MMP BLOG #1 RESPONSES

By L. Randall Wray

We thank commentators for mentioning some of the many people who are helping to spread the word about MMT to the world, both through blogs and out there in the real world through their many contacts. We especially thank Cullen Roche (Pragcap.com), Selise at FDL, and Paolo Rossi Barnard (a reporter and documentary film maker in Italy) who were mentioned in comments this week. Paolo is right: we have to get beyond academics, beyond policymakers, and even beyond the blogosphere. Many of you out there are much better connected and more knowledgeable about these things than we are. We need your help. We need your advice. What we will do is to use NEP as a resource for networking–with other MMT blogs but also with communities. We ask for your thoughts: what is the best way (other than blogs and comments) to organize efforts to spread the word to the “real world”. We need You-tube videos and animated cartoons that can go viral; we need those of you with Twitter followers to ‘tweet’ about us; we need presentations before community groups; we need documentaries; and we need letters to the editor and op-eds in newspapers across the nation. Money also helps! (We’ll be adding a Donate button and seeking grant support soon.) Please send your thoughts.

Now on to some of the comments.

There were a couple of comments urging us to be sure to demonstrate that modern money “works” as we say it does. OK, we will do that over the coming year. But look at it this way. “Modern money” is 4000 years old, “at least”, according to Keynes. A 4000 year history shows that it “works”. Of course that depends on what you mean by “works”. But if you don’t want to define that too narrowly, I think you’d have to define modern money as a “success”–we’ve increased lifespans, improved quality of life, sent men to the moon, created literature and art–all while operating with modern money. That said, most people do not understand how the actual real world monetary system “works”. And that is why they think we are describing a new monetary regime. We are not. We are explaining how our monetary system actually works. No myths, no religion, no magic.

As I said in the Intro (Blog 1) this Primer WILL NOT present and critique the orthodox, mainstream approach. It is already in every economics textbook. It is the basis of all the conventional wisdom about the operation of the monetary system. It is wrong. But it is irrelevant to the purpose of this Primer—which is to explicate how things really work.

Now that is going to keep things largely at the theoretical level, at a general level that can be applied to specific circumstances. The USA is NOT Turkey. Both have modern money systems. But if the focus is too much on the operations in one nation, it will be hard to see how the points made apply to others. The regular pages of NEP (and Billy Blog, and many other MMT blogs) apply MMT to specific issues.

Here are some responses to more specific comments. Please remember that we will be covering such areas in detail over the next year.

(i) Where is the evidence that an economy will quantity expand rather than price expand when stimulated?

It’s always a risk, as with most any policy, that there could be a round of price increases after a fiscal stimulus, due to the institutional structure (i.e. bottlenecks) and level of aggregate demand (i.e. full employment of plant or labor). The key is to provide stimulus when it is needed, and to formulate and direct the stimulus in a manner that is least likely to cause price increases. As will be seen, we do not favor “pump priming”, old-style, Keynesian aggregate demand stimulus in most situations. We prefer targeted policy. A case in point is the job guarantee/employer of last resort program, which sets a fixed wage to COUNTER the fact that bottlenecks exist in many markets and as an alternative to traditional Keynesian pump priming precisely because of problems associated with bottlenecks.

(ii) Where is the evidence that the floating rate exchange mechanism gives you the degree of freedom required to allow MMT to work?

As discussed above, MMT explains how things really do “work” in the real world. Floating exchange rates offer more fiscal and monetary policy space. This will be explained in detail in coming months. Indeed, as discussed in the introduction, a major purpose of this Primer is to deal with the range of exchange rate regimes.

Finally, a (longish) note on comments and on this project more generally.

We hope that those who engage with us on this Primer are here because they want to learn and to help improve MMT through the creation of this Primer. We will not argue with those who want to reject it. Yes, there are alternative explanations of the operation of the monetary system. No one has to accept ours. As Paul Davidson always says, channeling Keynes, you cannot convict your opponent of error—you must convince her. People are convinced in different ways. At least one commentator says that she/he will not be convinced with theory. I have found that some people are convinced very quickly—when they are introduced to MMT they say it is like putting on a new pair of glasses. Suddenly the world becomes clear to them. Paolo Barnard (who commented) and I had many long telephone conversations. He grasped the implications immediately (and he discussed them in his comment)—he did not need the details, he was convinced by the conclusion. We then filled-in the details over the past year. Many others do not like the conclusions. They do not come on board until they’ve got all the details. Some are skeptical of “pure logic”—to them the “three balances” looks highly suspicious (why would deficits and surpluses have to balance? Why can’t we all run surpluses all the time?). Still others jump immediately to Zimbabwe hyperinflation—using their understanding of some real world event. They’ve got to be brought beyond their fears before they are open to understanding MMT. There is no “one size fits all”.

