By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute. Originally posted at New Economic Perspectives
This is part of a series, following on from the last installment that asked “Do We Need Taxes?”.
Previously we have argued that “taxes drive money” in the sense that imposition of a tax that is payable in the national government’s own currency will create demand for that currency. Sovereign government does not really need revenue in its own currency in order to spend.
This sounds shocking because we are so accustomed to thinking that “taxes pay for government spending”. This is true for local governments, provinces, and states that do not issue the currency. It is also not too far from the truth for nations that adopt a foreign currency or peg their own to gold or foreign currencies. When a nation pegs, it really does need the gold or foreign currency to which it promises to convert its currency on demand. Taxing removes its currency from circulation making it harder for anyone to present it for redemption in gold or foreign currency. Hence, a prudent practice would be to constrain spending to tax revenue.
But in the case of a government that issues its own sovereign currency without a promise to convert at a fixed value to gold or foreign currency (that is, the government “floats” its currency), we need to think about the role of taxes in an entirely different way. Taxes are not needed to “pay for” government spending. Further, the logic is reversed: government must spend (or lend) the currency into the economy before taxpayers can pay taxes in the form of the currency. Spend first, tax later is the logical sequence.
Some who hear this for the first time jump to the question: “Well, why not just eliminate taxes altogether?” There are several reasons. First—as we said last time–it is the tax that “drives” the currency. If we eliminated the tax, people probably would not immediately abandon use of the currency, but the main driver for its use would be gone.
Further, the second reason to have taxes is to reduce aggregate demand. If we look at the United States today, the federal government spending is somewhat over 20% of GDP, while tax revenue is somewhat less—say 17%. The net injection coming from the federal government is thus about 3% of GDP. If we eliminated taxes (and held all else constant) the net injection might rise toward 20% of GDP. That is a huge increase of aggregate demand, and could cause inflation.
Ideally, it is best if tax revenue moves countercyclically—increasing in expansion and falling in recession. That helps to make the government’s net contribution to the economy countercyclical, which helps to stabilize aggregate demand.
So, we covered those points last time, in part due to a silly twit by Doug Henwood, who likened this to “astrology”. Not one to be bothered with embarrassment he responded to the last blog with this exchange:
Well, no. Taxes on the rich might take “resources” from people who have too much—if he means that their demand deposit account is debited. But taxation does not “give them (the resources) to people who have too little”. Rather government spending directed to those who “have too little” is what gives the poor access to resources (they can use their demand deposit credits to buy food, clothing, shelter, and so on).
These are functionally two entirely separate activities. Government can spend to help the poor without taxing the rich or anyone else. And anyone who can understand balance sheets knows that there is no longer any balance sheet operation in which government “spends” its tax revenues.
Henwood seems to imagine that the rich roll their wheelbarrows full of coins up to the Treasury Department’s steps, where armored trucks load the cash up and take it out to make payments to the poor.
Doesn’t work that way. Tax payments debit the accounts of taxpayers. If you’ve ever gone to a ballgame you know that when the scorekeeper awards a run to Boston, he does not take it away from New York. Rather, he keystrokes runs to Boston. If after review of the video, the umpire has made an error, he “debits the account” of Boston. Where does the run taken away go?
That’s a question for the physicist, not the economist. Where do the taxes payments go? Nowhere—a bank account is debited. I think it has something to do with electrical charges changing from negative to positive, although some commentators told me it is all photons now. All I know is that taxes do not and cannot “pay for” spending.
All of this was recognized by Beardsley Ruml, a New Dealer who chaired the Federal Reserve Bank in the 1940s; he was also the “father” of income tax withholding and wrote two important papers on the role of taxes (“Taxes for Revenue are Obsolete” in 1946, and “Tax Policies for Prosperity” in 1964). Let’s first examine his cogent argument that sovereign government does not need taxes for revenue, and turn to his views on the role of taxes.
In his 1964 article, he emphasizes that “We must recognize that the objective of national fiscal policy is above all to maintain a sound currency and efficient financial institutions; but consistent with the basic purpose, fiscal policy should and can contribute a great deal toward obtaining a high level of productive employment and prosperity.” (1964 pp. 266-67) This view is similar to that propounded in by MMT.
He goes on to say that the US government gained the ability to pursue these goals after WWII due to two developments. The first was the creation of “a modern central bank” and the second was the sovereign issue of a currency that “is not convertible into gold or into some other commodity.” With those two conditions, “[i]t follows that our federal government has final freedom from the money market in meeting its financial requirements….National states no longer need taxes to get the wherewithal to meet their expenses.” (ibid pp. 267-8)
Why, then, does the national government need taxes? He counts four reasons:
(1) as an instrument of fiscal policy to help stabilize the purchasing power of the dollar; (2) to express public policy in the distribution of wealth and of income as in the case of the progressive income and estate taxes; (3) to express public policy in subsidizing or in penalizing various industries and economic groups; and (4) to isolate and assess directly the costs of certain national benefits, such as highways and social security. (ibid p. 268)
The first of these is related to the inflation issue we discussed above. The second purpose is to use taxes to change the distribution of income and wealth. For example, a progressive tax system would reduce income and wealth at the top, while imposing minimal taxes on the poor.
The third purpose is to discourage bad behavior: pollution of air and water, use of tobacco and alcohol, or to make imports more expensive through tariffs (essentially a tax to raise import costs and thereby encourage purchase of domestic output). These are often called “sin” taxes—whose purpose is to raise the cost of the “sins” of smoking, gambling, purchasing luxury goods, and so on.
The fourth is to allocate the costs of specific public programs to the beneficiaries. For example, it is common to tax gasoline so that those who use the nation’s highways will pay for their use (tolls on throughways are another way to do this).
Note that while many would see these taxes as a means to “pay for” government spending, Ruml vehemently denies that view in the title to his other piece, “Taxes for Revenue are Obsolete”. Government does not need the gasoline tax to “pay for” highways. That tax is designed to make those who will use highways think twice about their support for building them. Government does not need the revenue from a cigarette tax, but rather wants to raise the cost to those who will commit the “sin” of smoking.
Many would say that it is only fair that those who smoke will “pay for” the costs their smoking imposes on society (in terms of hospitalizations for lung cancer, for example). From Ruml’s perspective this is not far from the truth—the hope is that the high cost of tobacco will convince more people never to smoke, which thereby reduces the cost to society.
However, the point is not the revenue to be generated—government can always “find the money” to pay for hospital construction. Rather, it is to reduce the “waste” of real resources that must be devoted to caring for those who smoke. The ideal cigarette tax would be one that eliminated smoking—not one that maximized revenue to government. He said “The public purpose which is served [by the tax] should never be obscured in a tax program under the mask of raising revenue.” (1964 p. 268)
We can then use this notion of the public purpose to evaluate which taxes make sense. I won’t go through that today, but let me say that Ruml used the corporate income tax as an example of a particularly bad tax. He’s right. My professor Hyman Minsky always argued for abolishing that tax—and I wouldn’t be surprised if he got the idea from Ruml.
Of course, which tax do “liberals” love? Corporate income tax. They all want to increase it to “pay for” all the goodies they want to shower on the poor. In other words, they compound their confusion—not only do they insist on being wrong about the purpose of taxes, but they also embrace one of the worst ones! Maybe a good topic for another blog?
Ruml concluded both of his articles by arguing that once we understand what taxes are for, then we can go about ensuring that the overall tax revenue is at the right level. “Briefly the idea behind our tax policy should be this: that our taxes should be high enough to protect the stability of our currency, and no higher…. Now it follows from this principle that our tax rates can and should be lowered to the point where the federal budget will be balanced at what we would consider a satisfactory level of high employment.” (1964 p. 269)
This principle is also one adopted in MMT, but with one caveat. Ruml was addressing the situation in which the external sector balance could be ignored (which was not unreasonable in the early postwar period). In today’s world, in which some countries have very high current account surpluses and others have high current account deficits, the principle must be modified.
We would restate it as follows: tax rates should be set so that the government’s budgetary outcome (whether in deficit, balanced, or in surplus) is consistent with full employment. A country like the US (with a current account deficit at full employment) will probably have a budget deficit at full employment (equal to the sum of the current account deficit and the domestic private sector surplus). A country like Japan (with a currrent account surplus at full employment) will have a relatively smaller budget deficit at full employment (equal to the domestic private sector surplus less the current account surplus).
I’ll continue this thread.
Randy Wray doesn’t explain why he thinks the Corporate income tax is “one of the worst”.
It may or may not be – but inquiring minds would like to know the reasons supporting that statement.
Would it kill you to type “Minsky corporate tax” into a search engine?????
A corporate income tax, which allows interest to be deducted prior to the determination of taxable income, induces debt-financing and is therefore undesirable. A corporate income tax also allows nonproduction expenses such as advertising, marketing, and the pleasures of the executive suites to be charged against revenues in determining the taxable income. As advertising and marketing are techniques for building market power and as ’executive style’ is a breeder of inefficiency, the corporate income tax abets market power and inefficiency just as the corporate income tax abets the use of debt-financing. Elimination of the corporate income tax should be on the agenda.
There are, of course, several different ways corporations could be taxed. Wray says only “Corporate income tax”. If he had a specific corporate income tax in mind, it was incumbent upon him to mention it and explain his reasoning. It is not up to us to read his mind.
There are, of course, several different ways corporations could be taxed.
Given Wray is discussing how corporations are taxed, rather than whatever fantasy tax you’re ruminating on, it’s remarkably easy to find out for one’s self. Given that Wray has written on corporate income taxes in the past, it’s quite easy to look it up. Given that Wray didn’t write this post for Naked Capitalism but for a blog with an audience familiar with his work, and that he isn’t responsible for posting it here, the responsibility is yours to find out more, not his to make sure you know.
This petulance that one wasn’t handed all the answers on a silver platter is silly. What happened to self-directed learning?
Wray mentions corporate taxation without any discussion. If he was unprepared to include any indication in the present text of what he was talking about, he should have left it out.
Please spare us the infinitely tired dodge of saying its our responsibilities as readers to go out and research and read endless articles by MMTers because they are unwilling or incapable of writing a coherent, stand alone post. This is a standard which seems to apply to no other group anywhere outside of theology.
What part of Originally posted at New Economic Perspectives do you not understand? His audience there doesn’t need to have it all spelled out for them because they’re familiar with his work.
Please spare us the infinitely tired dodge of saying its our responsibilities as readers to go out and research and read endless articles by MMTers because they are unwilling or incapable of writing a coherent, stand alone post.
This is intellectual laziness. To expect someone to distill the breadth of eighty years in Post Keynesian literature to one blog post and hit every topic you want them to in exactly the way you want them to is the height of absurdity.
Some of us spend years reading to gain a mastery (mastery meaning one is finally ready to begin learning) but you demand to be gotten there in fifteen minutes.
hehe. C’mon Hugh, it’s not that hard. Once you realize that it’s just Keynesian economics with cause and effect re-stated in Pig-Latin. Along with some redefinition of commonly accepted terms – by both laymen and economists – like for instance we learn here that “corporate income tax” means “corporate income tax deductions” – which is just a simple mathematical substitution of negative mathematical terms for positive mathematical terms. A 3rd grader can handle that! Congress does it all the time!
Besides, what else do you have to do with your time besides read and decode this stuff?
To respond to your general and proffer:
The “infinitely tired dodge” is more than justified in cases where the bogon in question has a sufficiently long wavelength; that is, if it persists over time and across many threads.
Trolls, for example, may certainly be asked to “do their homework,” as may MMT irrationalists. It’s entirely appropriate to ask people who can’t be troubled to read a given post to do their homework by mastering the material first.
As long as corporations are going to be called “a person”, they ought to be taxed just like any of us “other people”.
“A corporation”, doesn’t add any real value to a society. We as a society do not need to mollycoddle them. If they can’t be profitable after tax, let them fold. If they get caught stealing or defrauding…. let them fold.
If they don’t like what goes along with being in business, let them get out of business.
What we need is less dodge-able taxes for corporations.and multinationals who use borders for tax -avoidance, the only thing to do is to punitively tax them. If they won’t pay our taxes, they ought to be denied access to our markets… lets see how good an idea they think those games are.
The problem is when corporations fold, people who have had nothing to do with the corporation’s predicament get harmed in the process. If they’re a larger corporation, a bigger impact is made economically. That’s why there should be constant checks on them to make sure they’re playing fair and square. The minute impropriety is detected, the Hammer of Justice should swing down, and swing down hard.
This is why the silly libertarian fantasy of free markets is so dangerous; it gives corporations open invitation to lie, cheat and steal.
I understand that little people get hurt when their employer is shut down.But really, there are a lot of people getting hurt these days.Why should a corporate employer get special treatment.
I think that these days these behemoths who are the main problem, need to be forced to close down, so those “free market forces”, have a chance to let a dozen groups, maybe new starter corporations get a shot at whatever game they were selling.
because really “corporation”, is a loaded term.Most “corporations”, are people who have incorporated themselves, or even the small public companies who are still trying to make something better and sell it cheaper than their competition.This vast majority in numbers,not market share,have nothing to worry about.They were never going to get preferential treatment anyway, and they keep their noses clean, as anybody can tell.
It is the behemoths, who have the majority of market share,yet are a distinct minority.These are our problem children that we spend the good will of American military and foreign policy might ,on.We sully ourselves for these bastards to run amok,the world over.While they avoid taxes in this country.
To leave out the possibility of taxing these multi-nationals,is a short sighted notion.People act as if these companies are living in some academic “vacuum-land”, where only forces being studied are active, and everything else, is “another issue”.
Based on the quote, the remedy is simple – eliminate those deductions.
It doesn’t follow you should eliminate corporate income tax.
Having high corporate taxes means the businesses that can hire the most tax accountants will rig the game the best in their favor. Apple, Google, Shell, GE, can hire an army of tax accountants. The guy running the small shoe store can’t.
If you treated corporations like a pass through (which is what they are), and taxed the income they generate progressively at the individual level, it would level the playing field. A vast company like GE wouldn’t have the “tax accountant advantage” anymore.
Wealth individuals will, instead of investing in corporations him/herself, invest through his/her next-level-smaller corporations with him/herself as the sole shareholder or his/her family.
So, GE goes tax free.
It’s income gets passed through to 1) slow-witted individual shareholders and 2) smart corporate shareholders.
The smart corporate shareholders then go tax (corporate tax) free.
The rich guy (or gal) parks his/her wealth there (the smaller corporations), drawing (and paying taxes) just the necessary amounts to support the desire lifestyle.
Corporations are artificial entities that can be easily structured to shift income, expenses, profits and tax credits to reduce (often significantly) state and federal taxes. If someone wants to tax businesses, a “corporation profits tax” is about the worse system anyone could devise, although the accountants, lawyers and economists love the system since it generates billions of annual fees whenever big companies restructure to avoid taxes. And wealthy lobbying groups are excellent sources of campaign cash for politicians who either support or oppose dozens of deductions, exemptions and loopholes that affect the marginal tax rates of various businesses.
The US has a particularly difficult problem with corporate taxes since many countries don’t tax “foreign income.” Thus, a US company can significantly reduce its US tax by merging with a foreign owner (eg, Budweiser). Back in the 1980’s and ’90’s we heard the term “foreign flips.” These days we hear about foreign “inversions.”
My view is a lot simpler. Taxing and spending (as well as legislation and regulation) are ways we the people redistribute our resources to accomplish our purposes both individually and as a society.
There are several lacunae in Wray’s presentation. He does not address the curious private/public nature of the Fed in money creation. He does not explain his point about corporate taxation. He ignores the problem of interest.
He skirts the issue of wealth inequality. He never uses the word “inequality” but does bizarrely slam Henwood who indirectly raises it and again briefly mentions it in relation to the second of Ruml’s 4 points. And he invokes government as if it were some independent agent and not what it should be the expression of the members of our society. In this way, the social purpose of government is obscured, and with it one of government’s main responsibilities and society’s concerns, the equitable distribution of wealth is marginalized.
All of these concerns are addressed in Wray’s articles, books and papers and most of the MMT literature in general. The purpose of this post is to explain the need to tax. Issues of public purpose can be found by reading Mosler, Kelton, Fullwiler, and Wray among many others in the MMT sphere. None of your issues are skirted. All lacunae will be filled.
That’s the thing, isn’t it? I’m only a casual student of economics, and I’d like to have things explained to me in an understandable format that doesn’t require me to chase down and master an entire field’s body of work to understand, because honestly I’ve got a few other things I’m busy doing in my life. Physicists have learned to write mass-market books and articles aimed at ordinary people — if economists can’t do the same, it’s only because they don’t want to. MMT will never become part of ordinary discourse if the response to someone saying “I don’t get that” is “well, go read a dozen technical books and articles first, then come back and I’ll talk down to you some more.” And that’s why even if the theory is right, at this point it’s as meaningful to public policy as a fart in a windstorm. It would take a tremendous amount of convincing to shake loose the ordinary person’s bone-deep acceptance of the meme that “government should be run like a household,” and MMTers just ain’t got the skills. Or don’t want to use them, whichever.
Cullen Roche at Pragmatic Capitalism and Randy Wray at his UMKC website both have “MMT 101” primers.
In this no tax world, I guess the IRS will be transformed into the DIE, the Department of Internal Efficiency, which will keep track of how money is flowing throughout the economy. It will be filled with financial wizards who all agree and work by consensus to determine exactly how little to give to the rich and how much to give to the poor…
And it will end up working so well that, over time, everyone will be equal so they will have no analysis to do. All they will need to do is have a printing machine and a robot that sends the same amount of everyone.
Like tomorrow, ‘cept the financial wizards know how redundant financial wizards are once the honest adding machine is “invented”. I have the idea of calling it new technology Moneta. Don’t tell anyone, or we won’t make any money and buy all the property, water and land before it starts working!
An amusing expression of general distaste. What, pray tell, does it actually mean?
MMT irrationalist* comment pins the bogometer. Moneta writes:
MMT is not a “no tax world.” Wray wrote:
He then goes on to discuss tax policy.
Please give consideration to actually reading the post, rather than adding the already thick bogon flux that some comments have already tired.
NOTE * My bad.
There is no “private/public nature” of the Fed. The Fed is a creation of Congress and can be dissolved by Congress just as easily. The separation of the Fed from the Treasury was intended to create an accounting fiction that said the people’s money is not their own. It has never been any more than that fiction other than in the people’s imaginations who fell for it..
“bizarrely slam Henwood”
Here’s a quote from Henwood taken from Twitter: “@JAMyerson @delong MMT seems only slightly more respectable than astrology, but maybe that’s just me”, https://twitter.com/DougHenwood/status/465219769650511873, Henwood goes on to say “@JAMyerson @MattBruenig Also Wray’s prose style does not make me want to read more.” Favorited by the somewhat dimwitted Matt Bruenig.
That Wray didn’t slam Henwood harder is what can only be called mercy.
Henwood writes “@JAMyerson this evades distribution – taxes take resources from people who have too much and give them to people who have too little”.
Wray was being generous when in this post he says “if he means that their demand deposit account is debited”, which Henwood didn’t know, which is why he made the mistake of saying resources.
How does a teacher correct someone that doesn’t understand the obvious, that which has been repeated ad nauseum and ignored by a student of economics who proclaims expertise in the subject yet can’t be bothered to learn the lessons that MMT teaches that are at the heart of economics, because he is alienated by Wray’s prose style? (An incisive prose style which rips through any arguments made by weak critics of a school of thought which teaches the operational realities of modern economic systems)
The teacher makes an example of the student in front of the class.
For Henwood’s own dignity I hope he takes the lesson and sits down and shuts up, and does his homework before speculating on something he can’t even be bothered to read.
Many MMT Irrationalists can’t be bothered to read. Not the books, not the posts. I’m constantly amazed by this, and after ten years of site administration, I’m not easily amazed.
Hugh: Taxing and spending (as well as legislation and regulation) are ways we the people redistribute our resources to accomplish our purposes both individually and as a society.
As I’ve tried to explain before, the kind of “resource view” is wrong because it is incomplete. In essence a classical mistake, made by many economists, philosophers and MMT fans, even in main NEP posts. That is not all of what state taxation and spending = state money does. State money organizes the division of labor on a national basis. Conversely, the division of labor is simply impossible without credit (= (pre)money) in any society. “Redistribution” -Robin Hood or robbing Peter to pay Paul or may be a good or bad thing. But it is not the only thing.
