Prominent MMT Advocate Stephanie Kelton to Become Chief Economist for Senate Budget Committee

Congratulations Stephanie! Amazingly, being a heterodox economist, no less a leading advocate of MMT, is not a bar to landing an influential post.

MMT announcement tweet

One interesting aspect of this appointment is that the Senate Budget Committee oversees the Congressional Budget Office. We’ve pointed out how the CBO, despite its supposedly non-partisan role, in fact has exhibited considerable bias in some important analyses:

CBO Issues Fed-Flattering Propaganda

Fed Budgetary Experts Demolish CBO Health Cost Model, the Lynchpin of Budget Hysteria

The Lady Doth Protest Too Much: CBO Director Asks for a Chat Regarding Our Post on Their Questionable Health Cost Increase Model

Jeff Madrick: CBO’s Lack of Independence Means We Need a Shadow CBO

So let us wish Stephanie well in her new role and among other things, hope she is successful in helping the Budget Committee keep the CBO on the straight and narrow.

Udpate: I understand that Stephanie is to be “minority” Chief Economist. I didn’t realize each party got its own.

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128 comments

  1. zapster

    At last! A chance to inject some sanity into the budget process!!! I am ecstatic at this news! Congratulations, indeed!!

    1. BillC

      Perhaps that’s an opportunity, not a flaw. Perhaps she can leverage that situation as an incentive for the (so-called) Democratic party to declare its independence from neo-liberal corporate-finance-politico Washington economic groupthink. What better moment to torpedo the TINA consensus by vigorously promoting a well-conceived economic framework for widely-shared prosperity and security?

    2. david s

      She’ll face just as much, maybe more, resistance, from the Democrats. They worship at the altar of deficit reduction every bit as much as the GOP. Maybe more, given what we’ve seen from the Clinton and Obama Administrations.

      1. NotTimothyGeithner

        Since it’s the holidays and I’m being more generous (the airing of grievances is great for the psyche), the country didn’t lose a Senator this November who could be considered tolerable for their electorate and the message of deficit reduction took Mark Warner to a smaller margin of victory than the previous Virginia’s governor race which featured Terry MacAuliffe overcoming one of the more bizarre personalities in Virginia politics. Virginia had a Senate race featuring Chuck Robb and Ollie North.

        After those defeats and Warner’s collapse, they are scared enough to at least alter their rhetoric. Even Carl Levin is claiming 43 lied about Iraq. He isn’t saying anything else because Iraq was a hideous and criminal act even if Dubya was telling the truth, and the Democrats conducted no investigations into the conduct of and the run up to the war. They are afraid. The GOP back benches consider Team Blue to be traitors and will crucify any Democrat they can get their hands on without endangering themselves. Team Blue needs a form of popular support to protect themselves.

      2. Planck

        Wall St does not want deficit reduction. Then their business will go away. They will only use it as a battering ram to cut social spending. Nothing else. The Treasury security is the backbone of the entire modern finance industry. It is also an enormous source of interest payments and proprietary desk trading profits. They will use MMT now to justify keeping the debt going.

        1. Joe Firestone

          MMT doesn’t justify keeping the debt going as the best policy. It just says that for a currency sovereign the debt and the debt to GDP ratio do not effect the Government’s capacity to spend. So, the Government can choose to do deficit spend using debt issuance, or it can do the spending and forget the debt issuance. I prefer the second and I think that most MMTErs do too.

  2. Nonanon

    I was looking for the /sarc tag, and finding none, was hoping for The Onion, at least for some of the comments.

    I can see where some might cling to hope MMT offers, but, as in the interview with Temin prominently under the guise of defending the socialist welfare state, where it has been a proven failure everywhere and in every instance, even bringing about the current crisis of western democracy, those who would bury their collective heads in the sand, do so at their own peril.

    Frankly, I’m disappointed in the hard left turn this site has taken in the past few weeks, particularly in the comments. At least the Supreme Court typically offers a dissenting opinion. Consider this mine.

    1. Tyler

      I understand why this would upset you, Erskine, but you’ve got to accept that the torch has been passed to a new generation of economists.

      1. beene

        Finally. Sort of proves the that when all else fails the USA will do the right thing. Its only 24 years since the Nordic countries corrected their financial sector.

        1. not_me

          Watts and other urban centers burned more than 30 years after our financial system was “corrected” by FDR and Co.

    2. James

      I can see where some might cling to hope MMT offers, but, as in the interview with Temin prominently under the guise of defending the socialist welfare state, where it has been a proven failure everywhere and in every instance, even bringing about the current crisis of western democracy, those who would bury their collective heads in the sand, do so at their own peril.

      Channeling Rand so early in the morning? How’s the old b**** doing these days? I hear it’s eternally unseasonably warm where she’s at now.

    3. so

      You mean “socialist welfare state” for the rich.You should read here for six years like I have.
      You’ll get it sooner or later, or not.

    4. jonboinAR

      The welfare state has its crises, as in Europe recently, especially when the cliff-edge has been collapsed by a run-away, neo-liberal influenced, derivative financial Ponzi regime that’s completely outside of the social-democrat philosophy. However, the social-democratic-type welfare philosophy has given its citizens 50 years of 8 week vacations, true 40 hour work-weeks and other benefits such as actually-affordable-to-working-family health-care. I’ll take it and settle for the occasional crisis. Of course, we can always return to the unbridled capitalistic regime my grandfather experience near the beginning of the 20th century when he was sent into a Pennsylvania coal mine at the age of 10. My guess is that he’d find working in an Amazon warehouse to be a somewhat familiar experience, working-conditions wise. THAT wasn’t a failure, especially if you were fortunate enough to avoid being born into my grandfather’s social class.

