A Meme for Money, Part 1: Introduction

By L. Randall Wray

This is the first part of a series on framing money.

I studied with Hyman Minsky in the early 1980s when he was writing his 1986 book (Stabilizing an Unstable Economy). There are two phrases in that book that I remember him saying in class:

“Anyone can create money, the problem lies in getting it accepted”.

“The need to pay taxes means that people work and produce in order to get that in which taxes can be paid”.

Most of my work on money for the first decade after my PhD studies concerned the first statement—I was one of those who developed the Endogenous Money approach most closely associated with Post Keynesians however it also drew heavily on the Franco-Italian circuit approach.

That is all about the private money system; government enters through its Central Bank as the provider of bank reserves. My first book, “Money and Credit in Capitalist Economies” went through all of that in 1990, and I’ve continued work in that area as I examined the causes of the 1980s Thrift Crisis and later the collapse of what Minsky called Money Manager Capitalism in 2007.

However, I never forgot the other point he made: we work hard to get the government’s money because we have to pay taxes. That led me to Keynes of the Treatise and to Knapp’s The State Theory of Money when I was writing my dissertation in Bologna in 1986.

I included a section on Chartalism or the State Money Approach in the 1990 book but it was very brief since I was focusing on the role of money in the private sector. So in the mid-1990s I returned to the role of the state, and discovered what I believe to be the best two articles ever written on money, by A. Mitchell Innes in 1913 and 1914. Keynes reviewed the first one and aside from some quibbles he declared it to be correct.

What struck me is that Innes was able to integrate both a State Money approach and a Credit Money approach. To understand our money, what Keynes called Modern Money, you must have both. Otherwise, to borrow a metaphor, you’ve got Hamlet without the Prince.

A group of us first at the Levy Institute in NY and then at UMKC, but also including others, especially Warren Mosler and Bill Mitchell and Charles Goodhart, dug deeper into this and gradually developed what is now called MMT.

Many think we claim to have invented some stand-alone entirely new approach to money. That is false. We stand on the shoulders of giants (the third phrase I recall from Minsky)—there is no new theory in Modern Money Theory; the theory is an integration, one that integrates those two phrases from Minsky.

What is somewhat novel is an updating of the description of the way the modern monetary system works in a country that issues its own currency. While I’m sure there were economists in both the Fed and the Treasury who understood all the operational details, these were not understood in academia or policy circles. They mostly still are not.

In any case, I first tried to lay out MMT in my 1998 book, Understanding Modern Money, and tried again in my most recent primer, Modern Money Theory.

I sent the manuscript of the first book to Robert Heilbroner to see if he would write a blurb. He called me on the phone—I have no idea how he got my home phone. In his soothing voice he told me he could not write the blurb, and that money is the scariest topic there is. My book would scare the hell out of readers.

And here we are a decade and a half later. In the past 2-3 years MMT has taken off, indeed, it has taken on a life of its own in the blogosphere. It is loved by many and hated by more. And as Heilbroner warned, it scares the hell out of even more.

That is why I’m shifting gears. I don’t think I can say anything more about MMT. It is as correct as a theory can be, and as good a description as we can have about real world monetary operations. At least at this point in time.

Where we continue to fail is in our explanation. We have to stop scaring people. I’ve become ever more convinced that George Lakoff is correct. The problem is not with the theory–it is with the framing.

The reaction against MMT is largely moral.

That is not a back-handed slap at critics. Everything you understand is through framing, as Lakoff argues. You cannot understand without metaphors; you cannot think without stories; you cannot do policy analysis without morality.

Let me give you an example. Outside of the crazies, everyone knows the US government cannot run out of money. From Greenspan to Bernanke they all understand there is zero risk of involuntary default by the sovereign issuer of a currency.

And so the way that an MMTer approaches the current deficit hysteria is by pointing out that as the Federal government spends through keystrokes that credit bank accounts, it can afford anything for sale in dollars.

The reaction typically goes through four stages:

1. Incredulity: That’s Crazy!

2. Fear: Zimbabwe! Weimar!

3. Moral Indignation: You’d destroy our economy!

4. Anger: You’re a Dirty Pinko Commie Fascist!

And those are our Post Keynesian/Heterodox friends. The reaction of others is far more hostile.

Rather than winning the debate about unsustainability of debt and deficits, MMT loses the argument. How can that be?

Because it’s immoral for the government to spend through the stroke of a key.

It makes no difference how accurately MMT explains the monetary operations that allow government to spend—operations that begin with budgeting by Congress, and then that involve complex procedures adopted by the Treasury, the Fed, and special private banks to ensure the Treasury has sufficient deposits in its account at the Fed so that finally some firm or household gets a credit to its bank account.

MMT will lose the argument by precisely presenting the facts. Because one can see facts only through framing. Without the proper framing, MMT cannot win policy debates.

This series will explore alternative framing. We cannot adopt the conservative, textbook framing that automatically invokes a particular market metaphor, one based on “fair exchange”. From that vantage point, there’s nothing fair about government getting something for nothing—for mere keystrokes.

Instincts prefer the “taxes pay for things” metaphor: I paid into the Social Security Trust Fund, so now I get to draw down my balance there in my retirement. It makes no difference that this description is completely wrong no matter what angle of approach you take. It trumps. And so we get self-identified progressives fighting tooth and nail against payroll tax holidays even though they completely understand the tax is regressive and that maintaining the myth means tax rates must be raised to become ever more regressive in the future–which makes money’s worth calculations ever worse. Progressives will destroy the program rather than abandon the myth.

We need a new meme for money. The meme cannot begin from markets, from free exchange, from individual choice. We need a social metaphor, a public interest alternative to the private maximization calculus. We need to focus on the positive role played by government, and its use of money to serve us well.

Stay tuned for Part 2.

167 responses to “A Meme for Money, Part 1: Introduction

  1. Deep. Very, very deep.

  2. “We have to stop scaring people. … The reaction against MMT is largely moral.”

    As an MMT novice, but one who has been involved in federal policy making for over 30 years, I can tell you that this hits the nail squarely on the head. These two statements followed by “Without the proper framing, MMT cannot win policy debates,” are pure gold.

    I would only add that effective framing includes not only how you state issues but also where you start. There is often an academic (and preachy) tendency among those who know MMT best to insist on dragging the reader or listener through all the rigor and detail that they needed slog through to get to the policy conclusion. This tendency has deadly consequences for making converts to MMT. Where one starts has to be dictated always by the needs of the audience one is addressing. Folks who are already sure that government needs to act when the private sector won’t or can’t do not need to be dragged through a harangue about what money is and isn’t.

    Let me give an example. Almost all of the correct policy conclusions related to the “fiscal cliff” or “austerity bomb” can be reached with little or no reference to MMT whatsoever. We were teaching the right policies decades ago in Principles 101. To insist that one needs MMT to know what government needs to do today — or to force our explanations through an unfamiliar MMT lense — is counterproductive.

    MMT has only a few insights that greatly improve on what we knew 50 years age. Very few — but very important. Insisting on telling folks first what they don’t know is not productive IMHO. Showing then — the honest ones, that is — that MMT is the logical conclusion of what THEY ALREADY KNOW is the answer.

    • “Without the proper framing, MMT cannot win policy debates,” are pure gold.

      Even MMTers acknowledge the value of gold.

      • You gold-bugs should really be allowed to play with your shiny metal for the payment of private debts ONLY (assuming all other potential private money forms are allowed too on a level playing field wrt government). You’d quickly learn that it is government priviledge or the expectation thereof that is behind gold’s value beyond its mere commodity value.

  3. Paulo Garrido

    The meme could begin from a specialized productive system and the need of money to solve – under actual conditions – the distribution problem. (In this view, markets, free exchange and individual choices are a consequence not a beginning.)

    The distribution problem could be stated as: how are goods and services, produced by an increasing specialized number of producers, to be made available to users (aka consumers)?

    The “money answer” is that “specialized producers” transfer goods and services to users through “monetized transactions”. In exchange for the specialized goods and services a producer produces, s/he receives a number of “points”. Then, s/he changes roles and as a user renders “points” in exchange for goods and services s/he needs / wants / desires. “Named points” are what we call currencies.

    Does the system work? Reasonably well, with some problems, needs and restrictions.

    To begin with the system needs public legal enforcement of adequate behaviors, like claims and protection of property rights, organization of producers, “defense of users”, etc, etc.

    The system also needs public selection and enforcement of specific “named points”. This should follow from the existence of diverse homogeneous enforcing legal frames for the system, geographically defined and known as states.

    The system also needs public issuance of said “named points” and macro (state level) management of such issuance. This should follow from the requirements of full employment, price stability and debt regulation.

  4. The “framing” argument is correct. Curiously it relates to current thinking that sociopaths lack the ability to apply the caution of moral reasoning to their desires through inadequate brain development and linkages between different parts of the brain. Accordingly if “morality’ is being applied to the “creation” of money it would seem to make sense to have one carefully constructed broad representative agency ( “moral brain” ) that can be democratically responsible for developing and applying the “over-arching moral regulatory elements” to the creation of both state and credit money. Failure to do this allows the Libertarians to carry on bashing government and Statist Communists and Fascists to bash private markets.

  5. I’m not an economist. I’ve only ever cared economically about value; my current and future value, the value of what I need and want. My thoughts, for what they’re worth, from that perspective.

    People will not believe that something comes from nothing. It seems miraculous to believe otherwise or against the laws of nature. A singularity goes bang in a big way… now we’ll concentrate on the origins of the singularity. And, on the other side… changing water into wine or causing the scales to fall from a blind person’s eyes is divinity. In neither world does currency just appear from nowhere.

    Perhaps, the framing error is that you don’t show people where this magical keystroke value came from. Even though we know it’s not the system we use, we still think in terms of bars of gold stashed at some fort or under our mattresses.

  6. “Perhaps, the framing error is that you don’t show people where this magical keystroke value came from”

    It comes from our production…we get paid for our work and we earned it. It wouldn’t be fair to pay us with debt and it wouldn’t work anyway.

    Every time we go through a production cycle we need to get credit for our work and we keep score in dollars…but the number of dollars effectively declines because of saving and leakages. The fiscal authority must inject enough dollars into the system so that our production can be consumed.

    • It comes from our production…we get paid for our work and we earned it. It wouldn’t be fair to pay us with debt and it wouldn’t work anyway.

      Worldwide value comes from the same place. I don’t claim to know the public’s pulse, but I believe it’s our debt that has people worried, not our monetary system or any other aspect of economics. I don’t think the public understands that our debt is due to productivity somewhere else that we consume.

      We think we understand debt, so, we start our thought processes there and the only way to change perception is to start at the same place. Perhaps, doing a better job of explaining debt would frame it in terms the public can understand.

  7. I think there’s a great deal of truth in the Paul Samuelson quote you have in your new book (great job with it by the way) – that balancing the budget is almost a religious or sacred protection against unchecked government spending. If we do not think of the government as a household, then what stands between us and the goons in Washington handing out boat-loads of money to all their friends? It’s similar to the debt-ceiling.. there’s no reason it needs to be there, but Washington is so opaque and corrupted as it is – can we really sell giving this Congress a blank check to spend whatever they want? Not to mention you have a whole industry devoted to making government “small enough to drown in a bathtub”. There is an enormous gulf between logic and empirical evidence on the one hand, and what can be accomplished politically on the other.

  8. When I have this argument with regular folks – co-workers etc. – I always start by pointing out that there are things only a government can do. Things I know they already agree with. Things like:

    Land on the moon.
    Find a cure for cancer.
    Build the first atomic bomb (to be sure that Adolf Hitler isn’t the first one to do it).
    More generally – fight and win the second world war.

    Next I ask whether they think FDR had to consult anyone at the Treasury Department to find out whether the United States could “afford” to declare war on Japan. Did he have to worry that the United States might not have enough *money* to win the war? Common sense tells us that everything has to be paid for. But common sense also tells us that when a country is united in wanting something, real resources are the ultimate determinants of whether that something can be accomplished – not money. We may not know the details, but we know that the money side of the thing was engineered some way or other – war bonds, ration books, victory gardens and all that. I know that not much is explained by this exercise. But, through it, I find that I can achieve an important first step – getting someone to agree that they *don’t know the details*.