The more “advanced” and technological and monetized the society becomes, the more important the financial/investment/monetary side becomes over what could be thought of as “resource redistribution”, especially once it has modern banking, capitalist finance. So as Keynes, Lerner, Minsky, Vatter, Walker and Wray emphasize, perhaps channeling Marx channeling his teachers, so does the need for a countercyclical and growing government to accomplish essentially universally accepted public purposes, and the need for elites to lie, cheat and steal more and more to fight this.
The common, twin mistake that people make, when they have Bright Ideas to Explain Better, is to sneak the commodity theory of money in the back door. Mistakenly conflate money & commodities – what money, credit can buy from anyone, from the state. And then mistakenly not conflate what should be conflated – money and bonds, currency and debt, reserves & “NFA”. There really, really are two really different, really important things, “money/finance/debt” & “real stuff/commodities/resources”. And that is how they should be divided, instead of thinking of “finance/debt” as a superfluous addition to Real Analysis of “real stuff/commodities/resources/money”.
As for defensiveness, I don’t think I have been, and I apologize if I have – but the explanation mentioned before was characterized as “parody”. Sometimes people, including MMTers, including Wray, can be too defensive, true. The corporate tax point was an aside, and if I were Wray’s editor, I would have told him to leave it out, as it was a confusing distraction.
Cal – not sure what you are saying here (proll my fault). I can demonstrate division of labour in non-money society – bees, African Hunting Dogs, Bushmen hunting down a deer. Once we have money it is some kind of promise to have a fairly stable share, pay your way beyond the project giving you a share. This money doesn’t have to be accumulated and re-invested or have to imply banks – though we have a system of these institutions and investment.
Money for projects could always be thin-air money, money saved just attracting inflation proofing with an accumulation limit. This brings allocation issues into question and motivation and control of getting the right work done well.
I’m talking half-baked pie in the sky here, from which we might have to create all the old cogs and the old system – I do so only to question what the assumptions you are making are and whether they are necessary -plus whether we can make a leap from ‘typewriter to wordprocessor’ on money. Our definitions and practices with money pre-date new technology.
And? I don’t think MMT has ever denied money has a history; in fact, it’s grounded in it. So what’s your point?
Spades are not shovels. They have different purposes.
You don’t do speculative thinking at all well Lambert. I was asking Cal for some clarification, hoping he could see we might be jumping into money definition.too ‘soon’. Clearly there are times before money with division of labour, even in human societies. And clearly, nearly all our institutions and definitions of money pre-date widespread new technology. To the extent money is embedded in the new technology, we may have embodied the old ‘manual money’ and this might not be the best solution. We might be able to find a better understanding of division of labour and money, as we might better understand money by recognising it didn’t come about from barter (Graeber).
I don’t know why you have to point out MMT deals with some history of money to someone who teaches the stuff and isn’t claiming the opposite. Cal has said something interesting on assumptions made, whether right or wrong. They made help me ground some speculations I have on capacity and project-based money. He has been helpful before.
OK, that was your point. Thanks! Perhaps I’m finding genre-mixing commentary that includes questions that are “prolly wrong,” what others call flow of consciousness, tendentiousness, really interesting information, snark, and bogosity difficult to manage; not “speculation” as such. Since some of these genres have bad impacts on NC, perhaps I’m too quick on the bogosity trigger, as I see I was in this case.
If you untether money/finance/debt from the real world, what is the rationale for it? Society’s primary resource is its people, their talent, skills, knowledge, labor, and goodwill. Money in whatever form it takes simply allows access to human and physical resources so that society can accomplish the purposes we assign it, which is to build and maintain the society we wish to live in. This is not a static or zero sum process. Resources will be created, consumed, and transformed in it.
If you came at this from a social purpose perspective, you would see that neither government nor the economy has any reason for existence beyond the purposes we assign them. Government and the economy are there to express and effect the purposes we set for them. They have no autonomous existence outside these purposes. Government is never separate from us. The economy never just is. Only when they are stolen and hijacked from us, as now, is this the case.
Yes, real resources. MMTers urges that we have the resources, the money follows.
MMT calls that “public purpose.” A cursory reading of the post, or a cursory reading of the literature — do feel free to give a cry of pain if that’s too hard — will show that.
Finally, Hugh writes:
Yes. MMT calls that “public purpose.”
So far, Hugh and MMT are on the same page. Remarkably enough. Finally, Hugh writes:
First, Hugh’s dead wrong. Government might be said to have a “relative autonomy.” Even a better version of the government, like FDR’s, that “expressed and effected” public purpose still doesn’t reflect the will of the public in a simple or mechanistic way; for example, the rule-making and regulatory processes surely have relative autonomy within the framework of the purposes set for them.
Next, let’s take Wray’s policy prescription as a text:
How does this argue that governement is “separate” from us? (Modulo the argument on relative autonomy above). Wray’s making a policy argument; we reify government in prose all the time to do that. Hugh’s elevating a prose treatment of government as an object of study to an ontological claim about the nature of government. That’s bogus.
Social and public are not the same. What is social exists before and often independently of government whereas public occurs within a legally, i.e. governmentally sanctioned space. Both the economy and government are products of society. So yes, they should never be separated from the purposes we as a society assign them. The reason this is important we see everyday. When government and the economy cease to be our creatures they become the creatures of others. The rich and elites use this specious autonomy and/or independence of government and the economy to justify their looting and the power and fortunes they gain thereby.
By emphasizing the public and not the social, MMT is profoundly conservative of current political and economic structures because these define and validate what is public. MMT has some interesting insights into fiat money but it comes out of and remains firmly embedded in the current politico-economic system, which is to say neoliberalism and kleptocracy. In its current formulation and with its current practitioners, I do not see it ever successfully freeing itself from what is its intellectual heritage. It comes back to those two simple words, public and social, public inside the system, social outside it. From a social purpose perspective, it is trivial to note that government and the economy are suffused and subsumed by their social purposes at all times. From the public purpose standpoint, they aren’t and therein lies the problem for us in the 99% because that discrepancy provides the gateway to our looting, a discrepancy which MMT embraces, and defines it.
Well put: “By emphasizing the public and not the social, MMT is profoundly conservative of current political and economic structures because these define and validate what is public. ” This to me is a very clear and useful formulation.
But from a process perspective, I vehemently disagree: I think that “public” is contested, and it’s for us denied public space to seize and redefine “public.” But that’s not MMT’s job. It’s our job. And that job is not aided if we don’t have a clear notion of how money is created, and our options for policy if MMT’s notions prevail.
Although the concept of social purpose might be more comprehensive than that of public purpose, that does not mean that public purposes are restricted to those that can be achieved through the existing public institutions. To the extent that MMT is sometimes conservative about existing institutions, I think that is mainly a practical judgment, and the attitude is “Why reinvent the wheel when the existing wheel is perfectly capable of doing the job when steered correctly.” But some of the MMTers seem more interested in major institutional reforms than others.
I think one problem is that, for Hugh, MMT doesn’t call that anything. It doesn’t address what the government and economy are there to do. If MMT does make that claim—not a claim about using “public purpose” as a way to evaluate a particular policy but a claim as to the purpose of an economy—I think it would help matters if you could point to it.
There is a normative claim about making normative claims for the economy lurking here: it’s not enough to say how we can evaluate this function or that within it—you should state what an economy is for. (By contrast, you can certainly evaluate organisms on the basis of their fitness to an environment but you would not state what “fitness to an environment” is what evolution for or that you should state it is for that.) That in itself—that the economy is for something—is a normative claim that Hugh seems to be making that he says, I think, is absent from MMT.
JeffW: Here’s Wray’s discussion (realizing there’s no MMT bible because MMT is no a religion) in the MMT Primer, 2012, Chapter 37, The Public Purpose:
So far as I can tell, Wray has said what Hugh wants him to say. (Yes, it’s “evolving.” The “public purpose” is contested.)
MMT writers don’t generally make formal statements about the various value gaps they believe comprise the various dimensions of public purpose. But I’ve developed a list based on my reading of the MMT literature. It’s in this piece.
In addition, my reading of Warren Mosler, Randy Wray, and other MMTers leads me to the conclude that they believe MMT is, “economics for the public purpose,” a play on the title of one of Galbraith, the elder’s books. So, I think MMT economists do have normative commitments, ad the distinction some f them try to make between the normative and the descriptive isn’t one that holds up under philosophical analysis. In my view the failure of this distinction goes back to the collapse of logical empiricism during the 1950s and 1960s.
Well, I think this is the kind of frustration people are going to run into anytime they take any branch of macroeconomics and start treating it as though it were some grand political philosophy. Can you think of any other schools of economic thought that have a comprehensive theory of the purposes of government and society? Maybe the Austrians, since they have such a minimalist and negative view of government. But otherwise, these kind of theories go well beyond the territory economists are usually willing to stake out for themselves.
“Can you think of any other schools of economic thought that have a comprehensive theory of the purposes of government and society?” Marxism.
which is exactly what Stephanie Kelton says:
It was clear in Hugh’s prior comment as well. I don’t understand your objection, Calgacus.
“Emphasise” is a legitimate secondary spelling (, especially British, em·pha·sise ) and the source is not Dr. Kelton but the transcriber of a lecture given by Dr. Kelton, Felipe Messina.
I see how useful it is to emphasize the writers in bold, but the formatting confuses me and therefore, I imagine, others because in rapid scanning I mix up your bolding with the author names at the bottom of comments, which are also in bold. I’m wondering if you could adopt underlining or all caps or italic as a convention? Thanks!
Sure, I’ll be happy to give something else a try. I just have a feeling that if I am actually going to refer to someone by name (which I try not to do that often), that person deserves the courtesy of being able to see quickly that I’ve done so. (Underlining always strikes me as a throwback to when typewriters couldn’t do italics or bold but I might overcome that bias here.)
You do? I never thought of that. Maybe italics would work, if the name started with initial caps. I think an italic lowercase name would be confusing in a different way. Quotes would be confusing. craazyman, CRAAZYMAN, craazyman, [craazyman]…. Of course, if you made the name a link to the comment in question, it would stand out for that reason, and provide functionality for the reader, but it’s more work and does risk Akismet.
But I nearly went very wrong on a comment when I thought your bolding was the comment source, and I don’t want to do that. Fortunately, I didn’t press submit.
It seems to me that the basic point should be fairly easy to understand. A government like the US does not have to tax as much as it spends, either in the short run or over the long run. That’s because the fiscal policies of such governments are integrated with monetary operations that lead to continually increasing quantities of government currency in the private economy. As long as these operations are carried out in a sensible way, they do not destabilize the currency or prices, and in fact help to enhance stability.
Another comment scarred by MMT irrationalism pins the bogometer. Hugh writes:
I call bogosity. Wray cites Ruml approvingly:
Ruml says “express public policy” which is not in substance different from Hugh’s “expression of the members of our society.” Hugh says “equitable distribution of wealth” and Ruml’s “penalizing various … economic groups” enables that to be done (more below). Wray goes on to say in his own words:
Once again, “public purpose” is not in substance different from Hugh’s formulation. Since I’m reluctant to conclude that Hugh is arguing in bad faith, I can only conclude that, for whatever reason, he’s not willing to give Wray’s text more than cursory attention (in common with other “any stick to beat a dog” types).
* * *
But, one might urge, Wray does not address class warfare!* And that is true. (Bloggers constantly hear the cry: “You didn’t write on the topic I want you to write on!” Clue stick: If you want that done, write a check (which might not be accepted)). First, Hugh writes that (presumably) mitigating class warfare is “ government’s main responsibilities” (emphasis mine). Well, Wray wrote on others “of” government’s responsibilities, so what’s the beef? Is class warfare a shibboleth, a magical talisman that must be rubbed before entering into any discussion?
Less trivially, where is public purpose to be defined? Hugh seems to think that if only Wray wrote the book or post that Hugh would like him to write, the matter would be handled. This is cargo cult thinking. Public purpose is decided by the public. Granted, our current political arrangements obscure this, but we may hope to reverse that. That’s done by a long collective process, in which the NC comment thread plays a small part. Rather than making tendentious statements based on sloppy reading and ending in false claims, good faith commenters might consider making their own contributions, rather than demanding that others, including Wray, do their work for them.
One such might be build on Ruml and Wray to, say, advocate for a steeply progressive inheritance tax. Given that taxes don’t fund spending, we can focus on the real reasons for such policy: To prevent the 0.01% from putting the state on the market, and purchasing bits of it; to prevent the formation of an aristocracy of inherited wealth; and for the psychic and familial health of the rich themselves, many of whom are said to regard their wealth as a burden.
* Let us, as the Australians do, call spade a bloody shovel, and not putz around with wussy circumlocutions like “equality distribution of wealth,” let alone the career “progressive” equality.
The bogosity as you term it is this deeply irrational hyper-defensiveness that any criticism of MMT elicits from its believers. It is insufficient to know the general principles of the theory. We are required to recite chapter and verse. Citing what the author actually says in a post is likewise insufficient. We must be prepared to quote from their whole body of work, indeed the whole corpus of MMT. On the other hand, if the author is unclear, vague, or simply sloppy, we must read into his/her words their unstated intent so as to resolve any issues in their favor. These demands are not only unreasonable. They are outrageous. Any honest discussion of MMT is quashed. We are left not with MMT as evidence-based economic theory but as theology and dogma. It is just so contrary to the whole progressive ethos of open intellectual inquiry that I want no part of it.
I deployed “Why are you do defensive?” when I was younger a good deal. It’s a real conversation stopper.
Again a straight, to the heart of the argument, answer; which is ignored in the other replies. What is the functions of the various parts of an economic (and political) system? The MMTers, like too many other schools of economic thought, ignore this question (or answer it incorrectly in their breathlessly stated first paragraph). The function of a government is to try to make the society fairer and to set the standards by which fairness is measured. The function of business is to make money by selling a good or service at a profit (not return wealth to its shareholders!). The function of other groups is to support that’s group identity and purpose. In a properly functioning society, all three groups are in tension and have a give and take with each other.
The two government goals on which MMT has placed the most emphasis are full employment and price stability. Both very worthy and important goals. I agree that it would be good if they would turn more attention to broader questions of social justice and concentrated private power and corporate power.
Yes, with the qualification for those permanently disemployed, and there are a lot of them, as Hugh demonstrates monthly.
For those, full employment is a matter of social justice. Links on request, but the health and social effects, including suicide, of unemployment are well known. (Modulo the discussion on whether capitalism should exist, “jobs” should exist, etc.)
So the rich should be forced to work as a matter of social justice? Or is it only the non-rich who should be forced to work?
And don’t confuse the ill effects of lack of income and not being able to work (What work can an apartment dweller do, for example?) with not working for someone else, i.e., work does not necessarily mean a job.
How many times have the MMT people said the Job Guarantee is NOT a requirement to work? It’s an option. You persistently straw man their policy. This is bad faith argumentation and against house rules.
How many times have the MMT people said the Job Guarantee is NOT a requirement to work? Yves Smith
It isn’t? So one can merely show up to pick up his check or better have it direct deposited and avoid even that trouble?
A Guaranteed Living Income plus land reform offers a true option of someone working either for himself on his own land or for someone else.
Or is it that Wray offers either a job or enforced boredom for those without land?
What a sorry society when the choice is wage-slavery or boredom with justice not even on the menu.
Good faith? Please get LR Wray to explain why people would choose to have a job when they could receive the same income for doing nothing with the option of volunteering?
But look. If Wray is simply offering a Federal Volunteer Placement Service (for people who can’t find their own work to do) in addition to a generous Guaranteed Living Income then let him say so.
You need to read the logic behind the job guarantee. You haven’t made a good faith effort and your insistence on making it into something it isn’t is tiresome and intellectually dishonest.
He does not address the curious private/public nature of the Fed in money creation.
Is the Fed the subject of the post?
He does not explain his point about corporate taxation.
Maybe he thought you would be intellectually curious enough to bother to look it up for yourself?
He ignores the problem of interest.
He never uses the word “inequality” but does bizarrely slam Henwood who indirectly raises it and again briefly mentions it in relation to the second of Ruml’s 4 points.
So he does discuss inequality, but because he doesn’t use your preferred word and owns a thesaurus he’s “skirting the issue”. He is bizarre because Henwood made an incorrect statement. Wow.
And he invokes government as if it were some independent agent and not what it should be the expression of the members of our society. In this way, the social purpose of government is obscured, and with it one of government’s main responsibilities and society’s concerns, the equitable distribution of wealth is marginalized.
And now we’re back to the metaphysics and normative judgements regarding a post on accounting. Despite the hundreds of pages Wray has written over the years on social well-being and public purpose, Hugh continues his one-man crusade of pretending it didn’t happen.
We seem to have lost any appreciation of what has been termed the ‘Commonwealth’. It may be that our blind desire to achieve personal wealth has led us astray.
Long ago Lorenz von Stein’s wrote: “What I am, what I have, and what I do, belongs in some part to the community. The strength of the community resides in what each individual surrenders to it from his personal life- material, spiritual, and social matters. It is thus -even mathematically- impossible that the community should offer individuals the conditions of economic accomplishment, unless the individuals return to it part of their earnings made possible by the very existence of the community. As long as human beings and nations exist, this reciprocal process will continue, even though the individual may neither want it nor even be aware of it. This is the economic principle of human society.”
As Oliver Wendell Homes said, “I like to pay taxes. With them, I buy civilization.”
‘We have to get it to the market ASAP. Gotta beat our rivals. Time…is of essence here!!!’
What does that mean?
It givens an example of the Non-Uniqueness of Billionaire-hood.
If he/she doesn’t do it (gives the ‘supposed’ contribution or service to the society), someone else will.
That’s is why we say, it takes a whole village to produce GDP.
And therefore, GDP Sharing is the most natural, most logical world order.
Teamwork…everyone together to make it possible.
It appears that nobody wants to hear it….. cooperation is not held in high regard these days. Too bad we all will share in the failures of a poorly regulated market.
The hyper-defensiveness of MMTers makes any reasonable, rational discussion with them impossible. It relegates their theory by their behavior to a cult. You are either a true believer or an infidel. If only we had read all their holy texts we would understand. Somehow they remain oblivious to how self-defeating and marginalizing this attitude is to the mainstreaming of their theory.
Hugh that’s about as big as a projection I’ve seen from some Austrians and Neo classical’s. The Rub always comes when MMT’ers try to describe the functioning system architecture only to have morality [metaphysics] and politics attached to it. Its people that try to ascribe agency to it that always ends up in tears.
Agency Skip? When did the MMTers ever mention the CIA? Their theory is ‘intelligence neutral’ after all …
I think the situation Hugh describes comes about because economists generally do not understand they are in defeasible argument, not proof. Reasoning is defeasible when the corresponding argument is rationally compelling but not deductively valid. The truth of the premises of a good defeasible argument provide support for the conclusion, even though it is possible for the premises to be true and the conclusion false. In short, the relationship of support between premises and conclusion is a tentative one, potentially defeated by additional information.
Agree with you allcoppedout on defensible argument versus proof. (And I hope I’m not missing the nature of the argument because “defeasible” is non-American English and my vocabulary has deteriorated over the past 20 years. Awesome, Perfect you Brits and how ya’ll talk so good and all!) Sector balances from Wynne Godley is solid theory with good empirical support. The rest of MMT leaves me some combination of enlightened and confused. That said, one of my favorite blogs is Bill Mitchell – billy blog; maybe cause I just like the guy. His libertarian-left spirit is so close to my own and his logic is impeccable – but you’re right, it’s not proof. And this from a country that formally conceded control to the CIA circa 1974 (when America was still a glorious democracy in the throes of Watergate and the Church Commission at least had a potential to exist). Hat tip to Rupert Murdock for help with that one!
The Pragcap blog of Cullen Roche has created a rift, as Cullen has, with help from Warren Mosler and others, propounded “Monetary Realism” that puts more emphasis on private bank creation of money, and jettisoned the Job Guarantee as too political. (My summary is poor, so read it for yourself! The theory has mainly moved to its own MR website.)
Weirdly, MMT may have been at the heart of Reaganomics. Mosler early on went to his one-time mentor, Art Laffer. I think Laffer got it (and Cheney?), so maybe Laffer knew his famous curve was all BS.
Monetta’s comment that they bring out MMT when Debt to GDP ratio is high is ahistorical. What “they” do is practice MMT when they want a war. “They” don’t want the voting public to have any idea about MMT. We might to start a war on bad infrastructure, college tuition debt, or Anthropogenic Global Warming. Can’t have that, or else the cost of labor would go up! And please – the R&R paper is fundamentally flawed, not just an Excel spreadsheet error.