    5. Si

      @nonanon…. yep!

      I wrote something, although not on similar lines, that had a similar sentiment. For some reason it was erased in posting and I simply gave up as in reading the comments it was obvious that the ‘true believers’ were already half way through their first bottle of champaign in celebration.

      It appears that there is a strong need to intellectualise what is an age old problem (corruption and fraud) and to imaging that the more perfect the intellectualisation, the more perfect the answer to our prayers.

      Dream on MMT’ers

      Si

    6. Joe Firestone

      Please define socialism and then try to explain what you think MMT is socialist. From where I sit, it’s neither capitalist nor socialist in ideology. It’s about economic problem solving and isn’t opposed to either private or Givernment initiatives designed to solve problems. It would select among these based on likely impact. Tha’ts it!

  3. Robert Kelly

    From Bernie Sanders website…

    Sanders spoke with WBUR-FM in Boston about a host of national issues including how he will use his new assignment as the ranking member of the Senate Budget Committee to fend off Republican attacks on Social Security and Medicare.

    He made a wise choice in the expert he chose to back him up in the arguments with the Wall St. lobbied Senators on both sides of the aisle.

    1. Charles fasola

      I believe in pink elephants and the man in the moon……

      Robert Kelly.

      Sanders is a complete fraud. Sorry to burst your progressive bubble.

    2. Benedict@Large

      So was this Sanders’ doing? Last time I heard, Sanders wasn’t too hot on MMT, but a lot of his staff was up on it.

      1. NotTimothyGeithner

        Team Blue might realize that without a Democratic resurgence and Obama’s former strength with minorities they have a bleak future. Sanders coolness on MMT in the past might have been the result of not trusting new branding of old ideas* or out of loyalty to Obama and a sense of Team Blue unity.

        *Let’s be honest there is nothing new under the sun.

      2. financial matters

        Interestingly, Randy Wray recently did a critique of Bernie Sander’s points.

        Sander’s points are given and Wray’s responses follow.

        http://neweconomicperspectives.org/2014/12/twelve-step-program-restore-prosperity-bernie-sanders-plan.html

        12/7/14

        2.) The United States must lead the world in reversing climate change and make certain that this planet is habitable for our children and grandchildren. Millions of homes and buildings need to be weatherized, our transportation system needs to be energy efficient and we need to greatly accelerate the progress we are already seeing in wind, solar, geothermal, biomass and other forms of sustainable energy. Transforming our energy system will not only protect the environment, it will create good paying jobs.

        –Agreed. Millions of additional jobs can be created, at the wage and benefit package we decide to pay. We can train an army of the employed to bring the USA into the 21st century, much as the New Deal’s job programs brought America into the 20th century. We’re going to need to go well beyond these infrastructure-type jobs, however. We also need to put people to work providing care services for our aging population.–

        5.) The current federal minimum wage of $7.25 an hour is a starvation wage. We need to raise the minimum wage to a living wage. No one in this country who works 40 hours a week should live in poverty.

        –Yes. $15 per hour with full and free health, childcare, education, maternity leave, and retirement benefits would be a start.–

        8.) In today’s highly competitive global economy, millions of Americans are unable to afford the higher education they need in order to get good-paying jobs. Further, with both parents now often at work, most working-class families can’t locate the high-quality and affordable child care they need for their kids. Quality education in America, from child care to higher education, must be affordable for all. Without a high-quality and affordable educational system, we will be unable to compete globally and our standard of living will continue to decline.

        –Universal, free, education is needed from cradle to grave.–

        10.) The United States must join the rest of the industrialized world and recognize that health care is a right of all, and not a privilege. Despite the fact that more than 40 million Americans have no health insurance, we spend almost twice as much per capita on health care as any other nation. We need to establish a Medicare-for-all, single-payer system.

        –Yes, take Wall Street out of our health care system. Provide free universal health care with a single payer—the federal government.–

      3. cwaltz

        Historically, the smarter leaders often surrounded themselves with people that would occasionally challenge their world view. It’s not a bad idea to get a different perspective then your own from time to time. The idea is that those with different viewpoints can suss out problems with your own arguments and conclusions.

  4. Moneta

    Since the early 70s, we’ve been on MMT phase 1. Now they’re setting us up for phase 2. Whether this leads to the typical American happy ending will make for a good suspense movie.

    1. Calgacus

      Moneta: That makes no sense at all. It is like believing France won the Franco-Prussian War. That Clinton was president before Reagan. The USA, Canada, the rest of the world was much more “MMT” before the 70s. “Keynesian” policies were close enough to Keynes’s actual recommendation,s which in turn were essentially “MMT”. So the world had the strongest and most equitable period of growth ever. The problem is that Keynes/MMT was rejected – because it created a “crisis of democracy” in the 70s. But nobody, no economist, neoclassical, Austrian, Keynesian whatever disagrees about which theory was on top, what theory tended to have its recommendations at least vaguely followed and respected when. Keynesoid econ like MMT from the Great Depression/New Deal/WWII to the 70s. Some kind of orthodox/neoclassical econ after that.

      1. stf

        Exactly. We’ve had flexible FX since 1970s (for US, since GD, since Bretton Woods was mostly a dollar standard), but we’ve had nothing close to MMT policies to go with this.

      2. Moneta

        Chartalism existed before the 70s. The reason why I arbitrarily put phase 1 in the early 70s is because that was the beginning of our currency monetary system when the US drastically changed the rules and started using its currency to maintain its lifestyle.

