By Lambert Strether of Corrente.
I like to think that economics should be like plumbing, and if you had my house you’d see why I’d be happy if there were a Sveriges Riksbank Prize for the great plumbers of the world. Good plumbing is very important, as you know if you’ve ever had the pipes fail. There is also an ethic to plumbing; the plumber should exercise all this skills of their craft as a contractor, shouldn’t put in cheap stuff when good stuff was specified, should warn you if you are about to do something stupid, and needs to deliver toilets that actually flush and sinks that actually drain, and needs to ensure that sewer gas doesn’t blow up the whole house. (We could think of neo-liberals as rotten plumbers who did blow up the house.) And although every plumber has a slightly different toolbox, and a slightly different techniques and points of emphasis, nevertheless there is scientific reasoning behind plumbing — for example, “water runs downhill” — and you can go to plumbing school and learn about it. Of course, I could never be a plumber, though some days I wish I could have been, because I don’t see very well and I’m all thumbs. However, I know enough about plumbing, and enough about my house, to find a good plumber when I need one. A plumber that will free up the pipes and get the job done.
And I like to think of MMT as the kind of plumber I’d like to have work on the economy. I’m not an economist and didn’t go to that school. But I think I know enough about MMT, and enough about political economy, to pick my plumber.
My reasons are simple and pragmatic: I want people like me (working people) to have nice things — concrete material benefits. Lots of them. And I believe MMT — unlike other schools of thought, but especially neo-liberalism — can deliver on that promise, given the chance. But there are obstacles: MMT, like plumbing, isn’t all that simple, it’s not all that well-known, and it’s “heterodox,” where neo-liberalism is Orthodox with a capital O.
So I took on the project of putting “Why MMT” onto a postcard. That’s not the same as getting an entire textbook of MMT onto a postcard, but I hope to at least persuade you to put the postcard up on your fridge and keep it there. Here it is:
Let me just go point by point. (I’m going to be linking mostly to the MMT Primer at New Economic Perspectives, but also to this trenchant article from Professor Paul Davidson, and transcripts from the 2010 Fiscal Sustainability Conference. Not being an expert or especially creative, I have to go to the sources and quote them. I apologize in advance for any severe pain caused to those quoted.)
1) Federal taxes do not fund Federal spending (fiat money system)
Stephanie Kelton said in her presentation at 2010’s Fiscal Sustainability Conference:
[T]he government is the issuer of its currency. It is not like a household. It doesn’t have to raise money by borrowing or collecting taxes in order to spend. Those of us in the private sector have to earn or borrow dollars before we can spend. The government must spend first. And we say this, and sometimes people have a hard time understanding that. How can the government spend first? How can it not spend first? How could the government collect taxes, in dollars, first? It first had to have spent those dollars into existence. The spending has to come before the payment or the collection of taxes. The government must spend first. Government spending is not (we use this term a lot) operationally constrained by revenues. It doesn’t need tax payments and bond sales in order to fund itself. It is not operationally constrained. The only relevant constraints are self-imposed constraints. We talked a little bit about this earlier, things like debt ceilings. That’s a self-imposed constraint. Rules that prevent the Treasury from running an overdraft in its account at the Fed. That’s a self-imposed constraint. It is a constraint that is imposed by Congress. Rules that prevent the Fed from buying Treasury bonds directly from the Treasury, so-called monetizing the debt, is a self-imposed constraint.
So why do we have taxes, then? To give money value! Rebecca Rojer in The New Enquiry:
Forcing people to pay their taxes in a money that is otherwise worthless creates demand for money and gives it its value. This idea, called chartalism, is one of the core building blocks of Modern Monetary Theory. “Modern money” is fiat money, state-issued currency not backed by precious metals or any other commodity. … You cannot trade in fiat money with the state for a fixed quantity of gold or barley, but you still need it to pay taxes.
Sovereigns [like the United States] create money as a tool to obtain the labor and other resources they need to fulfill their political goals. The sovereign steers the ship, at least initially, not some money god. If sovereignty lies with the people, money can be used to serve the common good. If people lack formal political power, more democratic layers of sovereignty may be possible in the shadow of the official sovereign, provided the means of production exists within a community. An understanding of modern money, and its relationship to sovereignty, would be necessary but far from sufficient to bring about such transformations.
Here I should address the
pre-2008 pre-2016 hope and change “tax the rich” meme being pushed by the same crowd that brought us Obama. MMT, as such, isn’t against taxing the rich, and many MMTers are for it. For example, I think it’s good to tax the rich to prevent the formation of an aristocracy of inherited wealth, to prevent the rich from buying the government up with their loose cash, and for the sake of their children, to whom wealth often does not bring happiness. However, a program of taxing the rich is often coupled with the claim that such taxes are needed to fund services, a claim that puts us squarely into “it’s what they know that ain’t so” territory.
2) The US can never run out of money (it’s a currency issuer)
Stephanie Kelton had this to say in her presentation at 2010’s Fiscal Sustainability Conference:
Can the government run out of money? The U.S. government can’t run out of money any more than the Washington Nationals Baseball team stadium can run out of points. Every time a ball game is played at Washington National Stadium, some team scores some points and they appear on the screen and then the other team scores and some more points appear on the screen. And there’s nobody behind the screen going, ‘Hey Johnny, we’re running out of points here’, you know, right? Look in the trust fund. That’s not the way it happens. You just add the points.
Same exact thing with the way the government operates. And this is the quote that Marshall brought up earlier and the one that Warren likes to use a lot, and I like it too. So here it is in writing so that you know we didn’t make it up. This is Ben Bernanke in an interview on Sixty Minutes just last year when Pelley asked him, “Is that tax money the Fed is spending?” And Bernanke says, “It’s not tax money. The banks have accounts at the Fed much the way that you do, have an account at a commercial bank. So when we want to lend to a bank, we simply use the computer to mark up the size of the account they have with the Fed.
Note that this demolishes the constant refrain of Beltway institutions like the Peterson Institute, or Bowles-Simpson, or the Can Kicks Back, that “we’re running out of money.” Not only are we not, we can’t. The United States is sovereign in its own currency, creates it by fiat, and literally and truly cannot run out. Bill Mitchell writes:
[T]he government in a fiat monetary system is not “revenue-constrained”.
Intuitively this is hard to accept because we are so wedded to the idea that nothing is certain but death and taxes and that the latter is to raise money for governments to spend. The issue of taxation is also very emotional – as we see in some comments on my blog – taxation is linked by conservatives to concepts of slavery; loss of freedom; etc.
So the idea of a government that is not revenue-constrained is hard to grasp at the emotional level.
It is. It is indeed.
3) Real resources limit Federal programs (and not money).
Quoting (at Warren Mosler’s suggestion) Professor Paul Davidson:
The U.S. dollar is not legally convertible into anything by the government on demand [and hasn’t been since Nixon closed the gold window]. It is, however, designated by the government as the only means of discharging federal tax liabilities. Tax liabilities are an ongoing debt the private sector owes the government, and they create a continuous need for dollars. The private sector obtains the needed dollars primarily as payment for the transfer of real goods and services to the government, and it is government spending or lending that provides the dollars needed to pay taxes. For purposes of this analysis, government spending includes spending by the government or any of its agents. For example, when the central bank buys foreign currency, it is the same, for cash flow analysis, as the treasury buying military equipment. This is commonly referred to as viewing the treasury and central bank on a consolidated basis.
The imperative of taxation is to create sellers of real goods and services willing to exchange them for the unit of account selected by the government. Dollar denominated tax liabilities function to create sellers of real goods and services who must have dollars to extinguish their tax liabilities. Raising revenue, per se, is of no consequence to the government, as dollars are not a limited government resource, but a liability, or tax credit, that can be issued at will. The government’s ability to raise revenue does not limit what it is able to purchase. The purchasing power of the government is limited only by what is offered for sale in exchange for dollars.
“[W]hat is offered for sale in exchange for dollars”: That is the real resources. Look around you. Is there work that needs to be done? Are there the real resources to do it? Then we can afford to do it. Rebecca Rojer writes:
Those at the very tip of our economic pyramid understand that fiat money is unlimited, but most everyone below believes it to be scarce.
How those at the tippy top must be laughing!
4) So, no SS/Medicare financing problem
Stephanie Kelton on Social Security:
”Funding Social Security is always and everywhere a political choice. The strongest evidence of this comes directly from the 2009 Annual Report of the Trustees. In that report, they predict gloom and doom for Social Security because “there is no provision in current law that would enable full payment of benefits, once the Trust Funds are exhausted”.
In contrast, the Supplementary Medical Insurance (SMI) Trust Funds are “both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year’s expected costs.”
It is that simple. The former is in ‘trouble’ because the government isn’t committed to making the payments, and the latter gets a clean bill of health because the government will always make the payments.”
Exactly the same logic applies to Medicare.
5) So, unemployment means the deficit isn’t big enough
Bill Mitchell, on What Causes Mass Unemployment:
The purpose of State Money is to facilitate the movement of real goods and services from the non-government (largely private) sector to the government (public) domain.
Government achieves this transfer by first levying a tax, which creates a notional demand for its currency of issue.
To obtain funds needed to pay taxes and net save, non-government agents offer real goods and services for sale in exchange for the needed units of the currency. This includes, of-course, the offer of labour by the unemployed.
The obvious conclusion is that unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.
This analysis also sets the limits on government spending. It is clear that government spending has to be sufficient to allow taxes to be paid. In addition, net government spending is required to meet the private desire to save (accumulate net financial assets).
It is also clear that if the Government doesn’t spend enough to cover taxes and the non-government sector’s desire to save the manifestation of this deficiency will be unemployment.
6) The Jobs Guarantee enables democratic control over a living wage
How would the JG work from the perspective of a working person (not an owner?) Or from the perspective of the millions of permanently disemployed? The MMT Primer:
If you are involuntarily unemployed today (or are stuck with a part-time job when you really want to work full time) you only have three choices:
- Employ yourself (create your own business—something that usually goes up in recessions although most of these businesses fail)
- Convince an employer to hire you, adding to the firm’s workforce
- Convince an employer to replace an existing worker, hiring you
The second option requires that the firm’s employment is below optimum—it must not currently have the number of workers desired to produce the amount of output the firm thinks it can sell. …
If the firm is in equilibrium, then, producing what it believes it can sell, it will hire you only on the conditions stated in the third case—to replace an existing worker. Perhaps you promise to work harder, or better, or at a lower wage. But, obviously, that just shifts the unemployment to someone else.
It is the “dogs and bones” problem: if you bury 9 bones and send 10 dogs out to go bone-hunting you know at least one dog will come back “empty mouthed”. You can take that dog and teach her lots of new tricks in bone-finding, but if you bury only 9 bones, again, some unlucky dog comes back without a bone.
The only solution is to provide a 10th bone. That is what the JG does: it ensures a bone for every dog that wants to hunt.
It expands the options to include:
- There is a “residual” employer who will always provide a job to anyone who shows up ready and willing to work.
It expands choice. If you want to work and exhaust the first 3 alternatives listed above, there is a 4th: the JG.
It expands choice without reducing other choices. You can still try the first 3 alternatives. You can take advantage of all the safety net alternatives provided. Or you can choose to do nothing. It is up to you.
If I were one of the millions of people permanently disemployed, I would welcome that additional choice. It’s certainly far more humane than any policy on offer by either party. And the JG is in the great tradition of programs the New Deal sponsored, like the CCC, the WPA, Federal Writers’ Project, and the Federal Art Project. So what’s not to like? (Here’s a list of other JGs). Like the New Deal, but not temporary!
OK, what do you mean by “democratic control over the living wage,” then? The MMT Primer describes JG program design:
The national government provides funding for a universal program that would offer a uniform hourly wage with a package of benefits. The program could provide for part-time and seasonal work, as well as for other flexible working conditions as desired.
The package of benefits would be subject to congressional approval, but could include health care, child care, old age retirement or social security, and usual vacations and sick leave. The wage would be set by government and fixed until government approved a rate increase—much as the minimum wage is usually legislated. …
And this program wage cannot be “market determined”. It must be socially determined: government offers an infinitely elastic demand for labor at the wage (plus benefits) it chooses to pay. It sets the wage as public policy, then hires all those who accept the offer of a job. To get workers, the private sector will have to offer something better than the JG compensation package. It could be a higher wage, better benefits, better working conditions, or better opportunities for career enhancement.
Intuitively: What the JG does is set a baseline for the entire package offered to workers, and employers have to offer a better package, or not get the workers they need. When I came up here to Maine I’d quit my job voluntarily and so wasn’t eligible for unemployment. Then the economy crashed, and I had no work (except for blogging) for two years. There were no jobs to be had. I would have screamed with joy for a program even remotely like this, and I don’t even have dependents to take care of. It may be objected that the political process won’t deliver an offer as good as the Primer suggests. Well, don’t mourn. Organize. It may be objected that a reform like the JG merely reinforces the power of the 0.01%. If so, I’m not sure I’m willing to throw the currently disemployed under the bus because “worse is better,” regardless. Anyhow, does “democratic control over the living wage” really sound all that squillionaire-friendly to you? Aren’t they doing everything in their power to fight anything that sounds like that? The JG sounds like the slogan Lincoln ran on, to me: “Vote yourself a farm!” 
So, what does the JG for the economy? MMT was put together by economists; from an economists perspective, what is it good for? Why did they do that? The Primer once more:
some supporters emphasize that a program with a uniform basic wage also helps to promote economic and price stability.
The JG/ELR program will act as an automatic stabilizer as employment in the program grows in recession and shrinks in economic expansion, counteracting private sector employment fluctuations. The federal government budget will become more counter-cyclical because its spending on the ELR program will likewise grow in recession and fall in expansion.
Furthermore, the uniform basic wage will reduce both inflationary pressure in a boom and deflationary pressure in a bust. In a boom, private employers can recruit from the program’s pool of workers, paying a mark-up over the program wage. The pool acts like a “reserve army” of the employed, dampening wage pressures as private employment grows. In recession, workers down-sized by private employers can work at the JG/ELR wage, which puts a floor to how low wages and income can fall.
Finally, research indicates that those without work would prefer to have it:
Research by Pavlina Tcherneva and Rania Antonopoulos indicates that when asked, most people want to work. Studying how job guarantees affect women in poor countries, they find the programs are popular largely because they recognize—and more fairly distribute and compensate—all the child- and elder care that is now often performed by women for free (out of love or duty), off the books, or not at all.
Enough of this crap jobs at crap wages malarky!
7) The Jobs Guarantee wage determines the value of the dollar
Quoting Professor Paul Davidson once again:
The proposed [JG] program recognizes that the government is a monopoly supplier of its currency. Price is set through the [JG] wage, which defines the purchasing power of the currency.
The current monetary system is a classic monopoly with the traditional analysis of monopoly sufficient to describe all aspects. The government is the monopoly issuer of the dollars needed by the private sector to pay taxes. … With a gold standard, gold can always be considered fully employed as gold can always be sold to the government at the fixed price. Likewise, with an [JG] policy, labor can always find a buyer. … The government sets the [JG] wage and lets the market allocate all other resources accordingly. This is the same process that determines relative value under a gold standard. Under the ELR proposal, the government adjusts fiscal and monetary policy to maintain the ELR pool much the same way that a government adjusts fiscal and monetary policy to maintain a buffer stock of gold with a gold standard.
All this said, the house design as a whole is not up to the plumber, but the architect. In a democracy, we the people are the architect! And it is up to us to design an ethical house, and also to determine the plumber to hire — I hope MMT — and to design the plumbing. Democratically.
ACKNOWLEDGEMENT: I would like to thank letsgetitdone (Joe Firestone), Scott Fullwiler, and Warren Mosler for their help with the points on the card. Any errors on the card or in the post are, of course, my own.
NOTE  Granted, it’s 52 chapters of Primer goodness. Professors! But many of those chapters are responsive to questions or critiques, and others address issues brought up by particular schools, like the Austrians. So just like Wagner’s music is better than it sounds, the MMT Primer is shorter than it looks. So it’s a textbook that needs to be popularized and simplified like the work of every other economic school. Of course, MMT doesn’t have think tank and entire economics departments funded by well-endowed squillionaires to get that work done. Go figure.
NOTE  The metaphor that MMT is a toolkit or smorgasbord is appealing but limited. I can’t do justice to Joe Firestone’s work on “knowledge claim networks,” but here’s a discussion.
NOTE  At this point, the real economists blanche, and point out that JG jobs are conceived of as “transitional,” and aren’t supposed to replace private jobs, merely to supplement them. And that is probably where the temper of the country is, right now. But I think democratic control over the living wage is a good thing to have until the glorious day when the soviets really do take power, or, more prosaically, until a lot more co-operatives start shaping the political economy to the liking of their members.
NOTE  Why doesn’t the minimum wage do this? You must be employed :-):
But the more important point is this: with the JG in place, the program wage and benefits set an effective floor, an effective minimum wage. As Hyman Minsky used to always argue, without the JG the legislated minimum wage is a lie. The true minimum wage is zero—if you cannot find a minimum wage job, you get a zero wage. With the JG in place, the true minimum is the program wage (plus benefits).
NOTE OK, there should be no plumbing! We should all use composting toilets in our back yard! I’m down with that, I’m a permaculturalist! It’s just a metaphor!
Two additional benefits of the Jobs Guarantee:
1) Elimination of the long-term unemployed effect. Workers will be able to maintain their skills, productivity and avoid the stigma of not having worked in six months.
2) Reduction of inflationary pressures due to capacity constraints. In a typical recovery the unemployed will require and adjustment period as they return to work and as a result their productivity may suffer. If a boom is of sufficient strength then the possibility of inflation exists as demand outstrips available supply; with a JG, however the worker maintains their skills, assuming of course they wish to return to the same sort of position they lost.
If we choose to add a strong retraining component we also have the most flexible, dynamic and empowered working class in the world with positions waiting once the retraining is complete.
Ben, the ‘lack of skills’ meme is a common blame-the-victim whine from the authoritarians. Do you really buy into that?
Where exactly do you see a dearth of worker capabilities? Are you thinking of a particular industry? Geographic location? Job function?
There is lots of evidence that employers won’t consider anyone who has been unemployed for more than six months. And the usual logic is they have “lost skills” or more generally, if they’ve been unemployed that long, they must be no good.
I completely agree employers ignore resumes from people with extended unemployment. Employers generally ignore resumes from people who are unemployed for any period of time. Most hiring is of people who are employed. Just like employers look for other factors they can use to screen people by class, such as education or criminal background, that has nothing to do with the performance of the job. There’s a whole cottage industry in the HR world of crafting job descriptions and BFOQs, for example, in such a way as to screen applicants without exposing organizations to legal liability.
What does any of this have to do with a lack of skill? The fact that employers can be so choosy about hiring labor demonstrates an excess of skills, not an absence.
I don’t accept the complaint that worker skills have deteriorated, I just see the JG as doing away with that particular excuse. If an employer doesn’t want someone who wants to work then screw ’em. There is no law requiring work done to generate profits for someone; if people would rather do socially beneficial work then they should be free to stay in the JG.
But of course the rataionalization is ridiculous on it’s face. You don’t forget job skills in 6 months or even a year. 6 years, well yes, but not 6 months. So why should anyone accept arguments like “they have lost their skills in 6 months” that make absolutely no sense to begin with?
Most honest answer: they have too many applicants and need some kind of filter.
Skills atrophy is an excuse cooked up by the orthodoxy to say that unemployment is the job seeker’s fault, and not the fault of their faked up economics. Economists of the orthodox persuasion are probably the least qualified people in history to talk about employment and unemployment, and what causes each, and until we start firing them when they fuck up, just like we fire other workers when they fuck up, they will learn nothing.
