But not money which was really used as a medium of exchange, except in the minimum sense of “paying off” each village’s debts to the pharaoh, and so an economy with money, but not markets.

      Could it be that “money” is the medium-of-exchange and debt/credit instruments the store-of-value? A lucid statement of the very, very wrong mainstream theory. Money is a debt/credit instrument that can thus be used to store value, and which can be used as a medium of exchange within some sphere. The OVERWHELMINGLY IMPORTANT THING is to think of money as a RELATIONSHIP – the common name for this relationship is credit or debt – and not as a THING, a commodity, whatever that is, that is exchanged. A monetary exchange is a transfer of a relationship – like a father “giving” his daughter away to the groom.

      Does MMT propose that “money” be issued that is not “backed” by treasury debt?
      Yes & no. The point is the whole concept ‘”backed” by treasury debt’ is cuckoo-for-cocoa-puffs. It makes no sense at all. State money, currency is treasury debt. Currency and bonds are “one and the same thing” (FDR). The idea that one backs or could back another is insane. It is like saying five dollar bills back one dollar bills. It is like saying that my bad checks are worthless. But if I “sterilize” them by “backing” them with postdated bad checks for larger amounts – then my current bad checks are fine. This comical mainstream theory is actually in Lewis Carroll – not Alice in Wonderland, but his less-familiar Sylvie & Bruno.

      1. finnucane

        Doesn’t the fact that money is a store of value make impossible the proposition that money is simply a “veil” for barter? Doesn’t this universally recognized aspect of money put the lie to much of the alleged science of economics?

      2. Finnucane

        Here’s what I was thinking about:

        Money, it is well known, serves two principal purposes. By acting as a money of account it facilitates exchanges without its being necessary that it should ever itself come into the picture as a substantive object.

        In this respect it is a convenience which is devoid of significance or real influence. In the second place, it is a store of wealth. So we are told, without a smile on the face. But in the world of the classical economy, what an insane use to which to put it! For it is a recognized characteristic of money as a store of wealth that it is barren; whereas practically every other form of storing wealth yields some interest or profit. Why should anyone outside a lunatic asylum wish to use money as a store of wealth? -JM Keynes. (See here.)

        my little footnote: if money is money, then we’re either in an insane asylum, or not in the world of “the classical economy.”

        1. Calgacus

          IMHO, the short, snappy and correct answer to your questions is “Yes”. Had I been alert enough, I would have adduced that great Keynes quote myself.

          On your exchange with FTM, where I agree with you, was writing a serious response, but no time to do it. Scatterbrained observations:

          I’m always confused by this “MMT as utopian” put-down. You understand enough to be confused. Welcome to the club. MMT is basically a descriptive theory of the system we have right now; more generally of any monetary economy.
          Not the Gospel and the Prophets, but I don’t think it’s meant to be. MMT is an honest theory honestly wrought by honest men & women. Any such is the Gospel & the Prophets.

          Also, isn’t MMT “merely” a variant or ramification of Keynesianism? It is better to say that modern Keynesianism is at its infrequent best, a variant or ramification of Keynes. MMT is very close to Keynes’s Keynesianism, the New Economics of the 30s & 40s. It is the Institutionalist/Keynesian synthesis. Keynes & Lerner, as seen by Commons & Dillard. The Old Keynesians departed from that, and the later post-70s “Keynesians”, except for the “post-Keynesians” deserve scare quotes.

    2. different clue

      Whatever money “is” or “may be” in the widest scope, and whatever its value therefor “is”, I can say that my own money is most valuable to me as a medium of exchange. And what makes it most valuable to me as a medium of exchange is that I don’t have to go exchange it for “something” the day or even week I get paid. I can store the money one place or another for weeks or even months and then exchange just some of it for certain “things” or “work” that I want but cannot make or do myself. So for me my money is a store of mediumed exchangeability.
      My money isn’t valuable to me as a way to buy revenue-stream extraction devices to extract revenue-streams of more-money from society. I don’t have enough money for that. So the only value my money has for me is in the exchanges of things or work it can mediate for me.

  17. EconCCX

    The most potentially persuasive section to a non-convert or an agnostic are the charts that show how government deficits almost exactly mirror private savings over long periods of time. @Yves

    Why in the world, if MMT is to be believed, would private savings not mirror cumulative government debt rather than annual government deficits?

