Every day or so, someone sends me a petition via e-mail. Today, I got this one from a group called CredoAction. They’re urging people to tell the Super Committee to keep their hands off Social Security, Medicare and Medicaid, and they wanted my support. I read the petition, but I could not, in good faith, sign it. And so I did what I often do — I took the time to draft an explanation and send it to the anonymous “contact” behind the petition. Here’s what I said:
I just read your “Stop Cuts to Medicare, Social Security, Medicaid” petition. As a progressive economist who has published numerous essays on these issues, I would like to offer you a stronger argument. Your petition refers to “progressive reforms” but cautions that, “that’s not what’s on the table.” But even the so-called “progressive reforms” aren’t necessary. Raising the retirement age, means-testing, reducing the COLA, lifting the cap on incomes above $106,000, etc. None of them are necessary! Forget the Trustees and their long-range projections. We don’t need a Trust Fund in order to make good on our promises to dependents, retirees, or the disabled. The US government is the Issuer of the currency, not a User like households, businesses, etc. As the issuer of the currency, the federal government can always make payments on time and in full, regardless of the balance in the Trust Fund, just as Alan Greenspan testified before Congress.
Find Robert Eisner’s article — Save Social Security from its Saviors — published in the Journal of Post Keynesian Economics. It should be THE basis for the progressive opposition to any/all attempts to change the program. Listen to Jamie Galbraith not Dean Baker and the other so-called “progressives” on this. Baker accepts the conservative framing of the issue — government cannot “afford” to make good on its future promises and so some kind of “reform” will eventually be necessary. Baloney! Search [this] blog for articles on Social Security and Medicare.
We can help you make a stronger case than the one the headline progressives have been making. Affordability isn’t the issue. This is about politics (values, morals) not economics. Governments that issue their own currency do not face financial constraints. It is as simple as that, and you should argue your case that way. Kill the myth of TINA — There Is No Alternative — and you can protect millions of Americans for decades to come. Reinforce that myth by supporting “progressive reforms,” and millions will suffer needlessly.
In solidarity,
Stephanie Kelton, Ph.D.
Associate Professor, University of Missouri-Kansas City
A few minutes after I sent my letter, I received a very kind reply and a request to follow-up with the CredoAction team. About the same time, I received an e-mail from Truthout. Dean Baker had just written a new piece on Social Security. In it, he says:
“The way in which Social Security is ostensibly similar to a Ponzi scheme is that it depends on new workers in the future to meet obligations that incurs today. This also happens to be true of any debt issued by either the government or the private sector.”
The perfect example of why groups like CredoAction need an alternative to the headline progressive mantra. I offered up the entire MMT crew. I’ll let you know how it goes.
If/when they don't believe you send them the video of Greenspan saying that the US can always meet its obligations in dollars…
Stephanie,I can't accept your argument as a plausible approach to Social Security. It seems to confuse operational capability with policy optimality.Yes, certainly, the government can, from an abstract operational point of view, always make any payments it has committed itself to make. It can't literally run out of money other than as a result of the voluntary legal constraints the government has itself imposed on the management of its own accounts. But MMTers and other post-Keynesians all seem to accept that there are economic circumstances in which the best macroeconomic policy calls for offsetting the payments with taxes – for example, circumstances in which the economy is running closer to full capacity. Offsetting payments with taxes might be the best policy even if it is not operationally required.MMTers don't like to think of the offsetting taxation as funding the expenditures. They prefer to speak of the payments creating the new money that is spent into the economy while the taxes extinguish money, and to emphasize that these are operationally distinguishable processes. And that's fine. Personally, I don't think it makes much difference which way you view it. The question is which taxes you are going to impose, and which payments you are going make, and the functional effects you are trying to accomplish with some particular total mix of taxes and payments rather than others.But from the standpoint of government administration, there has to be some system for doing these things. So I'm not sure what exactly you are proposing. Are you recommending making all Social Security payments out of the general fund? Or are you envisioning a world without taxes?