That was really good Lambert. I would single out ‘Enough of this crap jobs at crap wages malarky!’ I’m fairly confident we only need this economics (MMT, positive money) because the insanestream is insane. Some way down the line one can imagine problems with job guarantee. Imagine being able to take jobs at reasonable pay without the dire constraints of current job seeking. I might say, ‘stuff lecturing tenure’ on the grounds I think it’s immoral to take sinecure from indebting students, and work in a community project instead. I think this is a good thing. Mr Sweat Shop will not. The motivational aspects of a world with full employment are not well understood. Ben mentions training above, but we’ve had a long period of stressing its importance while providing less and less relevant to work (our youth are allegedly more qualified and trained than ever, but can’t even get on the day shift with their degrees). And stuck somewhere in this thinking is “groaf”. None of this is to disagree in principle.
Whenever I think of groaf I think of all the niches we have not explored, all the details; I think how efficient and sophisticated we could become without pillaging the planet. Just a big fat jobs program to learn and apply good practices; to clean up our monster mess and then keep it clean.
To be honest, addressing the work we should be doing seems to be the missing component. I’m after a couple of years’ EU funded work here not unlike the permagarden thing (orchards), but it is a drop in the ocean. Joe says something apt on job guarantee and basic income below. My queries boil down to the extent of ideological baggage from current ‘terrornomics’ and motivation in the more egalitarian. To break from groaf we may have to redefine job.
We need more sappers digging at the foundation level, instead of penthouse corner office dwellers, and ask questions like
What is work
What is a job
What is the purpose of government or economics?
You don’t feel putting “public” purpose at the heart of economics is sapping at the foundations of, say, neo-liberalism?
I hope that public purpose includes more happiness, even with a smaller GDP.
If that public purpose assumes we always need more a bigger GDP to be happy, then we might want to inquire about what public purpose is or which public purpose.
Hmm. The JG would be an ideal place to experiment with redefining jobs, if only because the experimenter wouldn’t lose their shirt going out of business when it failed.
Thank you, Lambert. Excellent clarification of our arguments. I’m bookmarking it!
JuneTown May 29, 2014 at 2:40 pm
“”Stephanie Kelton said in her presentation at 2010′s Fiscal Sustainability Conference:
[T]he government is the issuer of its currency. It is not like a household. It doesn’t have to raise money by borrowing or collecting taxes in order to spend.””
Since the government ‘delegated’ its ‘public’ money creation and issuance powers to the private Federal Reserve Banking System, the government DOES have to raise money by borrowing or collecting taxes in order to spend.
If the Guv could create and issue money by spending, it WOULD be creating and issuing money by spending, but it does not, because it can not.
Just ask anyone who works at Treasury, paying the government’s Bills.
Does the government need the income in its account before it can spend?
The Guv has a string-pushing role in the issuance of the currency; it is only the banks that can advance purchasing power into the economy without having a balance available for transfer.
Funny how that One-Percent thing works.
Frank N Newman, in his April 2013 book Freedom From National Debt, says you’re wrong. He was Deputy Secretary of the US Treasury. 87 pages. Read it.
The Government, under the present arrangement, spend money into existence when the Fed buys its debt.
Whether the government is free from National Debt is a different question, which is related to can the Government spend and borrow (only to be monetized) as much as it wants.
What are you talking about? The Federal Reserve is not allowed to buy treasury securities from the government. The Fed can only buy treasury securities (“debt,” which it’s not) on the Open Market.
The Guv “spends”……..money into existence
when the Fed “buys”……. the debt the Guv issues.
The Fed actually never spends money to buy public bonds, it merely keyboards new reserve balances into the account of the bank selling them the bonds.
Totally unnecessary on both ends….. IF the Guv has the ‘money-creation-when-it-spends power, which it does not, but which it should have.
You’re mixing apples and oranges.
The govt spends first. It issues treasury securities in the same amount to the non-government sector for purchase: businesses, banks, foreign govts and banks, private individuals, trust funds, university endowments, whatever.
Subsequently, if members of this group wants to sell their treasury securities, they sell on the open market. The Fed can buy from this group on the open market. It cannot buy treasury securities from the US Treasury, the federal govt.
The Federal Reserve returns all profits from the purchase of these treasury securities (purchased not eh open market) to the US Treasury annually, per the 1947 or 1948 law that requires them to do so.
Let’s get just a few facts straight,
FIRST, there is no law that requires the Fed to remit its net income to the Treasury, merely a FRBoard Policy adopted in the era you suggest, and adopted only after Congr. Wright Patman, as Chair of the House Banking and Currency Committee, threatened to introduce legislation to require it.
Before that discourse, the Fed was unapologeticaly pocketing the change, thank you all very much.
No, the government does not spend first.
Stop repeating erroneous and un-provable statements like these.
The Guv must collect taxes first and issues deficit-spanning debt second, and pays the Bills only when it has the money, virtually none of which is US currency, all being bank credit balances..
We already discussed this….you said the requirement for first funding and then paying was a gold era throwback law. wrong.
For general edification, please take the quoted statement of mine, and explain which are the apples and which are the oranges…….and why.
I think it’s absolutely critical to include net 90 day payment terms to government contractors, dipping into Federal pensions to pay bills, and probably the three day clearing period for bond transactions before we can thoroughly understand this model.
But my brain cells quiver in anticipation!
I thought you said you read Newman’s book. Incidentally, you should have noticed that Newman said to read Mosler, Wray, and Fullwiler to know how the system works.
From Newman’s book, to cite one quote:
Gee, capital letters. FIRST.
Newman’s probably a good banker. but his recount of what would essentially be a Treasury monetary and finance operation is a complete fantasy. Please tell him I said so.
Your quote from his book really says nothing about money law, or science, or history, nor provides any operational context from a public financial administration perspective…… it is rather a tale, an anecdote of his random imagining on how, perhaps, typically, something like this may happen.
Or, maybe not.
Typically?,……, Randomly? ……Usually?
So, what office or branch of the Treasury operation carries out that ‘distributing” of the $20 Billion, FIRST ? As in, without taxes or debt proceeds as income.
Because, if they existed, and they do not exist, then they would be creating money.
Changes to the money supply are effected, definitionally, by private banking operations.
I thought that you concurred that there IS a requirement that the Guv must have money in its account in order to spend.
This is not a mere ‘overdraft’ issue, as often portrayed.
If the Gov needs to acquire revenues in order to have money to spend, then obviously, the Guv is not creating money.
That’s the bottom line.
I don’t even understand the connection between the $20 Billion ‘distribution’ and the issuing of the $20 Billion in Treasury securities…..because I think ‘typically, perhaps’, as these things sometimes go, he came in about $10 Billion short.
It’s all just ridiculous.
Still accept that archaic ‘gold standard’ law??
Then, if they did distribute’ $20 Billion from the TGA account, then there was FIRST $20 Billion in the TGA account. Or they couldn’t spend (distribute) it.
And THAT $20 Billion in Treasury’s TGA account was bank-credit money.
All the money that circulates, being that which both we and the government use for finance and sustenance, is created by the private bankers, coins excepted,
The government could, and certainly should, create all the money, but the government has abdicated this sacred public trust to the private bankers, who pay the political parties to run the right candidates, and academia to advance the correct economists.
“”The bankers run this town””: Senator Durbin.
I can never figure out why otherwise righteous and progressive students of one theory that engages the politics of money would stand one more day of this unnecessary and malevolent private money system.
But I hear it ain’t so bad.
If net financial assets is your thing.
Like banker NEWMAN !!!
The other day, I went to Subway. I ordered my sandwich and when I got to the cash, I realized I forgot my wallet. They actually let me eat my sandwich and leave without payingand they did not even know me!!! Imagine that… And I went back to pay later in the day.
This is what drives me nuts about MMT…. who cares if the government spends before or after?!? At the end of the day, there are checks and balances and if these are not respected, there will be a comeuppance.
Arrêtez de vous enfarger dans les fleurs du tapis!
Eh bien, parce que c’est comment le High-Powered Money (HPM)–le monnaie du governement–fonctionne dans l’Etats-Unis. Après? Non. C’est le point.
Moneta, that is exactly what MMT opponents do – complicate things. The MMT picture is simple, intuitive, natural – the one that everybody uses without thinking. But a crazy, useless picture using crazy useless accounting is what everyone is schooled to believe, although it makes no sense at all.
And this has a tremendous problem – people “respect the checks and balances” too much because they imagine checks and balances that do not and can not exist. Precisely what check and balance do you think MMT advocates disrespecting?
All that MMT says is that if we stop actively preventing people from working – human work being the essential source of all human wealth – we will be much wealthier. One has to be insane to deny this – but that is how monetary societies have been run, more and more since the half dawn of the postwar era ended. Just run whole societies the way everything else is run.
What matters is not how much you spend, but what you spend it on. There is never any problem caused by governments employing every last unemployed person, and it causes tremendous benefits.
So Patman ascared ’em, and that stopped their unapologetic pocketing of change?
The Board of Governors of the Federal Reserve System, a separate government body that answers to the president, sets the policy for the Federal Reserve. It has the force of law under 12 U.S. Code Chapter 3, Subchapter II.
correction: appointed by the president, not answers to the president.
correction: appointed by the president for 14-year terms, not answers to the president.
You should read a little monetary history.
Yes, the righteous gentleman from Patman’s Patch in East Texas had a Bill drafted, and THEN the FR Board adopted a policy.
Patman, the noted populist, educated more people in Congress about money than any other Banking Chair, including the great Henry Gonzalez.
His “Money Facts” pamphlet from 50 years ago was far more telling about exactly how money works than the recent Bank of England missive on money.
To imply that such a Board policy has the force of law is outstandingly in error.
The BoG’s could adopt a new policy tomorrow.
And they have been talking about suspending those remittances when they start selling off CB assets.
Yes, they make their rules and we pay for their losses.
If you think the BoGs is separate government body, then tell me who pays their Bills.
Shoehorning is a terrible monetary education tool.
Since this thread is dead (June 3), I am placing this correction for the record here for future researchers who happen upon this discussion and might be tempted to think that the JuneTown statements (above) about Patman and his bill threatening the Fed to pay the US Treasury, and that the Fed was “pocketing the change” are correct. Neither is true.
I will deal first with the Fed was unapologeticaly pocketing the change, thank you all very much. If, as JuneTown claims, he or she read the Marriner Eccles 1936 document I linked to above, JuneTown would know the Federal Reserve paid 25% of its net income as a franchise tax to the US Treasury from 1913 (inception) to 1933, when it was appealed during the depths of the Depression.
Further in a 1947 Federal Reserve document entitled “The FEDERAL RESERVE SYSTEM Its Purposes and Functions” available at the St. Louis Fed, on pg 55
In 1947, Patman was not “Chair of the House Banking and Currency Committee.” Jesse P. Wolcott was.
Congressman Wright Patman did not object to the Federal Reserve paying net profits to the US Treasury. He objected to banks getting interest on treasury securities. On page 45 of this 1947 Congressional record, Direct Purchases of Government Securities by Federal Reserve Banks
Patman said this:
Incidentally, what follows immediately is Wright Patman’s statement that it was Senator Robert L Owen, chairman of the Senate Banking and Currency Committee, and Senator Carter Glass, as then chairman of the House Committee on Banking and Currency, who wrote the Federal Reserve Act of 1913. Glass subsequently became secretary of the US Treasury in 1918.
First, I never saw this comment til now, and second, I hope those researchers will do a little searching.
I begin by denying that I EVER said that Wright Patman did anything in 1947…..that was the year (1947 or 1948) that MRW originally claimed a law was passed that required the Fed to pay its net income to the Treasury.
I pointed out that no LAW exists, only Fed Board policy adopted after Wright Patman threatened to abolish the Fed, basically.
But I said ‘in the “ERA” you suggest.
Era’s are long spans of time.
I never mentioned 1947.
Patman was a member of the Banking Committee in 1947 and he introduced legislation to nationalize the Fed, originally in 1938, as a Member of that Committee (The Lost Science of Money. Stephen Zarlenga. Page 532.)
From Ellen Brown’s piece on the 100th anniversary of the Fed.
“”For its first half century, the Federal Reserve continued to pocket the interest on the money it issued and lent to the government. But in the 1960s, Wright Patman, Chairman of the House Banking and Currency Committee, pushed to have the Fed nationalized. To avoid that result, the Fed quietly agreed to rebate its profits to the U.S. Treasury.””
There is no historic question about the actions of the Fed being EXACTLY as I described earlier.
I have no idea why you might think the Eccles record in any way contradicts anything I said. Yes, we all know about the franchise tax…. It was a strong ‘public money’ booster…. We grant them a license and they pay us a tax….we’re in charge !
We put the SecTreas and Currency Comptroller as head of the Fed Board of Guvs.
And BEWARE anything coming from the Fed that purports to have said anything in their “Purposes and Functions” (P&F) publications. I have read the changes and the varied statements contained in the numerous printings over almost three-quarter of a century.
“”The Federal Reserve has, therefore, adopted a procedure by which it turns over to the Treasury nine-tenths of its earnings above expenses and dividends. The Federal Reserve makes these payments on the basis of authority contained in a section of the law dealing with Federal Reserve notes. This is another illustration of the public character of the Federal Reserve.”” (That last sentence would NOT have been in any 1947 publication as the Fed touted itself as ‘private’ in the old days.)
Supposedly, according to MRW, this was contained in a 1947 printing of P&F of the Fed. But that never happened til ’63, so how prescient was the observation??
Or, how impossible?
Also, the Fed’s currency statutes contain ZERO such authority, that is just plain Fed BS.
Now, on Patman.
Again, I NEVER said anything about 1947. Just what he did as Chair, as confirmed by Ellen Brown’s historic recollection, and again in Zarlenga’s book.
You imply that I said Patman objected to the Fed paying net-profits to Treasury. How wrong.
I said Patman DEMANDED that they do so. Of course, he was against the private Fed money and banking system, so he was equally opposed to both the people and their sovereign government paying interest to the banks on the money they create. Why isn’t MMT?
Lots of irrelevant quotes about stuff that does not inform either reader or researcher on why MMT needs to pretend these two things.
1. the Fed is a public body, and
2. the government issues the money.
Neither is true, and MMT will not advance behind such positions.
Ellen Brown, Dr. Joseph Mercola, Stephen Barrett, M.D. and posse do have a tendency for quackery June Town.
Skippy… you should check your sources validity and bias.
I don’t care what Stephen Zarlenga and Ellen Brown have written. There is no guarantee they saw the relevant documents. There is no proof they understood what they were reading.
The Congressional record stands: “AN ACT TO AMEND THE FEDERAL RESERVE ACT.” That’s called law.
1947. You should read it.
Have you read his book?
It’s about Freedom From WORRYING about the National Debt.
He worked for 35 years as a major banker, including mega-CEO, and about 2 years in the political position of DepSec at Treasury.
What did he do there?
He doesn’t know where the money comes from that goes into the TGA account.
He said so to Dr. Kelton.
Some Treasury official.
I read the book.
It says nothing about my statements being wrong about anything.
His book is about maintaining the bankers’school preference to indebt the government by issuing public securities that trade as financial assets in capital markets, continuing to drive the compounding-interest wedge between the NoFearing One Percent and the payers of interest.
That’s a law left over from the gold standard days.
Read Newman.. He’ll tell you how that’s achieved.
BTW. Only the Federal government can spend. Banks can only lend. Banks do not create money. They create bank credit. Big diff.
The government spends first, then issues treasury securities to supply the positive balance in its general account, which is required by law. “Income” has nothing to do with it.
Yeah, this is one of those Emperer has no clothes moments.
So, is it like a train ticket…..gotta sell them to take them back in for a ride?
So, you ‘bold’ the “first”… why?
I think everything you said was wrong.
We don’t pay taxes with Guv money(currency) ; we pay with bank credit.
Which bank credit, the Guv does not issue.
Neither FIRST, Second, or ever.
There is no need for the Guv to issue the currency that it spends, because it spends bank-credit money that the bankers’ create.
So, we agree here that the Guv “”issues treasury securities to supply the positive balance in its general account, which is required by law…”” in order to obtain bank-credit proceeds that provides the positive balance that is required in its account, BUT, we think that the reason it is required in its account is not for spending, BECAUSE the Guv already spent BEFORE it issued the Treasuries……
Do I have that right?
Did the Guv not need to have the positive balance BEFORE it spent, under the law?
Read Frank N Newman.
I’ve read, and own, both his books.
Any relevant quotes?
Banks don’t actually loan you anything; when you borrow your bank is simply clearing a payment for you in exchange for for a series of smaller payments over a defined period in the future. Once these transactions are completed there is no net quantity of dollars left over over to pay taxes with. If government wants the private sector to hand over a certain number of dollars on April 15th then it must spend that number out into into the economy beforehand.
Shoe-horner !! Shoe-horner !!!
Banks don’t lend you anything, but when you borrow,……
that is ‘not anything’?
Banks lend us $US-denominated bank credit that serves as the universal means of exchange in our national economy.
Banks lend ‘money’ into existence.
That may, for the sake of money non-science, sometimes, be “not anything’ to some financial-economic seers, but to the rest of us , it’s what we call ‘money’. We spend it. We pay taxes with it.
Your description defies logical gravity.
The Guv has NEVER asked me to provide ‘dollars’ on April 15th, plain old vanilla bank credit has done fine throughout my lifetime.
Where would I get ‘dollars’?
And I never got any of that money from the government until I went on Social Security and got back some of the bank-credit dollars that I paid to the government’s trust in the preceding years.
ALL of the money in circulation is dollar-denominated ($US) bank credit.
The fantasy of printing the ticket so you can get it back is a non-starter if you empower somebody else to do the ticket-printing.
Like, the banks do.
Your starting to foam a bit, really puts a dint in the old cognitive apparatus imo.
Energy can be a fantasy too, does the sun make loans or create currency or monies and who will be the master of it… Ra?
No, actually, I can spend.
And you can spend.
and all God’s children can spend.
and the government can spend.
And we all can spend the Bankers’ money.
The banks don’t lend.
They create and issue bank credit on the basis of debt contracts.
You can only lend something you have.
Read The Credit River Decision.
Please explain your idea of how the legal fact that the Treasury has always, since our existence ( as are all National Treasuries) been obliged to only make payments from existing account balances, is, in any way, a throwback to the gold standard?
What you’re attempting to imply is that non-convertability somehow transformed us into a sovereign fiat government-creating-and-issuing money system.
Sorry, we missed that step,
The day before, the bankers were issuing the money.
The day after, the same.
Or, believe me, you would have heard about it before MMT..
We did hear about it before MMT. You haven’t, and it appears you made no effort to.
Marriner Eccles’ writings. Look them up. These are hardly representative. Just a couple at hand.
• Testimony of Marriner Eccles to the Committee on the Investigation of Economic Problems in 1933
• The Currency Function of the Federal Reserve Banks, 1936. You’ll have to search the St. Louis Fed for it.
• How to End The Crisis, 1933
• Marriner S. Eccles (a Republican banker from Utah): memo to FDR, December 1935
TAXES FOR REVENUE ARE OBSOLETE by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York. 1946
Richard L Owen, Former Chairman, Committee on Banking and Currency, United States Senate: National Economy and the Banking System of the United States — An Exposition of the Principles of Modern Monetary Science in Their Relation to the National Economy and the Banking System of the United States
76th Congress, 1st Session, Senate Document 23, Sent to Government Printing Office, January 24, 1939. Google it. It’s in the Internet Archives. But he absolutely calls what going off the gold standard is: Modern Monetary Science. In 1939.