    1. ftm

      Curious about what purports to be a quote of Yves in your comment.

      MMT makes no claim that the deficit equal TOTAL private savings.

      Instead it is simply an accounting identity that the government deficit must equal NET private savings.

      Net private savings is the excess of private savings over private investment. The private economy can save as much as it wants without a government deficit as long as it invests all it saves. Government deficits are only arise when the private sector wants to save more than it invests.

    2. EconCCX

      Curious about what purports to be a quote of Yves in your comment. @ftm

      Purports to be? It’s quoted from the post that introduces the video. Posted by Yves at 1:36 am.

      Instead it is simply an accounting identity that the government deficit must equal NET private savings.

      It’s quite astonishing that the government deficit of an arbitrary period must equal a cumulative value, net private savings, as a result of an accounting identity. Did not the deficits of prior years contribute to net private savings? How then does the cumulative government debt of prior years vanish from net private savings?

      1. reslez

        How then does the cumulative government debt of prior years vanish from net private savings?

        Because it’s net… subtracted out. Not rocket science.

        1. ftm

          I looked at the video again and I think is really important to emphasize that the equality of net private savings and the annual government deficit (or surplus) is merely an accounting identity.

          The accumulated stock of net private savings or net financial wealth equals the national debt. (again just an accounting identity)

          Both these facts are unremarkable and true whatever school of economics you subscribe to.

          When the video says paying down the national debt would reduce net financial wealth to zero, remember it is only NET financial wealth. There would still be all wealth created by savings and investment in the private economy — only the wealth held in the form of government debt would disappear.

        2. EconCCX

          The accumulated stock of net private savings or net financial wealth equals the national debt. (again just an accounting identity) @ftm

          The national debt should approximate the value of the T-Bills alone, themselves just one substantial component of private financial wealth.

          1. ftm

            yes, that’s right. In the terminology used in the video, net financial wealth equals government sector debt (accumulated deficits). There is still a lot of other wealth in the economy — that generated by savings and investment in the private economy. The use of the net indicates that it is financial wealth (accumulated savings) not matched by investment in the private economy.

            I’m not an expert in national income accounting but I don’t think there is anything here that is controversial. It’s really more an issue of understanding what the terms mean.

            Obviously, if so inclined one could argue that government debt does not represent wealth akin to private sector debt because the government must tax the private economy in the future to pay it back whereas a private company can pay back its debt directly from its own future revenues. I don’t agree with this point of view but all this is irrelevant from the perspective of national income accounting. National income accounting just measures flows ( which update stocks) grouped into hopefully meaningful categories.

  18. Myr

    If you want to advance the cause of the MMT Theorists then why not engage in extended open debate with those who disagree with you. Yves vs Mish…something like that. It would be fun and educational.

  19. craazyman

    Pettifoggery and supercilious condescension are ticketable offenses. The thought police are on patrol in their cruisers and have the ticket book out and ready. Some people, and I’m not saying who, seem to confuse MMT with the second coming of Jesus Himself. If some MMT dude or hot-looking female professor says something, it doesn’t make it so. Let us all admit we are mortal men (or women as the case may be) and that there are things we cannot know — when peoples form into societies and interact under historically unprecedented currency regimes — with anything resembling certainty.

  20. Jim

    From Mexico and Skippy:

    From Mexico, as you have pointed out, I am partial to the perspective that truth is something that we construct and therefore is not a description–why exactly are you so fearful of this formulation?

    One of the reasons I am attempting to critique MMT is not because they do not make valid criticisms of neoclassical theory but because I tend to see their movement as part of a depoliticization process in the United States–where we become comfortable with the rule of experts(in this case potentially moving from the market experts to the fiat currency experts).

    By MMT presenting itself as simply a politics of description (a politics of truth) they are creating leverage for themselves as the appropriate experts standing ready to offer proper guidance to the State (Treasury, Federal Reserve , Executive Branch and U.S. Congress) as well as ready to properly care for the American people, of course with our passive consent. Their seemingly innocent claims of truth are actually claims to power.

    I would love to hear MMT theorists comment on what I see as their politics of description.

    Skippy: I stated that Aristotle’s correspondence theory of truth can be presented as (“P” is true only if P)–not that it is reality. I tend to see reality as “P”

    Skippy I agree with you that we do not need the opposition between “P” and P to share our common experiences. I don’t get how you see me as being devious?