Civility. Education. That is what we are aiming for on the MMP. If you want to throw “flames” please post them to the main site.

The claim that none of the NEP people has explained MMT simply is perplexing to me. Read Stephanie’s posts, the model of clarity. In any case, that is the purpose of this MMP—to start with the basics and to build up gradually to MMT. Wait a year. If after the next 52 posts you are still convinced that the best MMT explanation can be found elsewhere, so be it.

Ditto the claim that no MMT people at NEP care anything about fraud and criminal activity. My goodness. Ask our colleague Bill Black who has spent the most time studying and exposing bankster foreclosure fraud and the role played by MERS (Hint 1: it ain’t Bill. Hint 2: surf HuffPost). Look, Michael Hudson and Bill Black are fellow travelers, working in a parallel world to our MMT world. To be sure, it is a non-Euclidean world in which parallel lines intersect. Yet, they cover some issues that are different from MMT concerns. We are thrilled, literally, that some readers find their ideas important, maybe even more important than MMT. That is why they are frequent contributors to NEP on other topics including control fraud and super imperialism. Inequality? Unemployment? Job guarantee? Poverty? Incarceration? Banker fraud? We’ve been writing about these issues, too, for decades—long before NEP, before blogs, before widespread use of the internet.

The argument that NEP folks are just academics that never pay any attention to “real folks”? Look, Stephanie, Bill and I speak to hundreds of groups per year. I cannot recall ever turning down an invitation to speak unless it conflicted with another talk—in which case I worked out an alternative date. I speak at local Perkins coffee shops. I go to old folk’s homes. I teach MMT to atheists. For heaven’s sake, Stephanie ran for public office—as a Democrat—against all odds, in Kansas! She knocked on thousands of doors. She kissed thousands of babies, and hugged hundreds of thousands of flag waving dads. Warren ran for Senate as a TeaParty Democrat, before crowds of well-armed nuts who hoped to get a glimpse of Sara Palin. (Try pushing MMT and ELR before that crowd!) We speak ALL THE TIME to nonacademic groups. The idea that we chose an easy academic path to Nobel prizes and global academic acclaim cannot be farther from the truth. Only those outside academics could possibly be fooled. You really need to see our day planners before you criticize us for lack of involvement.

Admittedly, our success could be criticized as spotty. Both Stephanie and Warren lost their elections. But all of you, every single one of you reading this blog (as well as Billy Blog) is here because we—a half dozen of us—created Modern Money Theory from the beginning. Us Pointy-Headed Academics (with a somewhat less-pointy-headed hedge fund manager). We welcome, with open arms, all the new MMT-ers. We admit our failures. No, we are not the best writers. We are not the best performers. We are not the best framers of the message. In many ways we are technically, socially, and politically inept. For the past 2 decades we used to meet once a year to count how many MMT-ers there were in the world. It took a dozen years to get beyond the fingers on one hand. We celebrated when we had to bring in the second hand and some toes to do the count. I suppose that is a measure of our incompetence. Maybe some of you could have developed and spread the ideas much more quickly than we did. We wish you would have joined up a lot earlier! We’ve had our years wandering around the wilderness.

But we learned to be thick-skinned. We’ve been called every name in the book, from Nazi to Pinko Commie. We could not be deterred. And now you are here. We won. At least, we interested somewhere around 3000 of you enough to bring you to this site (on day one of the MMP). We are glad you are with us. We want you to help us to continue to develop the theory, the message, and the strategy to get these ideas out. We are glad to pass the torch. Indeed, we must pass the torch.