Owen sought in his own way to explain what the effect of going off the gold standard meant for the American people. But his 100+-page document didn’t reach the public until a few months before WWII started in September 1939.
“[I]t appears you made no effort to” Hey, people have lives. IMNSHO, that kind of riposte is suitable for a serial offender, but not for a first-timer or a novice. I know this will sound weird coming from me, but “Moderate your tone, sir or madam!”
Point taken, Lambert, and I would ordinarily have been of that position; however, JuneTown is not a newbie on this board and cannot be allowed to throw brickbats without responses in kind.
People’s lives are being destroyed–45 million lost their homes, and many of those are on food stamps and can’t afford access to the web to state their positions–while cruel economic falsities continue to ruin their chances of a decent recovery. Writing on this blog isn’t just a place to vent. It’s an opportunity to change things, however slim that might seem. I don’t come here because I have nothing better to do. I consider Yves Smith 5000% more educated about financial matters with a heart to boot–she and I disagree on climate stuff, but that’s another matter. Important people read this blog. And people who vent like JuneTown haven’t done their homework, so they are not going to backhand people like me who have invested a lot of time reading economic papers I can barely understand off the tabletop.
And, frankly, I think what you wrote is important. And If I want to defend it, tough.
MRW, I’ve read all of those.
Without going into detail, you are confusing their identification of ‘potential’ policy implications that comes from abandoning ‘convertibility’ with the actual existence of a policy that can only be accompanied by legislation that changes things. I wrote earlier…….we bypassed the steps necessary to establish a sovereign fiat money-issuance system after we got off the gold standard. Such a proposal was widely debated in the Congress under The Monetary Control Act of 1934. Had that passed, we would have the system you seem to think we have now, which we do not have.
Just such a proposal was made by Fisher, Graham, Douglas et al in this historic document……
What I can promise you is true is this.
HAD the world changed as you imagine, there would be no need for these proposed reforms, which were publicly supported by over 400 economists at the time, a feat never repeated in economics history that I am aware of.
Both Eccles ( a great CB leader) and Ruml were merely describing the ‘potential’ that exists when we resorted to non-convertability. If our money system we’re not tied to the amount of gold in the vault, then the government COULD create all the money needed to carry out. It still COULD do that today, with a modern version of that Monetary Control Act of 1934. Absent that, guess what?
The day before non-convertability, the banks created all the money as a debt.
The day after, the banks still created all the money as a debt, and we all continue to pay compound interest on all the money they ever created.
The purpose of Ruml’s speech was to call for an end to corporate taxation. He did not make any claim about actual changes in operations, merely stated what could be possible. Neither did he make any recommendation for that change to happen, ever. And, it never did happen.
I agree with him. There is the potential. But I am recommending that we make the change that non-convertibility allows, have the government take over the money-creation powers.
Unless MMT has some problem with that.
First, being precise, the SYSTEM isn’t private; it’s public. At the top of it sits the Board of Governors of the Federal Reserve, which is a Federal Agency. The member banks are privately owned, of course, and the 12 District Fed banks are privately owned, but they must turn their net profits back to the Treasury Department at the end of each year and are allowed only 6% for operating expenses. They are non-profit organizations, and are absolutely subordinate in policy making to the Board of Governors, which, in turn, is subject to the will of Congress.
Second, Stephanie said that the Government is the issuer of the currency, not the money. “Money” is an ambiguous term, with multiple definitions. Private banks generate deposits when they make loans. But those deposits are not net financial assets, because they are matched by the loans, which are liabilities of the borrowers. The Fed District banks do have the authority, delegated by the Congress, to create reserves which they can either trade or lend to the private banks. They can’t generate reserves to simply give to the banks, and what they do with the member banks is strictly determined by policy specified by the Board of Governors.
The regional banks order currency creation by the US Mint as Federal Reserve notes and then once the notes are delivered to them by the Mint, they pay it for its expenses in creating the currency and they issue the currency to the public through members of the banking system. But they do not create currency.
Coinage is still the province of the Treasury. The Treasury takes orders for coins from the 12 District Banks. The Mint then issues the coins to the Fed District banks, which buy them from the Mint. When the mint ships the coins to the District banks it then books the sales, including the seigniorage profits (the face value of the shipped coins less the Mint’s costs in producing them). The Treasury this earns seigniorage from coins, but not from currency. nevertheless it creates both the currency of the United States and its coins and is only Department authorized to do so.
The claim that “the Government” must raise money by either taxing or borrowing is also false. The Government, including the Congress and the Fed, as well as the Treasury creates high powered “money” (reserves and coins) by fiat, as is indicated above, always using Congressional authority, and, at times through a circuitous procedure where Congress first appropriates, Treasury borrows, and spends, and later the Fed creates new reserves to buy back Treasury debt from the private sector, completing the circuit from appropriations to creating new money.
In addition, however, the Treasury issues coins (money) which are bought by the Fed which then credits the Mint’s Public Enterprise Fund (PEF) at the New York Fed with reserves in the amount of the face values of the coins. So this is new money created by Treasury alone.
Also, while the following practice has never been used, the law allows the Treasury to issue 1 oz. platinum coins with face values determined by the Treasury. These can also be shipped to the Fed and deposited in the PEF. Once deposited, the Fed gets the coin as an asset in return for issuing serves into the PEF account, which can then be swept for seigniorage into the Treasury General Account (TGA). Since the face value of such a coin can be arbitrary, Treasury can, even though it has never done so, working through the Mint) mint a $60 Trillion platinum coin and deposit it at the Fed, whereupon the Fed would be forced to produce $60 T in reserves, which would then obviate the need to “borrow money” ant longer for at least 15 – 25 years.
Well, as I said above, it does create and issue money which is eventually spent. But, even to limit this to Treasury. That Department could create large quantities of money prior to spending using coinage, which after deposit would get converted into reserve credits in the TGA. After which Treasury can spend money into the non-Government sector by ordering the Fed to keystroke it into non-Government sector accounts into the banking system.
They will say that. The problem with their view is that the Government is not the Treasury alone, and, in addition, people who work at the Treasury haven’t used their platinum coin seigniorage authority before, so they are unfamiliar with this unused capacity.
For any old bank to advance purchasing power into the economy, they must have a loan contract. In addition, they don’t create “currency” in this transaction, they create deposits, bank reserves in a depositors account. As for the District Fed banks, they can order currency, receive it from the Mint, and issue it into the banking system (selling it to the banks in return for reserves). But they cannot just create US currency without the using the Mint.
The Fed reserves issued by the District banks are traded to them in return for assets, frequently Treasury debt. But this doesn’t add purchasing power into the economy, because Fed reserves must stay “locked up” in the bank reserve accounts at the Fed. They can only be used to lend to other banks, to meet reserve requirements for lending, or to buy Federal debt instruments.
Sorry, Joe, too many words about unimportant stuff.
Too much fog around the money.
The Act creates a Federal Reserve Banking SYSTEM, whose private Bankcorporate Members control the money making powers of the country. The SYSTEM is privately owned, and operated for the profit of these owners.
Let’s not waste time on trivialities here. Who pays the bills?
More fog around he money and the currency.
They’re the same thing to most people ….money (currency)..
When we talk our political economics and we talk about using the money system to change our socio-economic outcomes, we can easily avoid the fog of the reserve-based banking system, because reserves are not money and make no contribution to any measure of what is important today, the gdP, P being he product measured in money quantities….that never include reserves. Nobody knows or cares about reserves. Except bankers.
Too much license is taken with functional finance.
It is not a fact of political-monetary-economic reality.
It is one method developed for analysis of national accounts.
We have a private central bank and a private banking system known as the Federal Reserve Banking SYSTEM. Functional Finance does not change that reality and its confluence within MMT is damaging to our political dialogue at this time of greatest opportunity.
Joe, while acknowledging that anyone at Treasury would dent it, you keep repeating, as above and always, that the Guv creates money when it spends, but you ignore my straight-forward questions in that regard….. Since when? and, How did it happen?
Don’t think I ignored your questions. Just think I pointed out why you’re dead wrong. To do that the detail was necessary. Sometimes it is necessary to tell the truth instead of just giving a BS story.
Anyway, the record of both sides is there for people to see. I’ll let them make up their own minds about who’s got the narrative right and who’s just slinging the BS to defend a pre-conceived opinion.
Funny that I saw nothing that you wrote that contradicts anything I had said, just some errant observations about how functional finance “joins’ the private CB with the Guv, which allows us to gladly pretend that the private CB IS the Guv, just so that we can say that the Guv creates the currency because they create coins and ‘reserves’…….., which reserves used to actually BE gold, but which today amount to nothing more than keystroked and journal-entried, inter-bank settlement media that NEVER contribute one cent to our GDP, and which remain quasi-necessary only as long as we have a debt-based system of money.
Please, Joe, tell me one fact that I wrote that qualifies for the BS pre-conceived opinion that you speak of.
Who pays the Bills of the FR system, Joe, including that sacred B of G’s?
Is it the Guv, or the banks?
It is past time to stop perpetuating the myth that we have either a public central bank (FRBNY is a stock-issuing PRIVATE Bankcorporation, with all advantages appurtenanced thereto) or a publicly-issued money system.
We have neither.
That the banks exercise what Lincoln called “the supreme prerogative of government” by creating and issuing the money does not make them part of the government.
Sorry ’bout that ‘too many irrelevant words’ carp, but we’ve all already had that discussion.
The BS is where?
Whenyou pay taxes using your bank deposit the Fed debits your bank’s reserve account to effect payment. Reserves come only from the Fed, and in the case of an overdraft in a reserve account, an overdraft *is* a loan from the Fed and booked as such on statement day. Bottom line- the $ that pay taxes come only from the govt/one of its designated agents.
And, as Joe wrote, functionally the Fed is entirely an agent of Congress. What are called shareholders are nothing more than depositors.
If we don’t tax people at all but the government proclaims the people must use its currency to conduct business, the same way that the government says we drive on the right side of the road, does that currency still have ‘value?’
Without tax collection it would be far more problematic to determine whether people are in fact using the currency.
Like we need to know how many drivers are driving on the right side of the road (which should equal to the total number of drivers, hopefully)?
I’m pretty sure drivers aren’t required to drive on one side of the road to maintain the value of cars.
Thus, I am hoping we can do the same with the currency.
Nobody cares about what happens to their check when they pay their taxes. It has no relevance to what we are trying to accomplish with public purposed money.
The real people see their bank-credit balance reduced by the check amount….that is all that is relevant to their ‘real economy’.
Inter-bank settlement operations have NOTHING to do with our real economy.
CB-interbank reserve diddling is typical introduction of irrelevant ‘fog around the money.’ We’re long past being impressed by reserve-adds and reserve-drains.
‘functionally’ the Fed system produces Billion and Trillions of profits for the banker-owners of shares in the Fed SYSTEM (and others).
Those banker-owners making those profits are legally bodies bankcorporate, and no amount of Mosler shoe-horning can ever, in reality, make them agents of the Congress or of Guv monetary policy.
Fed Reg.Bank Pres’s serve as agents to the FR Board in their handling of printed currency until it enters circulation. That is the real extent of ‘agency’ within the system.
What are called ‘shareholders’ are the bankcorporate bodies holding shares in the Regional FR Banks, including our central bank.
Functionlly, the Fed SYSTEM perpetuates a system of money based on debt contracts, that draw perennially-compounding interest from the Ninety-Nine Percent to the One Percent.
Nobody cares whether a bank overdraft is a loan from the Fed, or not.
What I know is that if I overdraft my account for 10 bucks for one night, I get a $35 fee, but the banks pay only a quarter-to-half of one percent on their overdrafts.
I pay thousands of percent.
Funny how banking benefits the One Percent that way, eh?
Incredibly arcane subject but I think I’d declare June the winner.
We only get the “M” in MMT when it’s post 1971 and money is completely fiat. But it’s not as though the other 99.9% of mankind’s experience with money suddenly became irrelevant.
That prior history tells the same tale over and over. Money is not wealth, goods and services are wealth and money simply represents them. No matter what the mechanism, if too much money is issued representing a slowly-growing quantity of goods and services we get price inflation. This saps purchasing power and reduces a standard of living, unless of course the wage side keeps up.
Apologist theories that enable the endless expansion of the state are to me quite toxic. Eventually they end up in the same destination: a bloated parasitic state adding nothing to the productive capacity or wealth of a society.
[lambert blushes modestly] Giants, shoulders.
what if you don’t want a job, but still need a paycheck? It sounds like it would be a lot harder to skate by on the margins of society in an MMT regime. How could somebody not have a job if there’s a job guarantee? It would appall people. You’d have a hard time explaining yourself to society at large. To not have a job would be a form of sin and an odious dereliction. The police would come and arrest you for laziness and lock you up and then make you go to work, doing something that would require you to abandon both your mind and your soul. Not much would change! But the streets would be cleaner, that’s for sure.
That’s not the JG proposal. In the MMT proposal, the JG is non-coercive. People don’t have to take a JG job. They can rely on the same safety net they do now. There can even be a Basic Income Guarantee (BIG), for those who can’t work or who don’t want to, as long as there’s a substantial gap between the living wage of the JG and the BIG.
I agree with you that the existence of the JG would probably result in a greater stigma being attached to able-bodied people who didn’t want to work. But, if that results it will be because most people believe not working is reprehensible. Those of us who believe that working at a job ought not to be compelled, will then have to persuade others that ours is the right way to look at it.
That may be a burden on us, and having the additional stigma on those who make this choice may be a heavier burden on them. But, today there are roughly 26 million people out there who want a full-time job at a living wage with good fringe benefits who can’t find one. When I compare the burdens they are bearing with the burden of the additional stigma people who choose to remain free of employment at a job, I think the right choice for Government between these two burdens is very, very, clear. The obligation we owe to the unemployed who want to work, but can’t find work in our present failed economy is far greater than our obligation to those who want to avoid the additional stigma of choosing not to work in a JG world.
Not having a job is already viewed as stigma. It has been this way for centuries. Choosing not to work because one has the financial means to do so is of course the exception. But, not working and being poor is a moral crime. The problem we have is lack of a mechanism in place that will ever guarantee that folks in poverty that would like to work can find work. That’s what the Job Guarantee proposes to fix.
Of course, we can challenge the linkage between income and work. Personally, I think it’s a detestable arrangement. But, that’s a criticism of capitalism, not MMT’s Job Guarantee.
I hope one day we move beyond making sure people ‘who like to work can find work’ to helping people who ‘like to work meaningfully can find meaningful work.’
Right now, people already working, at jobs they detest, are completely left out of the discussion.
It’s a ‘quality’ issue, similarly to asking Krushchev that ‘we don’t care about your record wheat harvest, but only this, are they organic and healthy or laced with pesticide?’
Please pay closer attention to the Job Guarantee literature then. The jobs created in the MMT Job Guarantee will be defined with the bottom-up participation of enrollees in the program. So they will have their input on shaping jobs so they will be meaningful to them.
Since that’s the case, people working in the private sector at non-meaningful jobs will be able to quit those and move to the meaningful jobs in the JG. Soon that will pressure the private sector to either structure meaningful jobs or pay more per hour for people to trade-off meaningfulness against increased compensation.
I wonder if it will work as described in the literature you mentioned.
It sounds like we all should be in JG then, from the president on down.
Mitch, if you detest that work-income linking arrangement, I believe JG perpetuates it.
This is a good opportunity to philosophically reflect on the human condition and to post rock & roll lyrics that sum things up:
Cleaned a lot of plates in Memphis
Pumped a lot of pain down in New Orleans
But I never saw the good side of the city
‘Til I hitched a ride on a river boat queen
Big wheel keep on turnin’
Proud Mary keep on burnin’
Rollin’, rollin’, rollin’ on the river
Rollin’, rollin’, rollin’ on the river
If you come down to the river
Bet you gonna find some people who live
You don’t have to worry ’cause you have no money
People on the river are happy to give
Big wheel keep on turnin’
Proud Mary keep on burnin’
Rollin’, rollin’, rollin’ on the river
-Credence Clearwater Revival, Rollin on the River
I don’t know where that river would be. It may just be a river in the mind and you only get there if you make lots of money as a rock & roll artist and you can lay around and not work. At any rate, it’s hard to manage a society with 300 million people without Jawbs. God know what kind they’ll be or what it’ll do to politics, but if you don’t have one it doesn’t really matter does it? It wouldn’t to me. Let them test the JG on a place like Memphis and if it works, roll it out on the river!
Ya CCR! Been listening to them lately on the Walkman at the gym when I need a sonic barrier to protect me from whatever the hell that crap is they are playing.
Not that the lyrics make any sense…they got riverboat gambling on ‘Ol Miss…but I think the cash flow is the wrong direction.
Humans in general are weaker today than 100 years ago.
Today, people fear silence.
Everywhere they go, they must have ‘music.’
Silence? That’s scary.
I don’t know if there can be a “Saskatchewan of the JG” (single payer reference). Is there a real guru out there who does?
If you haven’t noticed, there’s a stigma working at shit jobs too, and the majority of jobs are shit jobs. It’s also extremely depressing that one has to spend all the best years of one’s life toiling for eight to ten hours a day, 5-6 days a week, for fifty odd years at said shit jobs, or any job for that matter. That’s pathological.
I might buy into a JG if we witness a radical shift in the nature of work (far better flexibility, work conditions enjoyed by the average tenured professor, and mandatory vacation time counted in months not weeks, shorted work weeks–25hrs sounds good–along with a humane and living wage). Absent those types of systemic changes, and all the JG boils down to is a pontificating Puritanical noose around one’s neck: It’ll be same old same old for workers laboring in shit jobs
To reiterate. A JG would only be a just arrangement if the work to be done was meaningful and fulfilling, with humane perks, say, like a tenured college economics professor enjoys.
*** On a related note, any one with an income over $1 million a year will be taxed at 90%. Redistribution should be a staple of MMT. It’s a perk from privileged workers to unprivileged workers in shit jobs—MMT JG shit jobs too.
100%, otherwise they would start making 10 million a year to come out ahead, after taxes.
“It’s also extremely depressing that one has to spend all the best years of one’s life toiling for eight to ten hours a day, 5-6 days a week, for fifty odd years at said shit jobs, or any job for that matter. That’s pathological.”
It is extremely depressing. People say it’s depressing to be unemployed. Indeed it is. It’s also depressing to spend one’s life working most jobs. Some people claim to collect disability because they are too depressed to work, I say work itself is a major cause of depression, work such as it is makes people depressed. Do you not work because you are depressed or are you depressed when you work?.
“I might buy into a JG if we witness a radical shift in the nature of work (far better flexibility, work conditions enjoyed by the average tenured professor, and mandatory vacation time counted in months not weeks, shorted work weeks–25hrs sounds good–along with a humane and living wage).”
I’m with you. I think most proponents of JG like to work within the system, and that’s why they don’t go there – to reduced work weeks, etc. and not because of any inherent conflict of that with the JG. They’re basically “work wihtin the system” types not radicals.
“Absent those types of systemic changes, and all the JG boils down to is a pontificating Puritanical noose around one’s neck: It’ll be same old same old for workers laboring in shit jobs”
Although in theory a JG allows a lot of flexibility to say take 6 months off and get hired again etc. (although that should be explicit – any government program can decide the criteria of eligibility – very little of the current meager safety net comes without constraints for instance – and in a work ethic culture, it would be easy to say “take 6 months off, no job guarantee for you!”). I have this lingering fear that what will really happen is something like Vonnegut’s novel “Player Piano”. Almost everyone employed with the reeks and wrecks doing BS jobs. We may have a minimal choice of masters with a JG (not really if you can’t get another job), but where is the system in which working people DON’T HAVE masters?