        It worked because households had no debt and this gave players 4 decades to squeeze them as they used leverage to make ends meet. Today households are still overextended but many governments still have room to increase their leverage. Governments maximizing their debt would still place them in phase 1.

        Phase 2 would be the part where we devalue this debt in the developed world in a way where we can keep our standard of living. It has not happened yet because there was still room to leverage some groups (the young) and governments. But I do see what I call MMT phase 2 kicking in at some point because the developed world will need to do it once it hits the wall. This phase 2, just like phase 1, will be based on changing the rules of the game because the old rules will impede further progress…. we already see it with MMTers’ arguments around taxation and debt ratios. MMT is not some big discovery, it’s just the natural evolution of where our monetary system will go once debt limits have peaked. Either you write off, which no one wants to see or either you print. With probably 80% of our economy based on non-essentials, write-offs would be devastating. We are not in the early 1900s anymore where a large % of the population could live off the land. If we all went back to the land without the benefits of oil, we would completely destroy our environment.

        So, we have no choice. We will need to inflate. The thing is that the MMT proponents seem to think that it will guarantee prosperity while I think it will just slow down the implosion of our consumer society.

        I believe we will need to print but this printing will perpetuate malinvestment (skiing in Dubai, middle class going to Las Vegas, too many cars, houses too large, etc.). In the short-term it might bring some relief (the breaking a window and fixing it boosting GDP type) but over the long-term, I am not optimistic.

        However there are 2 outcomes:
        1. Productive investment
        2. Generalized malinvestment

        IMO, MMT will lead to generalized malinvestment leading to the destruction of our environment and robbing emerging markets. But yes, this could mean the preservation of our current ifestyle for a couple of decades.

        1. Ben Johannson

          Chartalism existed before the 70s.

          In a book by an obscure German economist. It’s interesting you’d rather blame current ills on something no one in a position of influence has paid attention to until very recently.

        2. Ben Johannson

          Caesar, Sallust: all pale in comparison to your mighty intellect. Only a true genius could comprehend so much without learning any specifics. Mere details to your promethian intellect.

        3. Joe Firestone

          Just BS. Look MMT is about a whole host of goals, but front and center are full employment and price stability. MMT-based policies aime at zero, that’s right zero, inflation. I understand that you believe that MMT policies will result in inflation. But I think you need to do more that just assert that. You at least a have to explain why such policies would create inflation. There’s no explanation in your comment. That’s why it’s BS!

            1. skippy

              Please unpack this thing you call malinvestment, is it quantified before or after events and whom decides its nature.

              Skippy… “but you refuse to see it.” – do I need divinity optics?

            2. Ben Johannson

              I don’t think you understand malinvestment, unless you’ve decided to defend the extreme-right fringe of the economic mainstream.

              1. Moneta

                I think many MMT proponents do not care about malinvestment because according to these folks, nobody really knows à priori whether an investment is good or not. So for this group, any kind of investment is good as long as it creates jobs and boosts GDP.

                1. skippy

                  Your projections are a poor substitute for substantive argument.

                  Skippy… was the investment in MPS – mal- or sound?

                2. Ben Johannson

                  Do you know what malinvestment is? If you’ve been a Hayek/von Mises sort all this time why have you hidden it?

            3. Joe Firestone (LetsGetitDone)

              You delivered the opinion that MMT-based policies would lead to mal-investment. But sine we don’t know what you consider mal-investment, your explanation isn’t an explanation, but just a slogan who meaning we havevery little in have little inkling about. Again, please explain!

              1. Moneta

                To name a few, I did enumerate these:

                skiing in Dubai, middle class going to Las Vegas, too many cars, houses too large, etc.

                1. Ben Johannson

                  That is not a definition of malinvestment, it’s a list of things you think are dumb to spend money on. Why are you repeating an austrian school term if you won’t bother to learn what it means?

      3. Moneta

        Chartalism existed before the 70s. The reason why I arbitrarily put phase 1 in the early 70s is because that was the beginning of our currency monetary system when the US drastically changed the rules and started using its currency to maintain its lifestyle.

        It worked because households had no debt and this gave players 4 decades to squeeze them as they used leverage to make ends meet. Today households are still overextended but many governments still have room to increase their leverage. Governments maximizing their debt would still place them in phase 1.

        Phase 2 would be the part where we devalue this debt in the developed world in a way where we can keep our standard of living. It has not happened yet because there was still room to leverage some groups (the young) and governments. But I do see what I call MMT phase 2 kicking in at some point because the developed world will need to do it once it hits the wall. This phase 2, just like phase 1, will be based on changing the rules of the game because the old rules will impede further progress…. we already see it with MMTers’ arguments around taxation and debt ratios. MMT is not some big discovery, it’s just the natural evolution of where our monetary system will go once debt limits have peaked. Either you write off, which no one wants to see or either you print. With probably 80% of our economy based on non-essentials, write-offs would be devastating. We are not in the early 1900s anymore where a large % of the population could live off the land. If we all went back to the land without the benefits of oil, we would completely destroy our environment.

        So, we have no real choice. We will need to inflate. The thing is that the MMT proponents seem to think that it will guarantee prosperity while I think it will just slow down the implosion of our consumer society.

        I believe we will need to print but this printing will perpetuate malinvestment (skiing in Dubai, middle class going to Las Vegas, too many cars, houses too large, etc.). In the short-term it might bring some relief (the breaking a window and fixing it boosting GDP type) but over the long-term, I am not optimistic.