So to conclude: This is a joint project. We are trying to create a primer of MMT. The project will take a year. You are a contributor, not a critic. On Mondays there will be a blog to explain a piece of the theory (to be precise, it is at most 1/52nd of the Primer). You tell us where it is unclear or just plain wrong. If you can explain it better than we can, go for it. We’ll do our best to correct the mistakes and clarify the message in the Thursday response. Of course, until we near the end, there will be a lot that still needs to be covered. Indeed, even at the end of our journey—June 2012—we might find that the Primer still has a long way to go, in which case we will continue. Maybe the journey will never end. That will depend, to a large degree, on you and your commitment to the process.

24 Responses to MMP BLOG #1 RESPONSES

  1. It's very kind of you to address my questions in the response and I'm obviously looking forward to them being fleshed out further over the coming months.What will be useful throughout this process would be to state clearly the assumptions on which MMT is based. Let's make them explicit and propose a null hypothesis that would help solidify those assumptions into facts (or indeed show that they are wrong).That would go some way to taking the dismal out of the dismal science. It seems to me that the first null hypothesis is that 'economies always or mostly price expand under fiscal stimulus even when there is sufficient supply or insufficient demand'. The wording probably needs tightening to reduce interpretation errors, but essentially prove that and fiscal policy cannot work. Fail to prove it and the door is open. Then it is a Simple Matter of Policy (TM).Now we don't have a LHC in economics (although the Eurozone is having a good go at smashing things together and seeing what's left), but surely we have some PHd's who can look at the data and draw up some econometrics. Perhaps some Internet Data Hounds could too.Let's get the data to show that the null hypotheses are false: the assumptions are real effects.

  2. Pls what is MMP?. May I suggest when using abbreviations expain them once. Not native english readers will appreciate

  3. A great pep rally of a post!I have always been curious of the kinds of efforts that have been made to drive MMT to the mainstream.The bottom-up, grassroots approach described in this entry is certainly one technique that should be employed. But I wonder what the ultimate potential is for this type of effort to penetrate and convince the broader public if academics and expert policy advisors are not themselves convinced. In other words, is there a ceiling on the degree to which you can convince the public if there isn't buy-in at the "expert" level, which ultimately lends the theory "credibility" in the minds of the people.This leads to me to think that there really needs to be a concurrent effort that vectors directly to universities. Of course, your academic research is essential, but how do we bring serious attention to it at this level (and I ask, why hasn't it garnered this attention over the past two decades)? What if, in a more sophisticated grass roots fashions, we are armed with an intelligent argument and a powerful powerpoint presentation (and perhaps your textbook that is in the works), and set up meetings with our former professors and/or administrators as valued alumni and donors of our respective schools? Is this a naive idea? I know little about the politics of academia, but the thought of revisiting a professor or department head and engaging in debate about these matters doesn't seem too far-fetched to me. Of course, these efforts would need to be organized, and whoever dives into the deep end needs to make sure they have their ducks in a row, but I wonder if this effort would make a meaningful difference. What sort of academic-level, cross-school networking have the MMT founders engaged in? Thoughts anyone?

  4. @NeilI don't think "economies always or mostly price expand under fiscal stimulus even when there is sufficient supply or insufficient demand" is the first assumption of MMT. I think it might be just the first one that you aren't convinced of. I think that the VERY first assumption which MMT makes is that "total private sector savings = total public sector debt".The question about whether or not firms increase capacity vs. prices is not an MMT claim only. It is a standard Keynesian idea that's been around for a long time. You can start here and here for further info.

  5. I thought the first-first principle of MMT was: "taxes drive money." Or maybe it's just that that principle is dear to my heart, since that is the MMT principle that first made me slap my forehead and holler: "Of Course!"Or maybe it was: "a state with a sovereign currency cannot involuntarily default on debts denominated in that currency." Different topic: I humbly suggest that the primer be published online in pdf and mobi (Kindle-friendly) formats. I volunteer to do the grunt work.

  6. @Anonymous – June 9, 2011 10:11 AM MMP is Modern Money PrimerNEP is New Economic PerspectivesMERS I don't know though :-)

  7. Here's a good link for MERS: http://www.nytimes.com/2011/03/06/business/06mers.htmlAs far as spreading the word in academia, I think it would be a good idea to target the humanities and social sciences. Many of those folks (myself included) are hungry for new ways of thinking about the current crisis.

