MMT is a Political Problem: Part 1

Yves here. Economics was called political economy before its practitioners adopted scientific pretensions. And I am not sure I agree with the proposition that MMT practitioners regard their role solely or mainly as didactic. People have to have a new approach presented to them for them to consider it; given that macroeconomic policy and Federal budgeting are rooted in orthodoxy, no one is going to accept MMT just because someone said so, particularly when the “someones” aren’t parts of big brand name economic faculties. The fact that they’ve spent a lot of time blogging, writing op eds, speaking on TV, is consistent with engaging in advocacy.

I also think MMT practitioners know their views threaten rice bowls; anyone who has read Kalecki’s classic essay on full employment understands full well why most businessmen would oppose a Job Guarantee. I suspect that they would contend that their largely-below-the-radar approach has been quite successful. It’s only recently that big guns in the mainstream have gone on the attack.

By Thornton Parker. Originally published at New Economic Perspectives

The way a problem is seen can determine how or even if it gets solved.  When the French engineer, Ferdinand de Lesseps, was picked to build the Panama Canal, he saw it as another excavation problem as his Suez Canal had been.  But Egypt was flat and Panama had a mountain.

When the United States took over the job, John Stevens, who was put in charge, saw it as a railroad problem.  The biggest task was to move ninety-six million cubic yards of rock and earth, as fast as the fifteen giant steam shovels cut them out of the mountain, from the Pacific side of Panama to the Atlantic side for building a dam and raising a lake that would be part of the canal.

The MMT Problem

Developers and promoters of MMT have seen their task as a teaching problem; explaining how America’s sovereign money system works to those who still believe that money is a scarce commodity that restricts what the country can do.  Their assumption has been that when more people, particularly political leaders, see that scarce money is not a true constraint, a new world of possibilities will open up for building a brighter future.

But what if those who seem impervious to the new knowledge are resisting because they see very clearly how it can lead in directions counter to their interests?  Evidence that they have wanted to keep money scarce and under their control goes back at least a hundred years.  (And longer if you consider the Civil War.)

In The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace, the historian, Eric Rauchway, tells how Keynes saw that under the terms of the treaty ending World War I, Germany had no chance of rebuilding the healthy economy it would need to become a stable democracy.  He proposed that Germany should float a large bond issue.  Seventy percent of the proceeds would be used to pay the victors reparations, ten percent would be used to retire outstanding German bonds, and twenty percent would be used for rebuilding the country.  The bonds would be made attractive to investors because Britain, France, and the U.S. would underwrite them.

England and France agreed, but Woodrow Wilson did not.  His letter rejecting the proposal said that Congress would not approve of the proposal and that reconstruction should be funded through “the usual financial channels”.  Rauchway’s research turned up the fact that the letter was written by Thomas Lamont, a J. P. Morgan partner who was helping Wilson.  In short, the banks wanted to dominate and profit from funding Germany’s recovery.

As a passing note, those who oppose MMT because money printing by the Weimar Republic led to its runaway inflation, probably don’t know that the catastrophe resulted from actions by their banker counterparts a hundred years ago.

Rauchway goes on to tell how bankers fought Roosevelt and his New Deal for the rest of his life.  Two of his major economic accomplishments were ending the use of gold for international settlements, and having the U.S. Treasury take over and manage this country’s currency.  Both were keys to ending the depression and winning World War II which he saw was coming before he  became president.  MMT promoters are continuing Roosevelt’s fights and I commend Rauchway’s book to them.

From what I have read, MMT promoters have not discussed the role of banks very much.  But the number of dollars they create by making loans is many times greater than the number of new dollars the government creates by paying out more than it takes in with taxes.  Banks see large government public funding operations as competitors. Except when they needed bailouts, banks have fought government intervention in what they thought of as their economy for more than a century.  This will continue until the next recession when they may get in trouble again and will be in weak positions to bargain.  Until then, fighting them is probably not a good use of MMT promoters’ time.