Dan,As Robert Eisner said, the Trust Funds are an accounting gimmick. No beneficiary receives a check drawn on the Trust Funds. All checks come from the Treasury's account at the Fed. All of the MMTers who have written on SocSec have, I believe, argued in favour of dispensing with the myth (hence the Trust Funds) and overtly making payments out of general revenue. As you probably know, MMT is sometimes describes as a "taxes drive money" approach. So a world without taxes is a world without (state) money. No, I am not proposing that. Social Security can be funded like SMI — the only Trust Fund that ISN'T considered to be in financial trouble because the government has pledged to make all of the payments. (I wrote a post on this) The point is that progressives insist on tying the financial viability of SocSec and Medicare to "funding". Ability to pay is not the issue. We do not have to choose between keeping our promises to our seniors/disabled citizens/dependants and leaving marginal tax rates unchanged. Taxes regulated Aggregate Demand — they don't "pay for" anything. Let's take this one fight at a time. Protect these vital problems. Preserve them as they are, or — better — strengthen them the way Jamie Galbraith suggests. Expand benefits! Inequality is a separate (and quite legitimate) issue and this is where your question about the functional effects comes into play.
I actually think the stronger case for MMT ideas has to do with refuting the progressive notion of spend-now, tax-later. That, as Dan K. notes, might be good policy, but that assessment has to do with the effects of deficits (and deficit reduction). Deficits per se aren't the problem (I apologize for preaching to the choir). I've had some success explaining it as "govt. creates wealth by spending, and destroys it by taxing." The point is that the spending side and the taxing side don't have to talk to each other (i.e., funding). Spending and taxing are simply policies, unrelated by funding. Once people get that, the rest begins to fall in place.Social Security just seems to be a really hard nut to crack, since things like the Trust Fund, dedicated payroll taxes, etc. make it really confusing.
Stephanie, This is off topic. Was it you that put a chapter out of “Selected Economic Writings of Abba P.Lerner” online? That’s the “Functional Finance and the Federal Debt” chapter. If it was you, then thanks. I often refer to it. URL: http://k.web.umkc.edu/keltons/Papers/501/functional%20finance.pdf
Mike said: "Social Security just seems to be a really hard nut to crack, since things like the Trust Fund, dedicated payroll taxes, etc. make it really confusing."I'd add that this payroll tax is a regressive tax too. Why not just deep six FICA altogether? Why not deep six any tax on labor, period?
Thanks Stephanie,I now understand what you are proposing. One concern I have is that certain ways of describing the MMT approach lend themselves toward the "free lunch" interpretation, which isn't what is the authors intend. Since I have been reading the MMT blogs and papers for a while now, I know not to fall into that mistake. But I think someone encountering this for the first time might read it that way, and might as a result be either overly skeptical or overly enthusiastic.
Stephanie, thanks for another beautifully written piece, and also for your reply to Dan Kervick, which was very much to the point. Don't know if you've seen my latest on SS here: http://www.dailykos.com/story/2011/09/16/1017638/-Ponzi-Schemes-and-the-Ponzi-Schemers?via=history It received a fair amount of discussion at DailyKos.In addition, there was also a follow-up to it by maddog, the originator of the DailyKos Money and Public Purpose blog, Looking at mine and other posts addressing the ponzi scheme issue from George Lakoff's framing point of view: http://www.dailykos.com/story/2011/09/19/1018127/-Stop-using-Social-Security-and-the-P-Word-Together?via=historyThere's a discussion accompanying that post about frames and Lakoff's take on how to deal with negation frames in which I take issue with what appears to be the Lakoff view.
