Bill Black: Three Natural Experiments Documenting Krugman’s Bias Against MMT

By Bill Black, the author of The Best Way to Rob a Bank is to Own One, an associate professor of economics and law at the University of Missouri-Kansas City, and co-founder of Bank Whistleblowers United. Originally published at New Economic Perspectives

Third article in a series on MMT[1]

I urge readers to review Scott Fullwiler’s brief paper on the theoretical and predictive successes of MMT scholars on a topic of enormous theoretical and practical importance.  You do not need economics training to understand it.  Fullwiler reports the results of two “natural experiments.”  In this context, this means an unplanned experiment.  The twin experiments were:

  1. What would happen if orthodox scholars tested the predictive strength of MMT?
  2. How would Paul Krugman react to an orthodox scholar’s demonstration of the predictive accuracy of key MMT insights – if Krugman did not knowthat the orthodox scholar’s work was verifying key MMT predictions?

Fullwiler’s paper answers both questions.  The orthodox scholar, unknowingly, confirmed the predictive strength of many of MMT’s most important insights.  Krugman praised De Grauwe’s findings as “seminal.”  Krugman had no idea he was praising the predictive successes of MMT scholars because Krugman had never read MMT scholars’ work.  Fullwiler’s paper shows that a series of MMT scholars made De Grauwe’s point more than a decade before De Grauwe published his “seminal” contribution in an orthodox journal.  Stephanie Kelton was one of the MMT scholars who demonstrated precedence, making Krugman’s use of the word “seminal” as a descriptor even more unintentionally humorous.

The natural experiment helps explain the timing, cause, and tactics of the sudden, coordinated effort to demean MMT scholars and the newly elected progressives that terrify orthodox economists.  First, the truth that everyone in economics knows is heterodox economics scholars overwhelmingly read the orthodox economics literature (and often other fields) andthe heterodox economics literature.  Orthodox economic scholars virtually never read heterodox economic scholars’ work and generally claim that they are proud that they refuse to read it.  The orthodox scholar that wrote the supposedly “seminal” piece almost certainly did not read the heterodox scholars who actually had developed the insight.  The outside reviewers the orthodox economics journal used did not read the heterodox scholars’ work so they did not call the De Grauwe’s attention to the work by MMT scholars.  I believe that Krugman will confirm that when he wrote to praise De Grauwe, he had never read any of the MMT scholars’ publications listed in Fullwiler’s paper.  I believe that Krugman will confirm that even today he has not read any of those papers.

We are not claiming De Grauwe “stole our ideas” or “stole our ideas and refused to give us credit for our insight.”  We would be startled to discover De Grauwe read the work of MMT scholars prior to writing his paper.  I would be surprised if he read Fullwiler’s paper.

This pattern of deliberate, asymmetrical ignorance and orthodox arrogance is not some secret conspiracy.  The typical professor in an orthodox economics doctoral program assigns zero heterodox scholarship.  If an orthodox professors refers to MMT it will typically be a snide dismissal based on a claim that MMT says “X” when MMT actually says the opposite.  Those orthodox sneers at MMT by orthodox professors in class were vanishingly rare. The overwhelming orthodox norm is never to inform students that MMT exists.  At UMKC, we assign our economics doctoral students hundreds of orthodox readings.  Our doctoral candidates cannot pass their comps unless they demonstrate mastery of a canon of over 100 orthodox scholarly papers.  We requiredoctoral students to engage in multi-disciplinary research in other disciplines as well.  We also, of course, assign them to read hundreds of papers by heterodox scholars.

We are not claiming that only MMT scholars promptly recognized the dangers of the euro.  Warning about the euro’s dangers was a repeated focus of MMT scholars at a very early date that does great credit to them.  Conversely, only a very small percentage of orthodox scholars published similar warnings.  We agree that those orthodox scholars’ early warnings do great credit to them.

This asymmetry is indefensible, and we welcome Krugman’s interest in MMT as a means of beginning to end orthodoxy’s celebration of ignorance.  Krugman and MMT scholars share a broad overlap in economic theory and policy.  Fullwiler’s article exemplifies the point – when Krugman did not know he was evaluating an MMT original insight he was lavish in his praise of our ideas.  Fullwiler’s article also begins to demonstrate that Krugman is actually aware of far more MMT scholarly literature than he knows – he simply does not know of the very large overlap between his views and the views of many MMT scholars.  On a broad range of issues, including microfoundations, Krugman will find that MMT views make us natural allies.