    I

  21. John

    I am definitely sympathetic to MMT but I’m not sure how much I agree with it. I have a few questions that maybe someone can answer. These are the basic questions of MMT theory that it seems MMTers avoid. They spend their articles talking about why a government isn’t a household but then don’t explain the limits to any of the policies they prescribe. Any answers would be appreciated.

    I agree that because the US prints the global reserve currency it has a lot more leeway in running up deficits than other countries (because of course these debts are dollar denominated). But how much is too much? The national debt is around 100% of GDP. Can we run it up to 200%? 400%? 1000%? MMT says that running a budget surplus is always bad because it takes money out of the economy. So does this debt ever get paid off? Can we simply run a large public deficit every time the economy gets bad and then never run a surplus (to pay off the debt)? Wouldn’t the economy simply stall every time we reduced the deficit, meaning we’d have to run up the debt indefinitely? At what point will banks stop buying US treasury bonds? Now I know you’ll say the central bank can simply buy them and that brings me to my next question.

    [Also, how does this differ for the UK and Japan? I know the yen is very important in the carry trade and that makes Japan a special case. But can both these governments run up debts indefinitely?]

    Pretend that banks around the globe stop buying US treasury bonds because either they don’t believe the government can back the debt or because inflation means the real yields are negative, thus making such a purchase not profitable. The Federal Reserve steps in at this point to buy treasury bonds to keep interest rates from soaring. Can it do this indefinitely to keep paying off the debt?

    I understand that inflation helps debtors and hurts creditors and that all sectors of the US economy are in too much debt, meaning inflation would be a good thing for us at the moment. But when does money-printing become dangerous? Can it continue indefinitely? If not, where is the limit? And why not just do this periodically–go in a debt binge in all sectors of the economy and then print a bunch of money to erase this debt, rinse, and repeat?

    How is any of this (running up a huge deficit, printing money) not a free lunch? My instinct tells me that consumption and the money supply can be tweaked one way or another to stabilize the economy (and of course such a decision benefits some groups and harms others) but that it can’t magically solve an economy’s (structural) problems and that neither can continue indefinitely. Since the US went on a consumption binge leading up to the crisis, it seems that more consumption wouldn’t be the answer. And that since the money supply has steadily increased over the past few decades (especially in the past decade or so) increasing the money supply even more wouldn’t be the answer.

    1. Katie

      I’m pretty sure your question would involve the jobs guarantee program, which would act like the gold standard.

      But rather than anchoring printing to scarce money, it anchors it to scarce labor, when becomes scarce when it’s employed in demanding a new dollar, rather than digging up a new gold nugget.

      “Honey, we’re broke, I think I’ll go down to the guaranteed jobs office and dig up new dollars”.

      Once there’s full employment, no is available to dig up new dollars.

      Warren Mosler has a free, short, book available at his sight.

      1. allis

        Katie writes: “Honey, we’re broke, I think I’ll go down to the guaranteed jobs office and dig up new dollars.”
        Wonderful insight.
        I’m wonderng if the essence of MMT may be that we need to go forward to a new/old social organization, that of the commons. When property, needed to actualize the potential value of one’s labor, is free and available, as is implied in a guaranteed jobs office, then in effect property (to enable some to make economic rent) has been transformed to a commons, (to enable all to produce)
        Would this be a true market economy, wherein everyone has both their own labor power and the necessary “property” (or commons) enabling them to create wares that can be exchanged for money that can be exchanged for other wares and services in the market?
        In this case, might not a guaranteed job program make real the myth of money as a mere veil for barter? Strange…

    2. Calgacus

      John:1.These are the basic questions of MMT theory that it seems MMTers avoid. They spend their articles talking about why a government isn’t a household but then don’t explain the limits to any of the policies they prescribe. Actually, I don’t like the way the academic MMTers say the gubmint isn’t a household. It is misleading. The government is a household. A sovereign household. Not just a big household, but a humongous one, and that is what makes the gubmint’s debt into money.

      2.I agree that because the US prints the global reserve currency it has a lot more leeway in running up deficits than other countries (because of course these debts are dollar denominated). It has more leeway. On the other hand, this reserve currency status = foreign savings is deflationary and creates more problems – takes US jobs away – requires bigger budget deficits to accomodate.