Stephanie,I note the word "benefits" in the CredoAction petition ("Don't cut Medicare, Medicaid or Social Security Benefits!"). The politicians distinguish (scheduled) benefits from budget costs (provider payments). Obama's health care reform law reduced the Medicare budget by $500 billion over 10 years. These cuts – purportedly to fund expansion of health insurance to new beneficiaries – were required to come from health care provider payments, not reduction in scheduled services to beneficiaries. Democrats were thus able to avoid opposition to the program. Obama was following the conservative approach of "Starve the Beast" via defunding rather than directly eliminating government programs.By describing the issue as politics rather than affordability I believe you are taking a stronger stance than the petition, which by its use of the qualifier "benefits" hedges on cutbacks to Medicare/Medicare provider payments (budgets) and which opens the programs to conservative kill-by-defunding approaches. You correctly critique Baker's views on federal debt, but he often focuses on the fact that the US spends twice as much per person on health care as the other industrialized nations, without better health outcomes. He attributes much of this difference to monopolistic practices and offers suggestions as to how to reduce those practices. It seems to me that he is dealing with allocation of real economy resources which do indirectly impact the deficit and federal debt. Does his point (and similar points) about high health costs have merit, while his view of the debt impact is irrelevant or erroneous? Is it possible that the real issues include inflated medical costs and politics, but not affordability?Thanks, Mike
That's telling them but wait till you start getting their offers via snail mail. I would love to see their financials.
Professor Musgrave!Wonderful to hear from you. I do believe we met at Columbia Univ. many moons ago — I think there was a conference on Functional Finance. I remain a great admirer of Lerner's work and am glad you found the link useful. These days, I put all of my course material on Blackboard, so it is accessible only by those with a UMKC account. I'm glad that is still "out there" for people to use. Stephanie
Nice post Stephanie:It seems that MMT'ers always ignore the elephant in the room, inflation, as a possible consequence of unrestrained spending and declining taxes which are the certain result of Congress ever becoming enlightened to the fact that they have unlimited money to spend.Granted, inflation is not a concern at present with vast unused human and plant capacity, but, in may not necessarily always be so.I'm just sayin', inflation deserves at least a passing mention as a possible risk of MMT.Joe
Joe,Inflation is not a "risk of MMT", which is merely a description of the way the monetary system ALREADY works. Because MMTers understand that governments that issue non-convertible fiat currency do not face financial constraints, we push for policy to be implemented in accordance with Abba Lerner's "Functional Finance" (i.e. government should ensure that aggregate spending is at a rate high enough to maintain full employment and price stability). Price stability — or, more realistically a low rate of inflation — has ALWAYS been part and parcel to the MMT approach. No MMT economist has ever supported an unbounded expansion of economic activity. Inflation is THE constraint, and we have always argued that the government should use its power to tax and spend in order to regulate the level of economic activity in order to pursue the dual goals of high employment and price stability. This is one reason we like the Employer of Last Resort (ELR) or Job Guarantee (JG) so much — it automatically achieves the former while stabilizing a key element of the price structure.Various critics of MMT, most notably Paul Krugman, have accused us of overlooking the inflation constraint and arguing that "deficits don't matter". I would respectfully submit that nothing could be further from the truth.