The Third Natural Experiment: Krugman’s Non-Debate with a Non-MMT Non-Scholar

We know the extent to which Krugman kept himself willfully ignorant of the MMT scholarship because Krugman reported the results of a natural experiment he unknowingly conducted in August 2011.  The remarkable thing about this third natural experiment is that Krugman did not know he had conducted a natural experiment even after he unknowingly reported the results of the experiment he unknowingly conducted.  I hope that sounds bizarre, for Krugman acted bizarrely on multiple dimensions.  He also demonstrated an eagerness to demean MMT scholarship and scholars he had never read and a degree of errant arrogance that reached ten on the Krugman scale.

In August 2011, Krugman announced that he was “debating the Modern Monetary Theory guys.”  That phrase was already a warning that Krugman was lost.  Female MMT scholars are particularly well known.  Krugman then assured his readers that “I have read various MMT manifestos — this one is fairly clear as they go.”  That phrase represented the second, third, and fourth warning signals that Krugman had gone off the rails.  Why would a scholar read “manifestos” to learn of the work of other scholars?

Why would Krugman read “manifestos” by non-scholars?  Even more fundamentally, why would he read a non-scholarly “manifesto” by Cullen Roche, a non-MMT, non-scholar – and claim that it demonstrates his familiarity with MMT scholarship and competence to criticize MMT?

It gets better.  Krugman found reading Roche’s manifesto to be a painful exercise due to the writing style.

I do dislike the style — the claims that fundamental principles of logic lead to a worldview that only fools would fail to understand has a sort of eerie resemblance to John Galt’s speech in Atlas Shrugged….

For Krugman, comparing the pain of reading Roche’s rant to pain of reading the world’s most infamous Ayn Rand rant – John Galt’s turgid 60-page ode to narcissism – is the ultimate insult.  It also raises a question that would be obvious to any scholar trying to learn about a scholastic field he or she had never studied.  No one had a gun to Krugman’s head demanding that he subject himself to the masochistic horror of reading a manifesto he considered an “eerie resemblance” to Galt’s execrable manifesto.  For Krugman, having to read an “eerie resemblance” to Galt’s endless rant must closely approximate his working definition of hell.

Why did Krugman choose to read Roche, and why did he continue to read Roche’s rant when he found the process excruciating?  Reading Wray would be the obvious way an American economist would begin to learn about MMT.  There are many advantages of reading Wray instead of an “eerie resemblance” to Galt if one wishes to learn about MMT.  First, reading a top academic in a field is a great way to learn both the general theory and the nuances.  Second, it is quicker.  Third, academic works have copious citations that allow academic readers to understand how the author researches and provides the academic reader with resources to research particular topics in greater depth.

Krugman can draw on the New York Times’ researchers and university librarians.  Consider the other obvious alternative – combining those resources with the telephone.  Find the contact information for a prominent MMT scholar, call the scholar, explain you would like to learn about key MMT precepts, ask for suggestions on several concise scholarly articles that he or she could email you.  That would be the collegial approach – scholar to scholar.  That would be the approach based on developing and signaling mutual respect.  Krugman appears never to have followed this approach.  We call it “revealed preferences.”  His preference is to treat MMT scholars as non-colleagues and non-equals.

Krugman, without reading any MMT scholarship assumed there would be no meaningful difference between the work of experienced MMT scholars and a rant by a non-scholar that Krugman found to be torture to read.  That is every bit as absurd, arrogant, biased, un-collegial, and insulting as it sounds.

The third natural experiment, of course, demonstrates that Krugman did not understand MMT scholarship because he never could be troubled to take the obvious steps essential to learn about MMT scholarship.  He was so ignorant of MMT that even after assuring his readers that he had read several non-scholarly MMT “manifestoes” he could not tell that Roche’s rant was not MMT scholarship.  Roche runs an investment firm. In fairness to Krugman, at the time that Roche first wrote his manifesto he did describe himself as favorably influenced by MMT scholars on a subset of MMT.  Roche now considers himself an MMT critic.  Roche later made this explicit to Krugman.  Clicking on Krugman’s hyperlink to Roche’s rant brings up this message from Roche (emphasis in the original).

My View on MMT

Cullen Roche – 05/16/2011

Updated – 2018:

In 2011 I was briefly associated with a group of economists who advocate for a theory called “Modern Monetary Theory”. Paul Krugman even cited an early draft version of a popular paper of mine as a MMT paper. This paper is not a MMT paper although an early draft cited aspects that were consistent with MMT. The paper is not a representation of MMT’s views and I have never fully endorsed MMT.

That said, I am sympathetic to some MMT ideas (like endogenous money theory), but I’ve never fully agreed with MMT as a whole and in fact believe there are elements of MMT that are wrong. In fairness, there are also elements I think are useful. I’ve outlined those views in a post hereI’ve also written an extensive critique of MMT here. On the whole I find MMT to be an eye opening and useful theory to understand, but I do worry that some of their ideas are a bit extremist and twist the operational realities of our monetary system in an effort to promote progressive policy ideas.