Monetta’s comment that they bring out MMT when Debt to GDP ratio is high is ahistorical
My point is that the form of MMT we are currently using is still accounting for debt and some taxes. MMT Turbo will be MMT not accounting for debt or taxes.
Essentially MMT, the way it is being debated, can figure on a spectrum.
1970s to 2009 – MMT SE
2009 to ? – MMT LE
? to ?? – MMT Turbo
“MMT Turbo. That’s a nifty turn of phrase.
Sectoral balance equation is best understood when reduced to the case without foreign holding.
In that case, the more the government owes, the more you and I have.
When money is via government borrowing, that means, the more money the government spends into existence, the more you and I have.
That is, the more it prints, the more you and I have, in straightforward British English as well as American English.
Of course, you can rebel against this ‘descriptive’ reality, and ask, is there another way?
We can let the Little People spend it into existence.
Then, the more the Little People spend for government products and services, the more money the government can have (by working to serve the Little People).
MyLessThanPrimeBeef – I am sure you have good intentions – but don’t you know where the road they pave goes to? Take your words seriously, with the usual meaning – and see this is a prescription for the hell we have.
“We can let the Little People spend it into existence.” is the plutocrats fondest dream. Spending money into existence = going into debt. That’s what you do every time you spend with a credit card – a Little Person issues money.
If you issue money = debt it has to be redeemable in principle for something for it to be real money. There has to be some way for the Little People to become creditors, rather than the debtors they become by issuing money. And the only thing that the Little People have is their labor.
So thinking of your proposal generously, the only way it could work is if it is a Job Guarantee, in which case I am 100% for it. The Little People’s money is backed by the money they get from the gov or another employer, for their work.
The Little People spending money into existence does not have more problems than the government spending it into existence, only it empowers the Little People.
It’s as simple as that, the Little People doing the hard work that is being done currently by an overburdened government.
You may have answered this, but I will lazily ask it again: You can spend it into existence, but why should I accept it?
I think it’s because we have to redeem the iou’s we’ve issued, with killer interest added. No getting out via bankruptcy, and our wages will be garnished should we balk.
Warren denies that he contributed to Cullen’s rift, except perhaps in Cullen’s mind. See my dialogue with him at the time of the rift.
I love the concept that private bank creation of money isn’t political. It would be kinda sweet, if it weren’t so dangerous.
You have to admire the cunning of a plan to actually use MMT in full view and create a department of dupes at UM@K who think they’ve discovered something new. We await the next of Moneta’s ‘Prison Notebooks’ with baited breath. How are they going to feed their Orwellian ‘Schacht and the Mefo bond’ to us? Bring back Al Gore and the ‘Green Peace Voucher’?
Defeasible is just a philosophy term. To be an economist one must be stripped of philosophy – q.v. Adam Smith. Almost no modern philosophy is taught, including paraconsistent logic that accommodates inconsistency in a sensible manner and treats inconsistent information as informative. It’s tough stuff, so we teach rhetoric to dullards in graduate schools instead.
That was rather hateful. Congratulations.
Have you seen ‘The Pope’s Toilet’ Ben? Wonderful use of ‘congratulations’ in this fine film from Uruguay.
No, I haven’t seen The Pope’s Toilet. But I have seen The Augean Stables. IMDB doesn’t have quotes for this movie, and I can’t find a script.
So, you’ve managed or at least attempted to squelch Ben with a quotation whose meaning you do not explain and whose existence cannot be verified! A rhetorician might be proud.
I’d be more worried about ‘hateful’ abstracted from a fictional series of comments between friends and assuming people can’t google.
You need to watch the film to get the joke, which would rather spoil with advanced notice. Have a think about your own actions on this Lambert and ponder of what Hugh said on defensiveness. In fact, you haven’t read the line of dialogue in context at all..
This subthread could have been brought to a conclusion easily had the snippet of dialog from the movie been quoted in context, so that all NC readers could have understood what was meant.
That’s why I spent the time to try to find the script, since that, at least would have improved the thread. Alas! Therefore, since that seems to be impossible, I will conclude now, lest I be seen as “defensive,” etc.
What is it in the nature of this MMT stuff that gets people who seemed otherwise to be getting along just fine all riled up at each other?
The consistently avoided fact that printing coupons redeemable for real goods and services in and of itself creates no increase in the amout of real goods and services.
Debt based fiats are inherently unstable and subject to all manner of accounting subterfuge. A stable currency will most likely require backing/convertability to a measure of calories/energy.
Making energy companies even richer? What’s this? The latest gold-standard attempt? “Here a scam, there a scam, everywhere a scam-scam. Ole McDonald …”
And you’re wrong anyway. A fiat currency can expand without price inflation if the expansion rate is less than or equal to the real GDP growth rate.
But in case you say the real GDP growth rate is a subjective measure then allow genuine private money alternatives for private debts only and then only government and its payees need suffer from price inflation in fiat.
The consistently avoided fact is that in functioning modern economies it is lack of money that limits activity, and that if people had more money they could buy the real goods and services which the economy already could produce.
I was referring to economists in general.
Wray, Kelton, Hudson and Black don’t strike me as Sophists or dupes. And I wouldn’t still be reading them if I thought they couldn’t take our kind of rib-tickling. There are deep questions on why we don’t have a money and economic system as easy to drive as a car – something that fades into the routine background.
Allcopped out there:
Allcopped out here:
To my simple mind, these two sentences could be seen to contradict. The only way I can see to make them consistent is to make the claim that Wray, Kelton, Hudson and Black are not, themselves, dupes, but are intellectually dishonest and unethical scholars in that they make dupes of their students.
Is that what you mean? If not, please clarify what you do mean.
*** crickets*** Ah, I now see the response is misplaced.
What a shame that such dislikeable people came up with a useful way of understanding the economy that nukes the neo-liberals and enables the policy outcomes so many of us prefer!
NOTE That’s “bated” breath. Unless your subconcious is calling attention to the “fishy” nature of your passive aggressive snark with a spelling slip. Worth a thought?
Good Lord. What a fine pedant you’d have made as an Englsih teacher. The ‘contradiction’ would only been ‘seen’ by an inattentive reader. The first was descriptive of Moneta’s rather lovely ‘theory’, relating to that. The second concerns me rather liking the MMTers and relating to that.
Not much point in me explaining the role of fiction in adventures with ideas, so I left something for you to red pen.
and then argue those words are descriptive of a theory and not of persons at UMKC, however likeable? Whatever you say!
As for Moneta’s lovely theory, to which you say the words above respond, you’re leaving readers guessing as to which comment you mean. A link would have helped.
To my simple mind, a comment that the common reader cannot distinguish from fiction is probably best revised or left unwritten. (Craazyman makes this distinction stylistically to brilliant effect.)
* * *
Re: “Red Pen”
Since you’re relatively new, you probably don’t understand that NC admins, being already overloaded, don’t take kindly to the assignment of extra work, as for example comments being left for them to “red pen.” None of us have any sense of irony about that whatever.
ALL economic theories are wrong and are a product of their time.
The economy is multi-variate with a feedback loop. It is so complex that the way to prove a model is wrong is by simply using the proof by contradiction. Yes, the intended goals of MMT could work for a while, just like many other economic theories did in the past, but for how long? However, it is also very easy to show how it could go wrong.
I’ll be honest and admit that I have not read the whole works. Why? Because as soon as I can poke a few holes in a theory, I move on to other stuff.
The biggest issue with economic models is that they do not account for externalities and human nature. MMT included.
In my mind, Western governments are going to end up printing because that is what is needed. They will find ways to hide the debt… PPP, guarantees, etc. And in the end, the true debt-to-GDP ratio will drop whether the US is counting the debt or not. Is it going to make people more equal? Perhaps, if all goes well. But I doubt it. In my mind, equality in the US means disaster for the planet.
I believe that quick and drastic action from government typically leads to huge corruption. Particularly money printing.
One thing for which I am 100% sure iis that our leaders in due time will use a new ideology that fits their needs at a particular point in time and that this ideology will be shoved down everyone’s throat.
And everyone will maximize their quality of life accordingly, just like water finds the path of least resistance. Whether the sum of all maximisation grows or shrinks is the trillion dollar question
I started poking holes in economic theories while in university. None of them met my standards since they were all flawed and can never work over long periods of time. So my goal was always to assess how the teacher interpreted the theory to make sure I wrote what he wanted to see.
One starts writing what teacher wants and then writes what the boss wants. The simple basis of work education. Yep.
Hmm. What if MMT were viewed not as a “theory” or “model” but as a description of Complex Adaptive System?
It’s surely not that. There are people who study complex adaptive systems, but I see little significant overlap between what they are doing and what MMTers are doing. MMT seems to take a fairly standard Keynesian view of an economy.
and enables the policy outcomes so many of us prefer! Lambert
Except euthanizing the banking cartel, which MMT is perfect for. Instead, it appears Wray and Co want to saving the cartel from itself. The 50-65 million killed in WWII might find that contemptible.
I should have said “some” policy outcomes. Not sure about a linear relationship between WWII and banking cartel. Or, for that matter “perfect for.”
There is a linear relationship between the banking cartel and WWII. To wit:
1) Ben Bernanke agrees that the Fed caused the Great Depression:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve System. I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.
“Remarks by Governor Ben S. Bernanke at the Conference to Honor Milton Friedman,University of Chicago, Chicago, Illinois,” federalreserve.gov (2002-11-08)
Commenting to Milton Friedman’s public statement that the Great Depression was caused by the Federal Reserve Bank
from http://en.wikiquote.org/wiki/Ben_Bernanke [bold added]
2) The Great Depression was a major cause of WWII:
The main causes of World War II were nationalistic tensions, unresolved issues, and resentments resulting from World War I and the interwar period in Europe, in addition to the effects of the Great Depression in the 1930s. from http://en.wikipedia.org/wiki/Causes_of_World_War_II* [bold added]
Note also that the Fed financed US entry into WWI which led to an unjust Armistice which was another major cause of WWII (“and resentments resulting from World War I and the interwar period in Europe”).
* Note that the wiki entry has since been edited to blame WWII on a few evil characters.
I don’t know what you’re talking about with this one.
Thanks for the reference to the concept of defeasible argument, which I had never heard of before. Not knowing what it was, I found this paper [PDF], which is tough going, as philosophy papers tend to be, but explains pretty well what it is all about (at least for a lay person like me, I guess). I have to say that there is something immensely satisfying for me about reading the conclusion “Defeasible reasoning is the norm and deductive reasoning is the exception.” My tendency to say “Well, for now, unless we find out x, it seems likely that…” is vindicated.
There’s more on argument that explains how easily we get confused concerning its purpose here:
The site has some belting summaries generally.
Is double entry book-keeping “defeasible” or not?
not a good example – the arithmetic bit is not defeasible if you can do the arithmetic – but if you claim the accounts are a fair representation of the business that is defeasible as you may have cheated of what went into them – the challenge not being against the convention itself
Is that a yes or a no? Or are you saying the question implies a category error?
NOTE I’m talking about double-entry book-keeping as such, not instance of it, as for example a set of books.
UPDATE OK, I see that only an instance could be defeasible; so indeed, a category error.
I doubt we’d ponder much on defeasibility over arithmetic, though attempts to make even that logically based have failed. Russell and Whitehead’s three volumes should get you up to speed of never wanting to lift a book cover again. I was stopped half-way through (the first page) by an urgent desire to walk along a riverbank and talk to squirrels. They told me about Godel, so I never went back to the library. It’s more about heuristics with applications in AI.
Double entry book-keeping is a convention not an argument.
Right, on heuristics, which is why my question was a category error. As you say, “I doubt we’d ponder much on defeasibility over arithmetic.”
We might ponder the defeasibility of a complex arithmetical calculation, like Moneta’s bookkeeping example.
Or we might ponder the defeasibility of complex economic applications used by hedgies, PEs, and looters of all sorts.
Government does not use accrual accounting. And even accrual accounting is full of subjective values.
I can go in any corporate balance sheet and poke a hole in an item’s valuation… for example, goodwill and intangibles are often huge… I can typically argue many reasons for write-downs and a couple of reasons for markups.
I was trying to test the limits of defeasible, but for reasons you point out, I got them wrong. Not because of accrual but because as I understand it (the term is new to me) a construct like “double entry bookkeeping” is neither defeasible nor non-defeasible (?); it’s just an inappropriate use of the term.
Just as arithmetic does not describe inventories, but inventories satisfy arithmetical propositions, so does geometry not describe Asia, although geography is an application of geometry.
Moneta rightly points to the subjective nature of many entries in book-keeping. Estimates are usually better than guesses. There are many accounting conventions (100s at least), often firm-based.
Any booking can be considered defeasible in “non-monotonic logic”, a family of formal frameworks devised to capture and represent defeasible inference, i.e., that kind of inference of everyday life in which reasoners draw conclusions tentatively, reserving the right to retract them in the light of further information. Such inferences are called “non-monotonic” because the set of conclusions warranted on the basis of a given knowledge base, given as a set of premises, does not increase (in fact, it can shrink) with the size of the knowledge base itself. This is in contrast to standard logical frameworks (e.g., classical first-order) logic, whose inferences, being deductively valid, can never be “undone” by new information.
Given what Moneta says of practice, it makes sense to consider book-keeping as defeasible. Remember, Lambert, this doesn’t defeat a form of book-keeping as being a good thing. And MMT does not necessarily fall for being defeasible.
Yes. This is why my question was a category error.
The only one being ignorant and hyper-defensive is BJ. I try to overlook his bullheaded defenses, all ad homs and insults, when considering MMT. In any case, what I don’t get is why government the government needs to LEND currency into the economy at all. Interest rate policy by the central bank fails to stimulate the economy in a healthy way and in fact enriches the banks who have free reign to use the money to invest in risky assets. The banks are in charge of money creation and the government is dependent on them. Just saying the Fed is part of the government sector doesn’t make it so. I have not heard a good argument from JH about why debt free fiat is not a better way for a sovereign monetary system than running our money through the banksters hands.
“In any case, what I don’t get is why government the government needs to LEND currency into the economy at all.”
It doesn’t. However, it might want to. It is possible that having two types of money circulating – money that pays interest (ie government bonds) and money that doesn’t (the stuff we pay bills with) – has benefits within a capitalist system. I don’t know the arguments, but I am sure that other people have considered them.
I don’t assume anything that I haven’t thought out for myself, particularly in a soft science like economics. Too much TINA embedded in such thinking for me.
Right, lending money into the economy is one way of promoting economic development while exercising some discipline over it. If a guy wants to open a shoe store and lacks the financial capital, then by lending it to him and binding him to pay it back, rather than simply giving it to him as a grant, you help make sure he uses it for the intended purpose rather than, say, for a sex tourism binge trip to Thailand.
That said, governments do have lots of options in principle. For example, a public bank would enable the government to target particular kinds of economic development goals by subsidizing them with special interest rates. If the government decided there were not enough shoe stores, wind farms, etc., it could offer qualified and promising entrepreneurs in these areas negative interest rates, thus requiring the borrowers only to pay back some portion of what was lent them.
So what if the shoe guy can’t pay back the loan? What are you going to do? Put him in debtor’s prison? Or shall loans only be made to those with collateral, i.e. the non-poor? With the biggest loans going to the those with the most collateral, i.e. the richest?
A monetary sovereign should neither borrow nor lend since both are welfare for the rich at the expense of the poor. Grants, otoh, do not bring in the bogus concept of being worthy of the public’s and especially the poor’s stolen purchasing power.
Non-monetary sovereigns (state and local governments), otoh, should be able to borrow but never lend.
Ethics is the key to fixing this mess as distasteful as that is to some.
Credit and debt are not just things that are related to government operations. The basis of modern economic life is the contract. People and enterprises enter into deals and make binding promises to one another. If they break their promises and can keep them, the promises will probably get the law involved to make sure the promise is kept. If people make promises that they subsequently can’t keep, the terms are usually retroactively adjusted in some way with both the promiser and the promisee taking a hit. Credit and debt relationships are just one particular kind of contractual relationship.
Almost our entire advanced economic life is based on well-calibrated and predictable flows of goods, money and labor that result from enforceable contracts.
Straw man! I have nothing against purely private credit so quit pretending I do. What I am against is the use of the public’s credit for the rich since it should be for the general welfare only. General welfare easily includes grants to the poor but never special favors for the rich even if disguised as loans.
So you do intend to put the shoe guy in debtor’s prison if he doesn’t or can’t pay? Under sanctity of contract?
There’s no way around it, loans by the monetary sovereign are an attempt to disguise welfare for the rich since welfare for the poor should simply be given to them.. The concept of “creditworthiness” is entirely bogus wrt the monetary sovereign. It should simply spend or give away it’s fiat and tax some of it back; lending or borrowing it is disguised welfare.
Government spending is debt free fiat, which MMTers are in favor of. If you want a world without banks, you may need a really big mattress.
Full reserve banking should be reconsidered, imo. The criticisms of the past should be reexamined in light of the corrupt and broken financial system we are stuck with today. Postal banks could provide free checking accounts for citizens who value safety above returns. Banks would still have a place for those willing to risk their deposits.
Full reserve requirements will not limit banks’ ability to create debt. It would under a fixed rate system but we have a floating-rate in which there is no such thing as reserve scarcity. It would be possible to do what you suggest with higher capital requirements, but the reserves path is a dead end.
I don’t buy that a 100% reserve requirement would not limit the banks’ ability to create credit IF:
1) The central bank’s ability to create fiat was eliminated.
2) Government deposit insurance was eliminated and a Postal Savings Service that makes no loans assumes the role of risk-free storage of and transactions with, fiat.
Then, except for deficit spending by the monetary sovereign, the supply of fiat would be fixed and credit creation would be risky, as it should be.
1) It is a total centralization of monetary policy and all banking under one central committee, which would be just as subject to corruption as any other organization, with what I see as very little justification. They don’t cite any credible harm that can be overcome no other way – they are angling for a specific result. 2) It’s explicitly monetarist. Their only concern is the quantity of money, and the centralization above is supposed to achieve complete control over the quantity of money in order to create a measured, methodical increase in the money supply with no market elasticity (private lending would be restricted by time deposit savings). While they pander to the idea that deficit spending is the way to increase the money supply, their clear objective is to hit a quantity of money as a target rather than full employment or anything else. 3) Its 100% reserve restraint is the wrong restraint. Capital constraints, properly implemented, place the underwriting risk on bank shareholders. The proposed reserve constraint places the risk on bank depositors. 4) It introduces a competing use for reserves which puts the payments system at risk. By requiring that reserves back loans, the banks now have to choose between the most profitable possible uses for reserves. Because lending is more profitable than things like ATM cards, which cost banks money, and lending is severely restricted under the plan, it’s foreseeable that banks will stop offering things like debit cards which increase payments system demand on reserves in favor of using them to enable lending.
I’m NOT for a 100% reserve requirement; I’m for 100% private banks with only 100% voluntary depositors. My point was a technical one only.
But oh my! Are you saying a Postal Savings Service could not easily provide debt-cards and that’s why we need banks?!
Exception: A temporary ban on new credit creation by the banks, including the Fed, would be required to allow a large, universal bailout of the population without significant price inflation risk. And once all depositors are 100% voluntary and the banks 100% private then the ban should be lifted so that those who wish to take risks may and bear all of it too.
typo: Make that debit-card.
If you want a world without banks, you may need a really big mattress. BJ
That’s a HUGE, HUGE straw man.
The monetary sovereign ITSELF should provide a risk-free storage and transaction service for its fiat and that service should make no loans and pay no interest and should be free except for large depositors. And shortly after it is established, government deposit insurance should be eliminated.
Now what were you saying about a mattress??
Paragraph 3 (“monetary sovereign”) is in fact exactly what I want; I want a place to put my money were the looters can’t play the ponies with it, and there aren’t grinning salesholes trying to upsell me, and where my money won’t evaporate because of transaction costs or banksters gaming penalties, and that’s all I want. (That would include a free ATM card, good internationally.) I don’t even want interest; it’s sufficient for me that the looters can’t crap around with it.
That’s what I want from a Post Office Bank, for example.
Now, as far as the macro implication of this, I don’t know. A competent economist — for example, Randy Wray — would need to work through the systemic implications.
My own reasons for banking with the Coop. And look what happened there!
Bank profits would take a big hit but that’s a good thing. I would think most of the froth would be at the political level trying to get it passed into law or maintain it against industry pressure thereafter.