Joe Toronto, MMTers don't ignore inflation at all. See:http://www.economonitor.com/lrwray/2011/08/24/zimbabwe-weimer-republic-how-modern-money-theory-replies-to-hyperinflation-hyperventilators-part-1/http://www.economonitor.com/lrwray/2011/08/31/not-worth-a-continental-how-modern-money-theory-replies-to-hyperinflation-hyperventilators-part-2/http://www.economonitor.com/lrwray/2011/09/07/helicopter-ben-how-modern-money-theory-responds-to-hyperinflation-hyperventilators-part-3-2/http://neweconomicperspectives.blogspot.com/2011/08/coin-seignorage-and-inflation.htmlhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102http://neweconomicperspectives.blogspot.com/2010/03/hyperinflation-hyperventalists.htmland Bill Mitchell's great posts on inflationhttp://bilbo.economicoutlook.net/blog/?cat=20http://bilbo.economicoutlook.net/blog/?cat=24
> Various critics of MMT have accused us of overlooking the > inflation constraint and arguing that "deficits don't matter".This blog – especially the MMT primer – *is* ignoring the inflation issue. As far as I can recall, the risk of inflation if money isn't governed correctly has been mentioned just once in the MMT primer, while the ability of the government to continue issuing currency without limits has been mentioned in nearly every blog entry. As if somehow, the government will issue money wisely. Nice to see it get some recognition above
MMTers agree that our current malaise is due to insufficient aggregate demand. What will generate the needed demand? Not the households sector — they're in de-leverage mode. Not the business sector — they don't have enough customers to warrant hiring back 15+ million unemployed or heavily investing in new plant and equipment. Foreigners? Please. So it has got to be government. Ah — but the government cannot "afford" to do it. We are "broke", as Obama said. This is the primary opposition to our policy recommendations. Naturally, then, we have spent a lot of time trying to explain why the issuer of a non-convertible fiat currency is not *financially* constrained. It has taken a LONG time to get where we are: people who used to reject the claim (e.g. Krugman) have accepted the first point and moved on to a criticism based on the inflationary effects. That is progress! But surely you can understand that sorting out the misunderstandings surrounding government finance was a necessary first step. If we can agree that the government CAN spend enough to sustain full employment, we then need to decide whether that is a reasonable role for government. But you cannot have that discussion if you think it is all moot because the government lacks the funds to pull it off.
Well, I don't really understand. I'm not an economist, but classic economics I learnt from my mother's economics course made me think that all these self imposed limits exist to prevent the money supply from getting out of control (other secondary goals acquire political prominence but that wasn't their source). So by not even mentioning the risk these limits are intended to manage, you sound… stupid – and I've struggled to understand why this isn't discussed as a risk.
Just saw a comment from a reader over at Cullen Roche's blog — Pragmatic Capitalism. It sounded an awful lot like Joe's comment above. MMT sounds great, but what if the government abuses its newly discovered power? One of Cullen's readers left a great reply: Even a Porche can be driven into a ditch (but this is not a reason not to drive a Porche, right?)
Dr. Kelton,It's fun and exciting to debunk lay peoples' and experts' erroneous claims about the solvency of govt programs, but using the MMT argument, my counter attacks still feel somewhat lacking.What I mean is that, I have no idea what level of future spending the govt can support without inflationary effects, malinvestment, etc.So, why are you and other MMTs so confident we can maintain these programs, even expand them, without potentially undesirable effects that we should be thinking about now? "This is about politics (values, morals) not economics." But I think it still is in part about economics even when you view it from the MMT perspective.You've seen my emails challenging prominent deficit hawks and so forth. I am very much sympathetic and fighting for the MMT cause/framework. But I still think we should be rigorously modeling out proposed policies to get a sense of what is most desirable, instead of just accusing everyone of ignorance because they don't understand monetary operations (which I think is necessary but not sufficient). I guess I just feel somewhat irresponsible to say "Don't worry about it, we can afford it, so don't cut it," without having any idea when inflation etc might become concerns.I feel like this is one of the next frontiers for MMT. To put rigorous math behind the theory and show what optimal policy responses might be given anticipated impacts on demand pull inflation, etc.
Your mother's economics — classical economics — was modelled on a monetary system that no longer exists. Of course self-imposed constraints were adopted in order to try to prevent the government from creating money more rapidly than the reserve base. If you promise to convert your currency into, say, gold, then you have to regulate the amount of currency that is created, or you may destroy your monetary system. Now why do you suppose we don't emphasize these risks today? Anyone?
(Obviously recognizing we have tons of fiscal room now given the collapsed economy- the question is more future looking, when the economy recovers, etc.)
And please stop accusing MMT of "not discussing" inflation risks.Letsgetitdone just supplied you with a (small) sample of articles by prominent MMTers who have had plenty to say about inflation. Disagree don't distort.