I hope you find the attached material helpful.

The good news for Krugman is that while he falsely represented to his readers that Roche’s rant represented the views of lead MMT scholars, Krugman did so unknowingly and unintentionally.  The bad news is that in this case even after he read Roche’s rant he knew so little about the MMT scholarly literature that he represented to his readers that it exemplified MMT.  The even worse news is that even after he read, and hated, Roche’s rant, Krugman knew so little about the MMT literature that he decided to provide his readers with a link to the rant – and only the rant – as supposedly representative of the MMT scholarly canon.  To sum it up, Krugman’s attempt to assure his readers that he had “listened to the gentiles” (his phrase, not mine) before attacking them proved he had failed to do so.  Krugman was so eager to reject and demean MMT scholars that his subconscious transformed Roche’s rant into the mother of all strawman arguments to aid his assault on MMT scholars.

The fourth article in this series explains the four “tells” that demonstrate that Krugman knows he cannot win an honest debate against MMT.

[1]I have numbered the articles in this series in what I consider their logical progression, but I have completed the closely related third and fourth articles prior to the second, so we will publish them prior to the second article.

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  1. Hopelb

    The msm, the Third Way Clintonite corporatist DINO’s, the Republicans, and even the orthodox economists are coordinated in circling the horses, in erecting a united front of disdain and dismissive ness, terrified at the prospect of progressives taking the reins.
    Thank you Bill Black! We are forever in your debt (and not only from your prosecution of financial crimes) and can’t wait until you are again directing policy.

  2. michael hudson

    A must-read should be the Bambi-meets-Goliath debate between Krugman and Steve Keen. Krugman came right out and denied that commercial banks can create money; they are only S&Ls, financial intermediaries recycling savings to “better” uses (like corporate raiding and junk mortgages).
    You can find it on U-tube.

      1. Yves Smith Post author

        Not “started revealing”. The Bank of England primer wasn’t some sort of self-outing, it was an effort to debunk misperceptions. Please don’t take a conspiracy theory posture. It discredits you and the site.

        1. Sound of the Suburbs

          I started looking into things after 2008 and gradually started finding out how the monetary system really worked.

          MMT was the last piece of the jigsaw that I only looked into in detail fairly recently.

          I was in the Positive Money group in 2014 and they sent me an e-mail when the BoE posted this as their theories had been confirmed.

          It was through them, I came across Richard Werner.

          Our knowledge of privately created money has been going backwards since 1856.

          Credit creation theory -> fractional reserve theory -> financial intermediation theory

          “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner

          He has looked at what the BoE has said over recent time and the observations are somewhat disturbing.

          Ben Bernanke thought banks were financial intermediaries in his work on the Great Depression and no one noticed the mistake.

          I have looked back and it is easy to spot when you know how banks work.

          1. Yves Smith Post author

            The fact that the Fed is full of Monetary School economists when the “loanable funds” theory was debunked by Keynes and later Kaldor in the 1950s does not mean central banks were hiding something. The economics profession is dominated by people who believe in bad or questionable models. Your claim was they knew better and believed otherwise, as opposed to were (and sadly still are) sincere adherents to a bad model.

            1. Zap

              Funny how all those “bad models” have tended to siphon off all the wealth in the world to enrich the leveraged paper trading class……..a new hedge fund, investment banking, straw man trading billionaire being created every single day is where we are at now…….all based on economic and financial academics sincere belief in “bad models”

              Did anyone really sincerely believe in MBS in the days leading up to the greatest systematic financial fraud in history, the global housing bust?……did they really sincerely believe that housing could never “revert to the mean” and lose value in aggregate?…………”reversion to the mean” being another “bad model” they sincerely believed in previously when it was in their interests to believe, when they escalated this leveraged trading fraud to their own private members only heaven with Long Term Capital Management

              Most of these “bad models” are just elaborate sophist financial constructs designed to be impenetrable for the purposes of obfuscation and when finally broken down into laymans terms……. which only yet always happens post collapse…….are quite unbelievable, nobody could actually believe them…….not even a person with absolutely no academic background in economics, finance or markets but you propose they believe in them…..they believe in bad models?

              I doubt that

              1. Ape

                Then your knowledge of how human minds work is poor. People are quite capable of being stupid in a self-interested way because of social selective pressure.

                Social structure can exist – and is probably most stable – when the human components are totally unaware. Stupidity is a feature.