    I find that framing the mechanism of money in this way – as a mystery that calls out for a better explanation than common sense alone can provide – at least gets a person thinking. They go nuts a little bit later. Zimbabwe. Yes, it’s always, always Zimbabwe.

    • Mark Robertson

      Dale Pierce writes, “They go nuts a little bit later. Zimbabwe. Yes, it’s always, always Zimbabwe.”

      As I have previously explained here in this NEP blog, Zimbabwe’s hyperinflation did not occur because government went wild in printing money.

      The US, UK, EU, IMF, and Australia DELIBERATELY CAUSED Zimbabwe’s hyperinflation via a concerted blockade against credit availability.

      Zimbabwe’s hyperinflation (caused by the Western blockade) ended in 2009 when Zimbabwe dropped its own currency.

      After that, stability returned, but the Western blockade against Zimbabwe remains, and has been in place now for almost 12 years.

      Of course, everyone rejects the facts of what I say, even MMT-ers.

      Indeed, this is one of the ways that MMT-ers fail to reach an outside audience. They reject all the lies about money and national finances, but they defend all the other lies told by the corporate media.

      Put another way, MMT-ers reject the lies about money and government finances, but they defend the lies about international relations and the “war on terror.”

      Meanwhile, many progressives reject the lies about international relations and the “war on terror,” yet they defend the lies about money and national finances.

      So MMT-ers, if you really want to reach people, then you must emerge from your self-imposed bubble. You must stop believing all the lies about Moamar Gaddafy, Bashar al-Assad, Hugo Chavez, Myanmar, or Hezbollah, the “war on terror,” and so on.

      Question imperialism, since the interests that promote imperialism are exactly the same interests that promote lies about money and national finances, with exactly the same motive, namely to increase the gap between the 1% and the 99%.

      MMT can appeal to every progressive group. For example, if you want to reach the Occupy kids, then focus on what the kids whine about, e.g. their desire to tax the rich. Rather than start by explaining all the facts of MMT (which will put the kids to sleep), tell the kids that raising taxes on the rich will do nothing to help the Occupy kids, since federal tax revenue is destroyed upon receipt, and the rich never pay taxes anyway. Get the kids to think this: “If tax revenues are destroyed upon receipt, and if the government creates money out of thin air, then why can’t the government create money for us too?”

      The Occupy kids are only one example. MMT-ers must reach out to all progressive groups, adopt their language, and steer the conversation to the facts of MMT. How many of you visit socialist web sites? Pro-Palestinian web sites? Anti-war web sites? Anti-imperialist web sites?

      As an outsider who totally agrees with MMT, I see that most of you are in a bubble, and you do not realize it.

      THAT is why you fail.

      • Mark, please tell me where to look for more detailed information regarding your claim that “The US, UK, EU, IMF, and Australia DELIBERATELY CAUSED Zimbabwe’s hyperinflation via a concerted blockade against credit availability. ” That counters Bill Mitchell’s explanation regarding the problems with poor farming practices once the lands were “taken” from the whites an given to the blacks.

        I have a strong distrust/distaste for the IMF and its pro-imperialist tendencies. I buy all of MMT’s claims regarding the facts of fiat currency WITHIN a country. However, like you, I have trouble with the general lack of MMT explanations/concerns regarding INTER-country dealings and the hegemony of the US and other major countries.

      • I just read my comment about what I understood Bill Mitchell to say about Zimbabwe’s hyperinflation (“regarding the problems with poor farming practices once the lands were “taken” from the whites an given to the blacks.”) It as VERY shorthand and did not come out the way I meant it–my understanding is that the blacks were given land back to them that had been taken during white imperialism. But they lacked the training/experience to farm large tracts that the whites had developed over many years, and that’s why there was famine. Good thought, poorly executed–both by Zimbabwe and just now by me…:-)

    • Dale,
      I strongly approve of your point on the Moon and WW2. For the average Joe, I’m keeping it even simpler.

      1) Govt has nukes, like em or not. People can’t have nukes. Govt can print money for free. People can’t.

      2) JOE asks the practical question. Notice the semi-incoherent language, but he is a business owner not a burger flipper. Notice the morality argument. He’s against poor people getting a “free ride”. He’s also against the rich getting a “free ride”, which he is just beginning to think about. He sounds off against “govt spending” and “big government”.

      I had previously explained that Food Stamps don’t go to the poor. The poor get a plastic card and put some food in the frig. The MONEY goes to the Food Store Corp and employees and vendors, when their acct is credited by the Fed (and JPMC bank). There is PLENTY of food, no shortages. Section 8 does not go to the poor. They get a crappy vacant house or apt. The checks go to the middle class doctor, lawyer, realtor, etc. who buys the house and applies for Section 8 approval. Probably a property mgmt co, plus Home Depot, etc. The Investor puts the savings away so his kids can go to college.

      THEN — when their checking balances gets transferred to savings — then the bank purchases Treasury Bills to drain their Reserves (balance transfer @ the Fed between two accounts) — THEN that is counted as “national debt”. So it’s LITERALLY OUR SAVINGS that the bank uses to buy T-Bills which ARE the “national debt”.
      Joe: How do we get more liquidity on the streets? They loan money issued by the federal reserve, have rules for repayment etc.
      Is another mechanism of getting money on the streets warranted? Welfare is one way, food checks etc.

      Ultimately hard work needs to be rewarded correctly. How do we reward hard work the way it should be rewarded?

      I will answer your question, Joe. [I just realized I didn’t answer it, and I have to go to the Job Guarantee.]

      First off, banks do not actually loan out money issued by the Fed.

      Banks do not go to the Fed to somehow “get” money to loan to anyone.

      Banks CREATE money. Period. But not “free” money. Banks essentially “sell” or “rent” they money they create. Only the Federal Govt can create “free” money, no charge.

      The Fed has technical duties beyond what I will discuss (I already have) and maintains Reserve accounts, and if the banks fall short in their mandatory Reserves, the Fed will “loan” the banks money. The Fed also pays dividends to the banks that are part of the Fed. It’s a complicated kludge.

      Can you name a SINGLE source for U.S. Dollars — liquidity you want — other than the banking system or the Fed Govt’s deficit spending? Name one source.

      Does any foreign country create U.S. Dollars? Does any company create U.S. Dollars?

      And those “private” banks are back-stopped by the Fed and by the Fed Gov, customer deposits are insured by the Govt, the Govt is not supposed to protect banks from bankruptcy but sometimes does that too.

      Banks are chartered by Fed Gov and operated by rules set by Congress and by agencies. They are permitted to “rent” money they create, for profit, and permitted to speculate using that money.

      What other source besides federal “private” banks is there for liquidity (Dollars), OTHER THAN DEFICIT SPENDING (which is federal govt creating money and buying stuff from Americans — everyone from Lockheed to Solyndra — and buying stuff *for* Americans like elderly people and those kicked out of jobs)?


      Dollars are either borrowed into existence or spent into existence. That’s all.

      Money is not actually “redistributed”, since experts in finance explain that there’s no working connection between the IRS collections (which destroy dollars) and how the Treasury and Fed creates deposits, except you can look up two big numbers and subtract them, and pretend that means something important.

    • Dale,
      Here’s my followup to Joe. I’m posting it for the sake of the “language” that avg people can relate to (I hope).
      Joe, I just realized that in answering the question about Bank Money vs Govt Money, I missed your GENUINE moral question:

      How do we reward hard work the way it should be rewarded?

      Let me rephrase that. How can the Govt dump NECESSARY money INTO the economy while keeping to a minimum

      (a) rewarding rich crony capitalists with corporate welfare, a free ride

      (b) paying poor people to sit on their butts and not produce or contribute (which is arguably harmful to human beings, morally and spiritually)

      The answer from financial experts such as Mosler and Wray — but also conservative David Brooks — would be the updated version of FDR’s WPA program.

      Basically, Govt should still provide some kinds of “welfare” for people who can’t work or have a very difficult time.

      My sis knows a woman with very bad knees, in a lot of pain, needs surgery. She has an older son with autism or something.

      She can’t get Medicaid to pay for her surgery because the fact that she’s working so she does not starve proves that she “can work”.

      She can’t stop working or she will lose her home — already $900 behind in rent.

      She works about 16 hours at a unionized food retailer at minimum wage. She also cleans houses.

      For people like her, we need to CUT THE RED TAPE and nitpicking and give people help they need. She is definitely deserving. If I was rich or well-off I would help her directly. The Govt *can* afford it, with no tax burden, just like Iraq and Afghanistan and all the fat lazy Contractors.

      For people who CAN work, but cannot find a job, or cannot find a job they can get to, the Fed Govt can put together a Job Guarantee program @ about $10 per hour. Here’s the facts:

      People would be working, hopefully at something real and productive.

      Business and conservatives could cut this job program at any time: HIRE people away from the program.

      Minimum Wage: END IT. Instead, Govt would set a “baseline” wage by the JG. Sounds like “socialism” but this is exactly what Capitalist countries do ALL THE TIME with price supports for their non-human resources, from corn to cotton to cattle. Why not human beings too? Why WASTE so much human potential for “lack of money” which is a myth?

      People would not grow stale in their skills, for months and years of idleness, some their entire lives. They would be getting up for work, doing work, learning new useful skills. Not limited to picking up cigarette butts.

      People would be doing things that NEED to be done, but for which there is no ready “market” in terms of the private sector and consumers having enough money to pay for certain services and provide a big profit for investors. I’m thinking of care for the exploding population of elderly, who get shoved into prisons (nursing homes) (if they are lucky) where they take 99% of their life savings @ $6000+ per month, plus Medicaid, and leave people $40 per month for clothes, pizza, pop, cigarettes (if they smoke) and other normal amenities, even if they worked hard their entire lives and saved money.

      This would fix the *chronic* unemployment and under-employment that has plagued America for decades, basically since WW1 or WW2.

      It would fix the more severe chronic unemployment and chronic recession conditions (“jobless recovery”) that’s been going on faster since the mid-70s and 80s with the explosion of outsourcing to Latin America and China, etc.

      The economy and business would not have to rely so much on providing CREDIT to underpaid consumers to be able to sell what they produce. People would have more liquid MONEY. More people could work part time too, if they wanted, and have more time to enjoy life, but have more money to enjoy their time off and still be contributing.

      Business would expand. FINANCE would take a hit — but finance is hardly doing it’s proper role today anyhow. They are bleeding the country, bleeding cities and states, bleeding consumers, bleeding business, and ripping off both consumers and investors.

      Instead of only the Wall Street Plutocracy getting rich off Globalization and screwing the “average American” —- as they bragged about in the Citigroup Plutonomy Memos —- the average American would benefit too from Globalization and “cheap labor”, as China gets modernized (and then it will move to Vietnam or wherever).

      Whenever China decides they want to buy their own goods they make instead of shipping them to the USA, when they have less desire to import US Dollars —- and less desire to save those $$$ @ the Fed as our “national debt” —- then that production work will slowly revert back to Americans.

      That’s only to the extent that it’s not replaced by cheap automation and robotics in this “Brave New World”.

      There’s some of the LIQUIDITY you want, plus rewarding work instead of laziness (rich lazy or poor lazy).

      Of course there will still be many rich-lazy who game the system, and we can’t stop that without a more-strict maybe police state or “ethically pure” Government. Good luck.

      Of course there will always be some poor-lazy who game the system too, but a lot LESS people selling crack and robbing than today when even McDonald’s jobs are scarce.

  9. As well as explaining what the government can do, you need to explain why it should.

    This means refuting the arguments against government action, such as ‘austrian’ liquidationist (pro-deflation) arguments, for example.

  10. “We need a social metaphor, a public interest alternative to the private maximization calculus.”

    I would take this a step further.

    We need first to identify those groups who have the same definition of “public interest” as we do — and forget about proselytizing among those who do not. The latter are a lost cause because acceptance of MMT is strongly against their “self interest.” They will NEVER go along.

    For the former, those with the same concept of public interest, we must always start with and emphasize shared values — before attempting to indoctrinate. And we must be satisfied with partial victories along the way — persuading them one issue at a time, preferably the most important ones, and not holding out for complete conversion. This requires using a form of Occam’s razor: Dealing with the issue at hand — narrowly defined — and limiting the MMT jargon.