        1. Joe Firestone (LetsGetitDone)

          This phase 2, just like phase 1, will be based on changing the rules of the game because the old rules will impede further progress…. we already see it with MMTers’ arguments around taxation and debt ratios.

          Again please elucidate MMT-arguments -> changing rules of the game.

          Also, apart from the “printing” epithet which is now mythological, since we use reserves, how is it that MMT “. . . will perpetuate malinvestment (skiing in Dubai, middle class going to Las Vegas, too many cars, houses too large, etc.)”? MMT advocates formulating fiscal policy on the basis of expected impact relative to goals that in turn specify the idea of “public purpose”. So why does it follow that this sort of orientation would lead to the kind of mal-investment you’re thinking about?

  5. Dino Reno

    This is encouraging news. Budget deficit hawk talk has disappeared from the MSM. Maybe this stalking horse can be put in the barn for good. It has been replaced by hyper-hysterical warnings about inflation, yet another dead letter.
    Hacks like Ryan never give up and now they are the majority. Overall, the future is still very bleak.

    1. Benedict@Large

      Ryan’s crew has been screaming hyperinflation since the federal deficit first started approaching $1 trillion (and his own hero shot it up to 4). You’d think by now they’d have a suspicion that their macro is wrong.

  6. financial matters

    Wow! I was just wondering this morning if Congress really believes in all this deficit hysteria or if it is just theater for the proles. If they believe it where do they think they find the money for wars and bailouts? Stephanie will bring a clear voice of sanity. Also opens a door for other strong proponents of the 99% such as Joe Firestone. Congratulations!!

    1. Joe Firestone (LetsGetitDone)

      Thanks for the shout-out. My answer to your question would be that some don’t really believe it. In this category I include Pete Peterson, David Walker, Erskine Bowles, Alan Simpson, Bill Clinton, Barack Obama, and Maya McGuineas. But I think that many, perhaps a majority in the Congress do believe it. After all, what do they know about macroeconomics or Federal Government finances?

      1. financial matters

        Interesting, thanks!

        Naomi Klein in ‘Shock Doctrine’ talks about people in power who understood the importance of financial sovereignty using this knowledge to thwart many the political gains in places such as Poland, Russia, South Africa due to the reformers not following through on the financial front.

        http://neweconomicperspectives.org/2013/09/a-financial-sovereignty-strategy-for-egypt.html

        ‘The Job Guarantee program can be adopted through the democratic process as an overarching plan to restore financial sovereignty, promote full employment, sustainability, higher quality of life, and long-term prosperity. All of this is desirable, feasible, and affordable. Those who think otherwise and yet still aspire for a democratic society in Egypt will by sorely disappointed to know that there can not be true democracy without full financial sovereignty to deliver social and economic justice for its people.’

  7. buffalo cyclist

    Great news! Though keep in mind, that Bernie Sanders, as ranking member of the Senate Budget Committee, selected Kelton. I doubt that the Schumers of the Senate, much less the Manchins, will listen to anything Kelton says regarding Washington’s deficit hysteria.

      1. NotTimothyGeithner

        Sanders isn’t a member of Team Blue, and he rarely participates in the kabuki show. He held a fraudulent filibuster* against Obama’s extension of the Dubya tax cuts. He was joined by 0 members of Team Blue, but by not being a legacy party member, he has always pushed a silent message that party tribalism was killing the country.

        *The filibuster is a gentlemen’s agreement and thus are fraudulent by their nature.

    1. lambert strether

      As far as Sanders, though… I never did find anything authoritative on the twitter. Anybody got any links on this?

  8. ambrit

    Does she have ‘tenure?’ Can Saunders keep her in place for long? How long does the average Chief Economist keep the job, minority or majority? Will she have a ‘Bully Pulpit’ to use, or will she be relegated to obscurity?
    More interesting to contemplate, is the Democratic Party finally learning from the Far Right and assembling their own ‘Shadow Cabinet?’

    1. NotTimothyGeithner

      It’s interesting if it’s in opposition to Obozo. He is the head of state and the executive branch. Team Blue isn’t quite the opposition.

      The Democrats problem isn’t messaging anymore. There problem is their record. They have cleaning they need to do before anyone will care about messaging. The huge underclass in our “booming” economy don’t care about “inflation” numbers when they can’t make ends meet. The GOP wave of 2014 was a lower GOP turnout than 2010. Team Blue despite a number of predicted advantages was beat all over the map because the voters have tuned them out and won’t be coming back for minor changes.

  9. Jim Haygood

    Money for nothing!

    On the evening of October 21, 2013, there was a preview screening of the film “Money for Nothing” at the University of Missouri-Kansas City (UMKC). After the film, there was a panel discussion about the film with the filmmaker, Jim Bruce, and UMKC professors Dr. Stephanie Kelton, chair of the UMKC department of economics, economics professor Dr L. Randall Wray, and Dr. William Black, former financial regulator and associate professor of law and economics.

    http://neweconomicperspectives.org/2013/10/money-nothing-panel-discussion-black-kelton-wray.html

    Unfortunately, most of the Budget Committee members are only interested in the ‘chicks for free’ bit.

    1. DCR

      Watch the MMT crowd disassemble as Japan implodes … a sovereign democratic nation with its own currency, running perpetual massive budget deficits in large part for public “investment”, and monetizing those deficits through QE. They just won’t have done it “right”. What the hell is in the water out there in Kansas City?