I have to go teach a graduate macro class. Will come back to these tonight or early tomorrow. Thanks for all of the good comments.
Nor is it a reason to put a governor on one!
Social Security is fundamentally flawed and needs changes to avoid continuous pressure to dismantle it. This short piece by Paul Samuelson illustrates the underlying problem. It's beyond any consideration of MMT vs. conventional reserve banking disagreements.http://www.readability.com/read?url=http://blog.scrivener.net/2005/02/beauty-of-social-security-by-paul.html
How are we going to move forward in fixing our very serious financial situation if most people are against changing a key element of the problem?
Here, as I understand it, are the two key MMT messages about taxation:1. Even though the government doesn't need to tax in order to fund its spending, it does need to tax in order to regulate aggregate demand.2. Even though the government doesn't need to tax in order to fund its spending, it does need to tax in order to compel people to acquire its currency.But here's the problem from the point of view of public policy:Try taking this message to the general public and you will never pass another tax bill again. People are willing to pay taxes because they believe those taxes pay for important government goods and services. They are not going to agree to pay taxes conceived simply as a tool to limit their own spending, or as a kind of monetary policy whip used to keep their demand for dollars going.
Dan,I disagree. The concern over inflation and malinvestment resulting from govt spending is very present today and would not disappear if MMT's message was more widespread. What MMT does is destroy the solvency rhetoric and refocuses the debate on what really matters. If anything, it makes it more clear inflation is the concern.If however, things go the extreme as you suggest, which they wouldn't, and this results in excessive inflation and a poor economic environment, then the public will quickly learn their lesson. Taxes end up 'paying' for things to the extent that they create fiscal room for govt initiatives the public deems desirable.
Andy says, "Social Security is fundamentally flawed and needs changes to avoid continuous pressure to dismantle it."No — that's what they want you to believe. That's how they get get you to acquiesce to "reform" (which is another way of saying benefit reductions, higher payroll taxes, etc.). Who is "they"? Have a look at this. http://www.cato.org/pubs/journal/cj3n2/cj3n2-11.pdfIf it doesn't get your blood boiling, then you're one of "them." Blue Cross asks, "How are we going to move forward in fixing our very serious financial situation if most people are against changing a key element of the problem?"So "they've" gotten to you too! There isn't a "serious financial situation." The federal government can always make payments on time and in full as long as those payments are denominated in US dollars. Period. As long as the people who rely upon and care about these programs accept the conservative frame — "We'd love to help, but we just don't have the money — they will continue to yield ground to the people who want to weaken and destroy the programs. Doesn't anyone remember 1983? Greenspan, Bob Dole, Patrick Moynihan? They "reformed" the system and told is it was a 75-year fix! Whew! No more hand-wringing over the program's finances. We were good too go! But the attacks continued. Gore promised us lockboxes. Bush proposed partial privatization. And now Obama tells us that we have to make "tough choices" and deal with our "entitlement problem". And progressives, for the most part, nod in agreement. It's outrageous. The problem with liberals and progressives is that they're content with small victories — where "victory" means you didn't give up as much as they wanted to take from you. But you DO give up. First an inch, then another, and another. It soon becomes a disappearing mile. This is not about the federal government having too little money. The federal government is the SOURCE of our money. This is about our values. Our morals. Will we provide for the sick, the elderly, the disabled, or will we follow Ron Paul and "let them die" and suffer in poverty? We were duped in 1983. Why do progressives want to make it so easy for them to dupe us again? Fool me once, shame on you. Fool me twice, shame on me.
Dan said:"People are willing to pay taxes because they believe those taxes pay for important government goods and services."I disagree. People will always pay their taxes because if they don't they'll go to jail (or at the very least, have their assets seized). I hope an understanding of MMT by the public would focus our minds on where the money is spent but more importantly how concentrated wealth destroys democracies. I think the middle class would come to the conclusion that they already pay enough taxes and that if you want to stimulate demand, as we need to do, then that tax money should come from those who can afford it the most i.e. the wealthiest 1%.