    The most fertile ground for conversions, IMHO, is among true progressives and dienfrachised citizens. The least fertile ground is among those propagating, and benefitting from, today’s economic policies. Any framing that attempts to “answer” MMT critics — particularly academic ones — will be self defeating.

    • As a tactical approach, I totally disagree. The “true progressives” are easy converts if you take the approach that there is no limit to government spending, so don’t impose any artificial limits.

      But there are not enough true progressives to carry the day. Any true progressive that Randy has already gotten the attention of is on his side, and it’s not even close to enough.

      To create a consensus, you have to “convert” people like me, who can understand the economics of it and recognize that the political battle is about something else besides affordability. You don’t have to win the political battle and implement a total “nanny state” in order to gain acceptance for MMT. If MMT’s victory requires the victory of Progressivism, it is a lost cause. But maybe that’s OK with the true believers in Progressivism.

      • “You don’t have to win the political battle and implement a total “nanny state” in order to gain acceptance for MMT. ”

        If we were in a bar, I would tell you exactly what I think of that remark.

        • Point taken, and I apologize. Let me rephrase:

          You don’t have to win the political battle and implement every initiative in the Progressive agenda in order to gain acceptance for MMT.

      • “people like me, who can understand the economics of it and recognize that the political battle is about something else besides affordability.”

        Precisely …

    • Adam Smith wrote about the wealth of NATIONS, not the wealth of individuals only. That sounds like what G. Edward Griffin calls “collectivism”, everybody working together for a common good, as a single nation.

      (Obama was attacked by Glenn Beck types for this mere rhetoric.)

      Does that mean Smith was a “Socialist”? According to the Tea Party, at least the corporate-sponsored version of the Tea Party, Smith’s ideas about progressive taxation and the necessity of labor unions is “socialism”. So much for the “Father of Modern Capitalism”.

      That’s not such a screwy question or rhetorical point. Marginalist Theory (Austrian econ) and it’s Neoclassical cousin was invented mostly to refute and crush Marx and Marxians, but also to crush Classical Liberalism of Adam Smith (admittedly simplistic version) and Mills and Ricardo, etc. (Michael Hudson)

      So today, the right wing and neoliberal “democrats” OPPOSE Adam Smith and his ideals of a free market. They want an authoritarian Banker-controlled centralized version of some faux “free market”. No wonder we’re looking at “Poverty of Nations” instead of “Wealth”.

  11. Dear Prof. Wray,

    Please permit a biologist (molecular and mathematical biology subtype) to add something to your profoundly important piece.

    Some human behaviors are so widely spread, and present at such a young age, that
    it is wise to adopt (provisionally) the view of sociobiology and to assume that they
    are behaviors determined by evolution and genetics, more than anything else.

    Trading one thing for another seems to me to be one of those fundamental human behaviors.

    Money has always been viewed as part of that behavior. Currency is an abstraction
    (usually only one level removed) for trading one thing for another.

    The government’s money is automatically viewed this way.

    The government’s money needs to be thought
    of in a different way because it is different as you and your colleagues have
    taught us. Your challenge (as you so wonderfully realize) is to find another metaphor
    for the government’s money. You need a way to frame that reality
    so it is not in conflict with the more or less built in ideas of trading one thing for

    I wish I had a good idea. I do not.
    BUT we have advertising professions and public relations experts that
    are expert at creating something out of nothing, for all our pleasure
    and profit, surely some of them can create the right myth for government money.

    Good luck!
    Thank heaven for you and your colleagues’ persistence.

    Ever yours
    Bob Eisenberg

    Bard Professor and Chair
    Dept of Molecular Biophysics
    Rush University Medical Center
    and (temporarily) Miller Professor,
    University of California Berkeley

    • For one who is looking to make a connection between the meme of our national circulating media and the somewhat scientific concept of resource sustainability, may I humbly suggest a read of the work of Dr. Frederick Soddy, early Nobelist in Chemistry, who was both the founder of the concept of broader social science, and became known as the father of modern Ecological Economics as we know it.
      His Cartesian Economics lectures titled: “The Bearing of Physical Science Upon State Stewardship” were written well after he realized that without the attachment of society, scientific advance could, and probably would, be the basis for destroying the world.
      This work establishes the links between the limits of our physical resources and the institutions that we create to advance our purpose.

      But his very specific identity of the problem that we are all dealing with here today is best spelled out in his short book titled : “The Role of Money”, also available free online.

      Good luck with it.

  12. So, you frame the MMT problem as a framing problem?

  13. While experience suggests that resistance to fiat currency solvency is defended by a moral myth and a mind set that equates money directly with assets and compensation, it’s a premise of financial security and potential collapse that holds the aggregate of objections together. Discussions on such issues should always begin with the problems of present conditions progress to various failed strategies to bolster affairs and then offer solutions primarily in terms of results and necessary maintenance. Otherwise there isn’t a logical context to debate the main issue that of economic chaos and personal financial loss. Selling MMT as a thought experiment has it’s place in the theoretical workshop, but aside from educating ,it is useless. An analogy which for example uses our love of the engine might be a way to open more discussion, right fuel for the engine, “performance rules” is a selling point. Luxury and consumerism are popular and sexy. What does the cleavage of MMT look like and getting in on the ground floor of recovery is basic one ups-manship who wouldn’t want it. If you can sell it, the results will legitimize the product. Abandoning the classroom model for the sunday pulpit or the prosecutors chair changes little. These should be speaking positions taken and used from time to enhance the versatility of communicating. We all know money is more than keystrokes,(e.g. , e.g. , e.g……..) keystrokes only account for how money is created when added to our shared account to show transactions and project economic growth.

  14. I plan to follow this series with another purpose in mind. I work in 2 fields (GMOs and gene patents) that have similar issues with being accepted and are subject to scare factors, immorality arguments and so on. My own opinion is that logic and facts don’t sway people except possibly those with unformed opinions or those on the fence. It’s a huge struggle also to be pro-active: the ‘nay-sayers” grab the headlines, and the rest of us chase them trying to set the record straight. And no one pays attention to the follow-up. How is it possible to be pro-active? IDK, it’s a question without a satisfactory answer.

  15. Because it’s immoral for the government to spend through the stroke of a key. L. Randall Wray

    Not really. Caesar is to be paid with Caesar’s money (Matthew 22:16-22). And that money should be inexpensive fiat since it requires no other backing than that Caesar requires it for the payment of taxes. What is immoral is that Caesar’s money has a government enforced monopoly for the payment of private debts too. Eliminate that monopoly and people could escape government money mismanagement (except too little government money creation relative to taxes) by using private currencies for private debts.

    That said, the entire population, including non-debtors, deserves restitution for theft with new full legal tender fiat till at least all deposits are 100% backed by reserves.

    • Deposits 100% backed by reserves — the closest we had to that was “fixed exchange rate”, and also the abolition of banking per se.

      That means NO CREDIT CREATION. No future-looking. No risk on the future.

      Non-starter, IMO.
      When the US had “fixed currency”, I’m sure you know that it was “fixed” by the fiat agreement of politicians, bureaucrats, govt finance ministers, bankers, etc. This was a heavy-handed Government Regulation on both banking and Govt itself.

      Except for the idea of trading commodity-money — which is not “money”, not a “unit of account” — this is bartering shiny metal rocks for goods. Lysander Spooner understood, the minute the Authorities stamp a price on a valuable scarce metal coin of specific weight and fineness, that price stamp is a LIE, because the market value of money vs metal changes, and the demand for the metal for creating money changes the value.

      • @GaryG
        As to the call for 100 Percent Reserves for all loans that banks make in order to restore soundness to both the money and banking systems , it is obviously a timely call.
        It is as old as monetary science itself, having long been advocated by social and economic reformers as well as advocates for sound banking and less government regulation. And it was practiced by advanced central banks.

        While full-reserves has no real connection to exchange rates, it was offered up again as a method to maintain stability after we got off the gold standard in 1934. And in so doing, it was purposed to protect capitalism and banking as we know them, and rather than abolish banking, it proposed to eliminate the need for many of the regulations of the banking industry that result from all forms of moral hazard.

        None other than our hero Hyman Minsky became a supporter of Fisher’s 100 Percent Money proposals, calling in 1994 for a new National Monetary Commission with new structures and new ways of operating the money system – including that associated with what we are calling full-reserve banking.

        In addition, right now today, governments looking for new ways to avoid the true causes of the present financial crisis are re-looking at full-reserve banking.

        Last year Governor King of the Bank of England called for its consideration as a replacement for the “present worst system” of fractional-reserve banking.

        And presently none other than Iceland, one of the early victims of the collapse of financialization, is calling for a look at its potential benefits in that country.
        “A motion has recently been put forward in the Althing – the Icelandic Parliament – calling for the forming of a committee to report on the benefits/costs of full reserves banking. The motion reads:
        “Althing concludes that the minister of finance will form a committee of specialists to research how the separation of money creation and loan function of the banking system can be achieved by limiting banks’ ability to create new deposits through lending.””
        This is from the Positivemoney.org/uk website.

        This being exactly the same methodology taught by Irving Fisher for many years as the means to put the central banking system in order, so as to remove the cause of the boom-bust cycle, it is no wonder that Minsky came to understand its benefits.

        The IMF’s recent research paper that Revisited the 1930s proposal to FDR found exactly the opposite of the claims you are making of, not only a lack of deflation, but higher economic growth.

        The government’s stamp of exchange value on its currency is not only not a lie, it is the essence of sovereignty over national money and manifests the legal tender laws.

  16. Hi Prof
    I’m afraid I’m still for presenting the facts as best we can…. and you (and Bill) still do that better than anybody else you dirty pinko commie fascist you. Perhaps a bit more double-entry bookkeeping might help the cause.

  17. What is also immoral is government backing (government deposit insurance, a legal tender lender of last resort, lack of a government “Postal Savings System” that makes no loans) for the so-called “private” money creation by the banks.

    • William Black stated in one of the Lessons Not Learned from the 80s S&L crisis is that “control fraud” was not dependent on deposit insurance.

      It was dependent on the willingness of bankers to commit fraud (beyond mere usury), the expectation of not being caught and not being punished, the expectation of walking away with millions or hundreds of millions BEFORE the inevitable crash.

      As a matter of fact, Michael Hudson pointed out what Sheila Bair was saying, that FDIC deposit insurance *alone* could have rescued the victims, the vanilla account holders, and they could have allowed the high-risk Ponzi Finance to crash and burn, and new investors could have picked up the smoldering pieces — with associated “debt writedowns” (as Steve Keen suggests) to accompany the managed bankruptcy process.

      No less than Michelle Bachmann pointed out this fact to fellow Republicans. Hudson was amazed that only a fringe whackjob like Bachmann was capable of “speaking truth to power” as they say, on TARP and the other bailouts.

      Mosler also stated something in his tight style of English that basically meant that the BACK end of the Ponzi crisis — after the fraud and collapse — is the wrong place to police the system.

      I think Mosler was correct that having ALL credit issued by Government Staffers would be wrong, because it would place a monopoly of credit in the hands of a very few people — fascism. However, I could vote in good conscience for MORE “base” money and LESS reliance on credit, esp for common citizen needs. No one should have to put medical bills or college tuition on their credit lines.

  18. I liked your comment about progressives destroying SS rather than give up the myth we paid for it. I’ve seen it first hand. Even now you see our political class saying SS does not contribute to our deficit. Hence, leave it alone. Great. Except that also leads to the notion we paid for it just like a pension. I think we need another approach. I think Joe Firestone has been saying we should abandon payroll taxes to pay for it, but that always seems to meet with resistance. A payroll holiday is often seen as defunding the program.

    In the end many programs will live or die based on public acceptance. At the moment too many people think SS is going bankrupt. So we need to reduce benefits, increase taxes or raise the age to begin collecting or some combination. Then there are those who want to let Wall Street manage it. It is not an easy issue to resolve politically no matter how “easy”it may seem from an economic standpoint. In fact, I have a suspicion not all economists agree on the right solution. The program and others are now at risk due to the utter nonsense surrounding the fiscal cliff. In some sense it is amusing to watch the goings on over it. But it is deadly serious stuff.