  8. Speaking as a historian at a state university, I agree there is fertile soil for MMT in the humanities. I've been following along silently for the past year, and every time I've discussed these ideas with colleagues, they've been favorably impressed.

  9. @Finnucane: the green 'print friendly' buttons have a pdf option. Does this work for Kindles (I don't personally have one)?

  10. I'm glad that Stephanie and Warren both avoided physical injury in their forays into politics. I can hardly believe that there has already been an electoral test of MMT in *Kansas* that didn't end in violence.For my part, I pledge to stay on-topic here, and check my Socialism-and-Big-Government-loving preferences at the door – I will keep posting them at NEP and the Billy Blog. Let's rock.

  11. I am here to learn more and have been on that quest ever since I read Warren's material when he started his run for President.In that time I have overturned many of my beliefs especially with regard to taxes. I am retired and a full time RV'er so believe me when I say the "real world" is out here on the highways of America and they read billboards in addition to watching Fox and listening to Rush and Friends. I believe that billboards with statements like those repeated above will get there attention. Can you imagine a trucker who isn't interested in gas taxes.Statements like "total private sector savings = total public sector debt","a state with a sovereign currency cannot involuntarily default on debts denominated in that currency.and "taxes drive money." to name a few might have to be rewritten for an eighth grade audience but the result will be worth itcyaker (don't know much or am not sure about other ways of posting so I chose Anonymous although cyaker is my usual username.)

  12. Cholesterol and MMT. Here's the link: the real problem with communicating the MMT narrative to the real folks (and to economists also) is that it is strongly counter-common sense. Look: MMT says that govt debt is what people own, not owe – common sense says the opposite; MMT says that people don't have any money, they use money – c. sense says people have money, some lots of it; MMT says taxes destroy money – c. sense says taxes are real money govt can spend… and worst of all MMT says deficit spending can be good, even indispensable – c. sense says deficits are a disaster. You must understand that in the eyes of the ordinary folks out there we sound like some pesky guy claiming that smoking does you a lot of good.So, how can we overcome this instinctive, common sense driven, diffidence towards what MMT claims? Seriously. Well, I used the Cholesterol analogy in my talks on MMT here in Italy. It works wonders to help people trust the speaker beyond that first obstacle. And once they do that, then I assure you that almost everyone ends up understanding basic MMT and why it can save them. This is what I used to say: "Ok everybody, listen up. Common sense says that Cholesterol is bad, fine. But nowadays our doctors are telling us that there is also a Good Cholesterol (Hdl), not just a bad one (Ldl). Most of us ordinary folks know this by now. So look, just as medicine discovered that there can be a Good Cholesterol side by side with the bad one, some economists discovered that there can be Good Deficits side by side with Bad Deficits. I know it may sound to you impossible that there could be anything good in a deficit, but did you ever think there could be anything good in Cholesterol? And just as the Good Cholesterol turned out to be vital for our body, because it keeps the bad one in check, economists have discovered that Good Deficits are vital for the economy because they keep Bad Deficits in check. And also Good Deficits make us all better off, just like Good Cholesterol makes us all healthier. Here is why…"At this point the audience is relaxed, curious, and the speaker doesn't sound like a loony wasting their time with impossible Flat Earth, smoking is good for you, theories. I had shop keepers, housewives, cooks, or high school students coming up to me at the end of the talks to say literally "God, why hasn't anybody ever told us?".

  13. I must admit that I only came to hear of MMT through Moenetaryreform after reading one or to of the billy-blog articles it peaked my curiosity. Just wondering if Paolo Barnard has a blog or website that is suitable to us english speakers.

  14. Thanks Dai. No, my website is only in Italian, but I'm writing right now lots of ideas on MMT in English and I'll share them with you guys.

  15. Open economy Macroeconomics completely changes everything. Its a disturbing notion that the "balance of payments constraint" is completely eliminated by adopting a flexible exchange rate and therefore all of a nation's problems can be eliminated by fiscal policy alone, with constraints from the supply side being the only constraint for policy. To run the world in a sustainable path would require a drastic change in institutions running the world economy and this would among other things require new principles for world trade. The Modern Money gang is chasing a mirage.