      1. Moneta

        We know the printing trick lasts long enough for the generation that wants the pension it was owed. The other generations can deal with their own problems in due time…

      2. diptherio

        It’s the “monetizing those deficits through QE” that is the problem. It means that the majority of new currency issue is entering the economy through the financial system, which means it has to be borrowed by real economy actors to have any effect. “Helicopter drops,” locally administered, Federally funded Job Guarantee, Universal Basic Income, or some combination thereof are what’s needed. New issue needs to be injected at the bottom to really work, which is what MMT recognizes and the orthodox economists don’t.

        Abenomics is yet another reason to give the MMT programs a try, just like QE infinity has been here in the US. If you think that they are somehow equivalent programs, you need to go do some more homework.

        1. Ishmael

          MMT just another rehash of chartalism which has failed every time it has been tried. From John Law to the Peron’s it always ends in disaster. MMT is another way of saying we want to get something for free! The basic problem is human nature. Sure printing a little money does not hurt, but the printing of a little money feels so good that they can not stop themselves and soon the printing presses are going night and day so the pols can continue to buy off everyone to stay in office. Not really much different that today. Do you really think this money will be spread around indifferently to everyone. Nope, it will be quid pro quo! Our politicians have so little self control that Depends must sell like hotcakes in D.C.

          MMT and chartalism is much like Keynesianism — the last people just did not do it properly. Too little or too much always some explanation for failure.

          We keep attempting to get central govt and central banking to solve the problem when they are the problem!

          1. Ben Johannson

            Libertarianism is just another rehash of fascism which has failed every time it has been tried. From Rothbard to Hitler it always ends in disaster. Libertarian is another way of saying we want to get something for free! The basic problem is human nature. Sure a little liberty does not hurt, but freedom feels so good that they can not stop themselves and soon the wealthy fascists can continue to buy off everyone to stay rich. Not really much different that today. Do you really think this liberty will be spread around indifferently to everyone. Nope, it will be quid pro quo! Our businessmen have so little self control that Depends must sell like hotcakes in D.C.

            Libertarianism and fascism is much like objectivism — the last people just did not do it properly. Too little or too much always some explanation for failure.

            We keep attempting to get businees and markets to solve the problem when they are the problem!
            Reply

            1. Ishmael

              So Ben, you believe Hitler was a Libertarian. Humorous. So what party did Hitler lead — the National Socialist party. Right there it tells you what Hitler was. Really probably more of a Corporatist like Mussolini rather than a socialist. That is about as far from a Libertarian as you can get. The rest of your post is not even worth responding to.

              Federally funded Job Guarantee, Universal Basic Income — right there it tells you where things are going. If that is not a Peronist I do not know what it. Money for nothing. You might as well have a sign that says “I will vote for whoever gives me more money!”

          2. diptherio

            With any kind of serious Universal Basic Income scheme, equity of benefit and protection from corruption are baked into the code of the program. Deposits are made electronically, directly to bank accounts–this removes the opportunity for quid pro quo, as well as greatly reduces overhead costs. No offices, no staffers, just an few simply lines of code, doing their thing.

            The results of such a system, where it has actually been tried and tested against controls, are improved health, increased wealth and more entrepreneurship. A sufficiently large UBI could make all other social safety net programs unnecessary. There are actually libertarian reasons for wanting a UBI instead of means-tested welfare programs and QE. Check this guy out:

            https://www.youtube.com/watch?v=-vnB16E36EQ

          3. diptherio

            Currency creation is a fact of life in our economy. And with an expanding population, it’s necessary to maintain adequate amounts of exchange medium. We can either have this happen through bank lending, with the Fed supporting whatever amount of lending (and to whomever) the bankers decide, or we can figure out other ways of creating currency that distribute new issue in a more democratic way…and without debt attached to it by the time it enters the real economy.

            With a massive trade-deficit, we don’t have much choice but to expand currency supply if we want to keep enough currency in the economy for it to function properly.

            1. Ishmael

              With a massive trade-deficit, we don’t have much choice but to expand currency supply if we want to keep enough currency in the economy for it to function properly.
              ————————
              Maybe you should think about attacking the problem rather than the symptom! Many readers of this sight seem to think that they should be handed Universal Basic Income so that they could buy stuff made in other countries. Because we all know those are not jobs that Americans would take. Yup, soon we will all be singing “Don’t Cry for me America!”

              1. Ben Johannson

                Maybe you should think about attacking the problem rather than the symptom!

                Yes, you should give that a whirl.

                Many readers of this sight seem to think that they should be handed Universal Basic Income so that they could buy stuff made in other countries.

                No buying of anything! Ever!

                Because we all know those are not jobs that Americans would take. Yup, soon we will all be singing “Don’t Cry for me America!”

                Americans hate high-paying manufacturing jobs because they’re lazy and want to sing!

          4. Calgacus

            “Federally funded Job Guarantee, Universal Basic Income — right there it tells you where things are going. If that is not a Peronist I do not know what it. Money for nothing. “
            Yes, a UBI is inflationary “money for nothing” – which is why MMT thinkers oppose it as a thoughtless substitute for a JG. It is similar to issuing (high-interest rate) bonds – which is an Opulent Income for Plutocrats “money for nothing” program. On the other hand, a Job Guarantee is a money for something program. This something is “human labor”, which pretty much all economists ever agree is the source of basically all human wealth. .

          5. stf

            “MMT just another rehash of chartalism which has failed every time it has been tried.”

            Hmm . . . 100+ sovereign currencies in existence right now, so clearly hasn’t “failed every time it’s been tried.” What HAS failed every time it’s been tried is commodity money–not one of those left anywhere at the national level.