    • Mark Robertson

      Along those lines, Jonf, I have explained the facts of MMT several times to several different Mexicans (in Spanish) who had no education beyond the equivalent of 6th grade. Every one of them without exception picked it up instantly, and thought MMT was quite simple, responding with, “Of course. How could it be otherwise?”

      It is a classic case of the emperor’s new clothes, in which only the people who still have a “child-like” mind can see reality.

      Meanwhile the “sophisticated adults” have been brainwashed into utter stupidity.

      • Yes, it’s easier to teach to someone not already “educated” in economic theory.

      • Actually, I think it is rather easy to “teach” MMT to anyone without a closed mind. The less they know about economics the better. I have some friends around here who are very conservative. If I keep the “progressive” stuff out of it, it is rather easy to get accross. In fact in a small club I attend they want to hear more about it and I am outnumberd 10 to 2 by the conservatives. So you don’t talk about all the progressive stuff. They get the idea intuitively. May even convert a few of them.

  19. Our political class is having the vapors over our debt and deficits. It is essential that we reform our fiscal policies to place us on a sustainable path. We are in danger of going bankrupt and are running out of money. Households are tightening their belts and the government needs to do the same. So that tell us.

    A woman I know is poor. She and her husband raised five kids. Neither one finished high school. He is a janitor at the high school, she raises toy dogs and baby sits. I said to her one day that the government could never go broke and could always pay its bills bc it had a magic printing press in the back room. She looked surprised. She said she always thought that but was afraid to say so since she never finished high school and thought it was a dumb idea. WTF is the matter with our political class?

    • I also look at it this way: The POWER that the Govt has to simply DECLARE that marijuana — a plant that has grown wild all over America and the entire planet for thousands … well … forever — is now an ILLEGAL substance is the same POWER that the Govt has to Issue payments to anyone.

      Of course many will argue — correctly in my opinion — that it’s stupid for public policy to make a common weed illegal, esp when it is SO popular among SO many people of all types, and it’s a smart policy for other ulterior reasons. But nevertheless, no one doubts that the Govt has the POWER to arrest people for possessing this plant, and that this POWER is not derived from the nature of the plant itself, nor is it “borrowed” from other plants. It’s simply a declaration.

  20. I suggest you might have another problem as well and that is taking gratuitous jabs at folks who are making honest observations – it would seem that you have finally accepted the idea that you have to speak to the audience that is there instead of the ideal one you wish you had but your bowing to the practical necessity of framing is clearly grudging, and you can’t resist showing anger or disdain for those who point out the realities that make that framing necessary. To whit:
    “And so we get self-identified progressives fighting tooth and nail against payroll tax holidays even though they completely understand the tax is regressive and that maintaining the myth means tax rates must be raised to become ever more regressive in the future …. Progressives will destroy the program rather than abandon the myth.”

    You precede this with the statement:
    “That is not a back-handed slap at critics.”

    Oh really? Well, I suppose you are correct – there is nothing back handed about it – it is right out front. As one of those “self-identified progressives” who argues against payroll tax holidays – for the very reason you mentioned – folks perception that they are entitled to what they pay for and are more likely to defend a program where they have skin in the game – and wrote precisely that in a comment in Naked Capitalism a couple of days ago – I was downright excited to read the first part of your post, until i got to that line about being willing to destroy the program rather than abandon the myth – at that point I got pretty pissed. THAT was a punch in the mouth …

    However i will try to deal with your misconceptions of my critique in the same way as you have dealt with yours – first off by pointing out that you are wrong when you say “maintaining the myth means tax rates must be raised to become ever more regressive in the future” under “my” scenario – you ignore the possibility that such taxes could be made considerably more progressive – they need not be regressive … But that is a minor issue ..

    Much more to the point – you seem to recognize that it is “instinct” that produces this need folks have to require some kind of “investment” to get a return and that such investment must be perceived to have some fairly direct connection to the reward, the more direct the connection the more likely folks are to defend the program that produces it, but you seem to dismiss any concept that that idea could have any claim to “legitimacy”, only dealing with it as a subset of the “myth” you seek to dispel – that attitude comes across rather clearly and I suggest until you give it the respect that it, IMO, deserves, your attempt at reframing will be considered, at best, insincere and at worst downright manipulative ….

    Example – Paul in a comment above
    “Every time we go through a production cycle we need to get credit for our work and we keep score in dollars” – I suggest that the payroll tax is seen, for example, as the score we are accumulating for deferred benefits for that work – Now you can argue that in a decent society, just the fact that we are human beings a) should entitle us to such benefits and b) means society should provide them., but good luck with that – that sounds like the cartoon where the person at the blackboard writes an equation on the left representing the problem and one on the right representing the solution and in the middle writes “and then a miracle happens” – an observer says ‘”I think you will have to do better than that ..”

    As some one quite intrigued by the possibilities MMT presents – and as a pragmatist used to dealing with human bodies (medically) as they are and not how I might wish, I suggest you start looking for “instincts” such as these and instead of denigrating them because they are “wrong” find a way to tap into the enormous power they have to motivate human behavior … I posit that not only can it be done, but that it must be done if you are to succeed ..

    “We need a social metaphor, a public interest alternative to the private maximization calculus. We need to focus on the positive role played by government, and its use of money to serve us well.”

    I agree completely – BUT I posit that that meme cannot, IMO, be premised on a thorough denial and denigration of what, at least in this culture, are fundamental “instincts” shared by a very large part of the population – you not only need to acknowledge them with a respectful tip of the hat, but i would argue need to incorporate them in your “meme”.

    Don’t misunderstand me – i think your ideas might be “just what the doctor ordered”, but don’t forget that old joke about the various organs in the body arguing about which was the most important ….

    And then there’s the point Jerry made:
    “can we really sell giving this Congress a blank check to spend whatever they want?”

    I will be interested to see how you deal with that …

    All politics is personal – so are “economics” – and where it gets really interesting is where the 2 meet – don’t begrudge that fact, respect it …

    • Mark Robertson

      The FICA tax does not pay for Social Security. Like all federal taxes, it is essentially destroyed upon receipt. Therefore it is illogical to champion the cancellation of the 2% “tax holiday” in the FICA tax. That 2% acts like stimulus money.

      Those who disagree with this disagree with MMT.

      I myself have no time to coddle people’s “instincts.” Rather than smoothing people’s feathers, I prefer to try and get around people’s “instincts” so that people see the truth. There are always back doors into their minds.

      • Whether the tax is “needed” or not to finance the program is beside the point –
        While I quite clearly understand and ACCEPT the point about it not be needed for that, you clearly either missed, or perhaps more accurately DISmissed, the point I made that it may well serve another, important purpose …

        Your preference for “truth” over “instinct” is a perfect statement of a rather elitist attitude that turns off so many of the “regular” folk you claim you want to reach ….

        • Mark Robertson

          Aquifer: Whether the tax is “needed” or not to finance the program is beside the point.

          >> No, it is precisely the point.

          Aquifer: While I quite clearly understand and ACCEPT the point about it not be needed for that, you clearly either missed, or perhaps more accurately DISmissed, the point I made that it may well serve another, important purpose …

          >> The only “important purpose” served by an increase in the FICA tax is to worsen the current depression.

          Aquifer: Your preference for “truth” over “instinct” is a perfect statement of a rather elitist attitude that turns off so many of the “regular” folk you claim you want to reach ….

          >> I don’t want to reach everyone. People must be “triaged,” i.e. separated into those who can be helped, and those who cannot. Who makes the distinction? They do. When I politely and patiently explain MMT money mechanics to people, and they respond with smugness and anger, then they cannot be saved. I leave them to die alone. There are always other people to help.

          As for elitism, it is elitist and nauseatingly self-righteous to pretend (as you seem to) that we must have patience for idiocy, no matter what the cost.

          Some people can be helped. Others cannot. The latter must help themselves.
          Don’t blame me for that. Talk to them.

          • “No, it is precisely the point.”

            That is precisely YOUR point, not mine …

            “>> The only “important purpose” served by an increase in the FICA tax is to worsen the current depression”

            Again – that is your point, not mine …

            “When I politely and patiently explain MMT money mechanics to people, and they respond with smugness and anger, then they cannot be saved. I leave them to die alone. ”

            I do hope you do not represent the thinking of the MMT crowd as a whole …

            “As for elitism, it is elitist and nauseatingly self-righteous to pretend (as you seem to) that we must have patience for idiocy, no matter what the cost.”

            And i suggest that it is downright counterproductive to treat folks who don’t snap to and say “yes SIR, whatever you say SIR!” and offer critiques instead as “elitist and nauseatingly self-righteous” (as you seem to)

            As for triaging – there is a bit more to it than that … I suspect your definition of the truly hopeless might be a bit different than mine ….

    • I think you’re being too harsh on Randy. This is considerably more accommodating to opposing opinions than his previous efforts. Yes, he slipped into some derogatory comments, but not as much as before. Give him more time. Give him a break. He’s learning, but sometimes he just can’t help himself.

      The essence of it is vital: framing (marketing) is what MMT needs now. Absent religious wars, MMT wins the technical debate. The other guys still have the marketing advantage, and that’s why they are still in control.

      • Thanx for the feedback – i am obviously new to this site, and to the concept of MMT, so not “aware” of Mr. Wray’s “progress” in this area. I come here with a background in medicine – patient care – where it is quite clear that if you do not understand where the patient is coming from and cannot enter his/her frame of mind, motivation, etc, explain things in ways (s)he understands and offer a plan/prescription (s)he can accept and cooperate with – in short if you do not respect the patient with all his/her idiosyncrasies, you can tell them all the “truth” and prescribe all the pills you want – but your chances of actually helping that person are greatly diminished, and i am not even talking about Psychiatry, here, though pieces of that are part of the whole. Maybe economics should think of itself more as medicine at least claims it does, as both an Art as well as a Science …

        I think it has to be more than “marketing” – one can be successful in marketing while having a very dismissive, condescending attitude toward the “mark”. I think it has to consist of honestly evaluating, and actively engaging with these “instincts” that one might rather dismiss – instincts that are there for a reason and serve a purpose and if MMT cannot incorporate those same instincts or substitute them with others that serve the same purpose – in a better way, it’s chances of being accepted, let alone enthusiastically adopted, methinks are greatly diminished, no matter how “true” it is …

        But this is not my “theory” – it’s proponents can do whatever they like with it. I am here because I think i see its possibilities, but as is my wont, by nature and training, after the H&P – if i think i see something important that needs to be dealt with, I say so .. So take it or leave it, get a “second” opinion or ignore it …

        As James would say, i do believe, “truth” is that which works …. your system “works” very well, up to a point and that point is the degree to which it is accepted – i.e. just like money, to really work, it has to have the “full faith and credit” of the folks who adopt it – how to get there, that is the question ….

        • The technicals of MMT do address the concerns of both the deficit hawks and the deficit doves. They are engaged, not dismissed. Marketing is the art of persuasion. If you appear dismissive, DISmissive, abrasive, hostile, regard them as “marks”, frame it as “good vs. evil” and put the “mark” in the “evil” column before you even start, you won’t hold their attention long enough to persuade them. But that’s only part of the problem. MMT doesn’t get the press that its opponents get in the MSM. Yes, they’re on NPR sometimes, or academic conclaves, and on the web, but Krugman is on ABC, the NY Times, and Newsweek 5 times for every MMT appearance on NPR. I’m starting to think that converting Krugman is now possible, and would be the best thing that could happen.

          • I think what i was trying to address was something outside of the “deficit hawk/dove” motif – that is why I centered it around the payroll tax … And one can be very persuasive with a “mark” while secretly holding him/her in contempt – all those e-mails from En-ron on down to those re the “sh**” WS knew it was selling are proof of that. I do not want a system “sold” to me, like the latest iPhone – i want one that resonates with my fundamental values, and yes “instincts”. If the “sellers” of the system have no respect for those, then i will search elsewhere – methinks i am not alone in this …

            If that qualifies me as an “idiot” or too “dumb” or “evil” to bother with, so be it – i have lived long enough and been through enough to learn to trust many of those “instincts” more than I trust “theories” no matter how “logical” or reasoned – “facts” are useful, sometimes even necessary (smile – i hate those emoticons!) but they are not the only, or even sometimes the major, component of “truth” , in “fact” they can be used to sell all kinds of bunkum. The enduring systems of our species are those that recognize, understand and incorporate those “non rational” aspects of human existence – that utilize the corpus callosum that connects the right and left brains present in each of us and lets them communicate and coordinate with each other … and then of course there is the amygdala. And the funny part is – the response i often get to my critiques – the response that defends “reason” and “logic” over “emotion” is couched in terms that come straight out of the amygdala – LOL

            But i have taken up far too much of this thread already, as i am sure everyone will agree, so all i can say is “good luck” with your “theory” ….