Malmo, craazyboy, Jrs, excellent points.
One word: quality.
Sounds like an impossible demand. Check the post again on better options, and realize the JG sets the baseline for the private sector wage and benefits package. JG may not provide “justice.” But it makes matters more just.
Here’s a good conversation starter on the subject of work:
Malmo: The JG can have those kind of conditions if the society is productive enough to make every job have a working conditions / pay mix at least as good as that of tenured professors. If the working conditions are worse, the pay should and would be higher. But many societies in the past were not so productive. Saying that a JG has to wait until the society is wealthier, that unemployment and dire poverty, perhaps starvation is and was OK as long as it is in a poor society is not very sensible.,
As for the JG being the same old, same old, “working within the system” – Though this guy should have thought more carefully about “the right to work” which he clumsily called ” the first clumsy formula wherein the revolutionary demands of the proletariat are summarized” in the preceding sentence, he next said:
Contemporaries like Nassau Senior & De Tocqueville on the other side understood perfectly well that the JG was dynamite to the established order. The bad guys, the elites have always understood this. Not having a JG is the only thing that keeps their boots on everyone else’s neck. But so many think that the .01%ers are stupid. (As a class) they’re evil, not stupid.
They may have learnt nothing since back then – 1848. But equally they have forgotten nothing, while they have worked hard to ensure everyone else has. Hell, people hardly remember 1948 or 1978!
Have you considered how many of the 92,594,000 Americans who have been defined out of the workforce might be interested in applying for the JG, as a way to participate in the economy instead of struggling to subsist? Benefits? That would be a HUGE savings for many of them. Especially if the BIG doesn’t include health care and they don’t want or can’t get Medicaid. The pool of ready and able workers may well be structurally huge in comparison to capitalist needs. Sparkle pony jobs?
“Rules that prevent the Fed…from monetizing the debt, is a self-imposed constraint”.
This is how it is in the U.S.
Canada, however, has no such constraints. There the Central Bank can participate directly in primary auctions without restriction. And contrary to (orthodox) expectations experience has shown that this allowance for “monetization” makes absolutely no difference in what pertains to controlling inflation. The Canadian record does not compare unfavorably to America’s (or Europe’s) in this regard.
Now that deflation, rather than inflation, has become the real threat in the Northern hemisphere it’s time to jettison the “no monetization” rule and its corollary – Central Bank “independence”. This would also boost democracy by putting the Central Bank firmly where it belongs, that is, under the control of elective bodies.
‘Canada, however, has no such constraints. There the Central Bank can participate directly in primary auctions without restriction.’
Great for house prices, eh?
MOAR, please, gentils monsieurs
The Canadian institutional setting certainly serves to disprove the myth that “monetization” leads to inflation.
And two of the worst housing bubbles of the century took place in countries that are not even monetarily sovereign – Spain and Ireland. The ECB orthodoxy did nothing to prevent those bubbles from developing and then bursting, with tragic consequences.
Let the Treasure monetize at the Central Bank. And end the fiction that sovereigns need “bond markets” to finance their spending. Such steps would make clear to electorates that governments do not depend on the financial sector. The banks need the government’s license in order to operate as well as its funding for the inevitable bailouts, not the other way around.
From 2003 to 2013 our CAD increased by close to 50% for a 4% annualized increase.
This means that our prices should have decline by 4%. Instead, we have seen inflation of what they say is around 2%… so I would argue that our inflation has been around 6% if not more. And the richer you are, the higher your inflation has been…. but as long as assets keep inflating you think you are fine.
The problem today is that asset prices are out of touch with the income they produce, that means a large percentage of those in the top 10-20% are bound to fall prey to liquidity crunches.
Forget inflation/deflation, it’s all about purchasing power. Both inflation and deflation can ruin your purchasing power.
Let’s stop issuing treasuries and let’s see what happens to pension plans…
Do these plans just buy corporates and equity… which probably get cornered by government spending? But then if government can just print, they are safer and this would mean lower returns, right? Or do we ditch all these plans and just go pay-as-you-go?
It seems clear to me that without treasury issuance, we are forced into a pay-as-you-go pension system.
So let’s say we go pay-as-you-go… what about the money that is already in these plans… does the government just seize it and give the same pension benefit to everyone, if not, who determines how much each individual gets?
It looks like a lot of meetings and fighting to me and that no matter which route is chosen, there is still a lost generation out there.
which probably get cornered by government spending
that can get funneled through private equity/infra that the general population can not invest in.
Why would the Treasury have to stop issuing bonds required/desired by pension plans? It could issue bonds to offset (sterilize) part of the increase in the Fed’s balance sheet to support fiscal spending. This seems similar (to my uneducated eye) to the Chinese central bank’s issuance of RMB bonds to sterilize the increase in RMB when they buy trade surplus dollars. A rational mix rather than 100% either bond markets or Fed monetization.
Agreed. Treasury can issue a national savings certificate specifically designed for pension funding and even household saving. The important thing is taking bonds away from corporations, for whom they act as a handout.
It’s more important what the Treasury does with the money from issuing certificates to pension funds.
I propose an automatic reroute where every time the Treasury sends money, via debt that the Fed purchases, over to the Pentagon for purchasing drones, it goes, instead, into the accounts of the Little People at the Fed (thanks, Dan).
This is called Money Creation via the Little People spending it into existence.
Oh, so that’s what you’ve meant by that! “Vote yourself a farm!” indeed! Not there’s anything wrong with that.
Sorry for not being clear before.
Vote yes on free farms and No on drones/bankster bailouts!
The focus should be on whom the Treasury sends the proceeds of those bond issuances to and how they spend that money.
Sound like a sterile market to me.
Let’s stop issuing treasuries and let’s see what happens to pension plans… Moneta
Then boost Social Security to compensate.
Ya see, Money-ta, welfare should be proportional to one’s need, not proportional to the size of one’s money hoard.
I prefer having the Tsy set an interest rate at which it will issue at key points on the term structure, and then issue according to demand. The rest of the national debt can be in reserve balances. And then it’s obvious that interest on the national debt is a policy variable.
“” Let’s stop issuing treasuries and let’s see what happens to pension plans.””
‘Treasuries’ are marketed public debt securities, issued by the Guv for the purpose of funding government spending .
Were the Guv. to be issuing the currency, and fund its deficit spending with fiat Treasury issuance of real moneys, then there would be no need for Guv borrowing, or for the issuance of any debt-contracts by the Guv..
There have always been USGOV Savings Bonds, and there is no reason for the Guv to not have a true ‘savings’ account Cd-like presence….could be one of those Postal Department functions.
Pension funds would undoubtedly define the next safest ‘deposit’ for its monies…. same as you and me……either other public securities (state or municipal), or new forms of savings options that are a match to the Fund and its depositors.
That future is ours to make.
Any sovereign fiat-issuing government could fund its retirement payment obligations on an ‘as you go’ basis, but that can only be the result of the money-system transition (to government issuance), and is not workable with today’s private, debt-based money.
See my previous reply to your earlier comment: http://www.nakedcapitalism.com/2014/05/mmt-postcard.html#comment-2193078
Thanks. But can you say which para is relevant to this part of the discussion, please.
In economic anthropology, money has a memory function. We are rather used to the idea of ‘wiping memory’ now – more hard drives than MIB – and could retain some of the original ‘program’. We cope in war. I’m trying to work on a demonstration that 40% of money is not related to the kind of wealth capacity that provides utilities and basics – the figure is a guess at the moment. We’re trying to work out relations between productive money and spending and what we currently bundle as ‘other money’ in real time. We doubt anything much is saved or funded other than in a virtual system. Our interest is more on why work has become so expensive.
Specifically, under the control of the Secretary of the Treasury. Let’s make the President and Congress responsible for whether the economy is healthy or sick, rather than looking to the Fed to things it cannot do.
Right now, the President and members of Congress all have to run on the health of the economy already. That is, they are responsible, to the voters, for whether economy is healthy or sick, even while claiming, unfairly (things it can not do), the Fed’s lack of action.
And the Platinum Coin thing as well….at least in principle..
Jose, could you explain this in layman’s language? And give the implications concretely?
Blast! A comment for Lambert just whisked off into Internet Limbo!
I know that it is poor etiquette to whinge about it, but, is the NSA now running an automated pre-moderation moderation program for NC? (Puts on tin foil hat.)
I’ll try again.
I am a plumber and would like to draw your attention to a seldom discussed phenomenon known as “Social Entropy (TM).”
Roughly speaking. “Social Entropy (TM)” posits that social resources, both skill sets and physical goods, decay in an inverse relation to the “worth” of the social units accessing them. Thus, more highly “valued” social units, individuals and family units, as generally expressed by financial status in the West, garner the superior resources. This distribution of “goods” falls along a standard curve. Due to concentration of wealth trends, the supply of superior tradespeople and goods will shrink to meet the falling demand for such. The rest will scramble for the dregs that are left. Because of inferior motivations, people capable of superior functioning in the trades are avoiding them like plague fearing farmers in Thirteenth Century Tuscany.
Once people begin to decouple socially useful skill sets, like plumbing, electrical work, interior design, etc. from the strict financialization of said skill sets, a more civilized social sphere will emerge. (Plumbers are not conveniences, even though they work on said. [Short form: Don’t piss on your plumber, less he become pissed off. Although, I do admit, as Thomas Pynchon had a character remark in “Mason & Dixon;” “..piss runneth down a hill, and payday is on Saturday.”]
I’m sorry. Can you please express this in common sense English?
In plain text:
“Social Entropy” I put forward as a version of “Crapification.”
As goods and services are presently allocated through the medium of money, whoever has the most money gets the best of goods and services. By best, I mean the finest materials and the most skillful tradespeople.
As inequality increases, the overall demand for the best goods and services shrinks. An example of mal distribution of resources. The rest of the 99.99% scrape by with the dregs. Being viewed as and treated as ‘dregs’ is depressing and disheartening. (I speak from personal experience.) People with any self respect will shy away from that situation. You end up in a hollowing out of your trades. Standards decay, which I view as basic entropy. (Most people are not saints, to strive after arête with single mindedness.)
So, to sum up:
Wealth inequality drives crapification.
Crapification drives honest people out.
Honest peoples niches are filled by Crap people.
The system dies.
Thanks. That’s really very good!
Sorry if I was a bit terse. We were starting dinner about then. I realize that I need to hold back and do more internal editing.
Keep up the good work. It can’t be much fun fighting dragons day in and day out.
I believe Bill Black would call that a Gresham’s dynamic?
(I’m not sure “wealth inequality” can drive anything; it’s an arithmetical expression, not a human relation. Capital, on the other hand, very well might. Perhaps crapification = immiseration ;-)
Please read our Policies section. We are very clear about how moderation works. We have also explained it frequently in the comments section. If we did not have moderation rules in place, the comments section would in short order be overrun by trolls and become unreadable. Most MSM pubs moderate all comments (as in none appear automatically) so your complaining about our much less restrictive approach is hardly warranted.
My apologies. I should have appended a *snark* to that first part. I have read the Policies. (I guess I was being too “clever” for my own good.)
Excellent post, Lambert. Just to let everyone know, Dr. Kelton will be on a panel at Left Forum tomorrow at 5pm. Left Forum’s Twitter handle is @leftforum.
Krystal Ball is moderating that panel. Here is the page on the panel. The topic is: “Yes, We Can! (So Why Don’t We?): Building An America Where All Prosper.”
Let’s not forgot that MMT is ultimately a social theory–not a science. And I don’t mean “theory” in the scientific sense. I mean it as in, it’s an idea that has some superficial rationale to it they may or may not work out in the real world depending on specific mineral/energy resource availability, cultural norms, government/currency issuer legitimacy (or lack thereof), weather patterns, etc. There is a long list of specific conditions that must be met and assumptions that can not be questioned in order for MMT to be theoretically valid and applicable to the real world–much like neoclassicals make assumptions about rational consumers and market equilibriums. That MMTers don’t see these as assumptions, but as “facts”, speaks more to their cultural upbringing and subjective experience of reality than it does to universal, generalizable principles of the human condition.
With the above starting point in mind, MMT still fails to account for the enduring value human beings have placed on rare/precious things throughout the entire history of the species. And I have personally witnessed those who espouse faith in the MMT ideology react from varying degrees of confusion and hostility to the idea that people would 1) value things such as gold/bitcoins for their intrinsic value and 2) choose to conduct economic transactions in ways other than those prescribed by the MMT ideologue. The hostility often increases when, even after the MMTer carefully explains her theory and why it makes immaculate sense, the listener decides that the whole thing is rather doubtful and continues valuing gold/bitcoins, or worse continues conducting economic transactions in such medium.
MMT also fails to account for the value of trust in the system. MMT implicitly presumes that the currency issuer is honest and has the best interests of society as a whole at heart. In MMT everyone is required to fall into line with the systemic monoculture political/economic policies of the governing regime because the governing regime is good, or at least potentially good, and those who dissent by conducting their economic activity outside of the auspices of the regime must be violently suppressed.
Of course, those who believe (even with good reason) that the regime is utterly corrupt, malignant and suicidally destructive must be cranks under MMT ideology. If, for example, the currency issuing regime decides that it is a good idea to commandeer the resources of the society to bailout insolvent banks, dump nuclear waste into the ocean, and develop autonomous robots that upon completion will go around slaughtering political dissenters and eventually the surplus population, then these are the policies that are by definition worth pursuing, and that the MMT society must pursue them even at the cost of depleting the entirety of the mineral and social resources of the society. That such things as Social Security and Medicare also incidentally get resources allocated to them under such a scheme are pointed to as proof that the system works and is good.
In the end, the government, the currency issuer, or whoever, must not be allowed to have such a stranglehold on society–because when given such powers the hubris and delusional thinking they induce in the leadership rapidly leads to pretty horrific outcomes. I mean, I am all for having the current society collapse as quickly as possible, but I rather it happen in a relatively peaceful manner with as little harm to the environment as possible–whereas adherence to the ideology of MMT allows the flailing regime to inflict much more damage on its way out than it otherwise would have been able to do.
Can you name a “school” in economics that isn’t a social science?
Can you name a theory of economics that can’t be corrupted?
From your critique, there’s no point doing any social science, apparently, or building any approach to studying the economy.
This comment is largely a straw-man argument, so I won’t waste my time on it.
I’d like to know what’s the “intrinsic value” of a Bitcoin, though.
and let’s not forget another colossal societal failing and destroyer of currency: war.
Lately we’ve had a lot of commentary on MMT posts from people who make assertions about MMT and MMTers and assumptions of MMT without any documentation of what they’re saying. Put bluntly, I don’t believe what your saying, ad I want you to dument your various assertions about MMT and what it assumes.
I think it would be far simpler to just get out an old 1960s Galbraith Sr. textbook and review what we’ve forgotten, rather than announce to the world some small group has “discovered” a brand new, all encompassing macro-economic theory that we can all learn now, and maybe someday vote for it.
BTW: Keynes told us about deficit spending. The main problem nowadays is that the USG has been so crappy at it.
Keynes won’t work. Here’s a comment from Dan PS made at Correntewire, followed by my reply, which is also relevant to your comment here:
Keynes’s argument were not validated during the recession. In particular, the idea of running surpluses in boom tiles wasn’t validated. One difference between MMT and keynesianism, is that MMT thinks that deficits should be allowed to float in the context of savings desires and the trade balance. Let’s say people want to save about 6% of GDP, and they want to run a trade deficit of 3% of GDP, then MMT says that the Government should compensate for the 9% demand linkage by running a 9% Government deficit and spending it wisely on productive things. This recommendation obtains whether or not the economy is healthy, since if you don’t maintain the 9% deficit, then the result will eventually be a recession due to the Government’s failure to compensate for the demand linkage. In fact, MMT says that if the demand leakage to savings and trade continues at 9% then the Government would have to continue running that deficit for as long as those leakages last.
And later the debate coninued:
That’s because you don’t understand the sectoral financial balances model. If you did, then you would realize that Keynesian policies of the sort advocated in the Congressional Progressive Caucus budget, if followed, would very likely needlessly cause the next recession. While if MMT policies are followed that recession would never happen. That is not a difference of nuance between and MMT and keynesianism as currently understood.
So, again, Keynesianism may create a better economy in the short run. But, in the medium and longer runs, it’s a fail. And that’s why MMT is worth studying.
Odd argument that we shouldn’t worry about what’s correct because nobody will be convinced by it.
Just read the thread there myself : It’s complicated, Joe. DanPS was quoting nihil obstet, who said: Keynes argued for deficit spending in economic slowdowns, and high taxing in boom times.
“Keynesians” of the deficit-dove variety love to SAY Keynes said something like this – they usually say “surpluses” (to ‘pay off’ the deficits/debt) instead of “high taxing”. But they never say where, even when asked. The best responses I’ve gotten are Keynes’s “boom not the slump” quote – which is ambiguous, and under natural reading MMT-acceptable & true, & a response by Michael Emmet Brady who directed me to a whole volume of Keynes collected works, saying Keynes was not “a fiscalist” not a specific cite!
But what nihil obstet & DanPS say is vague enough to be what MMT says or consistent with it. For just what does “high taxing” mean? Of course tax receipts will go tend to go up in booms, more activity means more of whatever is being taxed. That’s just automatic stabilization via the tax system. Tax rates need not go up in booms, If the boom is strong enough to cause serious inflation, Keynes & MMT both suggest raising tax rates.
This should not be surprising because Keynes & MMT are not divided by some sharp line. MMT is just Keynesian economics, the New Economics of the 1940s done right, returning to the foundational work that always underlay “The New Economics.” MMT is closer to Keynes’s own ideas than what became known as Keynesianism.
Of course there is nothing to dispute with the rest of what you said.
craazyboy – That is what MMT is – digging out the old (text)books mouldering in library annexes. They’re far better than most of the new ones. Spiffing them up, putting them together, crossing out the boo-boos. Saying what was said in a hundred words with ten, and then following your nose. That’s what a lot of work in any science is – including work that is acclaimed as the very greatest.
Skidelsky has stated that American economists during WWII adopted a form of bastard Keynesianism focused almost entirely on government spending, ignoring his broader recommendations for maintaining full employment. After a meeting with a number of those economists Keynes is supposed to have remarked he was the only non-Keynesian there.
the first paragraph is a fair critique. there is a “ceteris paribus” implied in all MMT thinking. All other things being equal, treating money as it really is — purely imagination, formless, timeless, infinite and eternal — and printing more of the units that frame it, as needed to employ people, would make society a better place.
It may well do that. But it might not. Since nothing here is “ceteris paribus”. The very act of doing this would change the structures of power and social relations in ways that are not at all clear. The Russian Revolution started off with wonderous hopes, so did the French revolution, so did neo-liberalism, so does almost any scheme to remake society. They all start off with wonderous hopes and fervent apostles furiously certain of the pathways to heaven (sorry that was bad corny writing, ah ahahahahah).
I’m not saying it would end bad. But it would certainly change, in a quite significant way, the manner by which society organizes itself and restrains itself. Money spent into existence would be spent into a framework that would be subject to the same political stresses the current framework is faltering under, the same disagreements about social good, the same conflicts and oppositions. Would the framework hold up, resist and endure, or would it cave in its own way into something horrible, where it’s inner unresolved and suppressed demons emerge and lay waste to its fantasies.