Many explanations of MMT include arguments with economists who have opposing views as if their views could be changed.  But the case for MMT is being tried in the court of public opinion and there is no judge.  The opposing economists are acting as counsels for Wall Street, banks, and other big money interests.  It is not in their natures or job descriptions to abandon their clients and agree with the MMT challengers.  This is particularly true where the clients have deep pockets and have helped the counsels get to where they are today.  Books and dissertations are waiting to be written on how money has contaminated academic freedom and open discussion of economic issues on their merits.

Seeing MMT as a Political Problem

If the preceding is correct, how should MMT be seen, and how should it be promoted?  I think of MM as an enabling, leadership tool for situations where resistance does not prevent its use.  If early experiences are successful, it should be expanded where the political cases can be won.  Thus, I see MMT as a political problem, both for those who promote it and those who resist it.  Others may see it differently, and there should be brisk discussion of alternative views.

In the second part of this series, we will consider where this view can lead.

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  1. Colonel Smithers

    Thank you, Yves.

    Just to add that the great grandson of Thomas Lamont is Connecticut’s Ned Lamont. These families do hang around.

    A painting of Thomas Lamont hangs in the offices of Deutsche Bank in London. This is the former Morgan Grenfell head office.

  2. Gregory Etchason

    We have MMT now. It’s used for the DoD budget and Banking subsidies.
    No talk of how you pay for it. $8 billion for CoVID-19 no problem.
    MMT is correct, it’s just a matter of who is deciding. Once you convince MMT already exists, then you decide for good or bad reasons.

  3. End the Creditocracy

    Banks see large government public funding operations as competitors. Except when they needed bailouts, banks have fought government intervention in what they thought of as their economy for more than a century.

    The perfect case for why private banks should not be allowed anywhere near government finance management and presidential cabinets.

    Dr. Michael Hudson:

    So the real question from the 1980s on was about who would be the basic planning center of society. Would it be the financial sector – the banks and bondholders, whose interest is really the One Percent that own most of the banks’ bonds and stocks?

    Or, is it going to be governments trying to subsidize the economy to help the 99 Percent grow and prosper? That was the social democratic view opposed by Thatcherism and Reaganism.

    1. Susan the other

      the difference as I see it between growth promoted for the benefit of society and groaf promoted by investment banks rolling money out miles ahead of themselves for profit and reinvestment is pretty obvious. We can see where this landed us in a mere 40 years from the late 70s till now. When we continue to give finance the benefit of the doubt they turn into sociopathic vultures (PE and emergency rooms, etc.; PE funds cleaning up on illegally foreclosed homes… we should have no problem recognizing these political pathologies of “capitalism”). And when the pigs at the trough call MMT “socialism” they are really howling at the moon because without MMT/direct social spending their beloved “capitalism” would have imploded decades ago. Only with a certain level of direct social spending, a pretty high level now because we are living in literal ruins economically, can we hope to recreate some controlled level of capitalism. It’s just basically over. The one thing that rattles my cage is how PE refused to see the writing on the wall. They must be drinking their own coolaid to think they can continue to invest for an 8% return and do it all by sweeping their costs under the government rug. People just won’t buy it much longer. It will be interesting to see how our new medical consortiums (PE pigs) worm their way into the British Health Service. It’s gonna be good.

    2. Yves Smith Post author

      I should have said more, but the focus on banks is really misplaced. Banks provided only 15% of non-farm loans as of 2007. It has to be lower now. Banks are not in the lending business. They are in the fee business at most, originate and sell.

      Kalecki explained this all in his classic 1944 essay on the barriers to full employment. BUSINESS, not banks, does not like full employment because workers have too much power and managers and investors don’t have as big an income/status gap as they can if they use unemployment to discipline labor. He also explained that that means government has to deficit spend most of the time to make up for deliberate underinvestment by business.

        1. Ray

          Here –

      1. Troy

        But considering the reach and power of the finance industry nowadays, does that still hold, yves?
        And when you were working full time, did you see any business people expressing this?

        1. Yves Smith Post author

          Banks are less powerful than before the crisis. Pay levels lower than in tech. Many articles on this since 2016. The best place to be is private equity and that does not employ many people.