            • Well, whatever you do secretly will not influence anyone. You said “having a very dismissive, condescending attitude toward the “mark””. That wouldn’t be a secret to him.

              You seem to have a narrow view of selling. The idea is not to convince someone to buy something he doesn’t want or need. At its best, it is to make him aware of the features and benefits, so that he can recognize whether or not he wants it, and how it may be superior to the alternatives. That information is not now available outside these blogs and UKMC. It needs to be in paces like those where Krugman is: ABC, NYT, Newsweek. That is not a technical problem, it is a marketing problem.

    • With respect, I think yours is the perfect example of how to destroy SS to save it. One of the problems I perceive the progressive agenda has is “we are all right and you are all wrong”. That is pretty close to what you said. Never mind that the meme of paying payroll taxes can be used against you as SS is headed to bankruptcy or that to save it you will need to increase the tax. Or that as the tax goes up there will be calls to increase the retirement age to mitigate the tax take. Or that SS is already being attacked as being unsustainable and even contributing to the deficit. Or that some want to simply reduce the benefits and not increase the tax. Or that in the years to come the really big issue will be real resources that we should be planning for now and are not at all covered by the payrol tax. Or that it is ready made for Wall Street once the right people are elected. Or that the economics is all wrong. I would suppose from your comment that all progressives agree with you. Is that so?

      Still I can understand the need to go more slowly until the idea of MMT and the policy choices are more widely accepted. But the goal has to be ultimately to move to a more sustainable model not dependent on payroll tax money and to ensure the resources are available. (you know like doctors and hospitals and transportation and stuff) After all we don’t have a fund for defense spending and so many other things and yet we manage to do it. That proceeds with a clear idea of the choices available. That starts with a framing. Sometimes you gotta call it for what it is.

      • Hmm – well i think you got part of my point – but the “we are all right and you are all wrong” is, frankly, to my reading of this, exactly the arrow that is shot in my direction –

        You do seem to have a rather defined view/definition of anyone who dares to call him/herself progressive – but at least you had the courtesy to ask whether all those positions you outline are ones I hold – usually what happens is the assumption is “Of course X thinks like this, (s)he is a “progressive” (ptui) . No, I think MMT ideas are a good one but, as history can give ample testament to – it’s not the “good” ideas that always win out …

        First, perhaps you might recall that SS has survived, and thrived, on the current formula since it’s inception, and i suspect, though folks here might be loathe to accept it – in the absence of the direct assault it is getting from TPTB, could continue to do so. The fact that you might very well have a better way of producing the end result doesn’t change that (or is YOUR argument that this way eventually leads to bankruptcy ..) So the question i would have is why has it (and Medicare) been able to hang in there for so long as that 3rd rail in politics, defended across all political lines, in spite of repeated assaults on it, when other social welfare programs (look at Clinton’s whacking at welfare in the 90’s) have succumbed? I posit it is important to understand that before you toss it out in favor of another model. Further i posit that one of the (if not the main) reasons for its success is the feeling of “I made, or paid for that – I EARNED it, it’s mine!” that so many individuals feel quite strongly about and, i posit, that if you want to substitute your program for this one, you need to tap into that to get folks to abandon the one they have for yours. Now you can argue that is bunkum and proceed as you are doing, dismissing or ignoring this concept in your formulations, or not … that is up to you. I am of an age where i don’t think i will see the worst of it in any case – the next generation will. But i am very concerned about them – so as Dr. Stein (the person I supported in the last election) said – I am a pragmatist, not an ideologue – if something works in a particular case, use it, whether it fits a “theory” or not – and if you decide to discard it, don’t throw the baby out with the bathwater …

        • Aquifer:First, perhaps you might recall that SS has survived, and thrived, on the current formula since it’s inception,
          As I wrote in a very long response to you at Naked Capitalism, this is just plain false. Factually false. The formula CHANGED. The FDR formula could have worked forever. FDR & his economists & SS advisers understood MMT perfectly well enough. It was called “The New Economics” back then. But what we have now is the Greenspan formula & its legacy, which has worked as welfare for the rich, and robbery from the poor, for 30 years. The Greenspan system changed SS into a neoclassical-econ program, which it had not been.

          and i suspect, though folks here might be loathe to accept it – in the absence of the direct assault it is getting from TPTB, could continue to do so.
          The assault started in earnest 30 years ago, with the Greenspan “fixes” aimed at destroying SS.

          The fact that you might very well have a better way of producing the end result doesn’t change that (or is YOUR argument that this way eventually leads to bankruptcy ..) So the question i would have is why has it (and Medicare) been able to hang in there for so long as that 3rd rail in politics, defended across all political lines, in spite of repeated assaults on it, when other social welfare programs (look at Clinton’s whacking at welfare in the 90′s) have succumbed? I posit it is important to understand that before you toss it out in favor of another model. Further i posit that one of the (if not the main) reasons for its success is the feeling of “I made, or paid for that – I EARNED it, it’s mine!” that so many individuals feel quite strongly about and, i posit, that if you want to substitute your program for this one, you need to tap into that to get folks to abandon the one they have for yours. Now you can argue that is bunkum and proceed as you are doing, dismissing or ignoring this concept in your formulations, or not … that is up to you.

          Yes, people have earned their SS. It is theirs. Whether we have an SS tax or not. “But how did they earn it?” is the question. Their feelings, your feelings are correct. This concept is not bunkum, and people who dismiss or ignore it either do not understand MMT economics well enough or are making major rhetorical mistakes. But people are manipulated by false economics, so they confuse “paying an SS tax” with “paying for SS”, “earning the right to SS”.

          Anyways, there is a really easy solution for SS’s imaginary financial problems, which can keep the current framework. Robert Eisner’s idea: Have the bonds in the giant, unnecessary trust fund pay a higher rate of interest. End of problem.

          • I am usually the one to remind folks that the devil is in the details – so if the formula has changed since it’s inception, I stand corrected – is it just the % of income taxed that changed or some other aspect – sorry, I don’t recall your response from NC … (I don’t know how to check conversations other than trying to remember which day they were on and where they were – and i can’t always find them … i am a computer dunce as well as a financial one – so maybe i should just get the heck out of here …)

            I also realize that the assault on SS et.al. has been going on for a long time – which is why I raised the issue of trying to figure out what about it has rendered it so successful for so long in withstanding this assault … and that is why i posited the strength of “I earned it, it’s mine!” attachment ….

            So, could you explain how MMT, in the absence of a tax as an individuals contribution, provide a mechanism for folks to say “It’s mine, I earned it!” I seem to have missed that somewhere along the way …

            I completely agree – there is an easy fix within the current framework – so my question is, pragmatist that i am, why do away altogether with the current framework if that basic framework has worked and has wide support because it meets a fundamental psychological need, the meeting of which is responsible for its survival in a very hostile climate, in favor of a system that does not meet that need and hence, ISTM, for that reason is much more vulnerable to getting whacked by another assault from TPTB – in order to meet the needs of the theory?

            Yup – absolutely, that has occurred to someone even as dumb as myself – set the interest rates for the “trust fund” higher – but that still leaves the question of how should that “trust” be funded in the first place …. such that folks still have that “I earned it, it’s mine” attachment that underlies its fierce defense …

            Also, to my way of thinking, this discussion isn’t just about SS or the payroll tax – they ARE important in themselves, IMO, but also as a concrete way of discussing, understanding, respecting and incorporating peoples motives for doing what they do – without which, i do not think your system will get much traction …

            • The biggest change is that the retirement age was raised. The income taxed is 100% of wages up to a fixed dollar amount, and nothing after that. The dollar amount is adjusted for inflation. I think the tax rate was raised once during my working career. A long time ago.

              During this partial payroll tax holiday, workers’ accounts were credited with the taxes they would have paid at the full rate. There’s no reason their entire contribution can’t be a credit to their account based on earnings in the same way as the tax. The benefit would still be “earned” based on their work record. “Mine”. Like the old-fashioned defined benefit pension plans we used to have.

              • I understand what you are saying but there is a difference between SS and the “defined benefit” pension plans that employers used to give – it is quite clear in the former that the employee is paying out of his “own” money (not to mention perhaps the ease with which the latter apparently can be snuffed out!)

                I suspect that the amount folks are being “credited” for will be considered an addition to the “deficit” and, as such, an additional “reason” benefits “need” to be curtailed …

            • Too tired to fully reply; I’ll dig up the url for my NCap reply and some relevant papers by Wray et al, but the 1983 Greenspan commission’s raising the tax rate and the retirement age turned SS from FDR’s pay-as-you-go program – the highest feasible tax rate, not the lowest one – to a pay-more-than-you-go, which is frankly insane imho. Reagan’s welfare-for-the-rich spending and deficits were necessary to pay for this SS overtaxation, not vice versa. The trick was to use FDR’s political protection as a device to destroy SS. The giant SS Trust Fund is the scam. Nations cannot “save up” their own debt. It is logically impossible. True national saving is national investment, which such high SS taxation depresses, along with the consumption of those without their private trust funds. There never was a giant trust fund before 1983, for 50 years. FDR & his advisers debated having a tax or no tax ( the original SS plan, and the MMT one) , realizing that the tax could and had caused serious economic damage. But not the looney-tunes Greenspan system, which they would have recoiled in horror from.

              I agree quite a lot with your way of thinking and think that many other suggestions here are misguided. But the true way is seeing “the theory” as the expression of and intellectual understanding of the “fundamental psychological needs”, the fundamental moral concepts like “debt”, “earning”, “it’s mine”, that everyone understands, that you are rightly emphasizing & not at all, not in the least, contrary to them. Gotta dive into the Science of Logic one more time & find Hegel’s discourse on the relation of philosophical terminology and ordinary vocabulary – it’s exactly relevant to what the MMTers are and should be doing. To hell with memes. Teach (worldly) philosophy to speak English.

              The problem, as with all truly interesting and great work, is that it is so simple, so easy, it repels the mind. There are no better and few equal guides to the Mitchell-Innes papers, the Mitchell-Innes conference volume and the Geoffrey Ingham book that Wray cites, though I think, very unusually, that Wray himself is not entirely on the right road here.

              • I’ll see if i can figure out how to find your NC response ….

                Seems to me another way to deal with the “damage” the tax causes is to insist on raising wages – the institution of a “living wage” would give folks more money to spend and at the same time address another “fairness” issue – the fact that the upper echelons have been benefiting considerably more, so i understand, from the increases in productivity over the years than has labor ..

                I suppose i don’t really understand the fierce opposition to this payroll tax – MMT appears to think that taxes are appropriate to deal with inflation, and I wonder if they would consider them acceptable to deal with the increasingly recognized problems caused by the extreme income inequality we are seeing these days – why not also as a way of cementing the “I paid for it, it’s mine!” sense of personal property it evokes …

                It just seems to me that unless and until MMT succeeds in actually enacting a program that works along its lines – the ONLY thing keeping our safety net going is that sense of ownership instilled by that tax-as-personal-investment. So in moving for its abolition – i say be careful what you ask for, for you may surely get it …

              • Aquifer,

                SS was started in the Depression as a “safety net” type of program, because the elderly were far poorer than their younger fellow citizens.

                Today, the elderly are more wealthy, on average, than working-age people. When I think of the”safety net”, I don’t think so much of SS as of Food Stamps, WIC, Section 8 Housing, Medicaid, and other programs that have poverty as an eligibility criterion. These have no dedicated taxes associated with them, so cannot be viewed as something the recipient has “paid for”, like SS is viewed. And yet they survive.

                Defined benefit pension plans are also something the employee has paid for, in the form of lowered cash wages, even though it is not a deduction from his W-2 income. SS “credits” for working would be just the same.