Macro-wise, all deposits would need to be 100% covered by reserves so the abolition of deposit insurance would not cause bank failures. An ethical way to bring this about would be an equal distribution of new fiat to debtors and non-debtors alike. And ideally, the banks should also be drained by the Fed of what I call “illegitimate reserves” by cramming back any MBS bought by the Fed on them in exchange for those reserves – a sorta reverse QE. That would allow the fiat distribution to the population to be even larger. The distribution should also be combined with a temporary ban on new credit creation and metered to just replace existing credit as it is repaid to preclude price inflation.
Yes, by all means have Wray consider it. It would be interesting to see what arguments he can muster against an inflation-free bailout of the entire population and ethical (100% private) banks.
As for interest, it should be zero for a risk-free return otherwise it is welfare. But welfare should be proportional to need, not to the size of one’s savings/hoard. And with the banks 100% private, their ability to create price inflation should be greatly reduced so an inflation adjuster should not be needed either and would be dangerous anyway should the monetary sovereign overspend in the absence of genuine private money alternatives.
No nation that’s sovereign in its own currency needs to.* It’s a giveaway to the banksters, left in place when Richard Nixon, of blessed memory, went off the gold standard.
NOTE I wouldn’t say “bullheaded.” I’d say “amazingly, refusing to give in to a massive wave of bogus arguments.” YMMV.
* As MMTers constnantly explain.
Way too theoretical!!
A significant part of taxation is the payment for protection.
Ordinary taxpayers are protected by police, firefighters, EMTs, the National Guard of the state they live in and so on. They need to pay their state and local taxes to cover this protection.
Corporations and investors are protected overseas by the military-industrial complex and therefore this group should pay enough in taxes to cover the budgets for the entire defense, commerce, state, veteran’s affairs and so on departments. I doubt if this is true, so that makes this group rather unpatriotic based on this point of view. This is “trickle down taxation”.
Bruce, Wray is only talking about taxation by the federal governmemt. States and localities are currency users and therefore, as you say, do need to collect taxes to fund expenditures.
Every one (or entity) is a currency user, including the federal government.
It’s similar to the role played by the house in dealing cards — the government is entrusted to create and manage money supply. It can’t have more money than it is entitled to, just like the dealer can’t have more cards than he/she is entitled to. The rules apply to everyone, dealer, players, the government and you and me.
The house can have as many decks of cards as it wants to, and deal for as many games as it wants to, and provide all the cards the games require.
And play by the same rules, meaning, for example, he/she busts if it’s over 21.
And why blackjack have some of the lowest odds in the locale.
Some one has to do it.
Do you agree that when someone is entrusted to produce something, it does not imply that that someone then owns that something, and can spend that something as much as he/she/it wants?
When the someone can produce any amount of the something, he should produce as much of the something as the people who entrusted him to do so require, not give phony excuses about why he can’t when actually he can.
That’s where the Little People who do the entrusting come in.
Mr. Wray states very clearly that one reason for taxation is to redistribute wealth. How can this purpose be accomplished if the wealthy are permitted to sequester their wealth in untaxed corporations? Since the bulk of my wealth is not scheduled to be spent any time soon, do I really care (if I’m very wealthy) whether it is contained in a corporate structure I control or some other vehicle? It seems to me that a corporate tax is needed simply to prevent the evasion of personal taxes by shifting resources into untaxed corporations – remember a corporation is just a legal fiction, and while corporations (in toto) may drive our economy, no one corporation necessarily has to be productive or an efficient user of resources.
The incomes of the wealthy can be reduced by growing wages at the bottom and by severing CEO compensation from the capital markets.
“The incomes of the wealthy can be reduced”
I was under the impression that the ‘wealthy’ don’t have ‘incomes’ but that they accumulate via ‘capital gains’.
What I find difficult is understanding how ‘earnings’ are defined, or maybe undefined.
The money you get from your labor is defined as ‘earned’ income, while money from investments is ‘unearned’ income.
I was not intending to be sarcastic but to question the over-emphasis on income with regards to ‘inequality’ and the role of taxation in that challenge. Certainly how the word “earnings” is used/misused/abused is not as simplistic as you portray.
It’s far easier to “attack” incomes than wealth as Picketty advocates because income can be far more easily identified. As a number of heterodox economists have already pointed out, there is no single thing called “capital” that we can aggregate and get a reasonably objective value for. This goes back to the Cambridge capital controversies when Samuelson was forced to acknowledge “the foundations of economic theory are built on sand”.
There are different types of capital with different rates of return and Picketty’s belief we can rely on market valuations (which he acknowledges aren’t particularly satisfactory) will leave far too much room for avoiding such a tax. I believe a better strategy is to grow incomes at the bottom while compressing them at the top.
Well, we could begin by trying to implement Gabriel Zucman’s idea of a global financial registry. Wherever there is capital of any size earning income, there is some financial instrument that is regulating the cash flow.
Thanks for the feedback. I agree that ‘capital’ is a much worse chameleonic offender than ‘earnings’. IMHO, the greater challenge is de-linking our everyday conversations from the language of finance. The big achievement of ‘finance’ seems to have been embedding this language into ‘our’ culture, where almost everything ‘we’ think, say and do seems to be some sort of ‘transaction’.
Whenever I see or read “rates of return’’, my thinking tends to go to Michael Hudson’s chapter on ‘the magic of compound interest’ and the clarity with which he debunks the deluded expectation that savings(invested anywhere) can grow in perpetuity at any rate with nothing corresponding in reality. As important as Picketty’s writings might be, from my POV Hudson’s have been more seminal.
“The incomes of the wealthy can be reduced by growing wages at the bottom and by severing CEO compensation from the capital markets.”
OK – Thanks Ben. I accept that there are other ways of reducing wealth inequality—better ways than corporate taxes.
US nominal salaries and wages are up substantially over the past 40 years, but the percentage of total income paid for housing and taxes have gone up even faster. It doesn’t seem “more money” solves anything when food, shelter, transportation and taxes rise disproportionately.
Higher nominal wages have a negative impact on US employment when many jobs are easily exported to lower cost locations. It’s even astonishing the number of higher-skilled positions that have been re-located overseas in the past 15 years as large companies disassemble job functions and use the power of the internet to export many of the sub-components to lower labor cost locations.
From all I understand, the real economic problem with allowing our jobs to be exported is that, because of the fairly massive lowering of wages overall caused by the foreign workers being paid much less and our workers now being forced to switch to the service sector which pays relatively less than manufacturing, overall demand is decreased significantly. I’m thinking that that itself might be a real base for the recent world-wide economic troubles.
Solution: we’re going to keep tabs on the wages of the companies that export to us (including nominally US companies such as Apple). You try to do wage or environmental arbitrage, we’ll tax you at the border commensurately. When our trading partners squack, our answer will be, “Don’t trade with us then. We’re more in a position to do most of our manufacturing and trading internally than any of y’all. Many of you have employed barely-concealed mercantilist policies against up for many decades. So there! (All put in diplomatic language, naturally).
IOW, set a standard. Allow a little wage arbitrage (How much is arbitrary of course, but we’re in a position to call the shot, so we need to.) so that the Vietnams of the world are allowed to benefit from our wealth. But only so much arbitrage, because it’s stifling everything.
I thought “consumer spending”, was the MAIN driver of our economy. WE THE PEOPLE, account for the majority of spending. Which in turn must be the main driver of our economy.
I also say that as those major corporations who seeming pay so little in taxes, seem to have way too much money left over to pervert our political system, and propagandize the public.
I’ve mentioned before that MMT makes my head swim a little. Every article, paper, definition, etc I read about MMT that I read always brings up a few internal questions and I can’t seem to find easily understandable answers.
If Corporations have all the rights of individuals in our society, why don’t they have the same responsibilities, such as paying tax… which in turn would contribute to the protection the stability of our currency.
In a pure theoretical world of MMT is money still a store of value and/or wealth? If not, then what is? It seems to me, particularly after reading this, that savers would be screwed… just like now.
Regarding Mr Johannson’s post above regarding “Minsky Corporate Tax” above does anyone really believe that in a pure MMT world Executive Privilege and Advertising and Marketing would become more efficient and less costly or be reduced in general? It sounds like double-talk to me.
I am not going to spend years trying to understand MMT and try and answer these questions for myself. Not that I wouldn’t love to have the time to do so, but unfortunately I have to go to work today (Sat) for the 15th day in a row in order to eat and pay taxes. The first day off I get I will be spending taking care of home and vehicle maintenance in order to spend another 12 or 14 days in a row working in order to eat and pay taxes.
With that said, I do understand that it can be seen that “spend first, tax later” makes sense from a sovereign perspective.
But I’m also thinking that if the MMT Answers to these questions cannot be simply explained in a few short paragraphs then maybe the answers don’t have much value. Basic economics should not be rocket science… although to be fair to rocket science, since my job entails direct support of many rocket scientists, answers regarding my curiosity about what they are doing at any given moment are often given to me in a few short understandable paragraphs.
There is no MMT world. It is not an economic system someone wants to implement. MMT is a grouping of tools for economic analysis and a series of observations from the last eighty years.
Wait, wait. I thought it was a religion? People keep saying that.
Perhaps its just a cult ripping money from the public for the use of its inner circle then? Well spotted Lambert. A set of tools with no other purpose.
Yes, my son. Kelton and Wray have become billionaires by secretly using this holy knowledge, but they aren’t the worst. Warren Mosler built a pan-galactic empire in league with the Klingons, and only the brave commenters of this thread can stop it.
Now you’re cooking on gas Ben. But don’t get tempted when Lambert asks for clarity on Klingons.
Thanks for your witty contribution.
So, you are looking at the last 80 years?
and you never noticed that the banks who are engendered as part of the federal reserve have consistently been run by people whose social /birth relations are the same as those who have dominated all three branches of federal government and are who the academics must legitimize in their papers, while these same circles of associates have been involved in every scandal of importance since the first world war.
Nevermind conspiracy theories.
for the last 100 years American foreign policy, and monetary policy has been to serve our aristocracy.
Try and pick anything that was going on in the last 100 years that ,the personalities of the ruling elite didn’t shape the experience of the rest of America.
and with that, why do you never notice, or any MMT officianado that the cast of characters on the world stage and the cast of characters in new York and Washington… aren’t an incestuous bunch?
That is to say, MMT supposes that the relationship between the fed and the gov’t is “O>K” But the last hundred years would indicate , exactly the opposite.What needs to happen, for the gov’t to be monetarily sovereign, is that the gov’t(treasury) needs to be in the money creation business. and banks need to be in the banking business.
‘A tax that is payable in the national government’s own currency will create demand for that currency.’
No doubt. Just as muggers taking iPhones at gunpoint creates demand for more iPhones. Nothing like naked compulsion and theft as a sound foundation for a currency.
To paraphrase Maggie Thatcher, ‘MMT works until it runs out of other peoples’ money.’
Then again, the demand is also what makes the mugging worthwhile in the first place.
Wrong. It’s our money, all of it. And the use we make of it is determined by real resources.
Come on Hugh, convert. Hold that MMT Bible high and follow the white charger to the centre of the volcano. I can’t come. I have to return a library book and tend Lambert’s permagarden while he’s away swimming in the molten lava.
I’m sure the MMT arguments can be pulled apart – parse-the-monkey so to speak (insert book and 20 year’s teaching here). Anyone wanting a bit of punishment could look up a critique of Einstein via the ‘one way speed of light’ or Bishop Usher’s argument on life beginning in 4004 BC complete with fossil record and memories. These don’t fail as arguments. Imagine working on one of my case studies requiring numeric analysis of P & L, balance sheets and cash flow, plus some linear programming on product sales distribution. You get one question that I will answer truthfully. You get two weeks. Most come back near the end of this begging for an extension and asking what the linear programme print out means. I tell them and they submit their workings, concluding the company is in fine shape and a good investment. In the meantime, Craazyclone has had the good sense to buy me a pint and ask ‘so what does this company make Boss’? I get the next couple of pints of Crotley’s Gullet Scourer and whisper ‘typewriters’. Argument is often just a rigmarole.
MMT isn’t wrong, just as a linear programme might not be. Neo-classicism isn’t wrong either, but would you want to be in that company? You can do some fairly simple experiments forcing hydrogen through a palladium anode, do some really tight measuring and discover you have a 3.000012435 temperature above what standard chemistry tells you you should have. Got cold fusion, have you?
I am willing to work on green projects and a unification of the people of the world
Why can I not get money for that? I live in a democracy, don’t I? Just how does MMT help if this money is handed into the control of Mr Mugabe? No racist answers on Mugabe being an exception – look where Biden’s son just got a job all of us must be better qualified for. Look at anything Michael Hudson writes. Who would funnel money to these operating turds? Those inside the MMT book-selling and sinecure circuit usually lash out, projecting holier-reading-than-thou and a hyper-inflation arguments not actually being made at all. Some of us just think they have started the ‘linear programming’ too soon on the wrong data and assumptions, with too much belief the current agricultural-industrial pollution-charismatic-leadership-corruption model is not in melt-down. I’m way past believing anything that can be whispered into the Washington-Westminster villages can be credible. It’s like trying to impose monogamy in the Trobriands, where, unlike in our civilised society, they have ritualised war to cricket (don’t get your hopes up Craazies – they regard us as unattractive dim-dims).
MMT is what you push when your Debt-to-GDP ratio is too high… let’s not count the debt and increase GDP. Problem solved. LOL!
Of course the elite would not admit they like it even if they do. We already have MMT in trial mode. Considering the state of the developed world’s finances, I would not be surprised to see MMT Turbo applied. I can already see them licking their chops.
Careful Moneta – the Americans don’t like their State secrets being blogged!
Monarchist’s unite! One crown to rule them all!
Good plan bob – but think of the losses to the international Royal baby pics franchise and having to put up wit John Kerry at Commonwealth meetings.
Right now the elite are probably making sure they have a strong hold on hard assets before the paper wealth gets devalued with printing with no taxes and debt.
with printing with no taxes and debt.
should be: printing with no taxes and no debt.
You risk being called a “tattle-tale” making a comment like that, but sure, you want to use your great mounds of fiat to buy control of the “means of production”.* That way you still own the real world.
‘Course that doesn’t apply to retail common stock holders – there are still little bumps in the road for them like bankruptcies wiping out your so called ownership of assets. But the big guys can work around problems like that.
*I didn’t google “means of production”, but if you do, I suspect you may find that Marx and Minsky had something to say about that. But not Webster’s – Webster’s just does single words.
Moneta will be under arrest by now. We must assume future comments are made under duress.
MMT makes me think of my spouse saying, when I’m complaining about carrying more than my weight: “Stop counting, it all evens out in the wash.”
Er, Moneta? Government is not like a housewife.
Letting it all out before they come knocking at my door.
The old foreclosure before harvest scam. They have no doubt created talking ATMs so they can ask ‘wheelbarrow with that, Madame’?
I’m expecting a wicked recession when the time is right… no more rate cuts to help refi.
Valid point, Moneta. Even if the hedgies are starting to sell out of the USA housing boomlet of 2012-13, they will own more of the real property post-GFC than before.
As the great economist Frank Baum wrote, “Follow the yellow brick Road” – which leads to a very bad wizard, played in modern times by Alan Greenspan. I have never taken time to seriously read up on Wm. Jennings Bryan, (pre-Fed populist Democrat, and presidential candidate 1896,1900, and 1908), the early Federal Reserve conspiracy theories and so on, but surely, the elite can play essentially the same game whether based in the gold standard, free silver, or modern fiat. In one conspiracy theory of the Great Depression (as opposed to the official incompetence theory, or as opposed Marx’ inevitable crises of capitalism theory) The Fed goosed credit to create a bubble from about 1922 to 1928, then tightened credit after the bubble burst, deliberately deepening a Stock Market crash into the Great Depression. One consequence of this incompetent or scurrilous ploy was that farmers went bankrupt, and land on the Great Plains went on a fire sale. Other posters here can surely correct my poor memory of reading this stuff when I was in high school.
Point is, fiat money may be best understood with MMT, but who controls it?
Henry David Thoreau’s courageous civil disobedience was met with friendly local jail time. His neighbor’s brought him pie, and the sheriff made the tea. If allcoppedout will make the tea, I will bake the pie. Moneta, are you in Ontario? Or do the Five Eyes countries send all your type to Poland, Syria and Egypt. Let us know, if you can. And pick Poland if they give you a choice.
Have tea will travel.
I’ve been in Ontario for nearly 6 years. Before that, in Qc my whole life… something tells me Qc will take me back if Harper keeps on getting his way… they’ll also be printing but hopefully for a better cause.
“I’m sure the MMT arguments can be pulled apart.” Then you should do it, or cite to where its done. Presumably, if it’s all that easy, it would already have been done.
To my simple mind, when I keep poking at comments and finding bogosity — to strike a blow at random, the polemic stance that MMT is a religion or has a “Bible” — it makes me think a lot of otherwise smart people are taking shots at a target they end up missing, an interesting outcome.
lambert – if you cite papers in here the post often evaporates – MMT is both widely ignored and criticised – Palley is an obvious critic – and one could start running through the pages here: http://scholar.google.co.uk/scholar?as_ylo=2014&q=%22modern+monetary+theory%22&hl=en&as_sdt=0,5
MMT is not really the target, but the religiosity of the economic control fraud and failure to note economists work by exclusion. You seem to want to limit discussion by imposing a convention more or less impossible for we commenters and exclude whole types of argument and even fun..
I don’t know what you mean by “evaporates.” Sometimes links with many URLs (not, for example this one) go into moderation. Then the admins pull them out. Sometimes WP does fail. However, if you’re saying, in the general case, that it’s too much trouble for you to back up claims (especially controversial ones, and quotes) with links, then that principle, if everybody followed it, would greatly degrade the quality of NC’s commenting.
Thanks for the cite. Would you consider asking other commenters to stop complaining when they’re asked to go read the sources? Thanks in advance. I’m sure MMT is criticized; what I’m interested in is what you, as a commenter here, think are valid critiques. A general proffer “that there are critiques” isn’t especially useful to me and, more importantly, adds little value for NC readers. Why, for example, should “one” read Palley as opposed to other critics? [Adding… to be fair, I asked for a cite, and got one. So there we are!]
Adding…. You write:
I think we’ll have to disagree that “MMT is not really the target” (at least for some) however:
1) “MMT is not the target, but the religiosity of the economic control fraud” is (a) not grammatical and (b) to my simple mind, not meaningful. Starting point: What fraud, and perpetrated by whom? And (c) I’m about ready to throw “religiosity,” “conversion,” “Bible” into the Big Lie category. In what sense is MMT “excessively, obtrusively, or sentimentally religious,” or “religious” at all, in the way that other schools of thought are not?
2) “failure to note economists work by exclusion,” to me, is “Why didn’t they write the book about penguins instead of otters?” In addition, if somebody’s making the point that economists’ work is excluded, I’m missing it; Hugh argues (in my view, wrongly) that there are topics MMT does not address.
I use MMT early in 101. Partly because of the courtesy of the authors in providing stuff free. It’s a good shake up on money, which most students see in terms of rent, food and beer vouchers, Mum and Dad’s support and government through the National Mint. Knapp, Weber and Soddy are a bit heavy at this stage. One also wants to leave open what economics is and is for. And while one wants to teach literature search, most aren’t ready for the contradictions this raises or their own schooled incompetence. One wants to instil some independent learning and recognition of depth and a massive literature.
Questions should remain on whether this massive literature is any good. All but a few students hate it as boring. They ask questions a bit like Lambert’s, constrained to a very limited view of argument and manners. They struggle to think for themselves, let alone as the Other. We look at MSM economic coverage and a few clips of early Simpsons, South Park and film in order to approach critical reading. I’m certainly not going to be so dishonest as to present myself at ‘academic distance’ or as some emotion dead erudite. They can project on me until self-awareness pennies drop. They can design their own assignment questions within the crack with the syllabus and externals I outline. And I’ll teach them what they might find interesting. If they ask how much economics I’ve found interesting and use in other work, I’ll tell them almost none, and go through how you codge together a business plan and bid for regional economic development funds. We might look at making fuel from air – if I can book the chemistry lab I might even run a small experiment and set a case study to do the energy equations. We might even go up to Darlington and see a prototype and hear a mate describe the possibilities and how he gets funding.