There’s a clear dimension of political, almost anthropological, analysis that seems missing in the talking points. Somebody could say, “That’s a dumb argument, since things suck so bad now. How could they get worse?” Well, they might get worse in the 180 degree opposite direction. there might be better ways to make things better that don’t view money as it really is. Sometimes a little fantasy guides reality. Sometimes fantasy overwhelms the mind in the mind gets lost.
I apologize if it’s all be covered on MMT blogs, since I’m too lazy and distracted now to read them. I just sit around and channel mostly. Sometimes it works. Sometimes it doesn’t. I’m just being honest.
Craazy, I deeply respect the idea that things can get worse. At the same time, I believe that “treating ____ as it really is” (I replaced “money” with a blank to fill in) is the only way forward; there is so much fraud, so much bullshit that Orwell’s comment — “In a time of universal deceit – telling the truth is a revolutionary act” — applies. (I don’t mean “truth” with a capital T, as a dove descending, or whatever, but a basic solid truth like plumbing.) Something not crapified.
Are we talking about plumbing, as practiced by fallible and stressed out humans, or Plumbing, as the Aristotelian Perfect thing?
It’s good to have ideals to guide us, but the actions taken are the reality, not the ideas that prompt the actions. The manner in which the thing is carried out determines the outcome; that and chance. We need people, or if AI does come, machines, who have positive standards to drive the process. There is where the ideals come into play. As our enemies on what we choose to call The Right, and let us be clear, there is a major conflict going on, have demonstrated, setting the agenda and defining the terms of the discourse are the best ways to insure success. How many times have we seen someone complain about the silence of the MSM on some important issue in comments? The implied corollary is that the ‘Masses,’ a useful term, cannot make informed decisions if they have corrupt information on which to base their decisions. I do not remember the proper context in which Orwell made that statement, but I feel confident that he would agree that telling the truth is of no consequence if no one can hear it. (Unless Orwell was a closet Existentialist.)
To be somewhat churlish, the present Oligarchs are defining money as what they want it to be. Not defining it as we would like, but as what does them the most good. Since it is at present doing them a whole lot of good, money as presently constituted, is bulls—, and is fraud.
Sorry for the half baked rant.
“should exercise all this skills of their craft as a contractor, shouldn’t put in cheap stuff when good stuff was specified, should warn you if you are about to do something stupid”
This should be the ethic for all contractors yet greed and delivering “what the customer wants” (regardless of how stupid it is) has gotten in the way. No reason to ever put the cheap stuff in – “anything worth doing is worth doing right”. It’s a waste of your installation time to use sub-par materials. Not to mention the inherent energy in your other materials.
” I want people like me (working people) to have nice things — concrete material benefits. Lots of them.
Totally agree with the first part but you lose me on the second. The purpose of life is not to accumulate “things”, not matter how nice they are.
I really love your dog/bone/jobs metaphor. It illustrates the uselessness of “job training” initiatives and how the elite keep us running around in circles for a “jawb”, no matter how socially useless/environmentally destructive the job is. Dollar stores are a perfect example of this: low quality, near useless items created using resources that could be directed towards much loftier goals than someone doing “make work” to earn a living. Yay! More cheap plastic crap made with war oil!
Employ yourself (create your own business—something that usually goes up in recessions although most of these businesses fail)
I started my own custom woodworking/hardscaping business specializing in quality and a comprehensive skill set (doing more fell-to-finish jobs) in the middle of the GR. I feel there is a big push among the younger members of society (say, starting under 40 but big under 30) to return to a simpler life but where things are done well. I think this ties in heavily with the jobs guarantee. We need more skilled craftsmen and fewer half-assed, slap-it-together Skippys. Less sub-par Chinese/Taiwanese made psuedo-tools and more European/real American machinery/heirloom hand tools. There is no reason to build crap machinery just to give people jobs making it, especially when it won’t last 1/10 the time of something costing 4x as much. Since we don’t have a lot of cradle to cradle products this takes up a lot of landfill space. Out of sight, out of mind doesn’t get rid of the problem. People don’t have proper reverence for the inherent energy in their materials. Yeah, a 2×4 may cost $2-3 but it was taken from a tree probably 80 years old, used fuel to transport it to the sawmill, fuel to the store, fuel to your house. Would you value it at the same cost if you had to do the whole thing by hand? How long does it take to replace/renew that material/resource? I urge people do get nice things because they LAST and in the end it is far less wasteful. “Money” only really serves as a license/vehicle to deplete resources faster than you otherwise could. One of the worst drivers of this is “fashion/style”. I can’t tell you how much decent furniture and cabinetry I’ve seen thrown away because it was “out of date”. I’ve seen people that redo their kitchen every 7 years. Hey prosperity! But don’t worry about the effect on carbon sequestration.
NOTE OK, there should be no plumbing! We should all use composting toilets in our back yard! I’m down with that, I’m a permaculturalist! It’s just a metaphor!
Me too! I love composting toilets. Small community sized anaerobic digesters are nice too. I believe we can have a world with little to no “waste” if we plan correctly.
Good points, MtnLife. Let me know if you want to work on/at/in a money-free, Jeffersonian environment where water is not used to flush wastes. Unfortunately, for now at least, it will likely be funded conventionally.
Lambert, thanks for preparing this. You provided enough hooks for me to take the time to explore MMT further…
Which region is it located in? I might be up for at least lending some time/skills for a worthy cause.
“The purpose of life is not to accumulate ‘things’, not matter how nice they are.” Well, abstractly.
First, I’m a Maslow’s hierarchy guy, and for millions of disemployed and underemployed, “nice things” at the base like food, clothing, and shelter come before “meaning of life”-type self-actualization at the apex. Slave cultures are big on knowing your place and being happy to stay there because, begad, you know the meaning of life. I don’t think I’m sliding over into gross consumerism when I say that the JG wage should set a humane baseline.
Second, one purpose of politics, part of life, is to deliver “concrete material benefits”; that’s one reason the New Deal held up under assault as long as it did. That’s why (in our last vehement MMT discussion) I’m a predistributionist; the way to deliver people “nice things” is to deliver them “nice things”, not get them a process that might or might not get deliver “nice things.” Adding… And if you want to take real resources from the rich, that is the way to go.
money……who gets it? ….who chooses who deserves it?…there is no escape from us.
Is unemployment also a sign that inequality has grown too expansive? Yes, because we know that unemployment is a consequence of inadequate spending.
Lambert, that’s a good summary that hopefully makes it easier to see where there are legitimate differences of opinion about the relevance of Modern Money, especially those making political claims about mass employment, aggregate demand, platinum coins, and so forth.
1) Taxes + Inflation funds federal spending.
2) Of course an infinite number of currency units can be printed. Everyone is an MMTer, from war criminals to financial fraudsters.
3) No one disputes this. Although, I would add an important additional criteria that MMT often leaves out: the US Constitution. Real resources are not the only constraint on federal action. The Constitution also (theoretically) limits the scope of acceptable federal government behavior. Indeed, the assault on Constitutional governance, not inadequate aggregate demand, is the central problem in our system of political economy.
4) Again, no one disputes this. The debate is about whether we want social insurance, not whether we can print the currency units to mail to people. Plus, it’s worth pointing out that if full employment solves social problems, why do we need social insurance? Universal health and unemployment insurance is one of the primary alternatives to a Job Guarantee.
5) I vehemently disagree here. First, lack of a job is not inherently bad. Indeed, not being at work is one of America’s favorite past times, from vacation to education to retirement to seeing family over the holidays to volunteering in the community. But more fundamentally, the focus on employment is distracting from the real problem, which is the distribution of resources. We have lots of wealth. If anything, we would be better off by working less, in aggregate, not more. The stress of work and the rise of the two-income household is one of our biggest public health dangers, plus, it is why our political system has degraded. People literally do not have the time and energy to be involved in civic life.
What matters is how money is spent, not how big the federal deficit is. The war on drugs is oppressive, not liberating. The TSA makes us worse off, not better off. GWOT endangers national security rather than protecting it. The banksters and war criminals should be in jail, not receiving federal spending. Subsidizing oil and intellectual property and so forth makes our food less healthy, not more. On and on, we would be a better nation to eliminate these government programs, not spend more on them.
6) This is a whole issue in and of itself. The JG isn’t what provides democratic control over working conditions. Democratic control is what provides democratic control. Saying that JG solves crony capitalism and the two-tiered justice system and environmental devastation and the general concentration of wealth and power is like saying that a secret peace plan solves world peace. There are, roughly speaking, about 175 million Americans who are incarcerated, unemployed, not in the labor force, or working in a low-wage crap job. That is a problem of leadership, a management failure, not a monetary failure.
The very act of proposing that a JG worker should make less money and have different working conditions than, say, a judge or prosecutor or police chief or tenured professor or doctor or university administrator or hospital administrator or DEA special agent or local government official or other public employee is to entrench and sanction the very inequality that is destroying our system.
“Saying that JG solves crony capitalism and the two-tiered justice system and environmental devastation and the general concentration of wealth and power is like saying that a secret peace plan solves world peace”
Talk about a straw man.
All it’s saying is that compared to current approach you’ve got direct control over a few things that from any other economic perspective you don’t.
What do we do to address crony capitalism, two-tiered justice system and environmental devastation?
Ecologically-based monetary economics.
A read of the Preface explains the poli-sci based money construct..
Before I dive in, can I ask if it related to JG or MMT?
It’s related to the science of money, written by a Physical-science Nobelist who ties connects that reality(2nd Law) to how our money system MUST function in order for ‘sustanability’ to mean anything for the grandkids.
If that’s important, please have a read.
The role of money is to distribute the wealth that is created by labor(energy).
The wealth concentration that results from debt-contract based money is in the design of that system. This is covered in the Preface to the document.
1) Taxes + Inflation funds federal spending. washunate
Not necessarily unless you insist, like the deflation-loving Austrians, that the prevention of deflation = inflation.
But otherwise I agree with your stance against a JG; we need a BIG instead plus land reform and the redistribution of the common stock of all large corporations.
Yeah, that’s the tricky part. “Inflation” has become such a no-no that it’s hard to figure out what language is appropriate to describe what happens when currency is printed.
MMT observes that taxation regulates the value of the currency (it destroys it, after all) yet then seems to get uncomfortable when one points out that creating currency units has the same effect in the opposite direction.
All the above equation says is that currency creation = federal spending – currency destruction. Which is just another way of saying that net deficit spending = total spending – tax revenue.
Yes, but obviously some money creation is good else our current money is bad and, reductio ad austrian idiotus, gold mining should be banned since the Austrians claim (but don’t really believe, the foul hypocrites) that gold is money.
The question then is not whether money shall be created but HOW and that’s where ethics comes in.
Reasoning, please. I think that currency and/or reserves created by the Federal Government (Congress, Treasury and Fed), in the presence of enough taxation for people to need a substantial amount of currency to pay those taxes funds Federal spending. No inflation need be involved.
Are you really saying that there aren’t war criminals and/or financial fraudsters who believe that the US Government is running out of money? Are you really saying that many in Congress and most of the pubic don’t believe that the US Government is running out of money? Do you read polling results? Do you really want to say “everyone”?
Again, are you kidding? Do you read the papers? They dispute this every day in the New York Times, The Wall Street Journal, and The Washington Post. They dispute this every day on the cable networks.
Again, are you kidding? Just go to this site and just read and watch (on video) the BS. In fact, just listen to Bernie Sanders. He’ll tell you that if we don’t do something, Social Security will only be able to pay 75% of benefits in 2033.
Also, it’s real simple, need social insurance to create access to health care, for retirement pensions, and to give people a chance to find jobs in the private sector they prefer to JG jobs.
Neither the postcard nor Lambert’s amplification says that lack of a job is bad. What is said or implied is that lack of a job is bad if people want a full-time or part-time job for whatever reason. The JG definition of unemployment doesn’t include people who don’t want a job. So, JG full employment means that everyone who wants a job has gotten an offer at a living wage with good fringe benefits, and is therefor not working at a job purely voluntarily.
I agree that the distribution of real wealth is real problem. Also, the distribution on income is a problem. Also, the distribution of the real costs of economic activity such as environmental degradation is a problem. All that and other things said, unemployment is not just a problem but a terrible scourge for those subject to it. I wish you would not make the judgment for them, that theirs is not “the real problem.”
On your other points in the above passage, I largely agree. We have productive capacity enough to provide more leisure time to people and a better quality of life. I also think most people want that. So, by all means let’s cut the full time work week to 30 hours per week while raising hourly wages to compensate for the loss of income from the additional 10 hours. We can even do that through the JG by setting its full time to 30 hours and its hourly wage correspondingly.
The first matters. The second also matters depending on how one is managing the deficit.
How money is spent matters because as you say below, spending on harmful things doesn’t benefit the economy or society whether or not it raises GDP. MMT recognizes and agrees with this. Remember we’re always talking the distinction between real wealth and nominal wealth. We know that the accumulation of harmful economic outcomes is negative wealth accumulation.
On the size of the deficit during any period of time, it does matter if the deficit isn’t large enough by reason of a deliberate program to constrain it or reduce it, to accommodate private sector savings desires, and desires for imported goods, because then people and businesses will get less of the goods they want, and also will be able to save less than they want to save. The result will be less consumption, slower growth, reductions in employment, and greater mal-distribution of income (because of the disproportionate influence of the wealthy).
It also matters if there’s a deliberate attempt to pre-plan and then implement a larger deficit simly for the sake of deficit spending. From MMT’s point of view the deficit shouldn’t be targeted in budgeting. What ought to be targeted is the various goals of and objectives of fiscal policy including full employment, price stability, and others encompassing other dimensions of public purpose. Here’s a list of the value gaps relating to the other dimensions of public purpose explicitly cited in MMT literature:
— the gap between actual output and projected “full” output;
— High involuntary unemployment vs. full employment;
— Price stability vs. inflation or hyperinflation;
— Minimum wage vs. a living wage;
— No operative right to health care for everyone;
— social exclusion and the loss of personal freedom;
— skill deterioration due to unemployment;
— psychological harm such as sense of identity, self-respect, and sense of
— much greater ill health and reduced life expectancy than necessary;
— loss of motivation to live a full empowered life;
— deterioration of social relations, communities, social networks, and family life;
— increasing racial and gender inequality;
— increasing educational inequality;
— decreasing equality of opportunity;
— loss of social values and sense of individual responsibility;
— increasing economic inequality over time;
— increasing poverty;
— increasing crime rates including increasing use of control frauds by
important economic institutions;
— Failure to prosecute and punish people who commit control frauds;
— The collapse of real estate values and the destruction of the wealth of
working people after the crash of 2008;
— increasing anger against economic and political elites that get more and
more and more wealthy, and more and more immune to the rule of law;
— increasing political inequality undermining political, social, and economic democracy;
— increasing political unrest and threats of political violence both from the privileged and those seeking change.
— increasing environmental degradation;
— Increasing climate change/global warming.
— the gap between current energy foundations of our economy and new energy foundations based on renewables.
MMTers believe that budgeting should target real outcomes that affect people beginning with unemployment and price stability, not arbitrary deficit numbers. We also believe that the Federal deficit should be allowed to float and seek its own level in interaction with savings and import desires in the context attempting to provide full employment and price stability. We also believe that the best way to this is through 1) fixing the financial system so that fraud is eliminated through vigorous law enforcement and regulation, and speculation is detached and divorced from a restructured banking system that will serve only the real economy; and 2) creating a more comprehensive system of automatic stabilizers that will work counter-cyclically to increase deficit spending on worthwhile government projects during downturns, and decrease such spending during booms.
The JG is a critical addition to the current system of automatic stabilizers, as are such things as automatic payroll tax cuts, or perhaps automatic increases in other social insurance programs when economic indicators indicate that the economy is in a decline.
MMTers believe that in the context of the above kind of fiscal structure the size of the deficit won’t matter as long as the public purpose is being fulfilled. But in the absence of such a program deficits do matter. because if they are too small, then the economy will stagnate or contract; and if they are too large in the sense that there is continuing deficit spending beyond full employment, then the economy will produce demand-pull inflation and fail to meet the price stability aspect of public purpose.
First, MMT isn’t talking about “monetary failure.” It’s talking about fiscal policy failure. And second, to make a fair comment it always helps to quote the person whose post you’re commenting on. Lambert said:
“The Jobs Guarantee enables democratic control over a living wage.”
He did not say that the JG provides democratic control over working conditions. You’ve distorted what he said and the distortion makes a big difference. Lambert is certainly assuming that if there is democratic control over US fiscal policy, then the JG will provide democratic control over a living wage. Of course, it’s up to us to create Democratic control. The JG can’t do that for us. Nor does MMT claim that it can.
Are you serious? Are you really saying that every Federal job must carry the same salary and benefits? Are you really saying that all Federal workers have the same working conditions now? Do you think butchers in the Army have the same working conditions, as psychiatrists at NIMH. Please get serious!
We have an economic inequality problem in our society. It’s excessive. It’s a danger to democracy. We ought to remove the excess and eradicate the danger to democracy. But do we want to structure things so every worker receives the same income, regardless of position on grounds that different levels of compensation “. . . entrench and sanction the very inequality that is destroying our system”? I think that very few people in our democracy would agree that this is a legitimate aspect of what we call “public purpose.” No one believes in absolute income equality. What we’re against is the excessive and dangerous inequality of wealth and income we have now.
How many monetary sovereigns are there in the world?
What nation(s) needs never borrow from the IMF and the World Bank, whose loans are often in US dollar?
I am curious if MMT = Imperial currency?
Great Britain, Japan, Australia, Canada, US, that I know of.
Great Britain had to borrow from the IMF in 1976.
No one is exempt (maybe not now) except the empire itself, theoretically, as far as the claim of printing money goes.
And that ‘reserve’ status was ostensibly a voluntary agreement, though Mao could be right that it comes out of the barrel of a gun.
How many (smaller) countries are forced to print money when another (bigger) country prints?
And how many will be forced to print when the biggest country prints?
How is that for ‘monetary sovereignty?’
Back in 76 we were cap in hand at the IMF owing to chronic accounting errors in the Treasury Beefy. The UK economy was actually OK.
All I know is there is ONLY one country in the world who never has to borrow from the IMF (as long as its imperial currency is ‘accepted’ worldwide).
ONLY one country who doesn’t have to worry about adjusting monetary policies for any else, in order to earn ‘reserve currency.’
So, I humbly ask this:
If MMT money is an imperial currency, then is printing MMT money, without due consideration for others, an imperial adventure, an exercise in economic and financial domination?
Or is this another ‘argument stops at the shores. Overseas, we are united?’
Something tells me that there will be a forever growing need to increase military spending to get oil needed for a protectionist economy.
There’s an every growing need for imperial adventures to get oil even without a protectionist economy and with oil sold on the open market (it’s mostly the whole of U.S. foreign policy). If trade was supposed to solve this MASSIVE FAIL.
Of course, we could have agreements on building green capacity around the world using the ubiquitous unemployed.
If it did, it chose to. It didn’t have to.
It exercised its monetary sovereignty to have its monetary policies dictated by the economic hit men of the IMF?
MyLessThanPrimeBeef: It [The UK] exercised its monetary sovereignty to have its monetary policies dictated by the economic hit men of the IMF?
Yup. That’s exactly what happened. The most potent weapon in the hand of the oppressor is the mind of the oppressed. Really, it is the only weapon. Nations always perform the stupidest actions in order to keep up the foreign exchange value of their currency – something essentially impossible, beyond their control. And they pretend to be unable to eradicate unemployment – which is very easy. Just incidentally, both actions always enrich a bunch of already rich people at the expense of everyone else. But that couldn’t be a the reason, could it?.