              • GJ

                Well i don’t know about you, but SS is about 60% of my income – the rest is a “defined benefit” pension which was taken over by a place that bought out my former employer and apparently has the option of deep sixing it – so, yeah, for me SS is definitely a “safety net”. The other programs you mention are considered by the public as “charity” subject to the whims of just how charitable folks feel – they are always on the verge of being chopped and have been whacked a number of times – which is why we have more hungry kids in poverty now. Clinton did a great whack job on “welfare” in the 90’s throwing many off the roles without much more than a few protestations from the back bench –

                If the elderly are “more wealthy” than the average working Joe, is that because the elderly are “wealthy” or because the average Joe has gotten so badly screwed lately – if you are worried about what the payroll taxes are taking out of the bottom end – just put more in the top end to compensate … THAT to me should be a top priority ….

                I really don’t think SS “credits for working” would be perceived in the same way – the bottom line is i really don’t think you can break that connection between “work/earn”, “pay for/own” on an individual level with impunity … If we all put “something in the pot”, we can all feel “justified” in getting something out … but that’s just my take ….

              • Aquifer,

                SS is a lot of my income, too, but I’m not touching my IRAs yet. Have you nothing saved after all those years working at a place with a defined benefit plan? That’s rhetorical, I don’t expect you to reveal your whole financial plan here. ERISA will help you if your pension provider goes under, or terminates the plan. That’s a safety net program, ERISA, it saves you “just in case”.

                There are more hungry children now, or at least more on food stamps, because of the poor economy, and our inefficiency. The Federal government spends $60,000 per poor person in this country. If only half that money went to the poor, they wouldn’t be poor.

                Since at least the 1980’s the elderly have been richer than the young, on average. It makes sense, they’ve been saving up for 50 years, and their mortgage is paid off, they own the house free and clear.

                There is something to be said for everyone having some skin in the game, tax-wise. I like using corporations to collect taxes, they’re good at that. If you tax everything they sell, their gross receipts, not profits, with no deductions, then until MMT is widely known you can claim that some portion of that tax is funding SS. Everybody is “in”, because we all buy stuff from corporations. You don’t have to tax labor, and it doesn’t have to be regressive, if you continue to have refundable personal income tax credits.

    • One could also argue the “fairness” and “justice” case for Soc Security, that since we reside in the box of a Global Corporate-State System which protects the “Rights” and profits of Mega-Corporations, and even “intellectual property”, therefore everything is MORE expensive than what it would be under a hypothetical Misean or “radical Lockean” actual Free Market …. which Michael Hudson pointed out has never existed anywhere.

      The early Progressive Era was Republican and Pro-Corporate. The later Progressive Era cut Labor in on the deal, the New Deal. Half of the New Deal was done by people like Frances Perkins, but the other half was Gerard Swope of General Electric.

      Neoliberalism has aimed to eliminate HALF of the New Deal, not the whole thing.

  21. This is dead on. One of my biggest complaints about MMT is its framing. When someone asserts “MMT says deficits don’t matter” MMT’ers gets defensive and try to embark on a lengthy explanation that quickly loses the listener. IMHO that’s a big mistake! I respond that MMT says deficits are CRITICALLY important and if they don’t understand that, they don’t have a clue about what MMT really says. I tell them deficits are like the gas pedal – if you don’t push on it you don’t move, you push too much and you can lose control and crash. Like driving on the freeway, you have to use just the right amount of gas.

    Like many, I also think the name “Modern Monetary Theory” screws us. “It’s just a theory” is the listener’s first thought. My thought is, since MMT describes the actual function of money in the economy, how about “mechanics?” Modern Monetary Mechanics or Functional Monetary Mechanics? Nobody argues a priori that “mechanics” is theoretical, the very word is perceived as describing something concrete. This has a much greater chance of encouraging the listener to suspend disbelief for a moment and actually think through the propositions without a knee-jerk denial.
    Finally, we argue that our sovereign debt is different from household debt and that proposition is met with immediate disbelief. The word “debt” is loaded with neurolinguistic implications, and the listener takes it in at a gut level, immediately triggering a defense against the noxious stimulus. The same holds for the word “tax,” but that’s been somewhat dealt with by the “membership dues in a civil society” meme, which most people seem to accept at some level. But, to then turn the tables and say taxes don’t really pay for anything, their purpose is to drive the value of money, certainly produces yet another dissonance to overcome in the listener; the idea that if the taxes don’t really go to pay for some public good, then their imposition amounts to nothing less than theft.

    • If Randy were in charge of the economy, maybe with Warren at his side, it would soon come to be the case that additional spending must be “paid for”, else the result would be inflation. Then it would be clear that government spending in excess of what is required to offset leakages MUST be offset by taxes.

      You don’t have to eliminate that part of the meme, just make a minor adjustment to it.

      • I was thinking along those same lines recently.. that using Warren’s point of “first come up with the size of government you want, and then adjust the level of taxation accordingly” gets us, in a roundabout sort of way, back to the idea of fiscal responsiblity, although not in the way we are accustomed to thinking about it (for the purpose of maintaining price stability as opposed to obsessing over budget deficits).

        But how to assimilate all of the competing business/personal/societal interests and ideas of what a government should and should not do, and then sustain this model and prevent it from being tampered with? We don’t have the luxury of an omnipotent MMT-savvy duo sitting at the top of our government to look over things. Our political system is woefully inept and incapable of even the simplest decisions right now. But I guess change comes slowly, eh?

        • Yes, our Constitution was designed to make change come slowly. Big change, anyway. The size of government has been under debate since 1791. It has grown fairly continuously, with occasional big spurts. The bigger it gets, the more resistance there is to further growth.

          With full employment, lots of what government does today would no longer be necessary, or would at least automatically shrink to near zero. That could make room, “policy space”, for further initiatives.

        • I thought it was “first determine the amount of real growth in the economy you want, and to what degree the currently economy has in capacity for growth, then adjust the amount of govt spending and/or taxation to sustain that growth plus imports and net savings, but not exceed that growth into the realm of inflation …. inflation meaning a broad area or point where private income demand is competing with demand from the non-govt sector for limited supply”.

          Even if not 100% accurate in terms of equations, this hits on all cylinders, IMO. It covers “demand leakage”, Mosler’s 800 lb gorilla article.

          • “I thought it was “first determine the amount of real growth …”

            No. To do it your way, if you had a situation like today where you want more growth, you might opt for government to spend more in order to stimulate production. Perhaps build a bridge to nowhere.

            The approach I understand Mosler to be saying is if you need a bridge, build it, and once you’ve decided on what bridges need building, adjust taxes to achieve full employment without inflation. You don’t build bridges (consuming scarce real resources) just to stimulate the economy, and you don’t refrain from building needed bridges for fear of inflation. The level of spending is the product of political decisions, and once that is decided, the level of taxing should be dictated by economic variables like unemployment and inflation. The size of the debt and deficit is incidental and unimportant.

            • True, Mosler does not advocate building unneeded bridges or unneeded military equipment.

              But full employment is a key goal, and not merely by some right wing crackhead plan of cutting wages (eliminating minimum) until business is booming. “Demand leakage” is about how people who *save* large sums from income do not increase a base of “loanable funds” any more than Bernanke’s QE forced banks to create more loans. This is obviously the top tier that does most of the savings after expenses, the poor having no surplus income to save or even pay for some basics like family health care, and their savings reduces aggregate demand.

              Beyond infrastructure jobs, there are MANY kinds of service jobs that need doing or could be creatively created — including helping older people — jobs that the private sector will NEVER do because of lack of profitability, at least no profits without govt subsidies. That’s not a wasted bit of silly construction, which uses physical resources and humans to create little useful physical wealth.

              (Keynes famously said that Govt could hire people to dig ditches and fill them in, but he also said surely the Govt can come up with better ideas for jobs than that.)

              Elder care and health is one of those “markets” that could not exist without massive govt spending, old people don’t have the money, and if they DID save the money, they reduced aggregate demand causing more youth unemployment. Ergo, there’s plenty of real physical demand — needs — but no economic demand. Then we see a backlash in unsold cars and factories running far below capacity with layoffs, but we don’t logically make the connection.

              Medical costs are SO bloated that nobody can afford to pay, least of all individual workers. Why not hire young people to assist old people on travel and vacations, instead of sitting home eating cat food? Their past WORK helped create real economic wealth, yet we let lack of financial assets (money) imprison them in small lives (or worse).

              The rise in outsourcing and robotics means more and more young people competing for fewer and fewer old-style jobs. We KNOW that outsourcing pushes wealth upwards — the Citigroup Plutonomy Memos cheer over that. That means that we have had a government policy for decades that explicitly benefits the Rich Owners at the expense of Workers, but we let them get away with calling anything that isn’t handouts and benefits to the Rich unearned “Entitlements”.

              MMT proposes to repair this but without a *need* to increase taxes on upper middle class to “pay for” new jobs.

              I also suggested that Uncle Sam simply GIVE every adult $1000 on their birthday (staggered subsidies for shopping) and GIVE every adult $911 on 9/11. Bush said “go shopping” after 9/11, but he did not give people money to do so. Instead, he expanded the situations where CREDITORS supplied that Stimulus, but it was clearly unsustainable … and that debt is suffocating us now.

              • Sounds like good things for JG workers to do, after the FICA tax is abolished and money is distributed to the States (other Mosler proposals).

  22. John Zelnicker

    Prof. Wray — I am pleased and encouraged by your change of focus. There has been a lot of discussion at Mike Norman’s blog about the difficulties in getting the framing right to communicate the MMT story. The addition of one of the academic developers of the theory to the task of developing a compelling story is a definite plus.

    You made a comment in this post about the moral objections to the idea of gov’t spending by keystroke. And I think you may be on to something there. I also see a moral objection arising to the idea of even theoretically unlimited money issuance. Another one is the idea that the Congresscritters will go crazy if there aren’t overriding legal and moral limits to spending. They can’t be trusted with a potentially bottomless purse.

    I have seen reports of the cognitive research indicating that there is quite a demarcation between the workings of the progressive mind versus the conservative mind. The conservative mind, it seems, responds most strongly to authoritarian and moral arguments, while the progressive mind is open to change based on to facts and empirical evidence. But, I think, a good moral argument can also have good effects on progressives.

    Over the last 30 or so years there has been a major change in the cultural morality of the US, as I see it. The shift has been from a focus on public welfare and the common good to the rugged individualism of the Wild West. The result has been to start blaming the disadvantaged for their disadvantage. I’m not Christian, but I keep thinking about the Sermon on the Mount and wondering what happened to all these devout Christians.

    I blame Ronald Reagan for a big part of this change with his “government bad, business good” dichotomy. Gov’t used to be seen as the provider of the public goods and the supporter of the poor and helpless. After Reagan and his acolytes got going gov’t became Lucifer.

    In the end, I think it will be some kind of moral argument that finally is the key to the vast majority coming to understand the benefits and the public welfare that is achievable with a fiat currency (if the real resources are available).

    I look forward to your ideas and discussion on this critical project.

    (I posted a very similar comment at MNE.)

  23. “there’s nothing fair about government getting something for nothing—for mere keystrokes.”

    But it do not get something for nothing. In the exchange private sector gets financial wealth that people have fetish to collect even over and above what is needed for consumption purposes. So they are happy.

    Talking about framing – isn’t it true that even tough you could say government has debt this debt at the very least has dual nature: government debt is at the same time asset to the non-government sector? So all you have to do is talk about asset nature of these debts and the trick is done, who on earth would support government making its citizens poorer? See, 99% of people just do not understand asset nature of debts. They think it is all negative.

    So we could campaing against taxation with slogans “Government – stop taking away our wealth!”; “By taxing us, government is making us poorer!”. Popular narrative, I would think. Taxes are way too high for this economic situation.

    If people understood government is the source of our financial wealth, who on earth would oppose government making us wealthier?

  24. The material here is simply too esoteric to gain a broad consensus among the masses. If the goal here is to get the various policy wonks that matter on board then you might have a fighting chance to gain traction. You certainly don’t need to simplify for them. In short, you need to convince a significant number of your professional peers first. The plebs and politicos will fall right in line afterwards. It’s going to be a marathon to accomplish, if at all. Decades possibly.

    • You need both, I think, at simple and complex levels of detail. Details for economists and policy wonks. Many professional politicians are not more economically literate than your average blue collar worker … sometimes LESS.