…and before someone says it- yes, we could stimulate demand without the tax money from the wealthiest 1%.
In fairness to Dean Baker, I just read a VERY good piece that he and David Rosnick published just yesterday. Unlike many of Dean's other pieces, this one doesn't propose a solution to the (faux) problem with Social Security. Instead, it examines the impact of a "modest reform" that has been proposed by President Obama and supported by many Democrats. It's an important study because it demonstrates just how damaging these so-called "modest progressive reforms". Here's an excerpt from their paper:"During the negotiations over raising the debt ceiling, President Obama proposed cutting the annual cost of living adjustment for Social Security by switching to an index that would show a lower measured rate of inflation. This alternative index, the chained consumer price index (C-CPI-U), shows an annual rate of inflation that averages approximately 0.3 percentage points less than the consumer price index (CPI-W) that is currently used to index benefits. While this change would lead to $122 billion in savings to the government over the next decade, it also means that beneficiaries would receive lower benefits. The effect will initially be small, just 0.3 percent in the first year, however it becomes more significant the longer a beneficiary lives. After ten years, benefits will be almost 3 percent lower as a result of the use of the C-CPI-U, after twenty years benefits would be lowered by almost 6 percent, and after thirty years benefits would be almost 9 percent lower.Since the vast majority of retirees rely on Social Security for the bulk of their retirement income, this cut in the cost of living adjustment would imply a substantial reduction in the standard of living of retirees, unless they offset it by saving more during their working years or retiring later in life. While we cannot know for sure how workers in future years will adjust their behavior, it is possible to assess their past response."The full paper is here: http://www.cepr.net/documents/publications/ss-cola-2011-09.pdf
Dr. Kelton, any thoughts for my post above? Thanks.
wh10:You say, that that the concern over inflation and malinvestment resulting from govt spending is very present today, and would not disappear if MMT's message was more widespread. I agree that the concern wouldn't disappear entirely, but it would certainly dissipate among those whose concern is mainly grounded in their fears about insolvency. But that's not what I'm concerned about, and is not the issue I raised in my comment.My concern is about how politicians sell tax policies to their constituents. MMTers agree that taxes are needed for various purposes. But the way they frame tax policy is not politically viable.RobertM,Yes, people pay their taxes because it's the law. But to enact taxes into law, you need to pass tax bills first in the national legislature. Now think about the kinds of discussions representatives will have with their constituents if they stick to MMT-based rationales:"My dear constituents, we need to raise your taxes.""Why?""Because aggregate demand is too high. Basically, you have too much money and are therefore buying too much stuff. We need to take some of your money away so that you don't buy as much stuff?""Huh???!""Also, the only way we can make sure people still want to acquire dollars over time is to force them to give some dollars to the government from time to time.""What???!""So, what do you say? Are you on board with my new tax initiative?""No!!!"
DanThe argument that "people will never go for MMT" or whatever is a non-starter. What's the point of being a progressive in the first place–how many of our views or proposals are things that people go for now? We may as well give up on everything important to us if we listen to people who tell us something will never "sell" to the people. Look at right wingers–they started 30 years ago pushing these ideas and they looked cooky; now they're all mainstream ideas. Just think about the GOP platform now vs. 20 or 30 years ago–they're way to the right of even Reagan now. And it's all because they never listened to someone like you telling them "it'll never sell!"?