How many (smaller) countries are forced to print money when another (bigger) country prints?
None. Taking the examples as usual, USA vs everyone else that is smaller, the causality is opposite – deficit spending – preferably by pure money printing – by the USA adds to worldwide demand and lessens the need for smaller countries to print money to support demand. The USA spends by money-printing right now, because it prints bonds ( & currency) – and bonds and money are “one and the same thing”. The absurd distinction that bad theories of money make between them is baseless. Forget about it for initial understanding. It takes two to tango. In current conditions the USA printing money HELPS other countries, not hurts them. Abba Lerner considered essentially ‘printing enough money’ an “international responsibility”. even, and he was right.
Finally, there isn’t any “MMT money” – there isn’t any other kind of money than MMT money, fiat money, credit money. There never was and cannot be.
Britain wasn’t sovereign. It was trying to maintain a currency peg in the wake of the Bretton Wood collapse, which meant getting a loan from the IMF.
There is only one true monetary sovereign.
All others are potential targets of the economic hit men of the IMF/World Bank…if not now, always possible in the future.
Ben, I don’t think that is an enlightening way of saying things, because it feeds pernicious misapprehensions like MyLessThanPrimeBeef’s. Britain was monetarily sovereign. It just had a credit limit in any terms but its own currency’s, just as every sovereign does. The USA cannot maintain sufficiently unrealistic pegs against any other currency either. There is NO qualitative difference between the USA now and the UK then of the kind so many hallucinate there is. MMT, functional finance apply to every state equally, with no changes needed for the open economy case.
Very obvious if one thinks about things carefully & correctly, but can be very hard to get into people’s heads. Even someone like Tom Hickey is seduced by the nonsense that “concerted action” can be necessary or practically beneficial for say a country like the UK to adopt full-bore MMT/FF. The UK was a target of the hit men because it painted a target on its back and said “Shoot me!” And of course what it did, as usual, happened to benefit wealthy parasites and hurt working people. What a coincidence! Sane, prominent, knowledgeable people argued against the UK’s demented actions back in the 70s – including one quasi-MMTer, Geoffrey Gardiner, IIRC.
See Case Study – British IMF loan 1976 – Part 2 for a graph of the pound/$ exchange rate – fixed during Bretton Woods, not really thereafter. Not even a venerable peg. The target was the postwar social contract, the planting of delusions like the UK mystically “needing” the IMF. Maintaining a peg was just an excuse.
The Eurozone, China, all the countries in Latin America, Thailand, South Korea, Malaysia, Russia, Sweden, South Africa, Turkey, etc…
The Malaysian Ringgit is pegged to the US dollar. It doesn’t float; it’s not sovereign. These are the currencies that float: https://en.wikipedia.org/wiki/List_of_countries_with_floating_currencies
If the reserve currency means the country must run current account deficits, it also implies responsible issuance in order to others to accept it, unless we are talking about imperial ukase here.
The whole system may not last long, as we face one crisis after another, in any case, but probably shorter if we keep saying to other countries, especially those whose currencies are pegged to the dollar, that we can print as much as we want, while they earn their foreign reserves.
Like MLTPB said above, the pegging or floating of a currency, or the IMF borrowing, IS an act of sovereignty.
All nations are monetarily sovereign.
Some give up their monetary ‘autonomy’, and those you mentioned are among the non-autonomous regimes. Also the Euro member nations.
Any of them can change their status with regard to ‘autonomy’ by again exercising their rights of ‘sovereignty’, which never go away.
Japan is an interesting case.
She more or less votes what we vote at the UN.
Is she a political sovereign?
I think a country is first a political sovereign before she can be a monetary sovereign.
To me, there is only one monetary sovereign – the one with the reigning imperial currency, that is, one with the reserve currency status, backed by military power – who never has to worry about the economic hit men of the IMF.
There are some aspects of critique here that may be valid Joe. I agree early all of Lambert’s unusually good review and what you say above. I really don’t care about the ins and outs of the accounting – the issue is that money can be democratically created for project work and this could feed back into some ‘money-work-stability’ and a politics not dominated by an elite. This story is old – but I wouldn’t mean that in terms of ‘old news’.
One dark factor in the insanestream is that we can somehow have a better economy/society with widespread unemployment-underemployment and neurotic working under poverty pressures. The aspirations of many of us are to be rid of this. I’m in favour of ‘let’s get on with it’ because the current system isn’t about to ‘spring back’ and is very bad indeed. We could enter practice with an agile plan and even on a modular basis. Much criticism is clearly somewhat ‘perfectionist-idealist’ or based in justified suspicion interest groups can subvert it to the usual ends of the rich.
The anthropologists want us to take a view much more grounded in concrete questions on lived worlds, examination of theories-in-use. We need to be less defensive, even if seeming to need to constantly have to ‘explain’ to those who haven’t bothered to read (and think what the situation is on this in the wider world). When I think of the educational-propaganda of implementing new organisational culture, we are up against massive resource barriers to change the reception situation. Little I’ve read on MMT (it’s ‘positive money’ here) doesn’t make sense, other than an over-expectation that this matters much in general argument. Even if one teaches, there is an instant problem with learning transfer to practice as the world runs in much darker ways. Being right, sadly, isn’t very much of the problem.
“Being right, sadly, isn’t very much of the problem.” One must start somewhere, and I’d rather start with right than wrong. Rome didn’t burn in a day!
Rome burned over six days. Recent analysis of the evidence and outcome strongly suggest that those pesky Chiliastic Chrestians were responsible. On the seventh day evidently, they rested.
Those same Cherestians thought they had the original Dove descending Truth, with the capital T. So, being right isn’t always what it’s cracked up to be.
What we all seem to want on this thread, is a paradigm shift.
Recent analysis of the evidence and outcome strongly suggest that those pesky Chiliastic Chrestians were responsible. ambrit of Hattie’s Gulch
I thought that has been attributed to an attempt of Nero at slum clearance?
But anyway, there will be a 1000 reign of Christ and Progressives will see (those who survive, anyway) how things should have been done. The rule will be light-handed except for evil-doers, I’d bet, since God is no tyrant. And instead of a JG, family farms, orchards, vineyards (sorry Baptists but the wine in the Bible DOES contain alcohol; you should read it some time, ALL of it), flocks, herds, etc will be the rule.
I’m up for the bonfire.
Yes, this is for real. The above comment was not a random combination of letters. I think it’s very healthy to hear different perspectives.
1) The reasoning here is quite simple. Why do things cost so much? The lack of curiosity from MMTers about why decent housing, healthy food, quality medical care, higher education, reliable transportation, and so forth are so expensive relative to median wages has piqued my curiosity for a few years now, especially since MMT so closely links employment to price stability via the claim that buffer stocks work and are thus required. We have used gold, silver, copper, and unemployment over the past half century. None of them have anchored prices when it mattered. One might wonder why JG/ELR would do any better in the face of such disastrous failures by every other buffer stock we have tried.
2) Yes, I really mean everyone. No one thinks the USFG can’t print more dollars. The debt ceiling and other events are just theater.
Now, there are legitimate concerns about being able to afford things. But that’s a discussion of real purchasing power, not nominal currency creation. The focus on aggregate demand and deficit spending and other generalized amounts hinders this effort to talk about what works and what doesn’t, what is worth the cost and what isn’t. Aggregates are essentially irrelevant in a society as wealthy as ours.
3) No, I’m not kidding. That you mention corporate media outlets in response to this bewilders me. That you don’t mention the heart of the matter – the methodical assault on Constitutional governance by a group of authoritarian minded psychopaths – bewilders me further.
The vast majority of federal activity [not necessarily a direct correlation to the amount of money spent] today is questionable in its value, and a meaningful chunk of it is outright unconstitutional. Just the 4th amendment alone is being trampled by so many different federal programs it is difficult to list them all (because of course it’s all Secret to Protect Us so no one person even knows all of them). Some of the lesser known language, like that in the 6th and 8th amendments, could lead one to believe that many political economists have never even read the Constitution. It matters how money is spent. There is much spending that the government simply isn’t supposed to be doing.
The vast reach of the national security state, the vast waste of the healthcare and higher education systems, and the vast unaccountability of the various corporate welfare programs, from FIRE to fossil fuels to agribusiness, is, let me repeat, vast. The debate is precisely about whether we have the real resources to support these activities – plus – whether a subset of these activities are destroying the very notion of rule of law upon which our republic is theoretically based.
4) You didn’t answer me at all here. I think the uncertainty about how to handle social insurance is one of the real unanswered parts of MMT advocacy, especially in the US. Universal unemployment and health insurance addresses the social problems of unemployment without the philosophical and logistical challenges of government employment of tens of millions of people. JG is completely untested, but the Social Security Administration has decades of experience sending out hundreds of billions of dollars to tens of millions of recipients.
5) Ah, yes, the academic semantics of what it means to ‘want’ something. But more substantively, the JG simply isn’t needed. We have this little piece of legislation called the FLSA (Fair Labor Standards Act). All we have to do is reduce overtime hours calculation from 40 hours a week to 30. The JG is completely superfluous to that. Ditto the minimum wage. Like social insurance, these tweaks to working conditions are much more efficiently set by direct legislation than via the indirect centralization of tens of millions of workers.
“to accommodate private sector savings desires”
Yes, I know you care about aggregates. This is where we differ most clearly and starkly. I don’t care. I care about distribution. In a period like the past couple decades, where wealth concentration is out of control, I don’t want more private sector savings. I want to take private sector savings from some people and give it to others.
In some times, this makes me a market-based capitalist creating a basic safety net that is necessary for the dynamism and risk taking at the heart of entrepreneurship and private property ownership that inherently creates winners and losers from the various trades that happen. But in our present times, this apparently renders me to ‘the left’ of Modern Money advocacy.
6) “Are you serious? Are you really saying that every Federal job must carry the same salary and benefits? Are you really saying that all Federal workers have the same working conditions now? Do you think butchers in the Army have the same working conditions, as psychiatrists at NIMH. Please get serious!”
I am serious. Why should butchers in the Army make significantly lower wages than psychiatrists at NIMH? Why should daycare workers and preschool teachers make significantly lower wages than professors teaching economics and medicine and law? Why should Americorps workers make significantly less than administrators at universities and hospitals? I am challenging MMTers quite directly to justify why they propose one set of wages and working conditions for highly paid ‘regular’ public employees and a much different set of wages and working conditions for ‘JG’ employees.
Are you familiar with how much more money highly paid public employees make than people working in low-wage crap jobs? It’s not a difference of a few thousand dollars. It is many tens of thousands of dollars. I’m not advocating absolute equality. I’m pointing out that JG doesn’t do anything about the massive inequality that public policy has already created.
Washunate – I’ve been answering these points for months, maybe years now. I often am unable to post in a timely fashion, but I would appreciate your thoughts in response. Basically you are wildly jumping to unjustified conclusions. E.g. You don’t explain why you think a JG would employ tens of millions – far more than anybody else thinks. This does NOT at all follow from the evidence I’ve seen you present for it. Also for the idea that there is some constitutional/ rule of law problem with a JG, that it is a massive, novel, unprecedented departure. Ditto for the strange [Joe says “are you serious?”] implication that a JG wage of say $15/hour is more unequal, entrenches inequality more than the current JG wage of $0/hour just because there are other federal employees who might make more than $15. More money is more money; more money for the poor makes them more equal to the rich, not less.
I’m pointing out that JG doesn’t do anything about the massive inequality that public policy has already created. The problem is that you aren’t pointing this out. It isn’t true. As the poor and unemployed have always known, a JG does an enormous amount about the massive inequality. Wray et al have projected that even a lowball JG wage would eradicate ca 2/3 of poverty in the USA. Facts you adduce might be right, but the logic you use to draw conclusions from them is highly suspect, while you argue as if it goes without saying. I’ve been trying to get many to slow down in their reasoning – state the intermediate steps – so they can see how huge the leaps they are making in reality.
Yeah, sustained discussion seems to be one of the organizational challenges of online discourse. But I think NC allows that much better than many other outlets (and of course, many places are closer to traditional one-way media rather than interactive communication). This is why the original comment was so detailed, because there’s not a lot of time for back and forth. I mean, we’re all busy and just doing this for fun, right? No one is under the illusion that we’re going to solve anything spending a couple hours a week at a website, right? Our hope is just to understand the situation a little better and have a way to talk about things honestly without it impacting our Real Life.
So let me keep this comment short and sweet. MMT is consistent with spending oodles of currency units on war. It is consistent with spending oodles of currency units on financial bailouts. It is consistent with spending oodles of currency units running the largest prison system on the planet. It is consistent with secrecy of everything from prisoner abuse to oil spills. It is consistent with abandoning our passenger rail system. It is consistent with not investing in wind and solar electricity generation. It is consistent with the assault on public education. It is consistent with absurd intellectual property interpretations. It is consistent with paying some public employees significantly higher compensation than others. It is consistent with employer based health insurance. It is consistent with employers having a monopoly on income. It is consistent with ignoring why the cost of living a decent life has increased so much.
In short, it is consistent with how our country is run today, right now. If you ‘want’ a job, the government will give you one. In fact, the government forces half the population (males) to sign up.
Good article – I’m just at a loss completely though, as for how to spread knowledge of MMT’s insights, beyond preaching to the choir.
MMT is fighting against too many well-established neoclassical/neoliberal myths, which have permeated western culture and peoples psyche’s, and have erected significant barriers that trigger near-insurmountable cognitive dissonance, when broaching MMT.
I’ve personally given up on trying to spread information on it – I’m more and more convinced, that the only possible way left to overcome this problem, is to put enormous amounts of money into persistent long-term political/media campaigns, which fight the standard neoliberal narrative so persistently, that knowledge of MMT sinks into peoples minds through repetition/osmosis.
Good thing people trying to get women the vote, end segregation, etc., didn’t worry about that.
Obviously, it’s difficult to make change. And we might never succeed. But one thing is certain–you’ll never create change if you don’t actually try.
There’s no point wasting all your efforts into an ineffective strategy.
It’s easy to educate people about and to make them interested/care about easily visible discrimination, like against women – but peoples eyes glaze over when you talk to them about economics, particularly MMT – many just don’t want to know, and those that might, often quickly run into the wall of cognitive dissonance.
There needs to be a very large change in tactics, with huge amounts of money thrown at it – you’re only going to convince a handful of people with reasoned/rational discourse (and that is good, where it is targeted in the right places, like academia).
However, if you’re going to try and convince enough of the public to actually begin to turn the tide, that argument takes place in a medium where reasoned/rational discourse, takes second place to those with the most persuasive (including dishonest/dirty) debating tactics, and greatest amount of money for getting their message out.
And yet the masses had no trouble once in understanding class conflict … and that their interest as employees was inevitably going to conflict with the owners and thus the need for solidarity and unions which could get them more pay and better working conditions.
Funny that. But then that’s assuming the masses really are the true concern.
Keep trying we’re making progress. Randy and Stephanie were both recently on Thom Hartmann’s show and the really good news is that he talks with them both as if he did his homework, understands, and perhaps even accepts MMT. Of course, MMT gets great exposure nearly everyday from various guests and the two hosts Erin Ayd, and Ed Harrison of RT News. A you can see above, Stephanie will be in New York this weekend sitting on a panel Chaired by Krystal Ball I think that’s an opportunity which will get her on the Cycle soon. It remains to be seen, of course; but, in any case, I think MMT is gaining ground and that’s one reason why we’re beginning to see some increasingly vigorous attacks by opponents here and in other places.
That’s good to hear, and from what you say there, those are definitely the right places to target efforts for maximum effect, and I think on the whole everyone at NEP does a really good job – it’s still something I think could do with much bigger resources being thrown at it though (if only we could just print money! :p).
When I look at the legions of free-market/neoliberal think-tanks/organizations, with deep political connections and vast complicated networks of money flowing through them (this goes as much for Europe too, where I am) – that’s the kind of stuff which makes me think that a much bigger and generously funded effort may be needed, to properly gain ground politically and with the public.
“… and then you win.”
Even if you change people’s minds, how do you change the political system and make ok the U.S. system (although really one would probably have better luck with a less corrupt country) which is entirely captured by money responsive to the people even if most of them were convinced of MMT? Get money out of politics first? I’m not sure if a majority of the citizens of this country aren’t ALREADY in favor of money out of politics. So why isn’t it happening? OR if the political system is to stay controlled by the oligarchs pitch MMT in a way the oligarchs can get on board with? Throw in enough benefits to them that it’s no challenge to them?
“I’m not sure if a majority of the citizens of this country aren’t ALREADY in favor of money out of politics. So why isn’t it happening? OR if the political system is to stay controlled by the oligarchs pitch MMT in a way the oligarchs can get on board with? ”
I think you answered your own question, jrs. We have a democracy problem. And I wonder when a democracy problem has ever been solved by seducing the ruling class into fixing it?
Nice attempt Lambert though I suspect the “postcard” part is only understandable to people who understand MMT.
I have been thinking about a peice of an explanation of MMT and am wondering if it makes sense to anyone but me. Here goes:
When the government spends money into existence, it is, in essence, taxing its citizens. It is a tax in-kind. That is, the government gives them a piece of paper, or a digital entry, and they give the government labor or goods. To require the government to then tax it’s citizens to pay for the dollars spent is really a double tax.
Any thoughts about this, I’d appreciate.
The prevention of deflation does NOT equal inflation unless you’re a deflation-loving Austrian.
Before money, govt used to tax in-kind. So and so much wheat from a farm for example.
Therefore, accepting money in payment of taxes is kind of a burden for the goverment. It has to forgoe all these real resouces for intristically worthless currency. Taxpayer saves all his real resouces, so it is easy way out for him. Like Warren Mosler has said, currency really is tax credit.
Idk if mmt need any more complicated explanation than that goverment issues money by spending more than its income. Few people would say, beside some trolls, that people have too much money – that they are too rich. Affluence of the population is quite universally tought as a good thing.
What would sound even better is if the Little People do the spending into existence.
That should be thought of, universally, as a good thing.
Goyo Marquez: When the government spends money into existence, it is, in essence, taxing its citizens. It is a tax in-kind. That is, the government gives them a piece of paper, or a digital entry, and they give the government labor or goods.
Quite right. This is what MMT and good monetary economics has said through the ages. Government spending is taxation-in-kind. That’s arguably what it developed from. John Henry’s article on Old Kingdom Egypt in the MItchell-Innes volume and other articles he wrote with Kelton are excellent on this. Mitchell-Innes own papers are of course the must-read. Many times must-read. A lot of MMTers or former MMTers don’t realize how central the ideas there are.
To require the government to then tax it’s citizens to pay for the dollars spent is really a double tax.
No, financial, monetary taxation is the citizenry buying something from the state, for their own private benefit. A clear example is that people pay property tax to get the enjoyment of their land for some period from the underlying owner/sovereign, the state. Property taxes are just rental payments to a landlord. Income & other taxes are payment, an entry fee to the amusement park known as Out-Of-Jail-Land.
You can’t really use the same word “tax” for the two opposite things & claim it is evil double taxation. It would be just as reasonable – probably more reasonable – to call it double spending – the government spending=taxation-in-kind and the private benefit/spending purchase=financial taxation.
Basically, this “double taxation” thing (better words are efflux/reflux) is how money has always worked everywhere, no exceptions. Commodity standards, the contradiction-in-terms of “commodity money” are just BS overlaid onto it, mistaking a commodity which people or the state buy with or sell for money with the money itself, which is always a social relation, a credit/debt relation.