          6. Knute Rife

            John Law and Juan Peron were chartalists? That requires a definition so broad as to make the word practically meaningless. Any many, meaningful ways, both may be considered anti-chartalists, and to the extent they used ideas that could be considered chartalist, 1) those weren’t what brought down their systems, and 2) those ideas aren’t part of MMT.

        2. DCR

          As I said, let the disassembling commence! MMTers were huge fans of Abenomics as well as negative real interest rates in the U.S., both necessitating QE to prevent collapsing bond prices from ending the delusions that free money or government largesse produce real wealth. But now that these policies are driving the productive middle classes into poverty while rewarding the connected 1% who receive the magic money, they just didn’t do it right! Rev up them helicopters, ponies for everyone!

          1. Yves Smith Post author

            Wow, what a case of projection. You are the liar.

            Krugman was a fan of Abenomics. MMT types have been critics.

            If you search the New Economics Perspectives site, there are ONLY two result with the word “Abenomics” in them One is Stephanie Kelton Interviews Warren Mosler from September 2013. This is the full text of that post:

            Stephanie Kelton has inaugurated a new series of New Economic Perspectives podcasts with a fantastic interview of Warren Mosler. The discussion covers current forecasts by Goldman Sachs and others on the state of the US economy; the Fed’s quantitative easing program and market jitters about tapering; the impact of Japan’s “Abenomics”; the political inertia behind the European community’s intractable political commitment to austerity; the investment foibles of the goldbugs; and more.

            For all of those people who wonder why MMTers are so skeptical about QE, this is the podcast for them. Mosler’s explanation is as clear as a bell.

            The podcast can be downloaded via iTunes by searching for “Stephanie Kelton” or “stephaniekelton’s podcast”. But is also available here via the web. Highly recommended!

            The other is “Morning Reads” from June 2013 by Stephanie Kelton. The full text of that post:

            Here’s some fiscal insanity from Japan, where they’re trying to juice the economy with Abenomics while simultaneously promising massive austerity ahead. I’m sure that will prove very reassuring to markets.

            Here’s another heart-warmer. Bank of America has decided it’s been paying U.S. workers too much to review mortgage and other loan documents. So it’s off shoring those jobs. Now workers in India will be checking off on those appraisals, etc. It should help the “struggling” conglomerate.

            Finally, The Guardian reports that Ireland has fallen back into recession “despite” its multi-billion euro austerity drive. The fact that they use the word “despite” shows you just how far we are from collectively figuring out the obvious.

            Good luck to us all.

          2. Ben Johannson

            I challenge you to provide MMT literature that recommends monetary policy measures. I challenge you to provide MMT literature that approves of Abenomics as a solution to Japan’s continued flirtation with deflationary forces. I challenge you to drop your bathroom histrionics, bush-league writer exclamation points, and bilious hate.

      3. Ben Johannson

        When can we expect “implosion” and what will it look like? How will it differ from an [ex]plosion?

        1. DCR

          BOTH are taking place concurrently!

          Implosions … the value of the Japanese yen, the real incomes of the productive middle class, the number of people who believe your delusions.

          Explosions … the number of bad financial claims in the Japanese economy, the prices for goods that are imported or that compete with imports, the number of hardworking people in poverty, the number of people who believe you are an economic clown.

          1. Ben Johannson

            Interesting that you get so angry when someone asks you questions. Why, my dear D, don’t you want people asking questions? Something to hide?

            1. Knute Rife

              None of them has anything to hide because there is no there there. They just have nothing to say. Unless it’s to allege things such as John Law being the godfather of MMT, even though he tried to maintain the economy through trading shares of a private company financed by a private bank funded predominately by the government, a practice painfully similar to current practices in the US and EU that MMT has not exactly smiled upon.

    2. lambert strether

      I’m sure, Jim, that with “chicks for free” you’re casting no personal aspersion on Professor Kelton, based on her gender?

      I mean, I know MMT h8ters can stoop pretty low, but I’m assuming this is just one of those shreds of rock ‘n’ roll allusiveness us old farts have rolling around in our heads.

      Right?

      1. skippy

        Naw… the throw down for that inference [intolerance] is “do you beat your husband or boyfriend much”.

        Actually seen Laura Teller cop that one in public.

        Skippy… I personally take is a good sign… means the rhetoric [beliefs] tank is running on fumes… knuckle dragging superlatives are last FPL [final protective line].

      2. craazyman

        lighten up dudes. it’s the catered chicken BBQ. Jim understands how this stuff works in DeeCee.

        They don’t want to pay for it! They don’t wanna pay for anything. They have their events, their briefings, their seminars, their issue focus sessions and they expect the lobbyists, or somebody else anyway, to pick up the check.

        if Dr. Kelton organizes a seminar on money printing & offers a free catered lunch — just to drum up an audience — she may get the invoice sent to her personally! And she can’t even print up the money to pay for it without getting arrested. Holy smokes, that would be bad.

    3. Ben Johannson

      The film was screened and then criticized by the MMT panel, although in usual fashion you failed to include any account of what was said. It’s a common but low-brow manipulative tactic, preying on the tendency of many readers not to follow links.

      The gist of the movie is whether “low” ( low or high depends upon one’s perspective) short-term interest rate rates caused the global financial crisis. This perspective of blaming an interest rate falls squarely within the ideological world of the economic mainstream with their mechanistic view of economy. It contends that rational consumers and profit-maximizing firms will make their investment decisions on whether the short-term rate matches a “natural” interest rate that can’t be observed or isolated, but is determined by the behavior of all-knowing markets that, if left to work their magic, will function efficiently over the long-term.