Dan,I actually agree with you. The problem is that I am an economist and an educator, and so I am more focused on getting the economics right and helping others to understand the workings of the modern monetary system. But you raise a very important point about framing. This CNBC commentator argued that the existing myths (that government needs to collect taxes or borrow in order to spend) serve a useful purpose — they impose restraint — and that it would be dangerous to expose the truth because the government might take advantage of its unrestrained power to spend. http://www.cnbc.com/id/44111311I don't find this persuasive. The people would be BETTER served if they understood that the government has the financial wherewithal to fund the programs that 'we the people' decide upon. Now, how do we get 'the people' to accept the fact that MMT doesn't promise a free lunch? Taxes don't pay for roads, bridges, armies, but we need to collect them just the same. That is a good question. George Lakoff literally wrote the book on framing, and he suggests that we refer to taxes as "membership dues". Each citizens' contribution for the benefit of living or producing in this nation. The frame should focus on the "we", not the "me". It is not about taking from "you" in order to ensure that "others" will accept government money. It is about supporting an economic system that supports its members. With great power comes great responsibility — the governments has the power to tax and spend. It should use those powers responsibly, to serve the public purpose. MMT provides an accurate description of the way things work (or could work). Some people accept the description but resist the implications, insisting that it is safer to leave that cat in the bag. I simply disagree.
wh10 says:"I guess I just feel somewhat irresponsible to say "Don't worry about it, we can afford it, so don't cut it," without having any idea when inflation etc might become concerns.I feel like this is one of the next frontiers for MMT. To put rigorous math behind the theory and show what optimal policy responses might be given anticipated impacts on demand pull inflation, etc."And I feel irresponsible saying, "Because inflation might one day emerge, we need to maintain sufficient slack in the economy (unemployment)." I know that you don't want this either, and you're just looking for a retort to the inevitable "What about the resulting inflation?" push back that MMTers always get. The simple truth is that it is pretty much impossible to forecast 'savings desires' and, particularly, the private sector credit expansion, so you just have to cross that bridge when you come to it.What MMT tells us is how to react to a rise in unemployment or anything that is causing excess demand (inflation). In both cases, for a given size government, taxes are the thermostat. You can try to forecast the temperature, but you can also monitor it and adjust taxes in response to the actual (temperature) conditions. MMT regulates demand-push inflation and unemployment.Remember that during the so-called Clinton boom, the unemployment rate fell to 3.7% unemployment, and we had extremely modest inflation. Do people still believe the two are incompatible? Also, periods of "high" inflation in the post-war era have followed supply shocks (oil), and MMT recognizes that there is always the possibility that you get will get some inflation before full employment due to these kinds of events. You need other policies to deal with inflation that arises due to spikes in commodity prices.
re:"he suggests that we refer to taxes as "membership dues". Each citizens' contribution for the benefit of living or producing in this nation."And those "dues", once we reach full employment, help keep inflation at a reasonable rate. That's the reply I would make to Dan's argument at that time.
Hi Stephanie;I just want to thank you for conducting these wonderful online seminars from time to time. I always learn a *lot* from them. I wish other MMT leaders would do as much back-and-forth on their posts as you do.I wish I could think that MMT could gain real political traction in America today, but I can't. It's like Alice-in-Wonderland here. Every public policy argument is upside down and backwards. No reality-based economists can get on T.V. and when they do it's so that some mainstream blowhard can crack jokes about them. I hope I'm wrong. I hope MMT makes its long-overdue breakout in the public sphere.Meanwhile, I feel encouraged whenever I hear that an MMT figure is speaking at an event overseas.
Dear NEP bloggers,Feel free to answer with a link.What would you tax? and how much? I arrived at this website through an interest in Land Value Tax. If taxes are so important, do you have a preferred fed, state, local regime?Andy of Allentown
Dale,Chin up, my good friend. We've been at this for more than a decade, and we're seeing real progress. There are MMT blogs popping up left and right. Books are being written. Minds are being changed. Not fast enough to help the millions — jobless and impoverished — who need it most, but we are gaining traction. We have all done national radio, TV, media interviews, both here and abroad. We have two MPs following us on Twitter, together with scores of journalists and reporters, and ordinary people from every corner of the globe. And maybe you're right — the Canadians and the Europeans are more open to our ideas. So maybe they will be the first to implement Functional Finance and then America will have a model. I like the back-and-forth, and I'm glad you do too. Several of us are holding a meeting (tomorrow morning) to discuss alternative ways to spread MMT. Right now, the statistics show that our blog is read primarily by males, 55+ yrs, with some graduate school education. That is obviously not good enough. We need to reach women, youths, those without a college education. How do we do that? Twitter, animated videos, cartoons, short books, etc., etc. But we need some resources to help us with this (maybe you've noticed the new "Donate" button? :)We also want to do some on-line discussions with our readers. Bill Black has agreed to kick this off, so watch for an announcement sometime soon.