                1. Zap

                  If by social selective pressure you mean systemic and systematic academic fraud then I would agree but I think that is not what you are saying are you?

                  You are going along with the “they believe in their bad models” theory also called “whocouldaknown” every time those bad models self destruct and the market based on them implodes.

                  The people creating the models are who I am talking about and I don’t believe they actually sincerely believe in any of them, they are always fantastically complex obfuscations that always boil down to……another free lunch for investment banking, hedge fund straw man traders and Wall Street.

                  1. Allegorio

                    Hear, hear! To Ives: Conspiracies exist, bad actors exist. Your naivety does discredit to this site. A recent article showed Larry Summers uttering gibberish, because he is stupid, or a bad actor. As always with alleged stupidity, cui bono?

                    1. Zap

                      Exactly so and in the case of central and investment banking, finance, markets, economics and Wall Street the people creating, promoting and supposedly believing in these bad models are arguably the smartest people in the world.

                      IN fact post 80’s it became necessary for finance and Wall Street to poach from all the scientific and mathematical fields looking for “quants” to create these bad models……most of these models when broken down to their essence turning out to be nothing more than absurd free lunch theories…….look at all the various forms of leverage they have created that are always claimed to LESSEN risk…….and always these bad models siphon off the public’s money and turn it over to the believers

                      You could probably start with the creation of the Fed….work forward to Keynesian economics… the nifty 50…….efficient market theory……random walk theory….modern portfolio theory…..options….options based compensation……leveraged trading… box trading……by the time you get to Long Term Capital Management you would think you have hit the peak of bad models…..but no LTCM was just the beginning of bad models but now involving massive leverage…..and it has just accelerated ever since CMO’s CDO’s…..MBS….CDS… 2000 the total notional value of the derivatives markets was 70 trillion in 2007…..nearly 800 trillion…….data available at BIS…….all based on these sophist financial bad models……and look we have a new one CLO’s… the “community” is not responsible for all of this a handful of people in the community are and always have been and considering their intellect I doubt they actually believe in any of their own bad models, they know they are all a scam……rub thumb and forefingers together,,,,,now THAT is what they believe in

            2. Sound of the Suburbs

              Richard Werner was In Japan when their financial crisis blew up in the 1990s.

              His book “Princes of the Yen” is an eye opener.
              There is also a YouTube documentary of it.

              I was pretty cynical to start with, but things were a lot worse than I thought.

              Some of the most depressing work I have come across on my journey into the dark side.

              “Confessions of an Economic Hit Man” John Perkins

              “The Shock Doctrine: The Rise of Disaster Capitalism” Naomi Klein

              “Democracy in Chains” Nancy MacLean

              As well as Princes of the Yen.

        2. Zap

          Conspiracy theory straw man argument

          Once the opponent is declared a “conspiracy theorist” none of their arguments ever need be rebutted and none of their evidence ever need be investigated.

          It is a great system.

          All of central banking is a conspiracy fact and and always has been, the entire history of central banking has been one long conspiracy.

          Sorry to discredit both myself and the site!

          : )

          1. Ape

            No – it shows a fundamental failure to analyze at the right scale. You are attributing to individuals functions that belong to communities.

            1. Zap

              No, it is exactly the opposite, you are the one analyzing on the wrong scale…….like a doctor who believes he needs to step back 5 feet and view the patients entire body to detect an illness when the patient is actually suffering from a virus that could only be found under a microscope

              Very very small groups of people compared to the overall population run all of the large systems on this earth and even smaller subsets of those groups run the individual mechanisms controlling those larger systems.

            2. Zap

              No, in fact it is your failure to analyze at the right scale
              What you are suggesting is something akin to a doctor believing he has to step back 5 feet away and view the patients entire body to detect an illness when the illness may very well be a virus that can only be detected under a microscope.

              Very very small groups of people run all of the large systems in this world and even smaller groups run the various individual mechanisms controlling those systems, they represent a infinitesimal fraction of the overall population

              A handful of people in this world run governments, academia, media. central and investment banking, finance, economics and in turn an even smaller handful have a controlling influence over all of these sub systems………from them, the smallest group at the top of any of these systems comes the “social selective pressure” you speak of………the “bad models” also come from this smallest most influential group…..think NGO to think tank to academia to media in the case of banking, finance, economics and markets here………and they, this smallest group apply the social selective pressure for everyone else down to accept their “bad models”…….it does not mean they actually believe in the models themselves because I am sure they do not

              Do you see what I am saying?

          2. rob

            people are convicted of “conspiracy” everyday, in courts all over the world. But when it comes to looking at the “communities” where the real money is being created and stolen,and the thought leaders gain enough for generations to live in luxury…… conspiracies simply don’t happen….. you know that , right?