          I am working full time, so I’m not keen about the implied diss.

          Paul Volcker was quite explicit that he wanted to break union pay expectations. What do you think union busting was about? To increase management’s power over labor and ease of firing them. Tons of evidence of keen management interest to get more power over labor. And exec pay levels have exploded relative to that of average workers.

          1. Troy

            Right. Care to share a few articles about banks being less powerful? The execs still seem to havent been prosecuted for their crime

  4. Sound of the Suburbs

    In the US, the 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.

    What’s wrong with neoclassical economics?
    1) The belief in the markets and price discovery gets everyone thinking you are creating real wealth by inflating, existing asset prices, e.g. real estate and stocks.
    2) Bank credit pours into inflating asset prices rather than creating real wealth, so debt rises faster than GDP until you hit the Minsky Moment
    3) No one realises bank credit impoverishes the future, which is why the economy has been so sluggish since 2008, as we make the repayments on all that debt in the economy.

    Everyone applauds as real estate and stock markets rise.
    No one looks at the debt building up in the financial system.

    Can you see when the UK starts using neoclassical economics after the Keynesian era?

    Before 1980 – banks lending into the right places that result in GDP growth (business and industry, creating new products and services in the economy)
    Debt grows with GDP

    After 1980 – banks lending into the wrong places that don’t result in GDP growth (real estate and financial speculation)
    Debt rises faster than GDP

    2008 – Minsky Moment

    After 2008 – Balance sheet recession and the economy struggles as debt repayments to banks destroy money. We are making the repayments on the debt we built up from 1980 – 2008.
    We did what Japan did, saved the banks and left the debt in place.

    1. JEHR

      The COVID-15 virus may just present another opportunity to rejig the economy especially if the banks begin to fail. Then the government will have the opportunity to “not” bail out the banks but nationalize them, clean them out, and start again with banks only being able to invest in new services and products. If Bernie had been given the chance, he would probably have been the President who could or would have done that job. I doubt that Joe will do it.

      So many opportunities lost!

  5. Rodger Malcolm Mitchell

    The problem with MMT is its obsession with a Jobs Guarantee. Jobs are not the problem. The problems are healthcare, education, hunger, and the gap between the rich and the rest.

    There are plenty of jobs. They just are jobs that don’t provide what people need.

    The Puritanical nonsense belief that money should go only to people who labor, will once again, in this time of crisis, stand in the way of a fast recovery.

    This unholy preoccupation with the Jobs Guarantee is preventing acceptance of MMT.

    Much better to focus on the Ten Steps to Prosperity which provide a range of solutions all based on the federal government’s Monetary Sovereignty.

    1. Susan the other

      I always thought a jobs guarantee program was a good way to balance out the race to the bottom. If there is a counterbalance to total labor devastation that’s a good thing. In many ways.

    2. BlakeFelix

      I agree, although I think that a Carbon tax would be a good addition to reduce pollution and inflation.
      A JG or a UBI are ways to reduce the race to the bottom, I just think a UBI is much simpler and so less likely to go wrong. I have yet to see details on a JG that I thought would work as well as a UBI . Qualified people not able to find jobs doesn’t seem like a big problem in this economy.

  6. horostam

    Can one of you highly smart people help me with one thing?

    It’s a basic MMT question that’s been irking me for a few months now,
    it’s where i got stuck while trying to explain MMT to a friend of mine.

    Basically: after 2008, there was, on the one hand, TARP.
    On the other hand, there were asset purchases by the fed.

    why bother with TARP at all, given how politically unpopular it was?
    Aren’t the fed purchases essentially ‘government spending’ in disguise?

    what’s so fundamentally different about the Treasury’s account, that Paulson had such a heart attack asking for this emergency money?

    it seems im missing something here…

    1. WobblyTelomeres

      The Federal Reserve and the Treasury are distinct. Only one of them can print money,