      3.But how much is too much? The national debt is around 100% of GDP. Can we run it up to 200%? 400%? 1000%? It is not really 100% – intragovernmental debt, like that of the Treasury to the Fed or the SS system, is silly – it is one of your pockets owing another pocket. Yeah, those numbers are no big deal, though they aren’t likely.

      4.MMT says that running a budget surplus is always bad because it takes money out of the economy. No, just usually bad, only good when inflation threatens.

      5.So does this debt ever get paid off? It is constantly being paid off. Everytime the government accepts dollars=government debt from the public, to pay taxes or to sell something to the public, the debt is being paid off.

      6.Can we simply run a large public deficit every time the economy gets bad and then never run a surplus (to pay off the debt)? Yup. The surplus is not “paying off the debt”. All taxation is “paying off” the debt. The US government has such a good record of paying its debts that people love to have the Uncle Sam owe them.

      7.Wouldn’t the economy simply stall every time we reduced the deficit, meaning we’d have to run up the debt indefinitely? Might, might not.

      8.At what point will banks stop buying US treasury bonds? Never. They will always put it in Treasury bonds or interest bearing instruments, rather than save up dollar bills = reserves. (I’m skipping interest-on-reserves for simplicity)

      9.Now I know you’ll say the central bank can simply buy them and that brings me to my next question. The central bank is not so important.

      10.Also, how does this differ for the UK and Japan? I know the yen is very important in the carry trade and that makes Japan a special case. But can both these governments run up debts indefinitely? No difference at all. All these governments can issue as much debt or currency as they like.

    3. Calgacus

      11.Pretend that banks around the globe stop buying US treasury bonds because either they don’t believe the government can back the debt or because inflation means the real yields are negative, thus making such a purchase not profitable. Will never happen. The real yield is besides the point. Doesn’t matter. What matters is the nominal yield. If this is positive, the banks will always choose mo’ money over less money = they’ll buy bonds, which by definition are profitable, compared to holding currency.

      12.The Federal Reserve steps in at this point to buy treasury bonds to keep interest rates from soaring. Can it do this indefinitely to keep paying off the debt? Again, this scenario is close to impossible. The only way the banking system as a whole can get rid of money is by it being taxed away ( or saved, or saved by foreigners, both in the form of bonds). If the Fed wants to keep interest rates at some level, it can. No big deal. But the inevitability of future taxation effectively puts an upper bound on the interest rate, even if the government foolishly lets it float.

      13.But when does money-printing become dangerous?When it is inflationary. This is very rare. Can it continue indefinitely? Yes, for thousands of years, and/or until the point of inflation.

      14.If not, where is the limit? And why not just do this periodically–go in a debt binge in all sectors of the economy and then print a bunch of money to erase this debt, rinse, and repeat? Printing money DOES NOT erase the debt. It just exchanges one debt instrument – bonds , for another – currency. And currency & bonds are “one and the same thing” (FDR). Why ever issue “bonds” rather than “currency” at all. The evidence is that “printing money” (currency) is if anything LESS inflationary than issuing / “printing bonds” (“debt”).

      15.How is any of this (running up a huge deficit, printing money) not a free lunch? It is a free lunch. MMT, Keynesian economics, rational behavior is a free lunch. Not-doing-insane-things is a free lunch compared to doing-insane-things. “There ain’t no such thing as a free lunch” is self-contradictory “wisdom”. The people who say this are telling you that you will get a free lunch by not wasting your time believing in free lunches. But all MMT says is – get a free lunch by not destroying the lunch you already have. Modern mainstream neoclassical “economics” is all about destroying real lunches, real lives.

      16.My instinct tells me that consumption and the money supply can be tweaked one way or another to stabilize the economy (and of course such a decision benefits some groups and harms others) but that it can’t magically solve an economy’s (structural) problems and that neither can continue indefinitely. Your instincts are wrong, because you have believed the Big Lie that the economy is run by sane people, rather than morons, monsters and maniacs.

      17.Since the US went on a consumption binge leading up to the crisis, Really? Funny, I see a lot of homeless people. Weren’t any in the USA to speak of before 1979-1980. And a lot of other people having trouble getting enough to consume for a civilized existence even before the crisis. Lets get back to – and do better than – the good old consumption binge postwar full(er) employment Keynesian economy, that did more with less than a richer, less just economy does now. By using economics that makes logical sense, not the embarrassing, innumerate trash taught by tenured morons at Harvard & Chicago nowadays.