            1. Zap

              The “communities” that Ape is talking about literally invented the conspiracy theory straw man argument

              : )

      2. Joe

        Banks create a debt instrument that matches a loan instrument.
        Central banks can also lose money, lose it actuarily, generally once a generation like 1973 and 1932. One form is double entry accounting money. The other form is default but is denied by central banks.

        Losing and gaining money works, it is MMT by another name. We would like the central bank to realizes its losses and gains as we go along rather than accumulate them all in government in the form of insurance of various kinds. Once government gets a huge load of pending payouts, we have the meeting of the elders and accept losses, default.

        This is MMT, always has been, do it more often, expense the cost of government now rather than have the shadow banking make the hedge.

        1. Yves Smith Post author

          This is false and you need to stop it.

          Central banks can directly monetize. They do not need to issue debt.

          This is the sort of thing that looks designed to confuse readers because some of what you say is accurate but other things are completely wrong.

          1. Summer

            More discussion about the Fed, please.

            It might need to be a side bar with every MMT article.

          2. rob

            help me please,
            the US central bank, the federal reserve, can’t “monetize”. It has to create the debt through the sale of treasuries, to pay for the bank in creating money,to loan.
            The commercial banks can monetize, in that they can make loans, which are in fact “bank money”….and part of the “money” that gets created.
            But doesn’t the federal reserve act restrict the treasury from just making money, except coins and 1 dollar bills.
            and our central bank can just make money, but the treasury can’t get it unless it creates a debt for a swap with the federal reserve banks?
            Except for that 16 trillion created by the fed after the 2008 crash it “put on the books” of all those american and foreign banks and corporations….that I read about….Not really sure where that would fit in all the manuals for the federal reserve system of accounting.

  3. Susan the Other

    Thank you Prof. B. Krugman deserves this. I’m sure that the mindset Krugman and Roche share is that they are frightened by the thought of money losing its glitter. Silly.

  4. GF

    I have read Krugman’s columns and posts for a few years now with the intent to educate myself broadly in economics. I really knew nothing about the topic at the time. When I started I also started reading NC. At the time MMT was written about in NC occasionally and I just accepted it as another economic theory. Now of course it has been shown to be THE economic theory that explains how our system actually works. What I have taken from Krugman is his ability to admit when he was wrong about some (now known by me as) orthodox economic issue. This would be another good time/opportunity for him to admit that he may be wrong about an economic issue.

    1. shinola

      “This would be another good time/opportunity for him to admit that he may be wrong about an economic issue.”

      Given Krug’s status as an elite, celebrity economics “expert” plus his apparent arrogance, I doubt that he can even perceive the opportunity much less seize it.
      (Although, seemingly miraculous enlightenment has occurred before, I wouldn’t hold my breath in this case)

  5. a different chris

    Science proceeds one death at a time. And that’s the hard sciences, where money is made from being right, rather than economics where money is sourced by defending the rich.

    Worse, people are living longer and longer. Anybody in the upper 5% can now expect to be around to at least 90. And if they didn’t learn anything in their 50s, they sure aren’t going to learn it in their 80s.

    1. philnc

      This needs to be nominated as “comment of the year”, or at least get its own inspirational poster.

      1. Anonymous

        @a different chris, @philnc, A new truth! We read a lot about people living longer messing with the social security system–too many retirees, not enough workers. But this is the first time I’ve seen described the effect of “science improving more slowly, because the old guard lives longer.”

        The Emmanuel guy who is head of the National Institute of Health, wrote the article titled, “I want to die when I’m 75.” He mentioned the problem of the old geyser patriarch slowing down the “rightful transfer of power to the next generation.”

        In my own life, I have contemplated the effect of my own wealthy father still alive into his nineties. And as long as he is alive–inheritance does not occur for my brothers and me. Well, big inheritances are not all-good. Look at all the problems that lottery-winners have had! But you must admit there are large economic effects to one set of siblings not receiving their large inheritance until their middle sixties, as compared to say, their thirties.

        The Elizabeth Holmes (Theranos) fraud is in the news now, and the excellent documentary on it airs tomorrow. One of the essential keys to her Olympian Con was getting the 90 year-old George Schultz on her Board of Directors, and then “snowing” him. She snowed a lot of younger people as well, but if you’re going to “snow” a famous, respected person with a “science con,” I think you have a better chance of snowing famous respected seniors like George Schultz, Henry Kissinger, David Boies, than you would a younger person.

  6. Synoia

    This pattern of deliberate, asymmetrical ignorance and orthodox arrogance is not some secret conspiracy. The typical professor in an orthodox economics doctoral program assigns zero heterodox scholarship.

    aka “Telling the Boss what he wants to hear.”