      Mosler and others do a good job of answering the usual objections about what “debt we owe to China” actually means.

      China earned a lot of money, and after planned spending in Dollars, surplus Dollars go to purchase US Securities, Safe Assets, to park their money. Some US policies forbid certain kinds of Chinese investment in the US, to protect US corporations.

      We also try to block sales of Chinese and other cheap imports outside of channels of key US distributors and retailers. So people pay prices associated with old-school unionized labor while companies pay the equivalent of 1920s non-union wage rates overseas.

      No surprise the income gap has skyrocketed (articles on that crisis in the early 1990s) and growing.

  25. When you talk about currency, it is obvious to all that it comes from government. Only the Treasury is allowed to print those green bills.

    From there, it is easy for anyone with a bank account or a credit card to see that the green paper is not the essence of money. They spend and earn and save while rarely touching it. Money is, literally, just bits in the computer. Is it so hard to understand, then, that the government, rather than printing the paper, put the bits into the computer?

    From there one goes to the Federal Reserve, who is the one that manipulates the computer. The way we do it is that Treasury either taxes or issues Bonds to get money from people, and then it spends the money it has acquired. No creation there. The Fed is the one who is seen to create money when it buys some of those Treasury Bonds and “prints” some actual money. From nowhere. Gimme that bond, and I’ll put bits into the computer for you, in your account.

    Now you can consolidate the actions of the Fed and Treasury, and see that there is no reason for the bonds as intermediary. The Fed could just put bits into Treasury’s bank account, and it could spend from there. No bonds. What happens to the amount of money in the hands of the people? If Treasury spends more than it taxes, then it goes up. Spending is what creates money in the economy, not the Fed buying bonds. In the old days, government buying gold from miners put new money into the economy. After that it circulated, but when it came into existence the first time, it was because government spent it. Today government doesn’t buy gold, but it buys ships and planes and employs deputy assistant secretaries, and that’s how new money gets into the economy.

    That’s simpler than the usual MMT explanation of the mechanics of it, and easier, I think, for ordinary people, even those trained in conventional economics, to get their minds around.

    Now you can do sectoral balances. No changes needed there.

    Now present the part of conventional economics about the paradox of thrift. If we save, as a group, then we won’t be consuming everything that we produced, or could have produced. When some stuff is not sold, producers lay off workers. In order for those workers to be employed, somebody has to buy their output. If we save, it’s not us. Maybe it can be foreigners, but that can’t work for all countries. If we are a net importer, we’re buying other people’s output, not our own, and that’s even more of our own (potential) output that somebody else has to buy.

    Back to sectoral balances: If the foreign sector is in surplus, and the private sector is in surplus, the government must be in deficit. Balanced budget is not only impossible, it is unwise, and trying to do it will only make things worse (even more people unemployed).

    The new part that is needed is this: Now that we understand that money is a creation of the government, and we know how important it is to our well-being, and we know about demand leakages and unemployment that are part of the nature of a monetary economy, especially a (relatively) free-market monetary economy, what is the government’s responsibility with respect to money?

    This is where the deficit hawks speak up. Government is morally obligated to have sound money. Inflation is like stealing.

    We concede that point.

    Since government is the sponsor of the free-market capitalist economy, and the creator of the money, and unemployment is a natural situation in such economies, the government has a moral obligation to alleviate, as much as possible, the ill effects of its sponsorship of the system. Without causing inflation. Government is responsible to see that the amount of demand in the economy is sufficient to purchase everything we can produce — but no more. Then we will all be employed, and happy.

    First, government must run a deficit equal to the savings of the private and foreign sectors. Actually, they don’t have a choice about that, it’s a mathematical identity. What must change is the realization that it will happen, and to stop trying to fight it. Run a deficit sufficient to satisfy the savings desires of the other sectors.

    Almost. If they did that big a deficit, so that everyone could have a job in the private sector, it is virtually certain that there would be inflation. Why? Because the skills of the last-to-be-hired workers would never match the demands of employers. Employers would bid up the price of the labor that was in shortage, and other skills would remain unemployed. The workers who were getting raises would spend on whatever goods they wanted, which would create shortages of those goods, and producers would raise prices and raise wages so as to attract more of the needed skills … in an endless cycle of rising prices and wages.

    Unemployment serves a function in today’s monetary economy: the buffer pool of unemployed workers prevents demand from exceeding supply, and prices from rising. Government can’t simply pay more for the things it needs, or lower taxes enough to employ everyone, without causing inflation.

    Now you talk JG. The narrative is well-developed. It is government’s moral obligation to the unemployed. It cannot cause inflation. Too-low taxes could cause inflation, but not JG.

    One hole in the explanation is the persistence of low-level inflation despite high unemployment, and absent other explanations for it, like oil embargoes. MMTers say we have 2% inflation because that’s what the Fed wants, and they don’t shoot for lower because they’re more afraid of deflation. That’s fine, as far as it goes, but if the Fed is that good at targeting inflation, why can’t they shoot for 1%, or 1/2%? And how, exactly, do they cause that 2%? Not by excessive demand generation, else unemployment would be lower. Nobody knows.

    • All good John. But I would quibble about inflation. More has to be done there. It is the Achilles Heel of “printing” money.

      • Yeah, was that not clear?

        The inflation rate is the thermometer, tax increases are the response of the system to overheating.

    • Good question. I sense that I have pretended to understand inflation for too long now. One important point seems to be inflation of what in comparison to what, in this sense CPI doesn’t seem to tell us much (stagnant wages versus skyrocketing healthcare/education costs for instance). I also recall one chart from Reuters showing global inflation rates moving almost in tandem with the CRB spot commodity index over the past 12 years.. but I can’t even seem to find good info showing how the weighting is distributed on CPI.

      The assumption of your point “Not by excessive demand generation, else unemployment would be lower” seems to be that inflation would naturally be a lot lower if the Fed wasn’t doing whatever it was that it is doing. My suspicion is that inflation would probably be higher (due to rising wages for example), but the Fed (or government as a whole really) is suppressing demand generation by keeping unemployment where it is. While it’s hard to say whether this is intentional or not, it is obviously within the government’s power to lower unemployment, and they have not done so.

      • ” it is obviously within the government’s power to lower unemployment, and they have not done so.”

        True, but it is not so obvious to me that they understand how to do it. If they did, I think they would. I’m not of the school that believes they are evil, and deliberately causing high unemployment because their objective is to enrich themselves only in comparison to others, not caring that they impoverish themselves in absolute measure while doing so.

        “global inflation rates moving almost in tandem with the CRB spot commodity index”

        As would be expected. Is it a causal relationship? If so, in which direction? Or are both a symptom of some other cause?

        • Well, of course not all of them understand how to, especially now, after decades of being brainwashed into the worse nonsense-economics of all time. But there are/were quite a few who intentionally and with malice aforethought decided to end the full employment era, decided to bring back the good old reserve army of the unemployed to show the lesser people their place. William Mitchell’s student Victor Quirk has a good number of papers documenting this, with an Australian focus of course. Mitchell himself had the same disbelief that you do.

          • I’m not familiar with the full-employment era. When was it, and who was responsible for ending it?

            • That’s one of many common phrases used for the postwar era. 1945- somewhere between 1970-1980. Roughly the same as the Bretton Woods era. The French called it Les Trentes Glorieuses. Mitchell’s book “Full Employment Abandoned” covers its worldwide nature & its worldwide abandonment. Basically it was when Keynesian economics, the MMT of the day, ruled the roost more or less. One theme of Wray’s piece that I agree with, and that can’t be emphasized often enough, is the regression since then in academic & worse, man-in-the-street understanding.

              In the 70s academia & governments decided to stop using economics that made some sense, reverted to imbecilic, laughable and unworkable superstitions decorated with a facade of fake mathematics, and this Great Leap Backwards gave us the world as it is now. The transition was in some ways less obvious in the USA than elsewhere, because it went from having relatively high unemployment (internationally compared) in the full employment era to relatively low unemployment in the neoliberal era. But if you looked at the real world, the change was obvious – e.g. there were basically no homeless people in the USA back then in the “full employment era”. What would have been profoundly shocking then is now commonplace.

              • Interesting. Was the end of Bretton Woods part of the strategy to raise the unemployment rate? Or just a coincidence? Seems to me that increasing the policy space by ending gold convertibility is something MMT would have advocated, and should have had the opposite effect, or at least enabled better, not worse, macroeconomic policy.

                I learned economics in the late 1960’s, and now I’m told that the economics taught then is no good anymore since 1971. And that they are still teaching the 1960’s economics (except at UKMC), even though everything has changed. Is that the nature of the problem, that the teaching of economics didn’t change? Or are you saying that it did change, but not in the appropriate way? What did they teach after I graduated, that I don’t know about?

                According to FRED, there were 4 recessions from 1949 to 1961 (12 years) and 6 from 1971 to 2011 (40 years). In 3 of those 4 recessions unemployment exceeded 7%, a level which was exceeded only once from 1988 to 2008, despite the dramatic increase of working age people in the population and in the workforce between those times. The low points for the unemployment rate were only slightly lower in the 1950s than the 1990’s and 2000’s. The exceptionally high unemployment rates of 1979 and 2008 coincide with the oil crisis and the Great Financial Crisis, events the likes of which did not occur in the Bretton Woods era. You’re not blaming those on macroeconomic policy, are you?

                One thing about the homeless, they weren’t called that when I was young, they were known as bums, or hobos, but they were around. Undoubtedly many were casualties of war, just like today, except nobody was aware of PTSD at the time.

                Do you attribute any of the change to demographics? The 1970’s is when the baby boomers entered the workforce, and women’s participation in the workforce began to soar, and the birth rate began to fall. Did that demographic change have anything to do with the end of full employment, as the ratio of workers to non-workers expanded dramatically? If so, are we then headed toward another era of full employment, as the baby boomers retire and the trend reverses?

    • With respect to your last para graph – yes indeed. I ran into that about a month ago as I was having a discussion with “a man on the street”, literally, i ran across while delivering political flyers – I tried to discuss my kindergarten version of MMT and the inflation issue was the main objection to be brought up – so, in the public perception, the gov’t has already thrown out millions of dollars (never mind they went to the banks, it was gov’t printed money), we aren’t any better off, though he said housing is picking up) and we have inflation – folks don’t look at the CPI, or XYZ, or PDQ – they look at what they are paying at the pump, in the stores. More gov’t money? I didn’t have the nerve or the presence of mind to suggest “taxes” as a way to curb inflation, or go into a long harangue about speculation …. So here is the situation – folks have no or lousy job prospects, prices are going up, country is in deep deficit “because gov’t is spending too much money” and you want to – what? Spend more money which inflates prices even more and then raise my taxes to fix it? That, ISTM, is the impression left. What is the explanation for this ….

      You have to take the “facts” the public is seeing – “What should i believe, your theory or my own eyes” and explain how your theory, or “mechanics” as suggested above, explains it or will remedy it …

      MMT folks really do need to sit down with a good devil’s advocate and be prepared with some good answers for “the man in the street”, and i don’t mean “You are full of BS and don’t know what you are talking about – THIS is the way it works and you should listen to me and stop being so stupid!” Also, every time I turn around i hear another, often different, even conflicting, description of what MMT is or isn’t ….

      • I think there are some good devil’s advocates on these blogs, and MMT has evolved its language a little bit as a result of the interaction. But, there are also some advocates for other points of view, that are not interested in discussion, just preaching.

        As for the “man in the street” objection to even higher deficits, some quantitative analysis could help. Something like $7T of private sector wealth was vaporized in the GFC. We’ve had 4 years of $1T deficits since then. So we’re maybe half way to undoing the damage. We can struggle along for another three years, or we can start to get serious about fixing it sooner.

        MMT has specific ways to do it, too. Not for the Fed to buy trash loans from banks, but to lower the payroll tax, send money to the states, and step up infrastructure spending on things we actually need, not more Solyndras. Those things will be popular with the man in the street. I think they understand that energy and food are volatile. Gas prices are down almost $1 since the Spring. Yes, college and medicine cost more, but electronics cost less, pills are cheaper than operations, and that high-priced medicine means you can survive now with something that would have killed you 5 years ago. Some prices go up and others go down, and technology advances, giving you better stuff than you had before. Even if it’s at a higher price, that’s not a bad thing. The inflation issue is about fear of what $2.9T of Fed balance sheet will do to us in the future, not about what’s going on now.