Most people would naturally want to avoid government spending (for example, corvee) as a taxation in kind, especially, if it’s used for imperial adventures, like building invasion routes, in the past, or purchasing drones (or other expenditures in today’s humongous defense budget).
My point was that in essence “taxation-in-kind”, “real taxation” and “government spending” are exactly the same thing, as people like Mitchell-Innes explained, and as Goyo Marquez quite perceptively saw. There can be reasonable taxation [in-kind or not] and unreasonable such. The point is to get things in your head right, understand how everyone naturally understands things. The problem is that the insanestream gets everything backwards, and that is the theory that “everybody knows” and speaks in terms of. But never uses in reality. Modern governments have such great taxation powers – in other words offer really great goodies in return for their money – that nobody actually does “avoid government spending.” = “avoid this taxation in kind” = refuse to sell what they have for sale to the government.
If the government sends me a check (i.e. spends the amount on the check into existence) and I use the money to buy food, how have I paid a tax-in-kind or given the government labor or goods?
Well if everyone does the same thing, focusing on consuming but no one increases production, something tells me the value of that check will drop.
If you print and spend faster than you produce, you`ve got a problem… and since so many millions of Westerners are at a point n their life where they would prefer not working if money was not an issue..
But in modern economies that have not been damaged by war etc. it is under-consumption (i.e. lack of money in the hands of people who want to buy things, generally the middle/working class and poor) that has been the cause of recessions and depressions. There’s no incentive to increase production if people can’t even buy what’s already available.
The thing is that production does not change instantaneously. It usually takes a few years for projects to come on stream. So if you print fast, you are just going to get inflation in the short term.
Honestly, if a 100K cheque was sent to every American family tomorrow, do you think they’d pay off their debt? I truly doubt it. Most Americans are still deluded and think they can keep on spending the way they have been. Many are just waiting for a “recovery” instead of reconfiguring their life. Lessons have not been learned YET! And if you threw money at them, they’d do what they have been doing for the last 30 years. You’d just reflate the bubble very quickly.
In that case you could say the government has added an intermediary. They’ve given you the money and you exchange the piece of paper for goods and services.
Lambert is simply repeating MMT propaganda without doing any critical thinking about it.
A means tested BIG would also provide an automatic stabilizer and a safety net. Or a JIG. So why narrow the options down to the JG?
Lambert (and MMT) does not explain what the JG workers would do, where they would do them, or how they would get there. You just don’t pull meaningful jobs out of thin air.
The New Deal programs paid different wages for different jobs. The New Deal programs were not necessarily labor intensive — building dams and roads takes lots of materials and equipment, but not so much labor, and moreso today than in the 30’s. There is no comparison between the New Deal job programs and the JG.
A JG would NOT anchor the value of the dollar. That argument is total BS. For one thing, labor is not a fungible commodity. A JG would not anchor the price of doctors or the price of computer programmers or the price of engineers. A JG would not anchor the price of concrete or the price of oil. A JG would merely anchor the price of unskilled labor — and can you name one historical inflationary event that was attributed to the price of unskilled labor? No, you can’t.
So take away the “price anchor” myth, and there’s no reason to support a JG.
You want an automatic stabilizer and safety net — then a means tested BIG is the surest and simplest way to achieve that.
You want public sector jobs? Then create PERMANENT public sector jobs and pay them an appropriate wage. For example, if you want to maintain hiking trails on Forest Service land (the trails are currently mostly neglected due to austerity) then give the Forest Service PERMANENT funding to maintain the trails. The Forest Service could then either hire PERMANENT staff (or alternatively, create regular summer jobs for teenagers) to maintain the trails, or they could outsource trail maintenance to private vendors, or some combination of the the three.
Under Lambert’s proposal, during a recession JG workers might be assigned to maintain hiking trails, but in a boom there might not be enough JG workers and the trails would be neglected. But trails need to be maintained year after year, not merely during recessions!
Ditto maintaining roads. Ditto daycare. Ditto picking up trash. Ditto installing solar panels. Ditto ANYTHING you can think of. All those tasks need to be done on an ongoing basis. It doesn’t make a lick of sense to limit them to temp jobs during recessions.
Lambert, to understand why MMT pimps the JG you need to read Minsky. Minsky was a reactionary conservative & racist who repeated the racist talking points about welfare cadillacs and welfare mothers. Minsky wanted to get rid of SS and make old people work until they keeled over. Minsky wanted to repeal child labor laws and make children work. In other words, Minsky was a crackpot. His ELR was based not on economics but on his conservative values. So when you pimp the JG, you’re pimping Minsky’s conservatism. I want no part of it.
I think we can all agree that the unemployment rate would be about 5% right now if Obama and Congress had not raised taxes and cut spending.
You’ve gone completely nuts, Kervick.
Minsky was a conservative????? Spare me your idiocy. I know his widow, and she’d be aghast at such a suggestion.
Since when does Lynch = Kervick?
But Dan, please indicate where I can find that Minsky was a conservative?
OOOOOPS. Sorry Dan Kervick, wherever you are. Totally misread there. Lynch was already nuts, as everyone knows. :)
And before anyone complains about my ad hominems, go read Lynch’s comment and then ask yourself if it deserves a serious response. Don’t think so.
Yes, people should read the comment since it makes great sense even without the Minsky references.
What’s with you slave drivers anyway?
Ok, serious response this time. Sorry for offending anyone above–wish there was a delete or trash button here.
LYNCH: Lambert (and MMT) does not explain what the JG workers would do, where they would do them, or how they would get there. You just don’t pull meaningful jobs out of thin air.
STF: There are dozens of papers on this, literally, not to mention 2m jobs created in Argentina’s Jefes program. Straw man.
LYNCH: The New Deal programs paid different wages for different jobs. The New Deal programs were not necessarily labor intensive — building dams and roads takes lots of materials and equipment, but not so much labor, and moreso today than in the 30′s. There is no comparison between the New Deal job programs and the JG.
STF: Wrong. All those things could be done on a JG. Not a problem. No MMTer has anything against any of that. Phil Harvey has advocated for all of these things in his writings for years, and we agree with him. Straw man.
LYNCH: A JG would NOT anchor the value of the dollar. That argument is total BS. For one thing, labor is not a fungible commodity. A JG would not anchor the price of doctors or the price of computer programmers or the price of engineers. A JG would not anchor the price of concrete or the price of oil. A JG would merely anchor the price of unskilled labor — and can you name one historical inflationary event that was attributed to the price of unskilled labor? No, you can’t. So take away the “price anchor” myth, and there’s no reason to support a JG.
STF: Another straw man. JG would be at least as good at stabilizing inflation as an unemployed buffer stock. That’s all we say. Obviously JG wouldn’t anchor prices of doctors–but do you see the unemployed buffer stock doing that?????
LYNCH: You want an automatic stabilizer and safety net — then a means tested BIG is the surest and simplest way to achieve that.
STF: Another straw man. We’ve said repeatedly you can have a BIG + JG choice. How is BIG alone better than BIG + JG choice?
LYNCH: You want public sector jobs? Then create PERMANENT public sector jobs and pay them an appropriate wage. For example, if you want to maintain hiking trails on Forest Service land (the trails are currently mostly neglected due to austerity) then give the Forest Service PERMANENT funding to maintain the trails. The Forest Service could then either hire PERMANENT staff (or alternatively, create regular summer jobs for teenagers) to maintain the trails, or they could outsource trail maintenance to private vendors, or some combination of the the three.
STF: Many JG jobs would be permanent. I’ve said this in all my papers on JG. Unemployment actually only fluctuates by a few million over the business cycle. If you create 10m+ JG jobs–as we’ve always proposed–then OBVIOUSLY most of them are permanent if the worker chooses. Straw man.
LYNCH: Under Lambert’s proposal, during a recession JG workers might be assigned to maintain hiking trails, but in a boom there might not be enough JG workers and the trails would be neglected. But trails need to be maintained year after year, not merely during recessions! Ditto maintaining roads. Ditto daycare. Ditto picking up trash. Ditto installing solar panels. Ditto ANYTHING you can think of. All those tasks need to be done on an ongoing basis. It doesn’t make a lick of sense to limit them to temp jobs during recessions.
STF: Again, not a problem having JG do these things. We’ve said as much many times. It already happened in Argentina–we wanted those jobs to be permanent if workers wanted, but the govt got rid of the program unfortunately.
LYNCH: Lambert, to understand why MMT pimps the JG you need to read Minsky. Minsky was a reactionary conservative & racist who repeated the racist talking points about welfare cadillacs and welfare mothers. Minsky wanted to get rid of SS and make old people work until they keeled over. Minsky wanted to repeal child labor laws and make children work. In other words, Minsky was a crackpot. His ELR was based not on economics but on his conservative values. So when you pimp the JG, you’re pimping Minsky’s conservatism. I want no part of it.
STF: Garbage that doesn’t deserve a response. Just total garbage.
STF: So, what do we have? Clearly Lynch has never understood the JG as MMT has proposed it and written about it over and over and over. No reason to listen to him anymore–if anyone actually does–until he does a bit of reading.
We’ve said repeatedly you can have a BIG + JG choice. stf
Paying equally? But even if they paid equally, neither are a substitute for JUSTICE.
Beard, Beard, Beard. The JG IS justice. A money-using society without a JG is insanely unjust. Imposing literally unpayable debts, putting people in Kafkaesque situations is insane, which is what not letting people obtain money when they, not some bureaucrat or capitalist want. The money-using society is the slave-driving. Allowing people a way to earn money is (partial) relief. Complete relief = instant satisfaction of everyone’s desires is not possible. Your proposals are less just than the same proposals with a JG. Which is always obvious to the victims of any Job Denial proposals, but hardly ever to Job Deniers.
Lambert: Good summary for beginners.
Dan Lynch: Maybe you have backup for your Minsky assertions. Secret Minsky Papers that apparently nobody else has seen. Otherwise, I think they should be taken as seriously as my following assertion that Minsky was an extradimensional octopoid who hypnotized us foolish humans that he was one of us. And he wasn’t even from Minsk. Or Pinsk.
I’m not sure JG would be necessary if unemployment insurance paid an absolute minimum of $600 per week.
The JG is necessary for any money-using society to not be morally insane, under basically any theory or meaning of morality that anybody has seriously proposed.
Tyler: I’m not sure JG would be necessary if unemployment insurance paid an absolute minimum of $600 per week. It would be necessary if you wanted or needed something that cost $601 this week. And who are you or I to say that the guy who had $600/wk unemployment insurance coming in doesn’t need that he doesn’t need that $601 thing? By what right can anybody else say that? Abstract “necessary” (to society?) without thinking “necessary to whom?” is inadequate consideration of a moral question. It is not necessary to society that there be people with red hair, but it is necessary to them, and immoral to mistreat them.
In the presence of a JG there is a good answer to the question of right, of why society can can ethically deny things to people that they can’t afford. Without it, there is none.
Hiking trails, huh? The thing is, during a boom, all kinds of people have all kinds of money to do whatever they want. In boom times people who want hiking trails have cash of their own to get them maintained. In boom times the government isn’t the only player.
It’s bust time when the government is the only player capable of doing anything. That’s almost a definition.
Thanks stf, Stephanie, Lambert and all the other MMT folks. I’ve been on the MMT bandwagon for about 5 years, and have yet to find a serious problem with this economic school. It’s the best, in my opinion, in terms of describing the economy as it is, and pointing the way to a better society…
If Minsky was a bloodless crackpot conservative you never read about it. The main distillation that trickles down from Minsky is his almost anti-conservative insight that stability creates instability. And it appears for now that the Fed has treated that problem with unstable stability, keeping everyone’s angst high.
From Minsky’s late take on the money and banking system
“”Financial Instability and The Decline(?) of Banking: Public Policy Implications””
VII. A Modest Proposal
The time has come to open a national inquiry into the structure of the banking and financial system.
The radical changes now underway in technology, computing and communication mean that much of what we now have may be obsolete . The sluggish economy of the past decades, combined with the apparent reluctance of the Federal Reserve to give full employment a chance, can mean that our financing structures are not consistent with the needs of a progressive democracy.
In the past, serious changes were the result of serious public inquiries. I suggest that enough is amiss with our financial and banking structures that it is time to go back to the drawing board and determine what the monetary, financial,and financing should be in the 21st century. A late 20th century National Monetary Commission should be on the public policy agenda.
Hyman P. Minsky
Working Paper No 127
The Levy Institute
The learned gentleman is calling for a new national monetary commission to determine what reforms can meet the needs of our progressive democracy.
Never heard a conservative being concerned about the needs of a progressive democracy.
And we never hear MMT call for reform to the money and banking system.
Under Lambert’s proposal, during a recession JG workers might be assigned to maintain hiking trails, but in a boom there might not be enough JG workers and the trails would be neglected. But trails need to be maintained year after year, not merely during recessions!
There are many jobs that only need to be done periodically. At one of the hiking spots at a state park I visit, there are very useful pavilions, huts and facilities that were built by the CCC. These kinds of public works don’t have to be done every year.
We’ve got one that actually was a New Deal project. You go 6 miles into a mountain canyon and there is a historical marker where you can read about it. It’s been paved numerous times since then – kinda nice in rattlesnake territory – and there is also a “tour train” that does the 12 miles round trip for those that can’t make the walk.
But since we mentioned the Forestry Service, I do recall the scandal a few years back where it came out they expense accounted $100 million in foreign travel.
So maybe we need more auditors as part of a government jobs program?
OK. Well, let’s see some critical thinking, then.
We’re not narrowing the options. Both Lambert and I are for both a JG and a BIG, and Randy has said that the JG and the BIG can co-exist as well. So, I’d like to ask you, Dan; why are you framing it as a choice between the two?
Well Lambert couldn’t answer every question in this short post. But you can find a lot more detail in Pavlina Tcherneva’s papers. The bottom lie is that non-profits, community organizations, and JG participants themselves would define the jobs. So, JG participants would help to determine their own meaningful jobs.
That depends on what jobs are defined for the JG by the non-profits, local communities and participants doesn’t it?
Well, actually there is, and that is that it provides true full employment all the time. In addition, you can’t tell that the buffer stock price anchor theory of the JG is false. First, the JG in its MMT form, hasn’t been tried, and second, simulations of the JG indicate it would work. That’s not proof; but you have no test to refer to either.
How would the BIG be an automatic stabilizer? A BIG goes to everyone It’s size and distribution would not be counter-cyclical.
I’m all for that; but no matter how much you plan, and create permanent jobs, when there’s a downturn; there will be unemployed and a need for JG which operates counter-cyclically.
So don’t make the trails JG jobs. Make maintaining them permanent civil service jobs.
Great. Then make them all permanent jobs. There’ll still be JG jobs that can be permanent as a matter of individual choice, but that involve work that can be interrupted when times are good.
Dan, I don’t believe this. How about some links and/or quotes?
I noticed you playing the racist card. Link, please.
Perhaps a bit extraneous to Lambert’s excellent postcard, but I would like to add, in response to the often heard refrain that the dollar is worthless, (as it is not backed by gold or other glittering stuff, and the deficit is “out of control”), that the dollar is always truly “valued” daily vis-a-vis other currencies. And nearly all of these currencies are also created by “fiat”. So what we wind up with in the FX markets are a sets of “rubber bands”, or call them trading ranges. Due to political or economic turmoil, a currency can be overbought or oversold, but usually snaps back fairly soon into the usual trading range of its fair value against the other currencies. As the austerians bemoan the deficit(s) ad nauseum, crying that the dollar will collapse, let’s keep up this challenging work of informing those who can listen that MMT will supply all the hankies that they need!
Except that all the rubber bands are affixed to slippery poles…
i just cannot reconcile MMT with a world with finite (read diminishing) resources or an economy that isn’t completely isolated. it could, conceivably, work for the united states for a while due to its military hegemony and reserve currency status, but that would just accelerate its fall from those roles whereas other countries couldn’t pull it off even for one minute.
consumption does need to be made more equal but, overall, must be brought way, way, down if we’re to leave anything more than a skeleton of our planet to future generations, and MMT would only encourage more of it.
I think that reconciling the concept of money with natural resources was well described by ‘philosophical entertainer’ Alan Watts c.1970:
It’s a confusing of the measure of value and system of allocation with the underlying wealth itself. We cannot ignore MMT simply because it doesn’t auto-magically fix our political or economic situation, MMT looks at modelling our current economic system, it is not a prescription or even an attempt to claim that it’s a good model. I think about Warren Mosler’s analogy of paying his ‘tax’ with one of his business cards which has this overt ring of extortion to it, and I wonder why we don’t institute a ‘better model’. But that doesn’t negate the value in describing our present situation. How else can we morally decide if it’s a ‘good’ economic system or not?
I think you’re saying that MMT works only with an imperial currency.
It’s neither a People’s Money theory nor Green Money.
Its’ how it works now. MMT’s biggest problem was using the word Theory in its name.
MMT could conceivably work for the United States.
For example, we could be printing money without constraint.
It is not how it works now, though conceivably it could be how it (government finance) works in the future.
Absolutely right, MRW. With the exception of the job guarantee, MMT describes how modern economies work. Since I’ve studied MMT, I’ve been able to understand and explain things much more accurately and succinctly.
Compare this with IS/LM, Piketty’s Capital, and Market Monetarism, which spend many more words than are needed to describe the economy, and generally leave the reader confused.
Neither Holy, nor Roman, nor an Empire. Same deal. Take comfort from the evidence that some marketing weasel from a think tank on the Beltway couldn’t have done the naming, eh? Because little details like that would have been buffed away.
“consumption does need to be made more equal but, overall, must be brought way, way, down if we’re to leave anything more than a skeleton of our planet to future generations, and MMT would only encourage more of it.”
Thank you for this dose of reality. From what I have learned, it seems to me that, as others have stated here, with maybe a just a few differences, MMT could easily be called MMR, for Modern Monetary Reality. It describes the way money actually works now, and suggests some bells and whistles that could make the existing system more equitable. Perhaps.
For fundamental change, and a sustainable solution, I would look to “Interest and Inflation Free Money” by Margrit Kennedy: http://kennedy-bibliothek.info/data/bibo/media/GeldbuchEnglisch.pdf
Margrit Kennedy has done us all an immense service with her focus on compounding interest and a debt-based money system. A German colleague, Dr. Bernd Senf, has an incredibly telling lecture on this subject here, aimed at removing ‘the fog around the money’.
But MMT believes that only debt-contract based money IS money.
From that perspective, it would be un-natural to reform to an equity-based, and non-interest bearing system of money.
Margrit Kennedy has it exactly right.
Also read her “Occupy Money’ book.
Not to confuse here…..money and credit.
Once created, somebody owns it and there is a right of ownership that compels a fee for using MY money for your gain. No problem.
But having money come into existence and serve our national needs without debt attached, as suggested by Margrit Kennedy, removes from our national economy the compounding interest that we ‘un-naturally’ owe to the private creators and issuers of that money.
In terms of modern money and environmental sustainability, I suppose the postcard would be something like:
1. Money as Accounting Information versus Real Physical Resources
2. Functional Finance and Ecological Tax Reform
3. Guaranteed Green Jobs, performing Environmental Services and/or utilizing fewer exhaustible resources and polluting less
Leading proponents of complementary currencies, such as Bernard Lietaer, Margrit Kennedy, and Josh Ryan-Collins, are on record explicitly endorsing the cornerstones of tax-driven money, functional finance and the job guarantee. In fact, Lietaer’s proposal for “Civics” is identical to the UMKC Buckaroo program (or the Denison University DVDs—Denison Volunteer Dollars). For the Civics proposal, see B. Lietaer, et al., 2012, Money and Sustainability: The Missing Link, Club of Rome Report, Triarchy Press.