    The allegory of orthodox economics to blind faith, and the consequent corollary with pedophilia in the Catholic Church is remarkable.

    Or to put it bluntly:

    The denial of orthodox economists is equivalent to the denial of pedophilia in the Catholic Church; and the primary cause of pedophilia, is celibacy.

    Celibacy I believe, imposed by the Church to avoid claims by Clergy’s family’s on Church property.

  7. Sound of the Suburbs

    The world is going to need MMT even if it doesn’t realise it yet.

    The standard debt fuelled growth model of neoliberalism.

    The UK is the best example:

    Japan, UK, US, Euro-zone and China:

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.

    The sequence of events:
    1) Debt fuelled boom
    2) Minsky moment
    3) Balance sheet recession

    China did see its Minsky Moment coming unlike everyone else, but they can’t keep growing as they did before by adding more and more debt.

    China was the last real engine of growth in the global economy and it has pretty much stalled.

    What has happened?

    The UK is the best example.

    Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
    After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)

    You want debt and GDP to rise together, so that the debt stays sustainable and can be paid back

    Japan has been in the balance sheet recession since the early 1990s and they have had a long time to study it.

    Money and debt are like matter and anti-matter, they come into existence together and they get destroyed together.

    Bank loans create money; the money and debt get created together.
    Repayments to banks destroy money; as you pay off debt, you destroy money, they both disappear together.

    This is why housing booms feel so good. The new borrowing creates money and it feels like there is lots of money about because there is.

    This is Japan in the late 1980s.

    This is why housing busts feel so bad. That fictitious financial wealth that came from inflating asset prices has gone, but the debt is left. The repayments destroy money and it feels like there isn’t much money about because there isn’t.

    This is Japan since.

    The money supply ≈ public debt + private debt

    The “private debt” component was going down as they deleveraged and they had to increase the “public debt” component to maintain the Japanese money supply.

    Richard Koo explains:

    Greece was forced to take the other route.

    The IMF predicted Greek GDP would have recovered by 2015 with austerity.
    By 2015 Greek GDP was down 27% and still falling.

    The money supply ≈ public debt + private debt

    The “private debt” component was going down with deleveraging from a debt fuelled boom. The Troika then wrecked the Greek economy by cutting the “public debt” component and pushed the economy into debt deflation.

    Everyone is like Japan, but the Japanese have already found that a private debt problem becomes a public debt problem using their solution.

    There is a way to get the overall debt down.

    Adair Turner explains:

    It’s Government created money, MMT.

    1. rob

      somewhere in there
      When the commercial banks make loans, they create money.
      When those loans are paid back, that money is destroyed/removed
      The interest on that original loan is still debt, and still exists after the loan principle is paid in full.
      Also if that loan were sold in the secondary markets, The debt would belong to someone too. So the amount of debt is ever increasing, regardless of what the money supply is doing. The debt being larger than existing money, means we always have to create more money to pay old debts….
      So central banks get to make money for ever. And the people get to work for ever to pay off all these debts.
      MMT isn’t actually progressive. MMt is just saying we can create this debt forever, and pay it off forever…. not saying anything that right now,( IN the US), the financial sector that is humanities greatest adversary, is the benefactor of the situation created by the federal reserve act that keeps this dynamic legal.
      MMT is the bankers monetary creation welfare system.
      As long as they get an endless supply of debt owed, and being repaid, they can go on indefinitely.doing as they have for the last hundred years, with tweaks along the way… but the fundamentals are still the same. The banks create money, they are owed money they have yet to create… but will do so… for a fee.

      1. Grant

        “MMt is just saying we can create this debt forever, and pay it off forever”

        Huh? People like Ray have said that states don’t need to issue bonds at all, since they aren’t needed to pay for things really. Have you read MMT’s insights on the differences between the gold standard era and now, and the role of bonds in both those eras? Seems that a big point of MMT is the fact that we don’t have to create money in the same way we did when we were on the gold standard. We could use fiscal policy to inject money into the economy and use taxation to take it out. It is entirely possible, as you might know, to inject money into the economy via fiscal policy and to use public sector banks to make investment decisions. The investments don’t have to take the form of loans either. I will be a broken record here, but one of the problems of the environmental crisis is the non-market nature of the environmental crisis. So, could public sector banks not give financial support to businesses that are doing services and creating goods that either generate positive non-market impacts or create goods and services that lessen negative non-market impacts? That is desperately needed, because of the way markets work, we shouldn’t expect private interests to take these non-market factors into account in regards to investment decisions. To me, the core insight of MMT is that we don’t need to rely on private banking at all in regards to investment decisions if we don’t want to. At the very least, we can lessen the need to rely on private banks and the investment decisions they make. Can the insights of MMT be used to benefit powerful private interests? Yeah, of course. That is where politics and elections enter the picture. The government doesn’t need to use bonds at all if it doesn’t want to. But will private institutions or public institutions make most of the investment decisions? Do we have any control over private investment decisions? And are there ways for public institutions to more directly manage investment decisions without someone going into debt to those institutions at all? Yes.