‘So why teach us Michael Porter and give us O’Shaughnessy’s work that says he’s crap’, I may be asked. Someone will point out I’ve used Porter’s models in the economic development plan. And now I can point to the audience who believe that kind of rubbish and admit we have to play games. They like certainty, even when the evidence (which they never read) says it don’t work. Have the class caught on that a third of my original bid just regurgitates bits of the funder’s documentation? Excellent!
Some way down the line, the idea is to have passed on some basic economic skills and reasons to doubt that accounts and espoused theory of monetary policy are true at all. RBS accounts were true as they approached collapse? QE and bank bailouts were about regenerating investment and liquidity, were they? Students go to Porky’s in search of love, do they?
So a story on MMT as already in action (without the job guarantee), a little James Bond (probably Schacht and the Mefo bonds), a touch of mysterious Canadian woman (sorry Moneta) and a big lie so deep a group of fringe academics have been set up to peddle MMT as a radical alternative to distract from it being recognised the theory in use.
The Bible bit comes into describing paradigmatic reasoning, how much hidden ad hom there is and the extent to which academics become as insular as religious groups – this paper by an economist doesn’t get to the half of it – http://wer.worldeconomicsassociation.org/papers/how-the-culture-of-economics-stops-economists-from-studying-group-behavior-and-the-development-of-social-cultures/
And I’ll show quite a lot of religion in anthropology, describe the control of women from the Upper Congo to the Catholic church, modern India and Islam and ask if economics might be investigated as a religious control fraud or set of cults. Why should we white guys be any different. Think of Tett’s analysis of financial culture.
I don’t correct grammar and often spend hours with dyslexia sufferers like myself. Read Piketty on what economists aren’t paying attention to, or about Soddy’s reception by them. Simply try to publish a major critique of neo-classicism in that faction’s own journals, or browse them for consideration of MMT. Look at your own reactions to people having a bit of fun. Think what handing MMT to Mugabe means (I’d prefer to send him a self-build nitro-glycerine kit) for handing it over to our own crooks at Cantillon canyon.
I asked a question in direct response to your comment: “What fraud, and perpetrated by whom?” I’m not seeing an answer. It should have been easy to present one; I have to assume you don’t have one. More matter with less art, please.
*** crickets ***
@allcoppedout if you cite papers in here the post often evaporates
Happened to me any number of times until I devised this passive-effective approach. Remove the http:// prefix, and wrap the link in a “code” block, so it looks like this:
That link, by the way, is to a New York Fed article describing the Treasury Tax and Loan Account program, through which the US Government maintains accounts at commercial banks across the country for the deposit of tax payments. This enables USG to collect taxes (and thereby augment its own accounts at commercial banks) while leaving aggregate Reserves and Deposits unchanged, fees excepted.
The Treasury Financial Manual describes its protocols for handling over-the-counter check and cash payments here:
Depositing Domestic Checks And Cash Received In Over The Counter (OTC) Collections
Agencies are ordinarily required to deposit these payments in nearby financial institutions for credit to TGA or TT&L accounts, but those at a distance can also arrange for mail-in deposits to the TGA (MITGA). Courier or armored car delivery of receipts from USG to financial institutions is described in the protocols.
These documents contradict Stephanie Kelton’s depictions of OTC cash tax payment shredded upon receipt, and this passage in Dr. Wray’s piece.
Again, TT&L accounts are at commercial banks, not reserve banks. Do USG tax receipts not enable the clearing of checks against the commercial bank accounts in which these tax receipts have been deposited?
Why should a reasonable person believe Kelton’s and Wray’s depictions over those of the NY Fed and US Treasury? Alternatively, can MMT proponents link to USG or other public documents that substantiate these MMTers’ claims about USG’s tax receipt and cash management protocols?
For the sake of a constructive discussion, we can compare the documentary evidence supporting our positions, or continue to exchange insults.
Or you can just delete the http:
No need to use the code tag. Maybe. Can’t guarantee what Akismet can do.
The TT&L accounts are used for the purpose of ensuring stability in the reserve level of the banking system. On the surface, yes, it does indeed appear to be a method of storing and spending taxpayer dollars in the normal course of Treasury operations, but the purpose for which they were originally established was quite different.
When you pay your taxes your bank debits your checking account, and the government debits the bank’s reserve account, which you clearly are aware of. This created a problem after the establishment of the Fed, which was tasked with setting an interest rate for reserves loaned between banks. A large number of debits within a short period (because tax collection can be rather irregular) could result in a sudden change in the interest rate the Fed was defending. Scarcity would drive the rate up.
The Treasury then established a series of accounts today known as the TT&L accounts which you’ve referenced, in which it would credit reserve balances it “collected” back into the banking system temporarily so as to avoid disruptive changes and making the Fed’s life more difficult. The reserves would then be drawn down in a more orderly fashion rather than “$10 billion this week, $50 billion the next”.
Basically it amounts to a tool for managing liquidity.
Look for detailed work from Mat Forstater and Pavlina Tcherneva on some of the points you listed.
Sorry. This one was for ACO.
It’s important to note the reserves and deposits which are unchanged are those in the non-Government sector, since the TT & L accounts are at the commercial banks. If the TT & L program did not exist, then the Treasury General Account would be directly credited with tax revenues and debt instrument proceeds, disrupting the level of aggregate reserves and deposits in the private sector and making the Fed’s job of targeting overnight interest rates much harder.
MMT writers have generally depicted things this way because they wanted to make the point dramatically that the currency issuer, the Federal Government, can and does destroy money because they can always use the currency and reserve replacement authority to replace what they destroy. There is both a conceptual and an actual physical point involved here.
The conceptual point is covered by pointing out that when Treasury calls for deposits into the TGA so it can spend, money in the non-Government sector sitting in TT & L accounts is destroyed when TT & L accounts are debited, while reserves in the Government sector are credited to the TGA.
The physical point is covered by actual shredding (destruction) of at least some of the cash from OTC payments after Treasury accounts are credited because that cash is deemed unfit for further circulation. That said, it is true, in my view, that the general statement asserting that if you pay your taxes in cash, the cash is shredded after you leave the room is an over-statement. Warren Mosler confirmed that in a lengthy and illuminating comment exchange on his site in the middle of May 2011.
In that exchange, Ramanan pointed to the overstatement problem, and Warren said:
The exchange continued long after that statement with many people participating and making interesting comments. I recommend the comment exchange because it’s a pretty thorough discussion of the issues involved in overstating the MMT point that the Government destroys cash used to pay taxes.
Look at the Wray quote closely. It seems to me to be strictly true and isn’t contradicted by EconCCX’s pointing to Treasury protocols as far as I can see. Perhaps EconCCX can clarify where he thinks the contradiction is?
Well again, I don’t see the contradiction between your references and the quote you present just above. As for Stephanie’s work, I’d like to see the precise quote you think is contradicted by your references above. If what’s involved is only a claim that all cash used to pay taxes is shredded, rather than a claim that only some cash unfit for circulation is shredded, then I’ve already covered that above and discussed its relation the significance of “all” or “some” to the underlying point that the currency/fiat money issuer (the “Government” including the Congress, the Federal Reserve viewed as a central banking system, and the Treasury) destroys and creates money.
Seems like of a substantial portion of the cash is shredded, the point is made. I hope Kelton’s wording (not quoted) reflects that, though!
Seems like of a substantial portion of the cash is shredded, the point is made. I hope Kelton’s wording (not quoted) reflects that, though!
Thanks for your forbearance, folks; I’m unable to post here usefully from the road.
The Kelton reference is to this clip:
I think you’ll agree that this conflicts with the protocol described in the Treasury Financial Manual, under which a USG agency that receives payments by cash or check is ordinarily required to deposit them in nearby commercial banks. That is, into accounts against which USG can then write checks of their own, or effect transfers to the TGA.
When MMT’s core theorists tell us that taxes don’t fund spending, they’re not merely saying that USG can spend beyond tax receipts by borrowing, minting coins or selling infrastructure. They’re asserting that federal taxes return USG liabilities to USG. “They don’t get anything that they can turn around and spend. They get their own IOU back from us. That’s the end of the transaction.”
Dr. Kelton’s depiction of the tax transaction is similar to a bank’s sequence when it dings your account for a $10. It doesn’t obtain a new $10 asset, but rather owes you $10 less; that much deposit currency ceases to exist. Or suppose you tried to pay your taxes with a T-Bill. USG could cancel the T-Bill, its own liability; it would not thereby obtain an asset against which it could write checks. That’s what MMT’s theorists are saying happens when you pay taxes any way. USG liabilities are extinguished; no assets are conveyed to the Treasury. Rather, MMTers propose that “the Fed” is USG itself, augmenting USG’s own checkwriting balances as a scorekeeper conjures up points. Something it could do with or without taxes.
And it’s a false depiction. Taxation doesn’t destroy money. When tax receipts are deposited in TT&L accounts, the transaction is cleared when the Reserve Banks reapportion reserves (IOUs of Reserve Banks) from the taxpayers’ commercial banks, into the commercial banks in which USG maintains TT&L accounts. Aggregate reserves and deposits are unchanged, fees excepted. And assets are conveyed to the government via taxation in the form of commercial and Reserve Bank liabilities: the commitment of these institutions to clear USG checks up to the balance amount.
The Reserve Banks are owned by the commercial banks in their districts; they’re USG’s creditors. The balance sheets of Reserve Banks are not a subset of USG balance sheets. For example, cash, including TGA balances, is an asset to the US Government, a liability to Reserve Banks. T-Bills are liabilities of the USG, but are assets of Reserve Banks, commercial banks or anyone else who lawfully owns them.
Extended discussion, with a tour through Treasury vs Reserve Bank financial statements here:
USG absolutely gains checkwriting power via taxation, as banks’ liabilities to taxpayers are reapportioned into liabilities to government.
The ideal cigarette tax would be zero, unnecessary because no one made them and we had a world with safer ‘gifts from the gods’. Or cigarettes with pre-paid coupons for death with dignity.
It seems to me that if we can buy into the MMT theory on taxes, then relieving taxation on the mid to lower income levels would cause demand to rise where it’s needed most at the moment. This is exactly what we need for stimulus. If it over-corrects and stirs real inflation, then reintroduce taxes.
QE is the wrong stimulus, which has caused synthetic inflation by funding hedges and investment bank speculation in food and energy, driving up prices without grassroots demand, instead causing additional depletion of what little money circulation remains at the mid to lower income levels.
You got it bass ackwards on this point. Sounds more like corporatist-speak to me than radically new monetary theory.
You’ll find lots of support among mmt followers for a repeal of fica.
This is a complete straw man.
MMT has never advocated QE. MMT says the way to stimulate the economy is through fiscal spending, which is completely different than having the Fed try to use monetary policy. MMT practitioners also said a LONG time ago that QE would have no impact because it was an asset swap (Treasuries for cash). Investors who got that cash simply bought other financial assets, as we’ve seen.
It’s hard to believe QE was ever expected to work other than it did Yves, even though they lied to us that it was about re-invigorating ‘Main Street’. It wasn’t implemented as invented (Richard Werner in Japan) and Japan was already an empirical record of its failure in Main Street terms.
I never stated QE was promoted by MMT theorists. I was simply separating real inflation from synthetic inflation, trying to cut off at the pass anyone who claims we have had real inflation over the past few years.
(Note to Reviewer: My earlier post was messed up, including my name, and sent for review… I’m re-posting a clean version and hopefully this will not be a double-post)
I’ve mentioned before that MMT makes my head swim a little. Every article, paper, definition, etc I read about MMT that I read always brings up a few internal questions and I can’t seem to find easily understandable answers.
If Corporations have all the rights of individuals in our society, why don’t they have the same responsibilities, such as paying tax… which in turn would contribute to the protection the stability of our currency.
In a pure theoretical world of MMT is money still a store of value and/or wealth? If not, then what is? It seems to me, particularly after reading this, that savers would be screwed… just like now.
Regarding Mr Johannson’s post above regarding “Minsky Corporate Tax”, does anyone really believe that in a pure MMT world Executive Privilege and Advertising and Marketing would become more efficient and less costly or be reduced in general? It sounds like double-talk to me.
I am not going to spend years trying to understand MMT and try and answer these questions for myself. Not that I wouldn’t love to have the time to do so, but unfortunately I have to go to work today (Sat) for the 15th day in a row in order to eat and pay taxes. The first day off I get I will be spending taking care of home and vehicle maintenance and an I.R.S. dun for more money in order to spend another 12 or 14 days in a row working in order to eat and pay taxes.
With that said, I do understand that it can be seen that “spend first, tax later” makes sense from a sovereign perspective.
But I’m also thinking that if the MMT Answers to my questions cannot be simply explained in a few short paragraphs then maybe the answers don’t have much value. Basic economics should not be rocket science… although to be fair to rocket science (my job entails direct support of many rocket scientists) answers regarding my curiosity about what they are doing at any given moment are often given to me in a few short understandable paragraphs.
” the answers don’t have much value”
Your instincts are correct – keep the day job!
I like the advert for i-Phone 5s. Lots of people enjoying family and live bands needing a high-tech chunk of plastic to stay in touch with their mother.
‘….in a few, short understandable paragraphs…’
That’s kid-friendly content.
Along with senior-friendly format, it makes communication more accessible to more people.
RE: What are Taxes For? The MMT Approach
An interesting discussion, but nobody sees the holes and gaps, and much less the glaring defects.
Take TOBACCO! For almost three-quarters of a century, we have mostly been trying to eliminate the destructiveness of this poison, with only indifferent success. We have:
.. prohibited nearly all favorable advertising;
.. increased taxes, but not enough;
.. raised the costs in other ways; most enterprises will not re-sell heavily smoked-in cars or dwellings, except at large discounts and/or large premiums;
Working against these factors:
.. the delusion that tobacco revenue is of critical importance, especially for export;(shifting poisonous costs overseas is actually good apparently!)
.. the idea that somebody’s good buddy (maybe the government) will lose money;
.. the tobacco t*rds will doctor up their poison with whatever increases consumption, including flavorings, free coupons for free samples, and many other tricks;
.. judging by the lipstick smears on discarded butts, a majority of new users are younger women. Talk about a war on women!
Upshot: a 99% tax on tobacco, which would relegate tobacco to something raised in flower pots for roll-your-own-ciggies which would disappear in a few years is impossible.
Maybe you are just a control freak…and or a 20.00 a pack gum chewing ex smoker.
The fact that taxation, property tax in particular, forces people to use money (and therefore be subjected to capitalism) is one of the best reasons to get rid of it.
I say, watch out, when they try to pass something off as being ‘descriptive.’
Being descriptive means it’s what it is, such as, the sun rises every morning (from Earth’s perspective, of course).
It means status quo.
It means to suggest you can’t change it, though they will deny it when it is pointed out…truth, but not the whole truth…
‘Tax the 0.01%!!!!’
‘But that will drain the system.’
‘Only if you don’t turn around and give that tax money to the 99.99%’ — ‘You know that already. Surely you could deduce that. Why do I have to explain this, if you are interested in addressing wealthy inequality? In fact, your response above betrays your opposition. I don’t want to hear you stopping at “But that will drain the system.”‘
Some of the comments bring to mind an observation by Max Planck: “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
Hopefully, one day, people will live to see Money Creation via the Little People spending it into existence.
Why make this so complicated? The bottom line is that governments have to tax, and in substantial amounts, to implement reasonable economic policies.
Governments can and should run deficits, but those deficits can’t be too large relative to the size of the overall economy of we want price stability. And those deficits can and should be larger during periods of stagnation and underemployment than they are during periods of high employment and robust growth. But that doesn’t mean that governments can just take a la-di-da attitude toward budget policy.
One can say the government is not “revenue constrained” in the sense that a government that issues the money of account always has the technical option of simply issuing all the money its spends. But they clearly are policy constrained in the conduct of fiscal operations in the more important sense that if they don’t tax out of the economy some substantial proportion of the amount they spend into it, they are likely to ignite serious price inflation, erode middle class savings, and reduce the value of real wages in those industries where nominal wages are sticky and workers have no bargaining power.
It seems to me that this is all clearly acknowledged in the MMT discussions, but for some reason there is a preference for burying all these points in cryptic verbal formulas.
It would be nice, at this point, to have some mathematical models that could attempt to give policy-makers some guidance on exactly how big the deficit should be under various macroeconomic circumstances, so they could propose and pass budgets that are macro- economically sound. Unfortunately, there seems to be a strong strain among the heterodox toward the idea that math is an evil conspiracy perpetrated by the orthodox, the neoclassicals, the mainstreamers, yada, yada. So when we come down to the policy crunch, all we get is hand-waving and vagaries.
Most people attracted to MMT seem to be progressively oriented and leftward leaning. But it seems to me that there is a kind of sub-culture of MMTers who are under the impression that MMT preaches a radical no-tax doctrine that allows us to do ample government spending and generate full employment while leaving rich people alone and letting them keep all their money. That’s a pipe dream, but people who fall in with this line of thinking react violently to political agendas that call for raising taxes as part of a more aggressive fiscal policy stance, and start throwing around slogans like “The government isn’t revenue constrained!” etc. They are convinced that everybody who proposes a tax increase is a moron. Again, it would be nice to have some models here to be able to separate plausible proposals from the free money lunacy and the fiat money cranks and fantastics who seem to flock to the cruder camps assembled around the MMT banner. Similarly, people who are proposing radical overhauls of things like the current Social Security financing system need to offer some serious math or their proposals will be justifiably regarded as non-starters.
I would also guard against the idea that whether there is unemployment or not depends primarily on whether the deficit is big enough or not. There is no purely macroeconomic parameter that gives the key to unemployment. Employment levels are a product of complex issues of social power and control over the means of production. If wealth and power are sufficiently concentrated, or if deficit-spending is sufficiently sloppy or misconceived, then it is entirely possible for increased government financial asset injections to accrue almost entirely to the balance sheets of the affluent.
And you can’t build a just democratic society or challenge plutocratic power structures purely by working from the bottom. Yes, if we had full employment, higher minimum wages and greater worker empowerment and bargaining power, that would do something very significant about income, wealth and power disparities related to labor income inequality. But the gaps that now exist between the bottom and the top, not just in terms of spending power and quality of life, but social, political and institutional power, are of such large orders of magnitude that they cannot be addressed just by raising the wages of those at the bottom of the pyramid. The top has to be challenged directly.
Philip Pilkington warned recently about the danger of money cranks, and he’s right. There has been a profusion of of proposals and discussions in recent years about various ways to “fix the money”, or that suggest that so long as we understand the function of the money system, we can solve all our problems. Some of these suggestions are more interesting and serious than others. But the whole general tendency can lead to an escapist or confused attitudes about the much more important non-monetary economic and social structures that determine real wealth, real income, real power relations and real injustices.
I find money cures to absurd to argue against. Dan’s last line is where my serious head is. I’ll go further though on my distrust of parochial economics. Currently we are not building what we need, lots we don’t and is very dangerous, and can’t use money other than through crony channels and offshore obfuscation. We evade these issues and ones connected with motivation to get necessary work done without the poverty-threat-of-poverty edge. Real argument would start with a global personnel-materiel assessment on green building that would not upset competitive positions in the short-term.
Three thumbs up, 1 1/2 thumbs for each of Dan and allcopped out. Though I’m still confused on this MMT stuff.
Cullen Roche (pragcap.com) makes the point that the real value of a currency derives from the productive capacity of it’s economy (and let’s not count the simulcra of the derivative’s or the converse). ENERGY and its externalities is/are the limiting factor, and with nanotech advancesin materials may be the only limiting factor. Until MIT or Champaign/Urbana find the magical catalyst for solar-powered hydrolysis, we need green building.
Cullen Roche (pragcap.com) makes the point that the real value of a currency derives from the productive capacity of it’s economy
Yes, Cullen does drink from the supply-side kool-aid.
“Cullen Roche (pragcap.com) makes the point that the real value of a currency derives from the productive capacity of it’s economy.”
That’s a slogan that contains no real explanation. There are all sorts of potential currencies of would-be currency out there, and yet most of them are unaffected by changes in the productive capacity of the economy. That an economy is productive does nothing at all to explain why any particular instrument functions as a widely accepted medium of exchange.
Nice petitio elenchi on “money cranks”/”money cure.” Dan, Allcoppedout, well done. Assuming, of course, that MMT was meant by these phrases, and if it wasn’t, why use them?
Get up to speed Lambert. Are you coming down off something? The money crank stuff referred to Philip Scofield who excluded MMT and threw up some real cranks.