  16. A couple comments – I didn’t have a chance to really read the introduction until this weekend.My first request is that you demonstrate MMT with real data (or provide links to the data). There are a lot of economic theories which sound perfectly logical but don’t work in practice. Applied economics affects the lives of millions of people. You have an obligation not to promote a theory which isn’t backed up by evidence, especially with MMT advocates making policy recommendations to various governments. Too much human misery can be laid at the door of advocates of incorrect economic theories.Second, be as other commenters have written, be sure to define your terms. What I’ve seen of MMT redefines many terms and at times leaves me unsure of what’s being discussed. And be sure that concepts like “money supply” are properly defined since there are many definitions in use.I also hope you’ll consider the moral and philosophical implications if governments adopt MMT. At the very least, telling people taxes aren’t necessary for government to function sounds like an invitation to massive tax evasion

  17. "At the very least, telling people taxes aren’t necessary for government to function sounds like an invitation to massive tax evasion" That is why MMT says the complete opposite.Maybe you better wait for the course to start

  18. How about contacting Michael Moore, Charles Ferguson or those guys who make BBC's horizon for example? Milton Friedman showed us how it is done: trough mainstream media.

  19. @Andy:See the April 5, 2011 NEP blog by Joe Firestone, in the comments, Mr. Firestone wrote:"No Government spending is paid for by taxes or borrowing. That's out of paradigm for MMT."Perhaps I phrased my comment poorly. What I've seen repeatedly stated by MMT advocates is that the government can spend as much as it likes by just crediting private accounts for the amount. For taxes, see the preface to Mr. Wray's 1998 book "Understanding Modern Money", which describes taxes as a means of giving value to money and as a way to force people to accept the government issued currency.I should have said "… taxes aren't necessary for government to spend …".Today, a standard method of justifying a tax increase is that it will provide the government with the money to pay for something, and arguments rage over whether the spending "funded" by those taxes is justified. Under MMT, arguments about "funding" are apparently nonsense.So I await the course, and hope that it explains the theory of MMT, shows that it matches reality, and also considers how to explain reasons for tax increases to the general population, or why every politician's pet project shouldn't get full funding (since "we can't afford it" no longer means anything).I know I'm jumping the gun, but on the other hand based on the MMT explanations I've seen up to now, I have no idea if the reaction of the general public has been considered.

  20. MMP stands for Modern Money Primer…that's what this is. MMT stands for Modern Monetary Theory, which is what the MMP is devoted to explaining. I hope that helps. So cool to hear the real "grassroots" roots of MMT…so cool to see it growing as it is now. Cheers to all and to the FUTURE!!!

  21. ThomasI take your point. The MMT position, as I understand it, and I am no expert, is that taxation is essential because users of the currency have to chase it to pay their taxes so it cements the acceptance of the currency.As for it being necessary for sovereign governments to spend, that only becomes relevant when the economy is at full productive capacity,ideally at full employment to avoid excessive inflation. There is no funding constraint whatsoever on that sovereign government because of the nature of fiat currencies.It is also important in redistributing wealth to advance the socio-economic agenda of the government of the day.I've jumped the gun and all this will be covered in the primer I'm sure but, if you can't wait, check out BillyBlog, Warren Mosler, Pragmatic capitalism and loads more websites and they will fill you in.

  22. http://www.nakedcapitalism.com/2011/06/philip-pilkington-economics-as-metaphysics-and-morals.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29Capitalism is clearly a religion pretending to be an economic social construct by which we distribute the largess of our collective activities of daily life! Economists are preachers – and MMT – the Father – the Son and the Holy Spirit!

  23. You might look at Milton Friedman's success in promulgating his theories.He wrote some very popular and easily read books which brought out the moral themes that underlie regular folks' understanding of economic matters ("don't spend more than you earn" etc).He also wrote many op-eds.Anyhow, I'm very interested in following the development of this project. I'll be here!spark

  24. I love the work you guys do what you need is marketing. Marketing folks simplify and reframe. You need to do something like this. http://www.DollarMonopoly.com I've taken your ideas and completely reorganized them, removed the jargon, reframe the concept of "debt", and added credibility by associating it with the "Kansas City School"Seriously – you should pay me to do your marketing. :-)