    2. Adam1

      You have to remember that at the height of the panic the solvency of most major financial institutions was called into question. As long as that was true the financial system would not work as desired. TARP was meant to re-capitalize and or strengthen the capital position of the banks. They held a lot of assets that were no longer marketable and effectively worthless which was a key problem to their balance sheet. TARP (troubled asset relief program) allowed the US Treasury to buy these assets at a value greater than their, at that time, market value of zero (or nearly zero). This improved the balance sheets and solvency of the banks. Operationally and legally in the US this had to be a Treasury action. The FED is only supposed to perform monetary operations which means it’s supposed to pay roughly the fair market value for the financial assets it buys. While there have been and were legally questionable asset purchases by the FED during and after the crisis, the scale required by TARP would have been a blatant violation of US law pertaining to the FEDs legal operational limits. This meant the FED could not recapitalize the banks and it had to be a Treasury based program.

    3. Susan the other

      this is a really good question because in parsing it out, the whole corrupt organization known as “congress” is exposed. When Bernanke (a bankers’ banker) went before congress and after listening to them whine and blame “the Fed” – he asked them if they wanted to give him a mandate to fix the economy beyond just tweaking interest rates to nudge unemployment rates. They avoided the question like it was death. It was really amusing to watch them dodge it. And it was because they were all on the take. Bribed for decades by the MIC and the FIRE industry. No… not really, well no, they didn’t want to give Bernanke the mandate to fiat the economy as well as the supply of money going to the investment engine of the elite (banks) capitalist economy. After all, congress had just spent the previous 20 years decimating labor. Ruthlessly. And most of them were occupied manically with doing the same thing to Social Security. As the newly awakened Jeffry Sachs says, it is a “vile congress.” It is our job to change that. Goodbye Mitch; goodbye Nancy.

    4. skippy

      The header is self explanatory and should resolve your question E.g. the choices were made for political reasons [ideological or preferences of power] in administering the potential MMT offers.

      Not much different to MMT for MIC or subsidies for vested interests, which curiously or not became national security issues.

      Dominate economic orthodoxy is anti fiscal expenditure for a number of reasons related to old hard money preferences and social organization. Ever present fear of hyper inflation and markets always achieve optimal results due to lack of singular agency aka government picking winners or losers or so the old argument went.

      I’ll re-post this with the suggestion that before attempting to verbally engaging in explaining MMT, because its less confrontational for people to read in isolation, ponder, formulate questions, and then engage in verbal communication.

      Part of the problem is reality can not be reduced to sound bites or blindingly obvious conclusions when people have environmental biases or information challenges deep seated notions of what – is – because it would require firstly to acknowledge they are wrong and secondly that a complete reconciliation of many if not all past views which guided their lives.

  7. c_heale

    Jobs as in people contributing to building a society are important imo. Don’t know where we would get our food from if (other?) people didn’t grow crops. That’s a job. Conventional jobs working for a wage/salary, maybe not so much.

    1. Rodger Malcolm Mitchell

      The problem is not the lack of jobs. The unemployment numbers are low. There are plenty of jobs, but they are not the right jobs.

      They are jobs that don’t put enough food on the table. They are jobs that don’t provide good enough healthcare or good housing, or good education. In short, they are crap jobs that only help widen the gap between the rich and the rest.

      Look in your local paper or online. There are millions of jobs. They just are the wrong jobs, or jobs people don’t want. That’s why they are not taken.

      And those are exactly the kinds of jobs the MMTs Jobs Guarantee would provide. They are the kinds of jobs government bureaucrats would provide.

      And as for farming jobs, would you take a farming job in a distant city?

      See: Jobs Guarantee fails

      1. Titus

        “would you take a farming job in a distant city”, no but I’d take one locally which is where most farming has to go (yep, has to). Also being hungry or having people close to you is a great motivator. Food production uses 43% of carbon fuels in no way does this continue into even the very near future.

      2. workingclasshero

        So economically stressed individuals would’nt take a jg job because it pays horrible wages with no benefits?i don’t know where you get your info on the job guarantee but it’s not from my sources.

        1. Grebo

          Rodger persists in misrepresenting the MMT Job Guarantee, presumably because it would negate some of his preferred agenda.