Kervick doesn’t mention Scofield (Schofield?) by name and I just checked Pilkington; he doesn’t either. So, if I weren’t just coming down off the bad acid, I’d conclude (a) there is no Scofield at all, or (b) there is a Scofield, but that although NC readers can’t know which of Scofield’s (cranky) notions are being referred to, since he is not mentioned by name, you have decided not to add value to the thread by enlightening them. It would have been easy to do. Of course (c) I could have missed the reference. A link would have helped NC readers.
I can’t recall who Scofield is. NC commenter?
Neither can the commenter. Thanks for looking.
So, *** crickets ***
‘That’s a pipe dream, but people who fall in with this line of thinking react violently to political agendas that call for raising taxes as part of a more aggressive fiscal policy stance, and start throwing around slogans like “The government isn’t revenue constrained!” etc. …’
We are being set up…by something or someone… for a super-sized Faustian Bargain.
I agree and very well stated. Money is a medium for distributing society’s resources for society’s ends. We are society, and so the question becomes what do we want. That is the first question of setting any policy. The other two in order are what can we do (assessing the resources we have) and what can we live with (Deciding on a plan to use those resources. We live in a complex world. How much give are we willing to accept? How close is close enough? How fair is fair enough? Not every problem requires a maximal but perhaps disproportionate and possibly unsustainable effort.)
We have databases we plug in to manufacturing systems that allocate systems resources. That’s to keep the whole system running by distribution and re-distribution, not send all the oil (whatever) to only 1% of where it is needed. This may seem obvious, but some of these manufacturing processes are very clever – far more complex than a typical economics case-study. We can imagine ‘just-in-time’ money. Who but a dumb duck would program sending this round the world five times through ‘starburst’ techniques that lose it in massive percentage through fees and as feeding fodder to the rich parasites?
Honest system money just wouldn’t be designed the way currencies and their institutions are now. Demolition is a complex business, but we need some slum clearance. Assuming we could get talking across the world and could start virtual voting on what we want, it is possible to imagine a “transition”.
I also agree, and I agree that this is very well said, Dan.
As MLK said, “Injustice anywhere is a threat to justice anywhere”. We cannot ignore the obscene and immoral wealth disparity in our society. No man needs $20 billion when so many others have near nothing: it is immoral and unjust; it creates oligarchy; it eats away at the social fabric and leads to social instability. I suppose we could give everyone a $1 trillion coin, with the result that the Waltons’s and Koch’s billions would be pocket change; but that would be to unleash forces that, to channel Keynes, cannot easily be controlled, and not one man in a million can predict. We can’t ignore or sanction our descent into oligarchy simply because it’s too hard to fight the oligarchs.
“More” is not the answer. We are already asphyxiating the planet with current levels of consumption. The answer is not for the globe to produce more so that we can lift up the poor. We need to distribute resources more equitably, and to learn to live within the limits of what the globe can sustain.
“Injustice anywhere is a threat to justice *everywhere*.”
Why make this so complicated?
Because it’s correct.
Governments can and should run deficits, but those deficits can’t be too large relative to the size of the overall economy of we want price stability. And those deficits can and should be larger during periods of stagnation and underemployment than they are during periods of high employment and robust growth. But that doesn’t mean that governments can just take a la-di-da attitude toward budget policy.
I challenge you to name who in MMT is making this argument.
It would be nice, at this point, to have some mathematical models that could attempt to give policy-makers some guidance on exactly how big the deficit should be under various macroeconomic circumstances, so they could propose and pass budgets that are macro- economically sound.
The mainstream has deployed model after model and they’ve been useless for forecasting. Mathematic modeling does not work in the face of uncertainty, Dan, unless you’re proposing we implant wireless electrodes in the brains of the American people. The precision you demand is not possible in a complex adaptive system, which is exactly why the mainstream demands rational agents, perfect information and profit-maximizing firms: they can’t make the models work any other way.
Unfortunately, there seems to be a strong strain among the heterodox toward the idea that math is an evil conspiracy perpetrated by the orthodox, the neoclassicals, the mainstreamers, yada, yada.
That’s a hell of an accusation, so you’ll understand if I ask you to demonstrate where the claim is made that math is an “evil conspiracy”.
But it seems to me that there is a kind of sub-culture of MMTers who are under the impression that MMT preaches a radical no-tax doctrine that allows us to do ample government spending and generate full employment while leaving rich people alone and letting them keep all their money.
Who? Who is arguing this? Names or you’re making it up.
That’s a pipe dream, but people who fall in with this line of thinking react violently to political agendas that call for raising taxes as part of a more aggressive fiscal policy stance . . .
So anyone who disagrees that failed “tax first” strategies are a political loser and an ineffective method of power distribution are “violent”.
That’s a pipe dream, but people who fall in with this line of thinking react violently to political agendas that call for raising taxes as part of a more aggressive fiscal policy stance, and start throwing around slogans like “The government isn’t revenue constrained!” etc.
Your hyperbole and polemics are unhelpful.
I would also guard against the idea that whether there is unemployment or not depends primarily on whether the deficit is big enough or not.
Who made this argument?
Well done; a thorough response from Ben to Kervick’s commment — which, given that it’s over 12 hours old, looks like *** crickets *** from Kervick as far as a response goes, making the comment a drive-by (and people wonder why Ben sometimes gets a little cranky). Of course, it woud be nice to be wrong!
This from Ben on models is useful, at least to me. The mainstream are drunks looking for their keys under the street light:*
Of course, my former girlfriend was a model, so maybe I’m biased!
* Because that’s where the light is!
Comment drive-by? It’s Saturday and I just got home. I didn’t know that when one comments here one is expected to sit by the computer all day to follow up. Anyway I didn’t take the comment to be so negative as you seem to be taking it.
Dan Kervick: On drive-by, you’re right and I’m wrong; sorry. I plead a bad case of admin’s irritation.
If there are bad models they should be countered with better models. MMT actually seems to have a model but they get vague about the key quantitative questions. I think they should put more research effort into making it more exact and incorporating some usable policy rules. At this point no one even knows what it means to write a government budget based on MMT principles.
Hmm. Sounds like we need an MMT shadow government! (with the resources for a big project like finding out “what it means to write a government budget based on MMT principles.”
Randy Wray just made that argument. That’s what the “reducing aggregate demand” element in his list of reasons to tax is all about. And Stephanie Kelton had said numerous times that “we’ve always said that inflation is the only real constraint”. The fact that people are still confused about this bespeaks a failure to communicate.
For the MMT position on the causes of unemployment, here is a representative piece by Bill Mitchell. See the first paragraph. The idea that MMT claims unemployment is caused by a budget deficit that is too small shouldn’t be controversial.
This might be a good place to propose a GOOD reason for the corporate income tax. (Aside: a more immediate reason is like the gasoline tax: to allot the costs to the beneficiaries.)
It could be the most efficient – in fact, completely effective – form of antitrust regulation. Because corporations (and other businesses) are artificial entities, they can and do subdivide at will. We would take advantage of that by imposing a sharply graduated corporate income tax. It would have a “hockey stick” form, remaining quite low up to a certain size of company, then increasing sharply and quickly becoming prohibitive. Businesses would grow, if successful, by spinning off and selling pieces, rather than pay the higher tax rate. One side advantage would be to promote the free flow of capital; rather than hoarding worth, companies would be continually putting it back on the market.
To avoid penalizing efficiency, one could determine the rate from gross revenues but apply it only to the net. And, of course, the total size of a company, which determines the rate, would include ALL parts, including foreign, to prevent giant foreign companies from dominating our own markets.
Of course, one prerequisite is that the corporate tax actually be levied, rather than exempted out of existence. Perhaps the amounts of gross and net income reported to shareholders and the exchanges could be used unchanged, thus encouraging honest reporting.
Very convenient illustration – Boston scores a run and its debited – New York doesn’t lose a run. Unfortunately, an un-earned credit means rights to resources.Resources that others had to work to produce. Let’s retry this scenario with that in mind.
Boston earns a run by producing 10 bushels of corn, a credit to an account allows its account owner the ability to buy the bushels produced by Boston. A debit, removes it.
Is the right thing not to allow Boston to produce the bushels and anyone wanting to buy them to produce something in return? Of course not, because that does not fit the liberal sick-minded agenda. Sorry Wray, the logic is designed to fool the fools – which they deserve.
“This sounds shocking because we are so accustomed to thinking that “taxes pay for government spending””
this is shocking only to those who do not understand paper money.
people who are under the spell of the “money illusion”.
in fact the day everyone understands the money illusion the paper money system will collapse.
Are ye blind? It’s no illusion that fiat can payoff private debt. It is also no illusion that fiat is REQUIRED to pay your taxes with.
If you want to talk illusion then consider gold as money. There’s an illusion for you UNLESS government privileges it.
I think most understand the “paper money illusion” and in a lot of ways most are happy with it. It does make exchange of goods simple when it comes to an enforced value of exchange (no matter what that enforcement method is, guns, taxes, trust…). From my perspective it sure beats bartering my IT labor for what I consider to be necessary or utilitarian from a car to a bag of apples.
The problem really is the understanding in general of all the competing economic “theories” and “models”.
All through High School and College I desperately tried to understand, generally, everything that touched my life. I wanted a generalist and as extensive as possible, in the time allotted to me on this earth, education from a somewhat advanced mathematics, physics, biology, finance and economics, sociology, psychology, and political science and history. Of course, due to cost, the necessity to work, and the amazing amount of knowledge in all these fields gained over the last 2 or so centuries (not to mention 2 or 3 thousand years of philosophy, religion, and ethics) eventually I gave up taking every course I thought worthwhile as well as reading everything that I had time to read in the various subjects that interested me strongly at any one moment.
But overall, and I didn’t feel this way 20/30 years ago, I have found the study of all the competing economic “theories” to be a major time-waster. And here is why; in physics or math, for example, One Plus One Equals Two. In economics, it seems that One Plus One can Equal Two, or Negative One, or even 9.0122222900391E-5! It all depends on things like who paid for the “Scientific” study, the “scientific model” used, or whether you are talking about Minor Adjustments to The Theory that depend on whether you are the issuer of local fiat or the Word’s Primary Fiat or whether money is or is not a store of value.
(That does not mean I quit reading about various economic “theories” relative to ethics, fraud, etc. :)
Whereas, to bring up the rocket science comment I made above, if I shoot the same-built rocket to the same moon there is, generally, only one Minor Adjustment – at what (local) time you fire that rocket, and that adjustment is constant and doesn’t change whether the country built the rocket or bought the rocket from the Primary Manufacturer of Rockets. And it’s pretty clear to all why that adjustment is necessary.
I read sometime in my distant past that If any one of these economic theories “worked” then that particular theory of economics would prevail and the other theories would have faded out of use years ago in the same way that Newtonian Physics prevailed over various religious theories as to why and how planets revolved around suns, for example.
And that pretty much sums up my attitude towards the “Science” of Economics and Economic Models. MMT may very wel be another descriptive view of certain transactions, but like neo-liberal or neo-classical, or any other “neo” or otherwise “economic scientific theory”, it sure as hell ain’t science and is just another way to make sure that the general populace has as little control and benefit over his labor and means of production as possible, short of revolution.
As long as a small group has power over the general population and are able to determine the relative value of the general population itself and what has value for that population (and themselves), economics is just another propaganda tool (good or bad, black, grey or white) as far as I’m concerned. Until otherwise proven with concrete long-term examples and results that improve the quality of life for everyone and everything on the planet, that includes MMT.
You could almost be me JC – heaven forbid. One can see that stuff like the elasticity of supply and demand, being able to create spreadsheets and relations between stuff, cost, plan, critical path schedule and so on are about. By the time we are into private debt zeroing, offshore, accounting systems running on Gauss and spinners of invisible cloth telling me they are 2000 times smarter than me, I know we’re being had.
My guess is none of this is very intellectual as a problem.
Well said. They need the money to stop parking at the top and many think we have to reinvent the wheel… Maybe if we had invested a little more in social sciences and had any respect for them, we would agree on what human beings need for true quality of life.
MMT may very well be another descriptive view of certain transactions, but like neo-liberal or neo-classical, or any other “neo” or otherwise “economic scientific theory”, it sure as hell ain’t science and is just another way to make sure that the general populace has as little control and benefit over his labor and means of production as possible, short of revolution.
Unhelpful, and untrue. But by all means, continue acting precisely as the neoliberal mainstream does, every argument a matter of moral sentiment and normative fallacy.
Well, that was a good simple explanation of some aspects of MMT and very helpful. Thanks.
Taxes at the level of the national political economy, with a free floating currency, can have a balance sheet, out of balance or balanced, as long as it is supporting full employment. The purpose of national budget accounting is to not reflect a profitable enterprise, but a social order that supports the full employment of the citizenry. Not only is the national economy and its budget not like a kitchen table meeting of mom and dad discussing the family fiances, it is not the board room of GM discussing profit and loss. The unit of analysis of the nation state is on a different scale of a single enterprise, much less a single family. For further research by MMT or further explanation, the tax policy formulated for the surplus or deficits of one nation with its trading partners. Our full employment is tied to the full employment of all other trading partners. In other words, taxes at the national level need to be trans-national, extending beyond the border and the precious rule of national sovereignty. We are very quickly back to a multi-dimensional matrix for decision making as the finances of one nation state determine the finances of another, depending upon each nations full employment status.
Oh thank Dog. And Dan Kervick. And allcoppedout, etc. The increasingly religous tone to the MMT theorists, and the pie-in-the-sky-by-and-by suggestions (“if you will only read the book you will see that money is an illusion”) is worrisome.
I used to think I was just not paying close enough attention, as the fervid tone of the MMT posts is off-putting, but I save and read later, and they don’t make sense because… they don’t make sense. Not practical sense, that could actually be implemented by the congress we have or will have in any forseeable future.
At the end of the day, here in real life, I can’t pay for milk, medical care, or property taxes with theory, and if anyone really thinks the US government is going to mint a platinum coin the size of a dinnerplate (or whatever) and have anyone take it seriously,–and have that fix the economy that is laid waste by the rich who are the most adept at siphoning off government funds, avoiding taxes and keeping wages down– they need to get out more.
I come here to NC where I get practical news about the economy, warnings about scams like the ACA, and ideas of how things might be done to help repair the mess we have in the US, but MMT as generally described is more like a seance than an instruction manual.
Dear Lord. Two, er, terminologist inexactitudes in the first sentence: 1) “religious tone.” Gee, celestial chorus? Higher being? Salvation? As compared to, say, neo-liberalism? Austrianism? Marxism? Puh-leeze. If MMT is religious, then double entry book keeping is religious. 2) “… Money is an illusion.” Lordie. Citation, please. No point reading further; my bogometer is already pinned.
Comments and arguments like this are so dishonest, and so transparently in bad faith, that I’m going to be forced to conclude that MMT is true in all respects, given that such is the best its opponents can do.
That’s the quality of your reasoning in a nutshell Lambert. A bit like a Tory chief whip dishing out stick. You have Graeber wrong below too, though there is no empirical evidence of the A Smith homily on barter to money. The issue concerns the development of debt systems and money emerging from them.
1) Graeber. Yes, that’s why I qualified with “am I right in my recollection.” So, my recollection was wrong. Thanks.
2) Quality of reasoning. The comment was “The increasingly religous tone to the MMT theorists, and the pie-in-the-sky-by-and-by suggestions,” and I responded directly to it by asking a series of rhetorical questions that show why MMT theorists are not like religious believers. I have attempted to sort your word salad to determine why you disagree, but I am unable. Perhaps that
‘s because you make the same false claim (see at “religiosity”); not being a telepath, I cannot determine whether your obfuscation due to haste and carelessness, or by design.
I’m sorry you don’t like Tory chefs dishing out stick. It takes all kinds to make a world.
*** crickets ***
No MMTer ever said that including me, and I’ve written the book on the platinum coin.
Have you ever seen anyone link MMT to wider social science Joe? A lot of us agree austerity is a total con (since the 70s in my case), but I find nothing relating to operating a monetary system to more egalitarian and green purpose. Frankly, almost no one seems to ‘engage’ with the power issues and how we would organise new work and distribution.
That’s like saying that plumbers never engage with architecture, or fish don’t engage with bicycles. Besides being a falsehood; the jobs guarantee is, precisely, “organizing new work.”
The amazing or appalling thing here is that the good policies “a lot of us” (who?) agree on are deemed not political feasibly because of recieved ideas shared by the political class; ideas like “the United States is broke” or “we’re running out of money.” Green purposes, for example. Education. Health care. Care for elders.
So, one would think, would one not, that MMT, which demolishes those received ideas that make so many good policies more difficult to pass than they shouldl be, would be welcomed with open arms by those who really want those policies to be enacted.
But no. I don’t know why this. ‘Tis a puzzlement!
ACO, I don’t think that’s a reply to my reply to Elliot is it?
In any case, yes I have. Bill Mitchell has done that any number of times on his site. I’ve seen Randy do it on his Great Leap Forward blog. Marshall Auerback does it quite frequently in his posts, as do Pavlina Tcherneva, Bil Black, and Mat Forstater. Among other bloggers at NEP I’ve seen Michael Hoexter, and Dan Kervick link to other than the economics literature, and, of course, I frequently do that in my posts, and have also linked to broader literature in my book. Among the above, I’ve seen many of them writing about equality and green issues as well. Not sure what you mean by “power.” Do you mean new energy foundations, or reinventing democracy. Either way I’ve seen MMTers write about both.
On organizing work and distribution, the MMT literature on the Job Guarantee is very much about these kinds of issues.
Thanks Joe – I’ve noticed Dan (he’s good). It’s fairly obvious most of us want some kind of better world. I only use MMT as an intro to thinking about money in my teaching – frankly I think it is a bit cultish and very functionalist. This hasn’t stopped a few students getting very interested and electing assignment work.
There’s an obvious attraction in that we could print money to do large-scale greening. Downside might be Mao-type bureaucracy – but we ain’t 1950s China and technology has changed. I’ll look at your suggestions, but I recognise the names and haven’t found what I want so far. I might only know what I want when I see it, but as bullet points:
1. work motivation in situations without poverty threat
2. project design systems and money allocation and control of such
3. visions of people in this new future not like current humans doing soap opera in Star Trek
4. roles/structures of policing-military-judiciary and representation
5. transitional and holding stage
6. new structures of politics and constitution and leadership – governance not Government
7. resource estimating for a new environmental design
8. new technology in transparent accounting
This list might go on another hour!
Actual, useful teaching content of use to readers. Loud cheers. Especially #6.
I’ve noticed that sloppy analysts always make jokes about the materiality of the coin; it’s like it’s their one time to go on Letterman, or whoever the late night guy is now.
IIRC (I’d give a link to a massive chart/table that shows the propagation of the coin idea if my site were up) the coin idea made it all the way to the White House. It was “taken seriously” by many journalists, and by professional economists, in both the legal and the economic aspects; it was agreed that the proposal did what its proponents said it would do. The White House seemed to think it wasn’t “politically feasible,” but the Democrats don’t generally try to make anything feasible.
Incidentally, “a lot of us” like grass roots politics, and “outside the box” policy proposals that originate outside the elites and make their way upward. That is precisely what the coin is; the idea was originated by a blogger named Beowulf, and make its way upward through sheer merit and the persistence of many advocates, prominent among them Joe.
Ben J : “” Wray is only talking about taxation by the federal governmemt. States and localities are currency users and therefore, as you say, do need to collect taxes to fund expenditures “”
Agree — but since Wray and so many others never specify the ” federal ” part of government , then it is incorrect to say that taxes do not ” pay for ” government because the default definition of government includes local and state jurisdictions in which taxes do pay for government . Furthermore , since the fedgov is responsible for maintaining the stability of the value of the currency where taxes are collected for that purpose , then taxes can be properly said to ” pay for ” government spending which infuses currency into the economy and pushes down the value of currency ( inflation ).
It does appear that the insistence on pushing the meme that taxes do not ” pay for ” government is to route people into accepting a communist state where all incomes are metered-out by the central authorities ( as mentioned by a previous commentor ). How can the state guarantee that it will not misallocate wealth distributions ? The former Soviets could not do it , the communist Chinese could not prior to capitalism zones , the North Koreans can not , the North Vietnamese could not , Cuba could not , et. al.
There is another way, but we have to go beyond the descriptive façade.
If, instead of the government spending money into existence, we let the Little People spending it into existence, then we can think of taxes as allowances from the Little People.
Together with GDP Sharing and a Wealth Tax, there is no need for Job Guarantee, no need to hike the min/living wage.
When the government behaves, it can get a little bigger allowance. If it doesn’t, it will get less.