        1. rob

          Wray may have said states don’t NEED to issue bonds…. and they don’t.
          I actually think this is precisely what NEEDS to happen….. but in order for this country to not have to create debt to pay for the money the federal reserve creates, we would need to change the law. i.e. the federal reserve act must go.
          we need a new legislation like the one proposed by dennis kucinich and john conyers in 2012, in the
          112th congress HR 2990 the NEED act, was specifically about the way to end the creation of debt by monetary creation.
          The problem MMT has is that they endorse progressive ideas, but advocate that the way to do it is by using the private banking cartel enshrined by the federal reserve act. The federal reserve system of 12 regional banks are all owned by stock belonging to private banking powerhouses. There is no “public” money right now, except coins…. they are made by the treasury, and cost their materials and labor costs…. and with no money in that… you can see why the banking system let the “people” make their own coins.
          The money made by banks when they make loans, or by the federal reserve in the form of cash…. is all made by private entities, who are really just contractors to the government. The federal reserve act says they create the money, the treasury creates the debt instruments , so that those monies can be transferred from the federal reserve system to the treasury, and then used for gov’t expenditures.
          And this has nothing to do with arbitrary associations of value as was offered by gold.” Money is law.”, not a commodity. not a debt…. but right now, MMT would have people believ there can be no money without debt, and that debt isn’t a bad thing….. and that is just misleading.
          Last year what ? 380? billion went to paying interest on the debt? That is money that . could have been spent wisely. MMT doesn’t deal with the fact that right now, money will need to have to be created ,with more interest ; to pay the interest on money that was already created.

          Right there you gotta say stop.
          We don’t have a neutral monetary system. We have a system that is racking up debt…. and we don’t need to. But we have to change the laws in order for a better monetary policy to be available…
          MMT is subversive, in that it pretends that the debt we owe now(and didn’t have to) , is ok… and more won’t hurt either….because, we are “exceptional”,,,, or some such.Americans….

        2. rob

          Part of the solution to the current debt problem, is that not only should the federal reserve banks be acquired by the treasury, to continue their function in the monetary system, but private banking will no longer be allowed to create money in the loan making process. This would be the end of the fractional reserve system, and be a 100% reserve system.
          Then there are no restrictions if banks want to form with their own funds and invest for profit…. it is a free world…. it is just the end of the “free ride” the banks get now….

      2. Sound of the Suburbs

        I don’t think you really understand MMT, though you have got a lot right.

        In fact I don’t think anyone has yet managed to pull together the full picture yet.

        I was attacked in one comments section by someone who was high on his MMT discoveries thinking this was the only thing that was wrong and that was the answer to everything.

        This is an example that sort of shows the problem.

        “Killing the Host” by Michael Hudson is a very good book that gives you an insight into quite a few of today’s problems.

        When I read it, I was further ahead on money than him and I realised some of what he said on money was wrong, but just because those bits are wrong, it doesn’t make the whole thing wrong. There are lots of valuable ideas in there.

        By the time he wrote “J is for Junk Economics” he was a lot better on money.

        There are battles between MMT and the Positive Money people, perhaps they both have valuable things to add and neither is 100% right.

        To get the full picture of public and private money creation we need to blend MMT, Steve Keen, Richard Werner and Richard Koo.

        The money supply ≈ public debt + private debt

        You need to know what is going on with both components.

        The Troika demonstrate the problem.

        The IMF predicted Greek GDP would have recovered by 2015 with austerity.
        By 2015 Greek GDP was down 27% and still falling.

        The money supply ≈ public debt + private debt

        The “private debt” component was going down with deleveraging from a debt fuelled boom. The Troika then wrecked the Greek economy by cutting the “public debt” component and pushed the economy into debt deflation.

        1. Sound of the Suburbs

          I must admit I have thought I knew all there was to know quite a few times only to be proved wrong.

          I thought I already knew what Steve Keen knew and so I would not learn anything by looking at his work. When I read his work there were things I didn’t know.

          I thought I knew how it all worked (pretty much) and didn’t need to get into MMT.