          1. Grizziz

            IMO, Rodger is pointing to the Job Guarantee as it would function in particular and not in the aggregate as used by the MMT group. One can imagine the government would work like a temporary employment agency using the help wanted ads to provide workers to firms and guarantee to make up the difference in wages between the market wage and minimum wage. I can see where this mechanism could at least at the beginning be a harrowing problem of matching talent to task.
            What would be the answer to deal with those workers who could not be matched to a job and what would be the magnitude of the unmatched? Lacking data on these questions, the MMT group often seem to rely on the assumption that people want to work and to work under a benevolent boss.

            1. Grebo

              Whatever Rodger is attacking is not the Job Guarantee that MMT proposes and he should stop claiming it is (which he repeatedly does). He has the facts available to him, they have been pointed out to him, he chooses to ignore them.

              Your imaginings also bear no resemblance. I believe this is an authoritative, if not the canonical, reference: The Job Guarantee

              1. BlakeFelix

                So $600 billion dollars to create a subsidy for nonprofits and local governments to hire anyone for $15 an hour… Suggestions are planting trees and turning abandoned coal mines into lakes. I don’t really hate it, but I still feel it lacks the elegance of a UBI, and is a huge subsidy to state and local governments and nonprofits, who are likely to want to use the labor for their own ends, like potholes or prison guards. To say nothing of what the Trump or Clinton foundation would do with them. America does a lot dumber things, it’s not the worst idea. It’s also kind of vague on discipline for not working hard enough, there was a joke in Cuba, the government pretends to pay us and we pretend to work. I guess they can get fired and go back to the job office to be reassigned. I feel like that could be a hassle for a lot of poor quality or disabled employees.

                1. Grebo

                  The problem with UBI is it is inflationary; money is paid out with nothing produced for it. Employers will cut wages by the UBI amount, landlords will raise rents by the UBI amount, (non)workers end up worse off.

                  The JG anchors inflation and acts as an automatic stabiliser on the business cycle.

                  Step outside your house and look around. Unless you are in a rich neighbourhood you will probably see many things that could be improved or fixed. You will have elderly or disabled neighbours who could use some help. Single mothers who need childcare. Services your community needs which are not profitable to provide. And some people hanging around with nothing to do. The JG will pay those people to do those jobs.

                  1. BlakeFelix

                    I think both a UBI and a job guarantee are inflationary. Employers will always cut wages unless employees won’t put up with it, and employees will have more leverage with a UBI. Rents would rise, but I don’t think exactly as much as the UBI, landlords aren’t that powerful. A UBI would help those needy people hire help directly, rather than trusting local governments to allocate them help. As I said I don’t hate the idea of a job guarantee, the government hiring unemployed people to do useful stuff is good, it just seems much harder to administer than a UBI and it takes more faith in local governments than I have to think that the free(or would people bid for it?) labor would help the needy first.
                    Edited to add I think that the inflation should be countered with a carbon tax

  8. farmboy

    Dan Alpert
    If I had a $ for each time I have heard MMT used positively over the past month, I could monetize the debt of an average US household! The markets, CEOs and not just a few pols are cutting from “mainstream” economists. My prediction: An epochal change, the likes of 1932 and 1980.

  9. TomDority

    Sound of Suburbs is totally on target.
    A comment about the economics practiced today.
    Since scientificalizing, mathmaticalizing and Phding the profession – it amazes me how often ‘no one could see it coming, no one could of known’ excuses have been proffered up (my opinion is those excuses were lawyer inspired phrases to clients wanting to stay out of jail). How many times the economic science has been so wrong. Of course – Wall Street talks about the economy like it is the entire economy -there are two economies – one that Wall Street references and the second is the real economy the rest of us actually live in. Wall Street never talks of that other economy ever.
    Two types of business exist as well – extractive and productive both either successful or failures – I ask my self every time I hear some pundit talking of the need to run government more like a business – which business are they referring?
    A heavy burden of taxation should be imposed upon the speculative and extractive financial practices that have and continue to destroy prosperity, liberty and the planet. Taxes should be lightened for actual labor, actual capital improvements(to include the planet) and actual investment in real means of production.
    Anyway – yea – economics, as taught today, is such a complex/difficult undertaking because you have to believe in fairy tales and completely ignore your scientific reasoning to come up with the BS that Wall Street wants you to believe. _ these are the same geniuses that have brought you every economic crisis and blew every bubble that has burst.
    Was it Jefferson who said something like – I believe that banking institutions are more dangerous to our liberties than standing armies.
    Sorry to get off track