All this is possible when we change the description, when we say we want a better world.
Best thing for little people is to have a little business i.e. can you say sole proprietorship….it helps you pay for many things……just like the big guys and it helps you control your taxes….
what others try to take away, you can keep….
Moneta : “” They need the money to stop parking at the top “”
Indeed . Here in the USA we need a Limitation on Taxation of 50% . When the total tax take of government is greater than 50% of your income ( any money that you receive and can be used to pay for your living expenses ) then your return-on-investment ( your remaining income after any and all taxes have been paid [ includes sales taxes ]) in government is less than 100% ; and you are losing money for every year that the take exceeds 50% . A true and honest government would never be a money losing proposition for YOU no matter who you are . As it is , there is nothing to stop the eventual accumulation of all wealth [ includes money ] at the top — via government taxation . Please refer to the 100 year old ” Iron Law of Oligarchy ” and the not so funny ” Laffer Curve ” for more understanding .
I am not a big fan of Ayn Rand , but to paraphrase her famous statement —
you can ignore politics and government , but you cannot ignore the consequences of ignoring politics and government .
How many people have been genocided throughout history ?
This thread is so depressing. Nothing Wray wrote should be controversial. The vast majority of MMT should not be controversial. It is not responsible for corruption, mal-investment, kleptocracy, or income inequality nor does it support them, nor do scholars like Wray ignore them. It describes the financial/monetary systems the U.S., Japan, U.K., Australia have currently and how they relate to the real economy. It has things to say about other systems as well. It doesn’t say these systems are set in stone. It doesn’t say they can’t be changed. It doesn’t say what most of it’s detractors say it says. It’s not a philosophy. It’s not a moral system. It doesn’t have an agenda. It’s components are not new revelations, but mostly forgotten/ignored older revelations. MMT is what we and “our” government make of it. Currently, we and “our” government are making a kleptocratic, neo-liberal, planet destroying, warmongering country with our financial/monetary system (I’m talking about the U.S. which may be obvious) as well as using that system itself as a weapon against the world. That’s not MMT’s fault. It’s our and “our” government’s fault. Keep on arguing about what MMT is and isn’t, what money is and isn’t and whether or not the Federal Government needs your money to spend; that will keep you nicely distracted from all the crap your government does on behalf of it’s masters.
You think you’re depressed.
In which case you should not have said so. Outcast only mirrors much I pick up in interview all the time. Many see the problems as obvious, desperate and not getting genuine attention from chattering classes or our corrupt politicians.
To clarify for the humorless: I share nobody’s sense of depression at the thread. In addition, I have to moderate it. Now that, I find depressing. (Obviously, neither nobody nor I are talking about clinical depression, a serious medical condition.)
When the penny drops Lambert, you will discover even-handedness over your own clarity and that of others. I actually think you are a bit of a star. But I manage that with my autistic grandson too and he helps manage my actual clinical depression. If we wanted to we could wonder whether your not meaning clinical depression makes matters worse, forcing those disabled by it into further stigma. But like my excellent Labrador, sleeping and panting off his walk, things can lie.
Thank you for responding on point and in the appropriate thread.
You allow me to point out, without cluttering the other thread, that in no sense whatever did I “[call] a guy a depressive last night.” Their words, in context, to which I responded.
That said, I do try to avoid making fun of serious medical conditions, as I think all of us ought to do.
UPDATE *** crickets ***
UPDATE *** crickets ***
case of tired eye on my part
Is that a retraction?
Adding… *** crickets ***
*** crickets ***
Indeed it was Lambert. I presumably mis-read what’s in the comment now saying what it does as ‘I think you’re depressed’, something I’d obviously be sensitive too, and how I remember reading it at the time.
The current form, which I take to be the original form, is, of course, a joke.
OK, cool. Thanks. There are things I have very little humor about and things like this are one. Carry on!
FWIW, I greatly appreciate the work the you and Yves do, Lambert. Thanks-a-million.
Some MMTers says it’s descriptive, others prescriptive and many say it’s both. The flip flop is annoying.
MMT today, the LE version, is filling up the top 20%ers pockets and many proponents want this MMT to morph into MMT Turbo so money printing fills every American’s pockets so as to increase fairness.
So my question is who will be manoeuvering the printing machine… Mother Teresa’s ghost or Mugabe?
Monetary Mother Theresa – thanks for that, I’d been suffering under the illusion we were discussing Muppets Make Policy.
I’m not sure what you are talking about, How is”MMT” filling up people’s pockets?
“who will be manoeuvering the printing machine…” A good question, but not one for MMT, as such, to answer.
Sorry to stalk you mate, but that’s a typical functionalist response. I might be hired to profile the DNA (seriously) of dog crap, or chewing gum, or a tricky crime scene once inhabited by terrorists. On doing any of this work, not much matters beyond my ability in a range of techniques, procedures, theories and machines of analysis. My skills in the chemistry suffice in the lab. One might imagine MMTers doing their stuff in the lab you imply.
This is not the end of the story of practice. The citizens of Düsseldorf are particularly offended by dog crap and tried to hire me as part of a crusade against dog owners incapable of using plastic bags. On the chewing gum, I was asked to provide £80K of a budget under my control to get the scientific profiling of chewing gum on the reference books (it’s dead hard). But I spent the money and my time on the other option.as it seemed more socially important.
The same criteria we can extract from this apply to MMT. Of course, they apply in spades to the system that produces the banksters, neo-clodicals and so on; but they apply. These are mostly criteria about social applicability, but world-views come into play. The sociology of this is well-known in the literature, though society itself has been going backwards towards functionalism and a unitary perspective. MMT is still part of a wider economics that shuts argument down, creating puzzle-solving systems of argument, a bit like case-studies one is forced to do in the boundaries of the text. What you are saying amounts to ‘shut up and play on our puzzle board’.
“The same criteria we can extract from this apply to MMT.” I’m seeing a meta-comment about how great it would be to extract some criteria. I’m not seeing any criteria actually extracted. Feel free to do so.
There’s a point where, if you can’t see the criteria, it won’t be much use pointing them out.
His purse is empty already; all’s golden words are spent.
If taxes are the main demand determinant for money does that mean that if taxes didnt exist everyone would barter? Even if the dollar is much more efficient as a means of exchange than bartering?
That I can’t say. I can say that the idea that money came to be as a more efficient way to handle transactions than barter (the “double coincidence of wants”) is historically not true. There’s no evidence for it that I know of, and it’s in essence a founding myth or fable. Am I right in my recollection that Graeber debunks it comprehensively in Debt? Or is my memory failing?
but now isnt money better to exchange with than bartering?
Not a question I can answer.
It’s more convenient than barter. To my knowledge the first recorded uses of money weren’t for exchange but for settling social obligations, weregild and such.
You have excluded common stock, shares in Equity, which need not be debt nor is it a simple barter item.
I think you might be asking the question in the wrong way. Instead of looking at what would happen to the dollar if the US govt suddenly stopped imposing any taxes at all (not gonna happen) ask the question this way; If you are starting from scratch with a new currency, how do you make it the most desirable of money options? In a world with many forms of money to choose from, how does one become the dominant one?
Additionally, in a taxless USA, why would the dollar be more efficient than barter?
I like MMT’s collection of ideas, but I don’t know why they keep talking about taxation.
If we, the People, have an unlimited supply of money, as I think MMT says, then why not just give everybody a lot of money based on some formula such a base plus an amount determined by one’s work, and let the People do with it what they will. Then if some individuals compile huge amounts of it in their asset holdings require them to put their holdings to work and if they don’t do so in some period of time, take the money from them. This will drain money from the system and combat inflation.
The corporate executive who earns vast sums would have to invest the money right away in
ways that would benefit the nation. If not, he will lose it.
Looks like a great discussion yesterday.
Wray still seems to be talking academic semantics to me. One moment, he is arguing that taxation doesn’t pay for spending, while the next, he is arguing that taxation regulates aggregate demand and thus inflation.
In other words, taxation + inflation pays for government spending, whether we are using budgeting or chartalism, whether the buffer stock is gold or silver or wool or wheat or unemployment or JG/ELR.
This framework also continues to ignore what is actually happening in our country. Everyone in DC is an MMTer. No one believes that USFG dollar emission is constrained in nominal terms. We know this through actual evidence – the unprecedented deficit spending of the 21st century. The only question is who gets the money (and who goes to prison).
“Wray still seems to be talking academic semantics to me. One moment, he is arguing that  taxation doesn’t pay for spending, while the next, he is arguing that  taxation regulates aggregate demand and thus inflation.”
Why do you believe these two propositions contradict?
Because of math? Do you disagree with my super fancy equation of government spending = taxation + inflation? Or are you making a language critique about a definition of what it means to ‘pay’ for something? Since money is fungible it is of course quite the rabbit hole to argue what pays for what if one wishes to pursue that route. The sandwich I bought was paid for with my credit card. Which is paid for with my bank account. Which is paid for by my employer’s payroll company’s bank account. Which is paid for by my employer’s bank account. Which is paid for by customers of my employer…and of course, even that is a simplification.
A sovereign currency issuer, the way I see things, can spend its currency units in two ways:
1) it can take existing currency from one person and give it to somebody else.
2) it can create new currency.
I view those as mutually exclusive options, and I don’t think that’s a belief. I think it is a basic mathematical identity of fiat spending. It is either paid for by taxation, or it is paid for by inflation. Those events may of course happen across time and have many intermediaries, but the principle seems pretty clear to me.
That’s why it is so important that currency emission from the government direct labor in productive rather than wasteful endeavors, because there is always an associated cost in real terms for holders of the currency being spent.
And to get back to the real world, the point is, why aren’t MMTers focusing on the myriad of ways that government is making things worse, from the drug war to the national security state to agribusiness subsidies to dismantling our passenger rail system to intellectual property to bank bailouts…
Because of math? Do you disagree with my super fancy equation of government spending = taxation + inflation?
Yes. It is wrong, as for instance Keynes well knew and wrote about, and millions understood (to some extent) thereafter. Nothing to do with math. Reference to math in most economic discussions signals completely specious arguments. These “math” “arguments” resemble the silly “Underpants Gnome”-type argument for the existence of God that Euler supposedly made to Diderot at St. Petersburg according to an absurd fable.
1) it can take existing currency from one person and give it to somebody else.
No, a sovereign currency issuer CANNOT do this. It is impossible. Sovereign governments can only spend their own money by issuing it, by #2.
why aren’t MMTers focusing on the myriad of ways that government is making things worseThey are. Neither MMTers nor anyone else can say and write every good and true thing all at once.
Washunate: Because of math? Do you disagree with my super fancy equation of government spending = taxation + inflation?
Yes. It is wrong, as for instance Keynes well knew and wrote about, and millions understood (to some extent) thereafter. Everybody used to understand MMT. To someone who remembers understanding MMT a bit, before it was called MMT, the depth and success of inculcation of an atrocious, confused scientific theory, the commodity theory of money since then (the 70s or 60s) is terrifying.
That equation has nothing to do with math. Reference to math in economic discussions usually signals completely specious arguments. These “math” “arguments” resemble the silly “Underpants Gnome”-type argument for the existence of God that Euler supposedly made to Diderot at St. Petersburg according to an absurd fable.
1) it can take existing currency from one person and give it to somebody else.
No, a sovereign currency issuer CANNOT do this. It is impossible. Sovereign governments can only spend their own money by issuing it, by #2. Money is a social relation. How can one take a social relation and give the same relation to someone else? You can do something that sort of looks like that, but while you can talk that way in many contexts without real harm, you cannot when describing a whole monetary economy, even more the more advanced, technological and financialized it is.
why aren’t MMTers focusing on the myriad of ways that government is making things worse They are. Neither MMTers nor anyone else can say and write every good and true thing all at once.
“[W]hy aren’t MMTers focusing on the myriad of ways that government is making things worse”?
“Why didn’t the author write a book about penguins and not otters”?
“If President McKinley is a serious candidate, why will he not engage me in a pie-eating contest?”
Yeah, that’s pretty much my dissent. Modern Money is irrelevant.
But it isn’t (I think you mean MMT, not money as such) Quoting above:
Washunate: Because of math? Do you disagree with my super fancy equation of government spending = taxation + inflation?
Yes. It is wrong, as for instance Keynes well knew and wrote about, and millions, billions understood (to some extent) thereafter and before. Everybody used to understand MMT. To someone who remembers understanding MMT somewhat, before it was called MMT, the depth and success of inculcation of an atrocious, confused theory, the commodity theory of money since then (the 70s or 60s) and the erasure, the amnesia of a good, widely, but not deeply enough, known theory – the credit/state theory of money – is terrifying.
That equation has nothing to do with math, and is not “a basic mathematical identity of fiat spending”. (It omits saving, and inflation is not a term that could be added there. It is not true in any figurative sense. It is attempting to say something true up to an order of magnitude – but which needs no pretentious theory or equation to say.) Reference to math in economics usually signals completely specious anti-mathematical arguments. These “math” “arguments” resemble the silly “Underpants Gnome”-type argument for the existence of God that Euler supposedly made to Diderot at St. Petersburg according to an absurd fable.
1) it can take existing currency from one person and give it to somebody else.
No, a sovereign currency issuer CANNOT do this. It is impossible. Sovereign governments can only spend their own money by issuing it, by #2. Money is a social relation. How can one take a social relation and give the same relation to someone else? Yes, you can do something that looks like that, but while you can talk that way in many contexts without real harm, you cannot when describing a whole monetary economy, even more the more advanced, technological and financialized it is.
why aren’t MMTers focusing on the myriad of ways that government is making things worse They are. Neither MMTers nor anyone else can say and write every good and true thing all at once. People can understand that MMT is true, relevant and has important advice – if they just slow down and try to understand it rather than leaping to baseless conclusions from misunderstood statements.
Economics is ‘under-determined’. In science we may have a number of competing theories that agree on the observable but disagree on the unobservable. Generally, we only see rationality as a kind of ‘bridled irrationality’. (something that makes us epistemic voluntarists). To be empirically adequate, a theory must be adequate to all observable phenomena, past, present and future – we might say adequate to all observed so far as a weaker version.
Now, I know of no empirically adequate theories in social science or economics specifically. Can anyone here help out and point me to any? Social epidemiology maybe, critical aspects of neuro-psychology, actor-network theory stripped of verbosity, a line from Minsky to Keen? Against what we mean by empirical in physics, chemistry and biology, what might the term mean in social analysis and economics? Remember what empirical adequacy is above – we surely don’t get near such standards.
Most of the time I hear or read the term ’empirical’ it rings as rhetorical. It’s not even a simple matter in science. One might think of constructive empiricism (van Fraassen, B., 1980, The Scientific Image, Oxford: Oxford University Press.). “When a theory is advocated, it is praised for many features other than empirical adequacy and strength: it is said to be mathematically elegant, simple, of great scope, complete in certain respects: also of wonderful use in unifying our account of hitherto disparate phenomena, and most of all, explanatory.” (1980, 87) – so assuming we don’t get anywhere near this in economics, what might we mean by empirical when our theories are under-determined (in the extreme) and fail on empirical adequacy?
There certainly should be no pretence we are drawing on anything much scientific. This is no killer for social enquiry. Michael Hudson successfully proceeds mostly through narrative. Literature can be good. Try debunking Richard Wilkinson on the effects of inequality on health within a society. After reading many accounts of scientific empiricism and work at the bench myself, I find nothing like any form of scientific empiricism outside science.
We could do some Wittgenstein-like analysis of the occasions we find the term empirical in use. There’s no space here, but I find most of such use relates to drawing rhetorical power from the magic of science. Even in science it often means ‘test the real thing stupid’.
So what might something like ‘MMT has empirically demonstrated taxes don’t pay for government expenditure’ mean? Take a couple of examples:
1. You work as the Sheriff of Nottingham and collect taxes for the useless King John. The groats you seize are called tax. They are spent on swords for King John’s troops – presumably government expenditure.
2. You work as a bailiff for Mao the Megalomaniac and seize grain from starving Chinese people (tax?). Mao sells the grain abroad and buys a frigate (government expenditure).
So MMT doesn’t seem to hold in these examples. I’ve assumed one could follow the chain from tax collection to buying – participant observation style perhaps, something we often call empirical. MMTers can already felt descending with their swords – listen. I am, of course, ignoring ‘modern money’. John and Mao might equally have minted or printed money to do their government buying. This might even have saved those who starved to death for their futile policies, though probably not.
What I want to know is what any of this, including the MMT analysis, has to do with the price of empirical fish. Clearly, if you know a bit about empirical adequacy, you should be very sceptical on empirical claims for economic theories in general. Tax under vile creatures like John and Mao meant starvation, a pretty ’empirical-sounding’ thing. One would guess this would not be an ’empirical choice’ any of us would have made without violent coercive power relations. And what is tax today? Just whatever we pay HMRC or its equivalent? This seems a very crude view from within our household. We earn some money and tend to view what we have to pay out to survive as “tax”. No one asks us or anyone else, there’s just some non-empirical assumption that its what we pay the tax-man. Chez nous, both post-grad qualified, we tend to think that what we proportionately don’t get from the total monetary system paying such as bankster bonuses and various other sleazy rents is tax. The government is only a minor levy in comparison with the private-sector monetary-go-round. And the crapified world of groaf is taxing against the green way we want to live. And our pensions are being stolen, a very King John dodge. We think MMT isn’t empirical in any sense we understand the term, though if we could find Mother Teresa’s ghost implementation tomorrow would be better than this mess. Terms have been defined by exclusion.of most of the social science we know.
Let’s try to keep it simple. In the United States, Federal taxes don’t fund spending. They don’t need to. The United States uses fiat money. We issue it; we’re sovereign in it. (Often, in political contexts, which generally focus on the national level, we use the shorthand “Taxes don’t fund spending,” and since the context is national politics, we don’t qualify the statement to apply to the Federal government. State and localities do fund spending with taxes.)
If you want to test the truth of that claim, you can go over to the Fed sometime, and watch a couple billion dollars being keystroked into existence without — this is the important part — any check being made by the operator whether the taxes exist to “fund” the dollars or not; no spreadsheet, no handy desktop pop-up, no nothing, and no institutional apparatus in existence to supply the data at all, which should tell you something about how important this is.)
That’s how it works. Empirical, schempirical.
For the rest of it, my bogometer got pinned at the Sheriff of Nottingham. I wasn’t aware that Medieval England used fiat currency. For true, they did? Or did I not get the memo?
Sure, that is how it works, for now, at this point in time. MMT seems to believe that’s how it will always work in the future, as if we have reached the end point of monetary evolution. Can we assume that confidence in major currencies will always be a constant? In the mid and short term, sure. For the long term, I am not so sure. It is one thing to say that in a debt based fiat monetary system, mathematics requires that the government remain permanently indebted in ever greater amounts, and that it should be possible to keep such a system stable. But I fear that politicians will hear what they want to hear when MMT says “We can never run out of money.” At some point there’s obviously a limit.
I don’t recall a claim being made that MMT would be valid eternally, outside of time (“always work in the future”). That would make it a religion, which it is not. Suffice to say that it works now.
I don’t see a reason not to speak the truth because of fear of what would happen; I don’t believe in practicing “noble lies.”
If you want to test the truth of that claim, you can go over to the Fed sometime, and watch a couple billion dollars being keystroked into existence without — this is the important part — any check being made by the operator whether the taxes exist to “fund” the dollars or not;
Federal Reserve Banks do this. But those keystrokes create new liabilities for the banks. You’ve already copped to their being owned by the national banks in their districts (or was that solely for the purpose of contradicting Geithner’s claim of being a public official at the NY Fed?)
As privately-owned entities, the Reserve Banks can’t be compelled to clear checks for the US Government, i.e. recognize USG’s payments as liabilities upon their own books, without compensation. Whether that compensation be a bond (a USG IOU), a coin (a USG asset), or some of the banks’ own notes, which we use as circulating currency. Or reserve balances, transferred from TT&L accounts at commercial banks, accounts that accrue to the USG via, yes, taxation.
The Federal Reserve Act requires the Fed to act as the agent of the Treasury. The liabilities of the member banks are the liabilities of the central bank bank as a whole and have been since the Act was amended to take interest rate setting from said member banks and invest that responsibility with the FOMC.
No, you miss the point entirely. MMT is as parochial as you point out, which makes it an unlikely candidate for empirical adequacy. We understand the fiat currency “printing” bit for federal spending. This was discussed 100 years ago in terms of lytric systems. It’s really only necessary to point this out to the economically illiterate, though some MMTers seem to assume this is everyone else not in on this rather old ‘secret’.