          The comment-er (see above) was so excited about what he knew, I thought maybe there was more to learn and he got me to look into MMT in more detail. There was more to learn and that did give me a better idea of how things really fitted together.

          1. rob

            First off, I suppose we are looking at different systems. I am mainly interested in the US system, and you have the UK system in mind.
            As such, the US system is different than the UK system, in what our governments are supposed to be about. In this country we have a written constitution, and the class system isn’t official doctrine…. it is just tradition(like the UK constitution).
            MMT isn’t something I “wonder” about. Our monetary system and the federal reserve have manuals that are supposed to cover the actual mechanics of how things proceed and in what order.
            The problem in the US, is that the MMT description doesn’t actually address the players in the game.
            First off, the whole notion of a “sovereign”, doesn’t actually apply since the federal reserve is not really a part of the government. They are more like contractors. The FR regional banks are all owned by other private banks. Some of the money we create in this country is created by the federal reserve first, like the FR notes, but most of the money created is by the private banking system when they make loans. These funds may be created later , just to balance the books…. but this private money creation does not fit with any rationale that this power the private banking system has can ever be used for “good”.
            The problem I have with people claiming this mantra of MMT in this country, is that they claim that the last hundred years of what the banks have done with the powers they have been given, will suddenly change. If only people knew they could make money from nothing , everything will be peaches and cream. They could make all this money for ostensibly good and progressive causes, and we as a country could move forward….. into the sunset….
            Problem is. the rules in this country, we have a treasury that needs to create matching debt for the money the federal reserve system makes… and that is not just an abstract thought. We actually have to use 300 to 400 or more BILLION dollars PER YEAR right now , just to make interest payments on our 22 TRILLION dollar debt.
            Right off that is 400 billion dollars being added to our debt, because we are deficit spending anyway.. and we will owe more interest on that…. this is a suckers game. IN this country.
            And the fact is we can learn all the mechanical processes of our current system(which MMT says it is describing), and still see the glaring need to change our monetary system to be one where the treasury absorbs the federal reserve and the private banking industry is no longer allowed to “create” money by making loans.
            Personally, I am not that familiar with the UK structures, like I am in the US… But the idea “positive money” is talking about , is similar to the ones in this country who are monetary reformers, who don’t think that this system ought to be allowed to carry on forever, racking up debt we don’t need to make in the first place, heaping liabilities on generations of people who are yet unborn.
            The problem with MMT proponents, is that they are advocating a system of the status quo. They claim all is good.. all we have to do is look thru our green colored glasses, and we will see the wisdom of the great OZ.

  8. c

    Professor De Grauwe may have actually read some of the mails I sent in 2014 and 2015; pointing out Bill Michell’s blog, New Economic Perspectives and Naked Capitalism.


    inzichten vanuit Australië over de Eurozone 24 november 2014 (insights from Australia about the Eurozone)

    Beste Paul,

    mag ik je attent maken op de het billy blog van Bill Mitchell uit Australië
    best controversieel rekening houdend met de heersende politiek in Europa
    (may i draw your attention to Bill Mitchell’s billy blog from Australia. Kind of controversial taking into account the prevailing politics in Europe)

    bijvoorbeeld: (example)

    A depressing report from Florence
    Posted on Monday, November 24, 2014 by bill

    I am in Rome today and tomorrow. This afternoon I am giving a presentation at the Roma Tre University (Università degli Studi Roma Tre) on Modern Monetary Theory (MMT) and how we might advance the spread of the ideas. There is a very committed group of people in Italy who want to build a political presence to counter the neo-liberal dominance, which has infested all the major parties here (and everywhere). The first thing they need to do is to forget MMT as an organising vehicle and, instead, articulate a vision that advances public purpose and prosperity. MMT is a tool box or framework to understand the consequences of economic decisions (private and public) on the macroeconomic aggregates. It is not a policy agenda. I have suggested they concentrate on full employment, job security, climate change and reducing inequality and advancing opportunity for all as the organising vehicle for their political endeavours. Otherwise, there is the danger that they become an MMT cult. Anyway, I left the Florence roundtable thinking that dramatic shifts are required in the way the EU is structured before Europe can make any significant return to those sorts of policy aims. I also concluded that the elite is so entrenched in its own neo-liberal Groupthink and its own advanced sense of preservation that very little will change and mass unemployment will persist for years to come. It is a very sad state.

  9. TG

    Ignorance is one thing. But willful ignorance is a deliberate lie.

    Krugman is a neoliberal whore whose job is to defend the left flank of the establishment.

    Never trust anyone to whom the oligarchy has gifted a fake ‘Nobel Prize’ in economics. They don’t bestow those baubles on people that aren’t useful to them.

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