    1. Ian Ollmann

      We already have two types of taxes. Capital gains, which covers some of the extractive parts including dividends in US companies are taxed less than productive work. This is because we value the ability to make money doing nothing — especially the scalability of the same — over making money the old fashioned way. The reasons are obvious. billionaires can’t become billionaires earning money from just the labor of their own two hands. Their labor just isn’t that valuable. Even programming iPhones, where your labor can be cheaply rubber stamped across 1 billion devices, it would be tough to monetize a full $1 from everyone. You really need the ownership claim (or governmental force majeure) to justify skimming off the top of other people’s wages before they get it.

      I see however that your priorities over which type of income should be encouraged by tax policy are not shared by billionaires. They can’t be billionaires that way, so they spend to make sure that doesn’t happen.

      Personally, as a general rule of thumb I would like not to invest in the extractive businesses. Alas, I’ve found tax policy strongly encourages me to invest in broad ETFs, which include FIRE and other cancerous parts in the economy. So, it is hard to really do what I want. Is there a broad petroleum, finance free domestic ETF that enjoys healthy volume?

  10. PKMKII

    A large part of the problem with the banks’ position of power is that too many people, both the laypeople and the supposedly “educated” economists, think of banks as only loaning out monies that they have “saved,” that leverage and endogenous money don’t exist in the private banking system. In their mind, it is only the irresponsible federal government that spends money it does not have. So if the understanding is shifted to, both issuers of sovereign currency and private banks “print” money into existence, then the debate can be centered on what the money created goes to, rather than a focus on a mechanical difference that isn’t really there.

    1. VoxDeAlto

      I’d say that this argues, in turn, for a national “Narrow Bank”. Separate the payments and deposit holding function from lending and investment completely, and eliminate the implicit subsidies to the fractional banking system.

  11. Watt4Bob

    One problem that stands in the way of wider understanding of every important issue is the ever increasing resistance to the voices explaining reality.

    It seems that much of the populace, for one reason or another has come to abhor the didactic personality.

    I’ve noticed that resistance in what I consider very simple, everyday sorts of instruction in use of technology in the workplace.

    My understanding of ‘man-splaining’ for instance, was that it was the patronizing lecture by a man, intended to educate a woman who understood the topic better than the speaker, the salient point being the fact that the man-splainer was clueless due to the fact that they don’t care enough to find out what the other person already knows about said topic.

    When I first heard the term ‘man-splaining’, it was clearly a useful description of a very real, and foolish behavior that deserved ridicule.

    Fast forward to today, and I see widespread adoption of the attitude that any didactic conversation where the speaker is a man, is tantamount to ‘man-splaining’, and as such, deserves to be, at least ignored, and quite possibly treated as a instance of micro-aggression.

    My job entails maintaining business networks which would quickly cease to function if I followed the whims of users who consider my efforts to secure and control our company’s systems as being interference with what they consider is their inherent right to do whatever they want with both their own devices, and those belonging to the company.

    In short, I would say that I grew up in a time when a person who took the time to explain/teach something to you, that they knew, and cared about, was appreciated, and the listener would put some effort into absorbing the ‘lesson‘.

    Today it’s different, the informal ‘lessons‘ are often looked upon as unwelcome lectures on topics the ‘listener‘ feels justified in ignoring.

    Popular memes such as “hey Boomer” and “Get off my lawn” fit into, and amplify this situation rather nicely.

    So does “How ya gonna pay for that?”

    The person who spews these nuggets of wisdom thinks they’ve played a conversational trump-card, and expects you to STFU.

    When I would resist my Father’s efforts to correct me, he used to say;

    “Fine, have it your way”

  12. Carla

    Yves et al: please note — the New Economic Perspectives web site gives the author’s name as Thornton Parker (not Thomas).