@Dan and echoing STF. Read "Thinking the Unthinkable" by Crockett that explains how right-wind ideas came back at the forefront through the creation of the AEI and other methods.Private correspondence among AEI founders shows that they did not care about gaining political points; they did not care if it was politically feasible; they just advanced their point of view methodically and systematically for an extended period of time. They did so by deliberately focusing on academic studies.That's probably what's missing now for MMT; a well connected, academic-oriented, think tank that can go on for the long run without preoccupation about political feasibility.
"Right now, the statistics show that our blog is read primarily by males, 55+ yrs, with some graduate school education."Stephanie,How did you get those statistics?
http://www.alexa.com/siteinfo
Eric – Does the Levy Economics Institute not count?
Hi Eric,I think one difference between MMT and an outfit like AEI is that AEI has a research wing but was explicitly set up to design and advocate policy changes. So far MMT offers a description of the economy, but has only a vaguely defined policy agenda.For example, I am under the impression that MMTers would like to see changes in the institutional wall that separates Fed operations from Treasury operations, so that we don't get a repeat of the debt ceiling debacle, and so that in future recessions fiscal authorities have the option of expanding spending without issuing more debt or collecting more taxes. Right now they don't have that power. The Treasury is not permitted overdrafts on its account at the Fed, and the Fed cannot simply credit a Treasury account but most go through the roundabout process of buying government debt on the open market to offer partial monetary support for fiscal expansion.But I don't really know what the options for reform look like. Do you know of specific proposals?
Dan, the best refutation of the idea that such ideas could never be successfully explained to legislators – is the fact they already have been. One of Lester Thurow's books, Dangerous Illusions or Zero-Sum Society maybe, tells the story of a 1968 tax hike in the USA imposed for and explained by exactly these "MMT" demand-management inflation-fighting reasons. Think Minsky may refer to it somewhere too. Many other examples are out there for sure.
Actually, Dan, the Treasury/Fed issue you raise isn't a constraint at all. It's easily gotten around by the fact that the Treasury issues debt at roughly the Fed's target, and with the ability to have overdrafts, it would also have to pay interest on reserves at roughly the Fed's target rate. There's no difference, so it doesn't matter.Policy proposals are important, and there are lots of them if you read MMT literature (i.e., not necessarily the blogs). But you can't get very far with them without first establishing your view of how the world works. That's been the real victory of the right over the past 30 years–all the debates happen on their turf. That's Stephanie's point in this blog post, of course.
@wh10 Yes the levy is friendly but it is a broader progressive institute that includes many different view points. It is not specifically focused on the modern money approach.
wh10,I would argue that understanding of the monetary system help to PREVENT inflationary bursts. For example Weimar wanted to pay war reparations just by deficit spending. We all know what happened next.As for malinvestment, where is the malinvestment if we lower taxes and give people more purchasing power? Did private sector invest so wisely in this housing boom using trillions to build houses people cannot afford? Thats what I call waste.
Those who are afraid to tell the truth to the people are afraid of democracy. If a people can't handle truth, then they can't handle democracy, i.e., cannot govern themselves based on an accurate perception and understanding of reality.We don't need the paternalism of a Paul Samuelson. See Randy Wray's excellent post, Paul Samuelson On Deficit Myths — Time To Drop That Old-Time ReligionWray quotes Samuelson:"I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say "uh, oh what you have done" and James Buchanan argues in those terms. I have to say that I see merit in that view."