Neither our ‘time machine’ trips to King John and Mao, nor a walk round the Fed is empirical in the sense of empirical adequacy (rather than truth) for us to rationally (even in the limited sense of ‘bridled irrationality’) believe in a theory. If we are open to defeasible reasoning, then John and Mao events produce facts that contradict the MMT as empirically adequate, though not necessarily our walk through the Fed.
So we might make MMT parochial to modern fiat currency and US circumstances (perhaps any sovereign currency issuer). Rather than an empirically adequate theory, we now have an accounting system, with its own internal relational terms – tax being relational in inflation terms in the spreadsheet to fiat money creation. Like many conventional systems, internal consistency should not be too difficult. Like any formal system, including arithmetic, we should expect the internal consistency to depend on something outside it (Godel’s third theorem or Moneta’s subjectivity). Much has been excluded, such as the ‘die now or starve later’ aspects of John-Mao taxation and wider definition through methodological individualism as I described my household’s view on what tax is as we experience it.
English currency in John’s time was the silver penny. He could have minted more, but the raw material was scarce and often was made by melting down European coins gained as surplus to barter. So no MMT for John – gosh we non-MMTers would never have guessed and it’s such a delight to be educated by our smarter insider friends. What might pass from these times to the current world outside MMT accounting? An empirically adequate theory would want to ‘know’. Mao had paper fiat, but chose to sacrifice 50 million of his own rather than MMT. There were ideological reasons in Maoism. The system of allocation was meant to transform money from an embodiment of past and present relationships of exploitation into an embodiment of the collectively determined objectives of the society. This rather left them with international barter. Mao understood the created demand for hard currencies (which were, in the 1950s, mostly U.S. dollars, British pounds, and French francs) as akin to opium addiction: the creation of a need for something that is intrinsically worthless but is monopolized by foreigners.
Marxian analysis begins with recognition that money is a significant instrument in reproducing certain social relationships, in shaping human possibilities, and even changing the consciousness of agents. Different economic and political histories (specific events and processes wherein a specific government has achieved dominance or suffered subordination in relationships with other nations) results in different sets of economic institutions and political power over economic institutions (both those in the domestic economy in question and those outside the domestic economy in other nations or international institutions) and economic institutions and political dominance give money relative value and relative liquidity (the ease with which it can be used in exchange). Thus, the current status of the U.S. dollar as the hardest of the hard currencies must be constantly generated by reproducing the underlying political and economic dominance of the United States on the global stage. This requires constant rethinking of and adjustments in concrete economic and political institutions (both in the U.S., international institutions, and foreign institutions that play a role in helping to maintain U.S. dominance).
I only advocate a limited methodological marxism, broadly the examination of the conditions of existence and what is now called social epistemology – the aim is empirical adequacy in theory. The money-neutrality of neo-classicism and monetary policy generally, has an ontological basis that a phenomenon like money can exist and yet not influence the other social and natural phenomena with which it interacts and is an integral element of. This precludes any empirical adequacy and defeasible reasoning, as so much theorising exclusion has gone on in definition by “experts” to create an accounting system and imperviousness to feedback and dynamic review.
Of course, things change over time, something empirically adequate theories account for. If we look historically at taxation, ask people what they feel taxed by, even look where it goes (the Sheriff used to take his slice, now we have offshore – so not all tax gets to government whatever they do with it), we might get an empirical definition that is reality-correspondent. The same can be said of free-from-air fiat. Both are clearly very limited in expert definition in the MMT accounting scheme, and though a walk through the Fed is practical, I doubt it is empirical anything in theory, just an observation.
Notions of social epistemology? Boghossian, Paul (2006), Fear of Knowledge, Oxford: Clarendon Press. – I think Lambert keeps misspelling the guy’s name.
1) Thanks for dumping the cute insult at the end so I didn’t have to read through the whole comment to spot it. Could you adhere to this convention in the future? Because it would save me a lot of labor. Thanks for your consideration in this matter and yes, I know how spell bogosity.
2) That said, this comment had material of utility to the general reader. In particular, this:
I’m assuming that your “limited methodological marxism” fits into with the above. The above isn’t a truism, but it’s impossible for me to imagine institutions like, say, the UMKC economics department and its work product, and fiat money, too, existing in such a different historical context. Which is why asking about fiat money in medieval England struck me as so bizarrely off-point as to be tendentious.
For the rest of it, if “empirical” is the wrong word for “how it can be shown to work now,” what form of words would you suggest? “Empirical” has the connotation of testable to me, not the connotation of subject to the scientific method, say, but I’m not married to it.
Thought that would catch your eye Lambert. I guess Boghossian isn’t the best on social epistemology, but you have raised question in me on ‘fear of knowledge’ over the last few days. I’ve been lying up rather ill (some flu-like thing post-op), so you’ve been a real treat. Did you ever find Chad? I went there, but never read Henry James.
One wonders where an insult starts. Remember the giant intergalactic fleet in Hitch-hiker launched on a misinterpreted understanding on a comment about someone’s mother and was eaten by a small brown dog, owning to a massive misunderstanding of scale?
It would be good to see you actually take and idea up. In science we actually do look down microscopes wondering what someone not constrained by our assumptions might see. We look at animals while questioning human behaviour. In my old lab we were rarely polite in language terms, assuming the need for such manners was something of an insult to the other made hostile assumptions the other was potentially violent or vulnerable (q.v. the ‘origin of an insult’). And partly because we hated bureaucrats who used mannered politeness while getting in the way of our work. So as scientists we did stuff like visiting King John to look at taxes in the raw in conditions different from those today and the expert view we bring to them. Then we’d think whether what we found there was still a process underlying and perhaps concealed by today’s institutions. You don’t seem to get that the guy watching bits of pollen grains moving in water under a microscope is looking for a pathway to the stars.
Sure, let’s walk through the Fed, but we could stroll a beach in the British Virgin Islands, noting it too is a reservoir of tax (which I guess we’d both think stolen, whatever the Laffer-lackey curve). And no doubt Moneta could tell us much more on tax and where it goes, how holding it is a loan and so on. And on a long walk round the world we’d find other examples of tax. The USD as the reserve currency is a tax.
I tried to take you on a bit of a walk through empiricism (there are many forms – none as you want to reduce to). Easier to bag off science. Fear of knowledge. Mao? I hope that’s really obvious. It’s a bit like me doing the chewing gum DNA profiling (do I have to explain ‘of the person who chewed it bit?) and being sent the notes of the Portuguese guy who failed to find the right processes. In principle, Mao was trying a project-based society that MMT implies unless the money is going to be “distributed” by the usual suspects. We have notes on how not to, what didn’t work.
All this and much more could form a welcoming, critical discussion. Of course, the bit Moneta and I played with on MMT already being in practice without the good bits, opens up whether any monetary policies are what they seem anyway, as in Perlman later.
“It would be good to see you actually take and idea up.” Gee, thanks. I’m pretty busy right now, maybe I’ll get round to satisfying your expectations at some future date.
Why on earth do you respond at all to allcoppedout? Let alone defensively and with irritation? That’s just throwing him further into the briar patch of his(?) own tangled ego… There are plenty of cogent takes in the commentary, whether you agree with them or not, to which your insight and (genial) wit are well addressed–taking umbrage at unfocused ramblings seems like a waste of time. I can assure you that when commenters make little sense at great length, you don’t need to respond pointing that out–trust your readers!
Also, very apt comment on marxism being the “other” theory that posits irreducible entanglement of politics and economics. We socialists speak only of “political economy”, not politics or economics as separate entities. NC recognizes this, if sometimes only implicitly, often enough, which is why it’s such a great mainstream blog–but doing so explicitly is never a bad idea.
As always, keep up the great work at NC! And I hope you’ll work on minimizing (or masking) the defensiveness and irritation in your responses, as justified as it may be in any individual instance–bemusement is always the best policy! As my grandma used to say, you catch more flies with honey than with bees…
The time Lambert and I spend policing comments (as opposed to participating in the substance of the conversation) is a complete waste of out time. It not only detracts from researching and writing new posts, but it comes at the cost of other site management duties. We have a bunch of stuff our code wrangler Kristin has done that we need to review for her to push live, and dealing with abuse from the commentariat comes at the expense of that.
Lambert did a frankly heroic job in dealing with this thread. Allcoppedout is completely out of line. I have zero tolerance of abuse of guest writers and the site admins. I banned people for less. Allcoppedout as a regular 1. has some cred with readers and thus his comments have the potential to do more damage when wrongheaded and 2. should know better and is thus held to higher standards than someone who wandered in off the street.
I’m not sure. I find both can been more or less equally rude.
Since the economy is a multi-variate system with many feedback loops, I believe no model or theory can be flawless. We humans and our brain capacity is not there yet and there will be many iterations before we get it right, if ever.
That being said, I understand that we must apply some kind of model to get through our lives, no matter how flawed it may be… the thing is that normal decent people who understand all this generally do not have the gall to impose their flawed ideologies on others. Those who have the nerve are typically those who are convinced their ideology is right or don’t care and are just in there to get some
So when a theory/model is being proposed which is sure to be flawed, it is totally normal to get a pushback. And the more your refute or ridicule the pushback, the more you will stoke anti-PC behavior since PC is based on the establishment’s rules.
I think many need to realize that the prescriptions of MMT are not really an option for most foreign countries unless we want to go the route of Greece since it essentially depends on imperialism. Therefore, IMO, it is totally normal to get even more pushback from foreigners. Americans seem to have trouble going beyond the Golden Rule, to the next level of empathy
So in this case, I would expect more understanding from one of the 2 parties.
If you thing he makes no sense you are missing a big piece of the puzzle.
Not “makes no sense.” Certainly “often makes sense.” One of my tasks is to poke at things that don’t make sense, and to keep poking until either they do make sense, or they’re revealed as nonsensical or, much much worse, made in bad faith. It’s like fixing a broken link, on a higher plane.
Frankly, I’d be a heck of a lot happier if I didn’t have to invest time doing that task, which is not easy. I would far rather go through life making jokes, and tossing conversation-starting one-liners and intriguing questions into the threads; that’s easy and fun.
However, the NC comment section is not a public space. It’s moderated and curated, and that’s one reason the quality is so high. At NC, every comment and every commenter is tested; you might put this under the heading of making NC a very unsafe place for bullshit. If you want a different comment philosophy, try 4chan.
I’m not of the view that devoting the NC comment section to “unfocused ramblings”* is a good thing for NC readers, or for the NC brand — especially when a commenter who is often very insightful is doing the rambling. And what happens to NC when NC becomes the goto site for unfocused rambling?
As far as “defensiveness and irritation,” I’m sure your advice is well-meant. However:
1) As I’ve pointed out (too lazy to find the link) “Why are you do defensive?” is a real conversation stopper; back in Junior High, it was a super-effective mindfuck. How do you answer it? With “I’m not being defensive?” It also seems to be deployed rather a lot as a proxy for “Why are you presenting an argument so forcefully when I cannot refute it?” Finally, it’s an ad hominem assault on the putatively defensive commenter, a tactic NC tries to discourage, and it poisons the well for all future comments made by the target, which is bad for NC as a whole.
2) As far as irritation, I’m tempted to remark “You think you’re irritated.” But I won’t. Instead, I will ask you to consider irritation is a useful indicator of thread quality rather than a failure to be civil or even a moral failing. An example may help: A friend of mine, a historian, once worked as a tour guide at a house that was also a museum; call it Mount Version. And the most frequent answer of visitors to Mount Vernon was: “How much of Mount Vernon is genuine?” Now, this is the sort of question that would cause a real head-desk moment for any historian, because how on earth do you answer it? The guides finally collectively settled on this (meaningless) answer: “80%!” So (for example) I’m very happy to have Ben here and willing to engage on MMT issues. And if he should seem to get irritated, then I would ask you to consider that in his mind (and most often, I agree) he is being asked, for the 100th or 1000th or 10000th time, “How much of Mount Vernon is genuine?” and in a polemic context, too, not an informational one. However, since NC is not a tourist site, he can’t give a meaningless answer (“80%!”); he is required to give a real one. This would be enough to make anyone irritated. So, however you detect irritation, if you see it on a thread, it might be a more useful response to look for the cause of the irritation in the content of the comments, and seek to ameliorate it.
* I don’t want anybody to think this applies to craazyman or his child. There, we’re talking art form!
NOTE Hilariously, this comment thread has devolved into meta, as so many intense threads do. Thank heavens there were no Godwin’s Law violations!
Have been trying to reply for a few days now, but my comments have not been appearing on this thread. Trying from another computer now, here at the bottom instead of buried up above.
General comment: I and others here would be happy to walk people through what they understand well about monetary economics. But for me, with an emphasis on walk. A common response to guided walk-throughs of MMT is that people walk one step, then strap on a jet pack, go flying around in sixteen different directions, and end up smashing into a brick wall which they had earlier erected, just for this purpose. Then they say “I have refuted the theory”. The problem with learning the theory is that everyone knows it already. It is all so simple that the mind is repelled. Just slow down! People apparently don’t realize they are making wild, unsound leaps of logic when they have their jetpacks on. But they are.
Found three of your comments in the spam folder [bangs head on desk] and approved them. Thanks for the heads-up. (That queue is almost impossible to check because we get so much spam so fast.)
Allcoppedout: I can demonstrate division of labour in non-money society – bees, African Hunting Dogs, Bushmen hunting down a deer.
Right, but these aren’t non-credit societies. Societies where we can usefully describe what is going on by the relationship of credit, of obligation, of one part owing the whole or another part. The bees and dogs have to trust each other to work together for a common goal, a social purpose. The social relationship of credit/debt is the fundamental concept in MMT, not money, which is a form of credit/debt. The point you focus on that the division of labor is logically impossible without credit is imho basic and enlightening, and is emphasized by Geoffrey Gardiner (Wray calls him a master of all trades) in his article in the Mitchell-Innes volume. He makes it on human societies of course, but it extends to other ones that you mention – Wray occasionally mentions the concept of credit in other primates.
Money for projects could always be thin-air money. There isn’t any other kind. All money is “fiat” money, credit. Fiat money is a pleonasm. I am being repetitive and redundant. A gold standard is a worthless metal, gold, being backed by the underlying, intrinsically valuable fiat money / state credit. The mainstream gets everything backwards.
Our definitions and practices with money pre-date new technology. To continue repeating – What new technology? If you take the oldest tally sticks as debt acknowledgements, and hypothesize that they were negotiable (maybe they could check how many different h saps’ or neanderthals’ DNA are on them?) – then money could be 40,000 years old. There has been no comparably basic technological change since then, just bad theories about what money is, and a good one too. The problem is that the bad theories are a category mistake (though a productive one) that has worked itself into everyone’s mind. The hard thing is getting the good one back in, realizing that everybody naturally thinks in terms of the good one – but doesn’t think he is thinking in those terms. All MMT is is a good philosophy of money, a good philosophy of accounting. Understand “cave-money”, more seriously understand ancient money, like Old Kingdom Egypt money (see e.g. John Henry’s article in the M-I volume), and everything else in the next few millennia is a breeze.
Wait! The US was using fiat money both after and before Nixon went off the gold standard?
Allcoppedout:1. You work as the Sheriff of Nottingham and collect taxes for the useless King John. The groats you seize are called tax. They are spent on swords for King John’s troops – presumably government expenditure.
2. You work as a bailiff for Mao the Megalomaniac and seize grain from starving Chinese people (tax?). Mao sells the grain abroad and buys a frigate (government expenditure).
These do not refute “taxes don’t pay for spending”, but illustrate it. As always, slowing down and eliminating inessentials makes things clear.
#1 – The “seized groats” are spent on swords. Where did the groats come from ? Why do the swordsmiths willingly part with their valuable swords for the groats? The groats came from King John who minted them in the first place. The swordsmiths take the groats because they know the consequences of not having groats when the Sherriff comes to seize them. The sherriff does not seize whatever groats happen to be handy, or a portion. He seizes fixed or predictable quantities. And not having the groats he wants leads to bad consequences – like dungeons, medieval torture etc. Since everyone knows this, knows that groats are a good thing to have, people accept and accumulate them. Like the swordsmiths. But the Sherriff can’t seize groats before the King mints them.
#2.Mao seized grain. This is “real taxation” “taxation-in-kind” “taxation-in-real-terms”, which is NOT not what people usually call taxation nowadays, financial taxation, but the opposite – government spending. Again – grain seizure is government spending. That is what government spending is – taxation in real terms. The government – say an enlightened one with a JG employs JG workers doing some real work – and gives them cash – tokens of a purely immaterial, purely moral relation of the state’s indebtedness to the workers. The workers can then use these tokens of indebtedness, Getting back to Mao, suppose he sells the grain for rubles. He has become a creditor of the USSR, just like someone who worked in a tractor plant in Stalingrad. Then he buys a frigate from the USSR. This, a purchase from the Soviet state, is equivalent to financial taxation, what we usually call taxation. But note Mao’s rubles had to be minted by Uncle Joe first, before Mao could get them, and Uncle Joe certainly did not need to get rubles from Mao or from a tractor plant worker. This was not Mao’s government spending, but the USSR’s financial taxation, which succeeded the USSR’s government spending of rubles for the wheat it bought from Mao.
Your points are well taken. I honestly didn’t realize that you and Yves find aco’s comments to be of value sometimes, hence try to deter him from useless ones, hoping for more of the former. I see virtually no such value, but given your view, your irritation makes more sense. And I certainly don’t think irritation is a moral failing–nor, in your case, even a failure to be “civil”, as I was quite impressed by how successfully you kept your incisive critique of his endless blather from degenerating beyond irritation to real (personal) insult. Yves was right that it was “heroic”–at least as blog mediation goes… :)
As for defensiveness, I fully agree that asserting it of an opponent is illegitimate if one wishes to evaluate the cogency of arguments, rather than try rhetorical tricks. But that doesn’t mean that sometimes people aren’t hurting their own goals in a strategic sense by actually being defensive, even if it is illegitimate for their opponents to try to win the argument by pointing it out. I pointed it out not in opposition to your views, since I agree with you 100% about MMT’s validity.
Rather, I point it out as an educational strategic mistake–if we want to have MMT win the day, it will have to convince idiots, assholes, and blatherers as well as rational thinkers. (Note that even the former believe the sky is blue and the earth round–that’s how well people will have to buy into MMT to win the day.) As an educator, I’ve found that it’s best never to show irritation or defensiveness about concepts people are having difficulty grasping–not so much for the harm to the immediate subjects (who may well be irredeemably or willfully obtuse, at least for now.) But rather because honest, relatively uninformed readers who have similar questions, particularly new readers, as I’m sure you want many of at NC, may be deterred, thinking, “If they get defensive or irritated when challenged, they must be hiding some flaw in the theory. No point in my pursuing it…”
I once told Wray the same, when I observed him in his blog at Economonitor sarcastically dismiss a reader’s question as thoughtless when it seemed like an extremely good question to me–and i was quite up on MMT by that point. He replied to my critique aggressively with a lot of irritation and defensiveness, so I then replied with absolutely none of that, just asking humble questions, and it worked quite well–we had a productive exchange and he admitted he had over- reacted to the original question, that it was complex, and promised to write a whole blog post about it.
I note that your and Yves’s responses to my comment were not particularly irritated or defensive–rather, they were quite explicative and thoughtful. I’m just saying that similar responses to ALL critiques, no matter how “bad faith” or dumb the critiques might seem, really help convince the less informed reader weighing MMT (or whatever) in the balance that your side is so inevitably and obviously right that you don’t even get upset when idiots question it–just as you wouldn’t get upset if they said the sky wasn’t blue or the earth not round. You’d just chuckle… How you choose to address the content of a flat-earth proponent is up to you (state a couple simple facts in refutation, or just say “read some science books”)–all I’m suggesting is that you win more converts when the tone has no defensiveness or irritation in it. Affable bemusement…yes!
Finally, I always like to conclude a critique with some (well-deserved) praise, so I think you can be proud that even at your worst in mediating the thread, you took criticism in a much less defensive and irritated way than Hitler did…
Ouch! I don’t laugh out loud nearly often enough these days, so Ein herzliches Dankeschön [snarls bitterly at the irony of it all]
NOTE TO READERS Comment nesting, as one might expect on this thread, now seems to have gone pear-shaped. So, after you press the Submit button, entertain yourself by figuring out which comment you ended up responding to!