      18.it seems that more consumption wouldn’t be the answer. And that since the money supply has steadily increased over the past few decades (especially in the past decade or so) increasing the money supply even more wouldn’t be the answer.More, and more just, and more efficient consumption are the only sensible aims of economics. Who gives a damn about the money supply? Money supply figures were unknown until around 1960 – which is around when economics went to hell. MMT is about doing the very easy task of ensuring non-inflationary 0% unemployment. As Keynes said: “Take care of the employment and the budget will take care of itself.”

      1. EconCCX

        Cal, we have a fractional reserve banking system. Two different forms of money which don’t mix, but which trade roughly at par. Reserves, which are immutable, and bank debt, which is created and destroyed in the lending process.

        Money creation through the coin creates new reserve dollars. The moment this new money is spent into the economy, the reserve becomes the property of the payee’s financial institution, while the payee gets the bank’s IOU, a demand deposit, commercial bank money.

        Since the repeal of Glass-Steagall, banks are able to use those reserves to obtain ownership of real-world infrastructure assets, cordoning off the commons, creating Michael Hudson’s dreaded tollbooth society. They do so with the knowledge that the reserves against which they write checks will be cycled back, by their recipients, into roughly the same banks, as banking is highly concentrated, and the big banks maintain demand account with each other, further leveraging their reserves.

        Meanwhile, those demand deposits, those bank IOUs, vanish with each bank fee, or with each check written to a bank. Some immutable reserves may change hands, but the bank IOUs are extinguished. The deposit money that constitutes 90+ % of our medium of exchange rapidly vanishes. But the debts don’t go away with the money. They compound and accrue. Foreclosure, penury and privitization of public assets are the outcome.

        MMT is the belief that we can alter this imbalance not by altering the reserve ratio but by delivering more reserves to the financial system, provided those reserves are spent one time by government to augment, one time, the demand deposit accounts of government payees. Whereupon those reserves then belong forever to our tollbooth financial institutions. MMT’s plutonomic, destructive legacy is all around us. Own it, Cal.

  22. FDO15

    Cullen Roche and the MR guys have already explained why MMT is wrong and does not accurately describe our current system. In order for MMT to be 100% accurate you need to shut down the banksters. The current system is no designed around “state issued” money, but bank issued money.

    http://pragcap.com/mmt-critique

      1. Calgacus

        Gets it wrong, repeatedly, is better. I have my own criticisms of MMT academics’ presentations and organization, their exposition, their terminology, their definitions and slogans. But they are in the opposite direction to ones like “MR” ‘s – or more seriously, Lavoie or Fiebiger, and practically everybody else’s. :-)

        MMT-as-presented doesn’t go far enough and can make things out to be more complicated than they really are (a late 20th century epidemic disease). Its expositions simplify things compared to the rococo epicycles of the rest of economics, but there is still much room & time to write shorter letters. But MMT-the-theory is perfectly correct, and deserves the highest term of mathematicians’ praise – it is entirely trivial.

        To belittle “When IOUs complete their journey back to their issuers, they are destroyed.” or to think that MMT somehow means “all money being “state money”.” is to understand very, very little about money. Basically the critique of this critical critique is: Been there, done that. MMT is an old theory – the New Economics of the 30s & 40s. MR here makes many of the same errors that were made in the degeneration of economics since then and also by some of MMT’s non-academic boosters. Today’s MMT academics do not, or don’t really, even if they look like they are. The main failing is expository and terminology that insufficiently guards against these errors. Basically, bludgeon Mitchell-Innes above all – because he makes it as simple as it really is – (& Lerner & Commons) into your brain. Read Geoffreys Ingham & Gardiner (e.g. in the Mitchell-Innes conference volume or their books) and you’ll get it right.

        1. FDO15

          Roche and JKH have discussed, ad nauseam, the main failing of MMT which is reserve accounting. The MMT description of taxes destroying money and deficit spending creating money is 100% wrong and anyone who understands banking knows it is wrong. If you think MMT is mathematically correct then you don’t understand the MR position and why they correctly understanding MMT’s main failings. I work in a bank running a fairly large unit and JKH has substantially more banking experience than any MMTer. I can tell you from experience reading the MR comments and from personal experience that their description is far more accurate than anything published by the MMT academics and Mosler who is really just a bond trader. If you truly believe MMT is mathematically or “perfectly correct” then you have failed to understand all of what’s being discussed.

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