  13. LowellHighlander

    I certainly hope that proponents and those sympathetic to the economics of MMT will work with Ellen Brown, Esq., who has been writing for many years now about the potential power of State Banks on the order of North Dakota’s.

  14. Steven Greenberg

    Excerpt from the article.

    Developers and promoters of MMT have seen their task as a teaching problem; explaining how America’s sovereign money system works to those who still believe that money is a scarce commodity that restricts what the country can do. Their assumption has been that when more people, particularly political leaders, see that scarce money is not a true constraint, a new world of possibilities will open up for building a brighter future.

    But what if those who seem impervious to the new knowledge are resisting because they see very clearly how it can lead in directions counter to their interests? Evidence that they have wanted to keep money scarce and under their control goes back at least a hundred years. (And longer if you consider the Civil War.)
    From what I have read, MMT promoters have not discussed the role of banks very much. But the number of dollars they create by making loans is many times greater than the number of new dollars the government creates by paying out more than it takes in with taxes. Banks see large government public funding operations as competitors.

    A better explanation of the difference between private bank “money” and Federal Reserve Bank money is that private banks do not create money. They create promises of money. When they make a loan to you, it is a promise that if you should need real money, they will fulfill their promise. As long as you use your loan money to pay someone who deposits it in the same bank, no real money is involved. The bank only transfers its promise to you to the person you paid. They only need real money to cover the net outflow from the bank. Some of that real money comes from the Federal Reserve Bank and some of it comes from other sources in the private sector (including interest payments on their loans they made to you, and service fees, selling mortgages to investors). Because of fractional reserve banking and the fact that thee are only 6 major banks in the USA, the need for real money by the banks is very small compared to the obligations on their books.

    If MMT would explain the difference between high powered money and private bank created promises of money, I think it would lift a big cloud from everybody’s minds.

  15. Tomonthebeach

    As a naive reader in economics, with no poli-sci background at all, I do not see why MMT is a theory to be debated. We do not debate the “Theory of Gravity,” because some theories are not hypothetical; they are both dynamical models of how stuff works.

    In my view, treating MMT as a theory that must first conquer all other theories seems like a doomed strategy. Would it not make more sense to just talk the talk and walk the walk without reference to some theory as the justification for economic policies? Mosler has tried this, and it reads as clearly as the Millionaire Next Door.

    1. Grebo

      That has been Neoliberalism’s approach, but they have had big financial backing which enabled them to take over academia, media, lobbying and law, not to mention politics. Mosler is pretty rich but I don’t think even he can compete with that.

  16. Dave Chekouras

    MMT has been in use for decades. The inflationary fears of monetarists have yet to materialize. In the hands of Democratic Neofascists, MMT would be/has been used for billionaire subsidies and military buildup. In the hands of Democratic Socialists, it would be/has been used for social good.

    I fear job guarantees could be used to eliminate various social programs and to freeze the minimum wage. Something like a Climate Collapse Conservation Corps could be better and produce a social good. When I’m asked “How ya gonna pay fer it?” I respond “How ya gonna NOT pay fer it?” Let fires burn? Let cities drown? …and so on.

    Last, if the Big Bank Bailout money would have gone to mortgage holders, payable ONLY for mortgages, only for value lost, banks would have been saved and so would the mortgage holders. This would not have been a moral hazard compared to “mark to market.” Mortgage holders would have been able to continue to pay reasonable amounts. Banks would have had to eat liar loans.

  17. Jack Parsons

    I have only seen treatments of MMT that address the domestic budget process. We in the US have replaced gold with the US$ as the international trade currency. To do this we had to, well, print a whole lotta dollars and export them. After all, if you can’t get dollars to buy something from Germany, you can’t use them. We had to flood the world with dollars. We did this buy paying huge amounts of money to the Saudis for oil, then calling the resultant international cash glut “Petrodollars”. I have not seen a treatment of MMT that addresses this.

    Does it just cancel out in the equations? Does everybody just ignore it?

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