      MMT tells us this is not the case, that monetary policy is ineffective and the Fed itself has little power to address an economic slump. MMT tells us the short-term interest rate would fall to zero without a Federal Reserve monkeying around and, on that basis, asks what the point of having an “independent” central bank is.

      Therefore it appears Jim makes his comment to defend the Fed from MMT, insisting there really is a Wizard behind the monetary curtain to whom we must bow and offer our lives, jobs, homes and families in the endless quest for Jim’s prized natural interest rate. In doing so we can let banksters, oligarchs and crooked politicians off the hook: if the financial crash happened due to interest rates then none of those people bear any responsibility, so Jim tells us.

      Charming.

      1. DCR

        “MMT tells us the short-term interest rate would fall to zero without a Federal Reserve monkeying around and, on that basis, asks what the point of having an ‘independent’ central bank is.”

        I invite anybody who believes this garbage to lend all their money to Ben or lambert or skippy or craazyman at zero percent, short-term of course, and let them invest it in their hair-brained ideas of ponies for all. Don’t expect to get any of it returned, of course.

        1. Knute Rife

          Meaning the neo-libs have been on here claiming John Law is the father of MMT, which as my other posts would suggest I don’t agree with, but publicly subsidizing a private bank is exactly what Law did, and exactly what the neo-libs keep advocating.

  10. Pelham

    I’m skeptical of anything the fully bank-captured Dems do. The appointment of Kelton as chief economist for the minority on the banking committee is, arguably, a nothing position. The key question is whether the Dems would have picked Kelton if they had been in the majority. As matters stand, this might best be seen as a near meaningless sop to the left-leaning mainstream of the party by the Dems’ far-right leadership.

    Still, if I were Kelton, I certainly wouldn’t have turned down the job. She might be able to use it as a platform to advance MMT a bit, something I’m sure the Dems realize is a risk and are hoping won’t happen.

    1. Robert Kelly

      Remember Bernie is an Independent. He understands MMT, but doesn’t believe it is politically feasible to implement stimulative fiscal policy. He tries to split the difference, which is what you do when you get to Washington. I believe Stephanie will emphasize the operational realities of fiscal and monetary cooperation. Whether she gets anywhere is depends on the wonk vs lobbyist battles.

  11. Kim Kaufman

    I saw this briefly on Twitter last night but didn’t have time to check it out. I was under the impression it was a joke. Maybe not?

    1. Jim Haygood

      As Ben Johansen will tell you, this is deadly serious.

      Keep talking that way, and you won’t receive your five hundred dollars. Or a pony either. :-(

  12. Gil Gamseh

    The good Professor may wind up spending nearly all her time explaining “money” to the Conventionally Brilliant men and women in her ambit. Thought experiment: one Senator goes on record that the USG is not revenue dependent, and all spending choices are political ones. The universe might crack.

  13. trinity river

    This news is better than any holiday gift I had expected. Maybe not being the “majority” Chief Economist will be a good place to start. I wish her the best.

  14. Ishmael

    A book I started rereading has in the front part:

    Human nature is universally imbued with a desire for liberty, and a hatred for servitude. Caesar, Gallic Wars
    which was followed by

    Only a few prefer liberty – the majority seek nothing more than fair masters. Sallust, Histories.

    http://en.wikipedia.org/wiki/Sallust

    We can probably map out the US moving from thinking similar to Caesar to more like Sallust now.

  15. Calgacus

    Ishmael, Jim Haygood, et al – I wonder, just where do you think money comes from? Is it coming from the “Immaculate Conception of Money” theory – that God created all the money at the beginning of time, and Satan tempts human beans to interfere with his sacred (unleavened?) dough. Abba Lerner liked this phrase of his pal Ernest Van Den Haag (of The National Review!). Or is it something that human beings create like shares of stock, land titles, Beanie Babies etc? Did God create all the postage stamps at the beginning of time too?

    MMT jest sez – Hey all money since the beginning of time was created by people “printing money”. There is a moronic shell game to call one kind of money (bonds) “debt” and another kind (folding money, reserves) “money” – but in reality they are both money, they are both debt – “one and the same thing”. Obviously.

  16. susan the other

    This was stunning news. Maybe MMT is an idea whose time has come. Neoliberalism, libertarianism with lipstick, has been such a disaster. I just crossed my fingers that the CBO doesn’t make her the goat. Who is majority council? Glenn Hubbard? I was just thinkin about Stephanie’s advocacy of trade – you manufacture something other people need and they will buy it. What a novel idea! That keeps your currency strong. And good social programs keep society strong. We have neither – just trickle down to the kleptos mostly from the hideous manufacture of armaments. And if MMT catches on it will benefit the entire world. You realize that the EU is our biggest trading partner, because they are wealthy, and the new silk road is gonna end all that. Or could end it. So neoliberalism/austerity will fail – it’s just a matter of time.

  17. Jay M

    Given the alliance of the military-keynesianism post cold war and the schism in terms of republic and race relations between the north and the south mined by Nixon and then the Reagan team, the lack of funding for human essentials is not surprising.

    1. Vatch

      I’m venturing way beyond my expertise, but my understanding is that in MMT, the money doesn’t have to be created by borrowing it. So there’s nobody to pay back. If the government needs more money than taxation is currently providing, it creates the money ex nihilo. Inflation is a danger, but there’s no permanent subsidy to holders of government debt. I’m sure several people will correct me if I have misunderstood the concept.