Even the degrowth literature has signed on in support of the “Kansas City School,” see, e.g., Kristofer Dittmer, 2013, “Local currencies for purposive degrowth?” Journal of Cleaner Production, Vol. 54, pp. 3-13, and Brandon Unti, 2013, “Full Employment and Degrowth,” http://www.venezia2012.it/wp-content/uploads/2012/03/WS_40a_FP_UNTI.pdf
As if anyone today is smart enough to know what future generations are going to need. Do you honestly think we will be using fossil fuels 100 years from now? Do you honestly think that travel will be on four rubber wheels? Or that medicine is going to involve chopping up our bodies like we’re Saturday night steaks? Stem cell medicine is in its infancy in this country, thanks to Bush’s religious beliefs. I saw two people in another country on death’s doorstep, literally, who got their own blood turned into stem cells get up and walk, cured, two weeks after the blood transfusion. That was in the 1990s. No reoccurrence of their bone marrow cancers to this day. The only thing we are leaving future generations is our ignorance (and they don’t want it). Evidence of it will be in a museum or a zoo.
Every time I hear of archeologists digging out ancient cities under a couple metres of earth, I can’t help but wonder which American cities will be covered in a couple of thousand years.
Vegas. ;-) It’s in a valley.
Maybe one day, most will come to realize that we don’t need more central planners; that what we need are referees from each quintile of society.
Without cooperative central planning by people with some brains, we’ll be living in a jungle. It’s kinda’ what a definition of a society or a civilization is all about. I have no desire to arrange my own garbage pickup, street lighting, street paving, transportation routes, airspace safety, or law enforcement.
I think what Moneta means is that we need a system that explicitly represents people with different levels and sources of income, and often therefore conflicting interests.
Typically, the type of cooperation you get with central planning is the elite telling everyone below to follow their rules or else… Their planning usually revolves around heuristics based on 4 or 5 star experiences…
That sounds very close to Syndicalism.
Frankly, I don’t want the feds to organize my garbage pickup because I might end up with Alberta’s sludge in my backyard… there is a big difference between the feds and munis.
Thank you Lambert for this accessible review of The Primer. I’ve read it, but really just scanned it. I can only take so much rational instruction before I go nutty. Go figure. I really like #7 the bestest. Re the price of labor becoming the new gold standard. Because it totally debunks the squillionaires ruse for getting richer: wage-price inflation control wherein they proudly take a stand against fiat, aka monetization. As if gold itself were not fiat. I mean really. The only non-fiat money possible would be sovereign money based on the standard of guaranteed wages because it is the only – only – standard which is actually connected to the economy. How is gold even remotely connected to a healthy economy? So MMT automatically prevents inflation and deflation. Sounds to me like it does.
Crap, the government get currency from selling interest bearing notes to the private sector.
No, the interest bearing notes are currency. Only 11.5-12% of the currency in this country is physical dollar notes and coin. Treasury pays the interest on those “interest bearing notes” by issuing more interest bearing notes.
Economics like plumbing? RIght. A plumber who knew a hell of a lot more about economics than most people I know summed it up thusly:
“Money flows uphill, shit flows downhill.”
Which is in keeping with the principle that All Meaning Has Been Reduced To Statements Of Approximately This Length.
What you are asking for is not a postcard.
You set the bar high with the request for sloganeering, which has been very successful with a lot of people.
If repeated often, it starts to sound like music.
That’s how the human brain works.
I, being a plumber respectfully beg to differ with your informant. My experience with large groups is that s— tends to float to the top. Just take a look at the CEOs of the big financial institutions and you’ll see what I mean.
MLTPB: How’s that for sloganeering?
Sounds good when it’s short. Short is sweet.
Your principle — “The meta! It b-u-u-r-r-r-n-n-s!!!!!”
“”Stephanie Kelton said in her presentation at 2010′s Fiscal Sustainability Conference:
[T]he government is the issuer of its currency. It is not like a household. It doesn’t have to raise money by borrowing or collecting taxes in order to spend.””
Let’s stop right there. Because this statement is only true, in (MM) theory.
The big problem for Dr. Kelton, Randy, Warren and the others is what their definition of “is” is.
As used at the beginning, it is not to convey “what is”, but rather what, ‘theoretically’ can be, or could be.
“What is” is a government that has delegated the right to create and issue the nation’s money(currency) to a private banking cartel, and that private banking cartel IS the issuer of the nation’s money.
So, opening sentence….. fail.
Second sentence…… in many ways, true.
Third sentence….., anther fail.
Because since the government delegated its money creation and issuance powers to the private Federal Reserve Banking System, it is a most relevant and fundamental legal, historic and scientific fact that the government DOES have to raise money by borrowing or collecting taxes in order to spend.
Must be ‘voluntary constraint’ Number One of the ill-informed sovereign people.
Just ask anyone who works at Treasury, paying the government’s Bills.
Does the government need the income in its account before it can spend?
Gee, if we’re wrong about this, what about the other stuff?
JuneTown, another issue is this: Being entrusted, explicitly in the Constitution, to create Money (for the People to conduct commerce, etc) is not the same as saying that that Money is free for the government to spend.
Maybe the government can create Money for the Little People to spend?!?!?!
“”Maybe the government can create Money for the Little People to spend?!?!?!””
The real purpose for a national monetary system is to distribute the wealth created by physical resources and energy that count, today, toward national GDP.
IF we had such a ‘distributive’ system (please don’t anyone mention the MMT meme du jour, “”pre-distribution””), then the budget of the government would be heavily weighted with spending that advanced wages for incomes, rather than financial asset producing gains as incomes.
Yes, I think it can be very easily done….
The distributive system I have in mind is GDP sharing.
Money can only distribute real wealth and income.
That is what it does right now.
The result of ‘distribution’ compared to our present ‘concentration’ of wealth and incomes will also see a more equitable sharing of the GDP.
As I wrote above, the former Deputy Secretary of the Treasury, Frank N Newman, in his book Freedom from National Debt says you are dead wrong.
The government spends first based on congressional appropriations, then it issues treasury securities in the same amount to render its general account at the Fed positive. “Income” or “raising money” has nothing to do with it. They issue treasury securities because congress made it a law under the gold standard days that their general account had to be positive. The treasury issues treasury securities AFTER it spends to balance the money supply imbalance it created by spending, which is what it does when it spends money into creation.
We call the US Treasury issuing its own treasury securities “borrowing.” Misnomer. But that’s what the linguistically-lazy have called it.
Sorry, the reason we call it borrowing is because the government needs money and, like the restofus, it borrows what it lacks in income in order to spend..
Public debt fully meets the definition of ‘debt’ under F.A. Mann’s “The Legal Aspect of Money”.
That government debt ‘trades’ on the ope market is no different from our personal, household debt. That’s what capital markets are all about.
The take my debt, or the government’s, and trade on the income stream.
No magic there.
Another failed and meaningless meme among the many……that government debt is not REALLY debt. Gee, I do feel much better now.
Like my car loan isn’t really debt because it merely represents the savings preference of the depositors at the bank that lent me the money….
The banks create the money to lend me for my car in return for my ‘indebtedness for principal and interest, which becomes an asset that they parlay into the capital markets.
It’s exactly the same for government debt.
Except for th MMT ‘savings’ meme.
I already responded that I’ve read NEWMAN !!!.
He says nothing.
Until MMT made him a ‘former Treasury Official’, he was always an international banker….not that there’s anything wrong with that.
Like most bankers, he has no idea where he money comes from that goes into the TGA account.
Rather than cite a book(??), cite some words that have meaning to the discussion.
The U.S. government does not borrow U.S. dollars. The word is simply not applicable.
It could if it wants to.
It could borrow US dollars.
And it could borrow IN US dollars.
Ignoring the fact that I never said anything about the government borrowing ‘dollars’, I was wondering when the MMT “inapplicable” police might arrive to declare the ‘meme du jour ‘ …….that, for some inexplicable reason, what the government borrows, are not ‘dollars’.
So, like they borrow ‘bank-credit’?
Like, bank-credit is not denominated in ‘dollars'($US)?
As I stated, public debt is legal debt, as defined, and, just like my car loan, the Gov receives money balances into its TGA ‘dollar-denominated’ bank credit, which the Guv then spends on its budget, just like I spend on my car.
Need a little more shoe-horning and stylizing of the narrative, I guess.
The Treasury is given some time, AFTERWARDS, to borrow (or issue securities).
Some time… like in a few months.
all the theories end in make-work…a closed system control issue
it’s much easier to enter an artificial world than exit…
Spoken like an expert ;-)
I’ll call that the “Boss Skills” mismatch.
The USG/State Guvs need the expertise in creating some sort of value – the same way a biz would – and they can’t just become “start-ups” in a recession. So a long term entities have to exist that know how to provide something useful.
Outside of administering a few social programs, the only area the USG has a demonstrated proficiency in is the military and law enforcement/surveillance/international espionage.
There are of course regulatory functions, which are very much needed, but those seem to have been “captured”.
That’s hardly fair, craazy.the USG has demonstrated great proficiency in shielding criminal banksters from prosecution! (Also, I love ‘Boss Skills’ mismatch.” Like the pointy-haired dude in Dilbert!)
This essay reminds me of the immense power that government holds, almost God-like in its ability to lack restraint, and not honor limits.
From a religious perspective, it seems the federal government serves a similar position to that of a socialist or communist state, in which God was replaced by the secular, powerful government.
The combination of Government power and lacks of checks and balances is a recipe for graft and corruption, at its finest.
For me, the best bet is always to stay on the first page of the MMT tome.
Just deal with the assumptions and assertions; that way, you won’t risk getting things wrong.
MMT is another wonderful example of why the existence of money [in and of itself] is perhaps the greatest scam ever foisted on humanity.
Because of what? What scam? What would you replace it with? Sumerian clay tablets?
Thanks. Did my best.
Lets be honest, if MMTers gave a damn about “democratic control over a living wage” than they would advocate printing money and teaming up unemployed persons to give them money to start a employee owned and run business.
So vs a basic income guarantee that would let most people do the kind of “work” they want such as volunteering if there bored and want something to do, how would a JG monitor people who want to take care of there parents/children or start a community garden. Would a parent have to fill out a time sheet or is a government official or inspector going to check up on the garden every week.
Sometimes the MMT policies seem like there just designed to keep poor people working and of coarse rich people will not have to worry about work or a JG job because they already have money.
It really makes me cringe when I hear people suggest using a job guarantee program to do construction jobs like pave roads and build dams which currently pay high wages and turn it into a lower wage welfare for work program.
Im sure those studies that say unemployed people want job doesn’t ask them if they would rather have a basic income (non forced work) and then they can volunteer if there bored and want something to do because that would just be to democratic for the MMT proponents to take.
One thing I can get on board with would be if the work program payed a living wage and had a 25hr work week. At least now were talking progress.
The example of JG eldercare is right in the post.
A guaranteed minimum income would do the same and more without the absolute control of peoples daily lives.
As a final note I really dont like the idea of high property taxes that some MMTers always advocate. As usual the wealthy will have money to pay property taxes even if they lose money but what happens to for example an organic farmer who has a bad harvest that year, they will be ruined by high inescapable property taxes but that probably wont be a problem for the giant food company’s. At least with income tax you only pay when you make money including the sale of land but with property tax the poor and lower income people really lose out.
“Some MMTers.” Which?
I cant remember every name or post but i have come across it quite a few times. Maybe when I have extra time il look for it.
This is my problem with jobs guarantee. The logistics of setting up the program are immense and would require radical change in almost all institutions. These change would have to be revolutionary. Maybe we need a revolution. But I think very few people in our country want a real revolution. I would settle for an increase in government spending and government employment. These reforms would make life better and more secure for many people. An increase in government employ would disproportionally help minority people and also military veterans. It would be a kind of soft reparation. Of course much work would still have a certain amount of alienation. But solving that problem might call for the end of civilization as we know it.
Is it possible that we all are government workers?
Would that be heaven on Earth?
I think the postcard is marvelous.
I agree MMT is the way forward, with reservations, of course.
(jesse sums reservations up wisely, I think
‘The key phrase is ‘a currency issuer can never run out of money.’ This is true. They can print all that they want. The critical variable is the ‘value.’ And as for value, ‘the Jobs Guarantee Wage determines the value of the dollar.’ And the Jobs Guarantee Wage is a function of the government.’
Rebecca Rojer’s observation that those at the very tip of our economic pyramid understand that fiat money is unlimited, but most everyone below believes it to be scarce.
So its all good as long as we get the good gov’t we need to impose a good guarantee wage. Until we can elect a Pope Francis ( or a Liz Warren/Bill Black/ Barofsky/Yves clone) as guarantor, MMT is as illusory as neoliberalism has been for this generation of Clintonistas.
Absent the benefits to the <99.9 %ers
Re your last point. We'd all likely have composting toilets..Alas if we only all had backyards.
@ Joe Firestone,
“MMT says that the Government should compensate for the 9% demand linkage by running a 9% Government deficit and spending it wisely on productive things.”
You gave us a good example of the sort of blithe assumptions being made by MMT advocates.
MMT gives unlimited spending power to the central authorities. How can you assume that those expenditures would be “wise” or “productive” ?
During our own celebrated era of ZIRPQE, we have seen virtually unlimited spending by central authorities all over the world. The track record of such expenditure has been mixed at best. If you don’t believe me, why don’t you just hop aboard a surveillance drone and fly to a ghost city, and then you can see for yourself.
It is hard to prevent misinvestment, when those who make the expenditure don’t directly pay the price of failure.
I’m not assuming it will happen. I’m just saying that the 9% deficit spending to get and maintain full employment will suffice if we spend on the right things; but, if we don’t, and say, use unproductive tax cuts for the wealthy we could end up needing a much larger deficit to get to full employment.
I wouldn’t exactly call it unlimited; I’d call it austerity when it came to the right kind of spending. In addition, QE isn’t deficit spending. That leaves ner financial assets in the non-government sector. QE just leaves reseerves locked up in central banks, doing no good for the economy. kapish?
When the Fed decided to buy up unproductive or delinquent assets, this means Pimco and other asset managers got to get rid of some losers in their portfolios. This new money thanks to the sale of bad assets permitted them to buy other securities instead of doing a write-off… they could buy newly issued treasuries or corporates.
This would imply that QE has had a real impact on the economy and asset values.
As far as I know **, the Fed isn’t allowed to buy anything but US treasuries, and agency MBS, since they are considered quasi USG securities. This applies to the “normal part” of the Fed balance sheet.
The bad assets they bought went into the “Maiden Lane(s)”. So QE presumably was buying just AAA USG securities. That of course put downward pressure on the whole treasury yield curve (btw: we need an MMT term for 30 year treasuries. Maybe “30 year not so liquid money that pays interest?” I see they like brevity when naming things. hahaha.) But I digress.
Then during the crash even agency MBS got nailed pretty good due to doubts about the so called “implicit USG guarantee”. Plus the Chinese said they may want to sell a half trillion or something. So that’s probably where QE had the most impact on paper assets anyway.
But mostly QE just swapped long term AAA USG stuff for liquid money that doesn’t pay interest – and of course where it went from there was completely up to the discretion of Wall Street – with some input from main street – we can still pick what mutual funds we’d like to buy with our meager savings.
**It is exceedingly difficult to get the details of the Fed balance sheet – then you have to have the patience and fortitude to wade thru $4 trillion in assets. Not I.
Considering the delinquencies and foreclosures over the last 5 years, it’s hard to believe all those MBS are producers and that all the recent ones will also be great…
MBS 2008 = nil
MBS in 2009 = around 400B
MBS in 2012 = 800B
MBS in 2014 = 1.6T
Certainly. I did see a chart a year ago or so that graphed either foreclosures or 90 day delinquency rates*** and it showed prime MBS running at 9% and subprime north of 20%, maybe as high as 25%.
So that would be factored into the “mark-to-market” price – but then I think the Fed doesn’t do that – and they have been saying they may just hold them ’till maturity, whenever that may be for MBS. So someday the write down comes.
***can’t remember which – which is rather important – but I think it was consistent with the long term historical rate people use when “pricing risk” in AAA agency MBS of somewhere between 1-2%. But I can’t find the graph anymore and less than trusty memory will have to suffice.
But at any rate – when the writeoff comes, then we can finally say that the Fed squirted some money into the economy[years ago, and who knows which country’s economy] that wasn’t attached to debt!
However, I doubt the MMTers will be throwing a “prescriptive” MMT party when that day happens. Lambert should make a note to make a “We Got Screwed Again” post :) They are sneaky.
By that time the GDP will be well over 30T… so losses will be long forgotten.
10% of a trillion is only $100 billion. Chump change, and I’m sure the people that got it deserve it.
Than why not give the money to the people to start a worker run coop to do the job. Why have a top down central command bureaucracy when we can have employee run organizations that are much more democratic than the government will ever be.
Thus, Money Creation via the Little People spending it into existence, instead of the government buying drones to give birth to Money.
That post was meant as a reply to Lambert above.
Interesting that a daily newspaper in Australia notices the correlation between government deficit and economic growth, without relating it back to MMT: “Deficit years are clear winners for shareholders” http://www.theage.com.au/business/markets/deficit-years-are-clear-winners-for-shareholders-20140530-399e3.html
There is another interesting question.
The question is, is societal happiness possible with negative economic growth leading to a smaller GDP?
It seems it’s possible, with better wealth distribution.
To sum it all up…
We need deficits to get out of our hole but we don’t have the structure and safeguards to make sure the new money will flow to the right productive endeavours.
but we don’t have the structure and safeguards to make sure the new money will flow to the right productive endeavours. Money-ta
Baloney! Just hand out new fiat equally to the entire population. It will mock the rich but the rest of us will know how to use that new money productively.
You elitists sicken me!
Everybody seems to have their own definition of elist. Perhaps there should be a theory for that…
Oh come on. I was once 12 myself and know how would-be tyrants think but their basic flaw is to not realize that:
1) Good ideas don’t have to be forced on people.
2) Bad ideas shouldn’t be.
Hence what need their tyranny?
I’d suggest mailing every household a $1000 check each month until disemployment falls below three percent. Or give every American an “Emergency Stabilization Account” at the Fed and deposit the money there.
I suggest a more fundamental change – Money Creation via the Little People spending it into existence.
Stf, joe firestone, stephanie and warren mosler all on one thread. Maybe an NC first? Well done Yves and Lambert!
Also Mathew Forstater. Just saying.
And yourself. Whose depth of knowledge and insights I always appreciate.
Thanks, I appreciate it, and likewise.
And thank you.
You ignore Scott Fullwiler…the best of the lot.
Incognito, but present.
OK… I am again re-reading the MMT Primer… and this time I’m taking notes :)
I also love the idea of Jobs Guarantee and I believe it could work in a very positive way.
But then I watch this: Moyers & Stiglitz while again reviewing the primer and in the middle of my re-read and watching the above I start thinking it doesn’t matter what Stiglitz says and 20 minutes of watching this was a complete waste of time within the MMT paradigm.
I also have other issues with MMT, not from a descriptive view… it makes sense, but from a “let’s make this mainstream accepted” policy view. I’ll get into that later… on the next MMT post :)
But, bottom line, and purely from the perspective of a working schlub, I do not see how it allows any member of the 99% (nowadays almost a cliche) to accumulate savings, financial or non-depreciating asset savings, in order to prepare for “rainy days”. It seems to just perpetuate/rationalize the SOP of today’s system
Just my $0.02