    2. Ben Johannson

      MMT doesn’t leave any such thing out, it teaches us that using interest-bearimg government bonds is a policy tool. If interest paymenrs are a cause for concern, government can cease issuing Treasurys to the public, or it can alter the maturity structure and short-term rate to pay only a few basis points above zero. It’s all optional.

    3. Joe Firestone (LetsGetitDone)

      Planck, you shouldn’t comment out of ignorance. Here and here are two Posts that address the interest question, and here’s an MMT-based book that advocates getting rid of the debt.

      In short, MMT isn’t looking to justify permanent debt. It’s just describing the reality that for fiat sovereigns Government debt is always sustainable. But that’s not an endorsement permanent debt. I think a lot of MMTers believe that ending debt issuance would be very desirable. I certainly do.

  18. nothing but the truth

    MMT (mad money theory) describes how fiat money actually works.

    A lot of the problems today are created by this system, basically because it gives unlimited power to the government. Governement is eventually just a group of people who are as likely corrupted as anyone else. In fact post fiat money the moral standards have fallen markedly, which is why now economists have started saying “it is not about the morals”. The whole point of money is to keep people honest. It is not that the money system is not understood. It is, by the people who matter. It is not understood by economics professors and the money multiplier types who write ECO 101 books.

    In fact i would say that the money system (“money illusion”) today works because people do not understand it. If everyone understood it the money illusion would collapse and you would have a revolt overnight.

    All this brouhaha about MMT is that economists have figured out how the paper money system works. They still cant get over it that govt can print money and get away with it (which they liken to a free lunch – actually rather like a free lunch paid by non-governmental entities). So they think the govt can do the other impossibles like ending unemployment.

    1. Ben Johannson

      A lot of the problems today are created by this system, basically because it gives unlimited power to the government.

      Monetary systems cannot constrain government power.

      Governement is eventually just a group of people who are as likely corrupted as anyone else.

      Yes, and?

      In fact post fiat money the moral standards have fallen markedly, which is why now economists have started saying “it is not about the morals”.

      Economists made identical arguments during the gold-standard era, while your claim that convertible currencies make people moral is dubious.

      The whole point of money is to keep people honest.

      When in history was a currency established to keep people honest?

      It is not that the money system is not understood. It is, by the people who matter. It is not understood by economics professors and the money multiplier types who write ECO 101 books.

      You’re all over the place.

      In fact i would say that the money system (“money illusion”) today works because people do not understand it. If everyone understood it the money illusion would collapse and you would have a revolt overnight.

      You know what opinions are like.

      All this brouhaha about MMT. . .

      Jealous?

      . . . is that economists have figured out how the paper money system works.

      We don’t have a paper money system.

      They still cant get over it that govt can print money and get away with it. . .

      Speak for yourself, we understand it just fine.

      . . .(which they liken to a free lunch – actually rather like a free lunch paid by non-governmental entities).

      Govenment can afford to buy anything for sale in its currency. You’re confused by this “free lunch” meme.

      So they think the govt can do the other impossibles like ending unemployment.

      Unemployment did not exist for most of history. Non-sensical to claim ending unemployment is impossible.

  19. Kyle

    Congratulations to Prof. Kelton on her new position as Minority Chief Economist for the Senate Budget Committee. There is a great need now for a fresh voice concerning the governments role in meeting the needs of commerce.

    For those of you who insist upon the refrain of “start the printing presses” and “crank up the helicopters”, you must know that the government must have means of emitting currency into the economy. One of those means is, of course, issuance of debt through bills and notes. This type of issuance has a number of problems, one of which is the reluctance to take on more debt in economic downturns. This leaves fiscal policy as a means to effectively emit currency into the economy. This, by way of one means or another, must occur. Without it, there would be no economy, period. No ands, no ifs and no buts. The current “government debt”, as it has too often been inaccurately described, is nothing more than the total quantity of currency that has previously been emitted into the economy. The majority of which, now, is represented by real assets such as your car, your home, your education, business property, infrastructure and so on. You will never be able to monetize this should you be somehow required to do so to eliminate this “government debt”. Get this! The so-called “government debt” will NEVER be repaid. Ever!

    So, to listen to the nonsense perpetrated, for whatever reason, by anyone that the “deficit” needs to be reduced is to cause yourself harm. To be led by this nonsense is to be led down the garden path to the next depression. Let us hear what you have to say then, when you are living beside the railroad tracks and begging for a can of beans. By then it won’t cost but 20 or 30 cents but you still won’t be able to afford it. And by then the financial sector will have your assets at 25 cents on the dollar, if that. Take your cues from the withdrawal of Greenbacks after the Civil War. In a period of 30 years, 19 were in recession or depression. This is what happens when there is too little currency to meet the needs of commerce, that is, i.e., recession or depression. When you understand that you won’t be so quick to take up the arguments of the financial class and “their” representatives.

  20. Kyle

    nothing,

    …unlimited power to the government.
    So…you’re not concerned about the unlimited power of oligarchs and their attempt to seize your government?

    You actually believe the propaganda they spew about “free markets”? Why don’t you look at what Brownback is doing in Kansas, Scott in Wisconsin and Christie in New Jersey. Is that the kind of economy you want? The budget deficits of these states are exploding due to the policies of these governors.

    The whole point of money is to keep people honest.
    We don’t need this redefined. We’ll stick to the economic definitions. Certainly the TBTF banks have loads of money, but it sure hasn’t kept them honest. So I guess your definition goes flat there.

  21. Kurt Sperry

    I was actually gladdened to hear this. Good luck to her and to Sanders as well. She’s obviously bright and knows her @#$% plus she’s articulate and pretty entertaining for a macro wonk.

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