        • Granted – but if you don’t deal with the “more gov’t spending more inflation argument”, what happens is that concept accentuates what we have now – how can MMT help control what is happening now – does it have anything to say about this volatility …

          As for that “high priced” medicine – heh, that’s another story ….

          • “more gov’t spending more inflation argument”

            Only happens when at or near full employment. Not now.

            Volatility? Not sure what you mean, or how to try to “control” it. Changes in supply cause changes in prices, and supply of food and oil depends a lot on the weather.

    • John, when politicos talk about “inflation” they surely DO NOT mean price inflation — not really — because the Govt either interferes in the market to boost prices, as libertarians say, or refuses to intervene to counter natural monopolies, from the progressive view.

      Patents and licensing to name a few. Michael Hudson has lengthy explanations about “economic rents” and his article on Simon Patten is about how that prof (from early Wharton School) promoted a socialism of reduced price gouging.

      What they actually intend to block is what you say, WAGE inflation or simply wage increases, REGARDLESS of whether that lowers prices or not. The Atlantic had a story on how much outsourcing cut labor costs … a Laptop costs $50 to make. With bulk shipping on boats, that might add $5. So it would seem that prices at 200% of costs would match US producers, but where can you find a new Laptop for $100 or even $150? Extrapolate that to the rest of outsourced production.

      It was a bit of an epiphany to me that “inflation” is not the same as Govt’s CPI statistic. The reason is obvious, that MANY things can cause price hikes, from resource shortages and embargoes to heavily protected markets.

      Inflation occurs when Govt demand and private income demand competes for limited supply and limited capacity to create more supply, ergo (without considering real resources) when the supply of free labor approaches zero. That’s the economics definition of actual inflation.

      • The CPI is an imperfect measure, but it does try to measure the general increase in prices, and it does it as well as any other such measure, more or less. Price increases without wage increases are unsustainable, as you know, without production going down (recession).

        I’m gradually forming a sort of theory about price increases in the absence of full employment. In the 1970’s the oil shock caused increases in lots of prices, persistent increases, while the economy was stagnant. Wages also could cause the same thing, if, for instance, powerful unions representing a large number of workers were able to increase wages a lot, that increased cost of production would percolate throughout the economy just like an oil price shock.

        There is one other cost of production that is present in virtually every product that is sold, and that is land. Unlike oil and labor, the supply of land is fixed. As population and production increase, the demand for land increases, and the price must also increase. This has probably been happening for centuries, and will probably continue. That may be why prices must increase by about 2% a year even without excess aggregate demand.

        Maybe it’s good that the Fed targets 2% inflation, not 0%. It may be futile to try to stabilize prices any more than that.

  26. While I totally agree with the need to ‘frame’ the argument in the “right” concept, one of the greatest hurdles will be overcoming the the reality so succinctly pointed out by Jerry. I have added three words to your statement -“We need to focus on the positive role (that should be) played by government, and its use of money to serve us well”.
    If there is to be any focus on this aspect, it seems imperative to me, we have to address the problem raised by those three words. How do “we” make a government play the role of serving the public interest?

    • Yes, that’s the point I would focus on as well. The public needs to understand that it is our monetary system. We run it. We have limits, but the limits are not where people think they are. The limits lie in the real resources available for a society to work with, and to create value from. If the real resources are available – and that includes the capacity of willing citizens to do work – then it can never be the case that society can’t employ those resources because it is “out of money”.

      This is where the real argument between conservatives and progressives comes in. A lot of conservatives understand perfectly well that the public can use it’s monetary power to employ unemployed resources, and do something valuable with those on behalf of social progress and public purpose. And they probably understand that under most circumstances there is no significant inflation risk. But they don’t want the public to do that. Their view is that resources should remain under the control of private enterprise, and if some resources are unemployed, we should simply let them remain unemployed until some entrepreneurial private business figures out a way of employing them.

      Personally, I think that is a stubborn and terribly inefficient ideology. But that’s where they are coming from.

      • Dan,
        This is the clearest statement offered, it comes down to a certain reality.
        It is our (we the people’s) money system.
        It is based on this understanding that I realized the concept of the Money System Common.
        Only when the people recognize that money is, in fact, part of the commons that we all inherit by citizenry and therefore NEED to protect, that we can command its operation in the public interest.
        But MMT has another reality that is in conflict.
        Endogenous money.
        Corners need squaring.
        And the real science is on the side of we inheritors of the money power, won from the aristocrats after 1776.

      • Why do they not want that? Why do they believe private is best? What is the source of their views?

        • They believe private is best because of classical theory, the invisible hand of the market that, using price as the guide, directs resources to their highest use. The experience of the US for 200 years, in a mostly free-market system, vs. the experience of Europe in an increasingly socialist system and especially the experience of the Soviet Union, whose economy collapsed under the “command and control” system reinforce the classical theory.

          But this is not incompatible with MMT and its solution for full employment. JG simple substitutes a buffer of employed resources for a buffer of unemployed resources. They are still available for use in the private sector when it finds a use for them.

          BTW, monetarists don’t understand that deficits now are not the cause of inflation in the future. They measure the quantity of money in ways that don’t allow for quantity to easily decrease as demand for it falls.

          • Well i was curious about what DK’s would answer …. but OK, so you are saying that MMT is compatible with the views of folks who “don’t want the public to do that. Their view is that resources should remain under the control of private enterprise”. Hmmm , gotta admit, i don’t see all the planks in the bridge …..

            I think that your answer about what folks have “seen ” is somewhat responsive – but what they have also “seen” or should have seen, is that the some of the programs in their lives that they most staunchly defend are “social” programs like SS, Medicare – so if they don’t see that, why don’t they “see” that? What is in the way of their seeing? Now here is where the usual answer is “because they are stupid” or “idiots” – but that approach doesn’t get one too far, methinks ,,,,

            The whole point in my commenting here is to suggest that the beauty, the paradox and the staying power of the social programs we do have lies in the very clever way they were constructed – socially distributed, intergenerational, social insurance output wedded to the idea that each individual has a “vested interest” in them because of their personal contribution input such that ironically, folks can say “keep your hands off MY Medicare “. FDR was no fool …. He seems to have understood this and figured out how to do it for SS in ways no one, other than Johnson for Medicare, has as successfully since , IMO. If MMT can figure out how to wed those 2 concepts, social/individual, public/private in an equally successful way, methinks it will have a winner. If not, well …

            I am just suggesting that this is “vital” piece of the equation as to how to get from the system we are in to the system you have outlined. If folks think this is bunkum – well, as i said before, this is your theory, do with it what you want –

            • Maybe we’re not understanding each other. It’s not that they don’t want resources to be employed, I think everyone would want that. Some prefer that they be employed in the private sector rather than the public simply on grounds of efficiency, whenever it is possible.

              Non-MMT inflation hawks believe that some unemployment is the cost of price stability. The Phillips Curve, you know. They aren’t aware of the MMT concept of the employed buffer stock, but if they understood it they would prefer that to an unemployed buffer stock. That said, the details of its implementation are critical. Certain possible features might be showstoppers for certain people.

              The defense of SS by politicians who might be expected to oppose it is purely self-defense. You are correct in that it was designed to get people committed to it, and make it invulnerable and immortal. It was brilliantly done.

              I suppose you may be onto something, in trying to fashion a combination of public/private and social/individual appeals for MMT. I guess if I saw the strategy I might be able to form an opinion, but I just can’t imagine anything in the mold of SS. For me, the logic of the economic arguments was conclusive. I suppose others may be swayed by other factors.

          • “JG simple substitutes a buffer of employed resources for a buffer of unemployed resources.”

          • Isn’t it also worth pointing out that “classical” economics does not really apply in the State-Corporate economy created by Republican “Progressives” in the late 1800’s (Gabriel Kolko, Rothbard), when corporate capitalist leaders fairly clearly (if not publicly) aimed to redistribute profits upwards, by using Fed Gov to prevent “ruinous competition”, innovation, and state-level democratic activism?

            By the way, I can get the point about “ruinous competition”, even in the town where I live. The new movie theater downtown drove the older magnificent theater out of business, a few miles away, but did small rooms instead of grandeur and acoustics and huge screen, so now both of them are kaput. Left wing progressives understood that where the govt allows or assists in monopoly capitalism, prices and/or profits need to be curtailed back to what might theoretically occur if “perfect competition” etc. was present.

            But my main point is that it should be obvious to anyone not spouting a “religious” ideology about “free markets” that the USA has not had one in a century, if ever. Nor was the Constitution the protector of same. So “lassez-faire” is just a story and an excuse for plutocratic wealth and power.

            P.S. Stories around “Scientific Management”, Taylorism, John Taylor Gatto on schooling and big business, Adam Curtis movie on Pandora’s Box of technology and industry, and some Rothbardian history, all indicate that the Soviet Union sent scientists and economists to the USA to borrow from a “corporate-progressive” system America started, from the U.S. Steel conglomerate and Gary, IN in particular, to be modified to fit their ideology.

            • “But my main point is that it should be obvious to anyone not spouting a “religious” ideology about “free markets” that the USA has not had one in a century, if ever.”

              That’s why I called it “mostly free”.

              Technically, the ideal free market cannot exist, as it assumes “perfect” information, etc., that does not exist. However, the analysis of what would happen in that market sheds quite a lot of light on what happens in mostly free markets. Classical economics also analyzes what happens in monopolies and oligopolies. Monopolies usually don’t last unless protected by government.

  27. william allpow

    I think that the MMT framing should include sustainability as an intentional limit on the use of the money that we create. I think that this would extend the MMT concepts of Public Purpose and Policy Space and is an existing framing that people already understand.

  28. “And here we are a decade and a half later. In the past 2-3 years MMT has taken off, indeed, it has taken on a life of its own in the blogosphere. It is loved by many and hated by more. And as Heilbroner warned, it scares the hell out of even more.”

    And this is the reason why you are changing gears. Because it scares people? I don’t get it.
    I said it Bill once when many were saying compromise with Krugman. Right is right, they are wrong. xxxx em.

    Re ‘Currency’. Why not just define it? Physical cash, Reserves and Bonds would be my definition.

    • @ Andy
      People are programmed against government money creation. True.
      But, the normal (knee-jerk) reaction to the concept of “printing” money always involving inflation doesn’t stand up. There is actually zero wiggle room between von Mises and MMT. Once the reason for that is understood, what appears an obstacle quickly evaporates.
      From von Mises Theory of Money and Credit page 126. on The Concepts of Inflation and Deflation:
      “In theoretical investigation, there is only one meaning that can rationally be attached to the expression “Inflation” : an increase in the quantity of money (in the broader sense of the term so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money( again in the broader sense of the term) , so that a fall in the objective exchange value of money must occur. ”

      The problem of unemployment, even Bernanke would agree, is a need for money.
      Austerity is a reduction of money in the face of that need.

      Any monetary increase that is designed to meet “the need for money” is, by Austrian definition, not inflationary – it does not result in a loss in purchasing power. If anyone accepts that correct definition of inflation, then it is obvious that government money creation is not itself inflationary, and less inflationary than private money creation.

      • What the monetarists don’t get is that increases in the the “money supply” can also stop and reverse as easily as it starts. Much of it happens by automatic stabilizers, as in the late 1990’s. They see increases as permanent, and if they were then inflation would be the inevitable result. But MMT shows that government can easily increase money in bad times and take it back in good times in order to prevent imbalances in the supply and demand for money. When money creation (deficits) exactly offsets savings desires, there is no demand-pull inflation.

        As a Catholic and a person of science, I see no conflict between my religion and the theory of evolution. I also see no obvious conflict between MMT and monetarism. Monetarism is simply the application of the laws of supply and demand to the commodity of money. It’s the details of measuring it that throws them off.

        • Thanks.
          First “savings desires” are a tiny component of what determines the needed supply of circulating medium. And, if by ‘monetarists’ you mean policy makers that support the interest rate mechanism for controlling the supply of money, then a combination of market and economic forces can easily reverse any policy initiative.

          The beauty of MMT is its “claim” to a different monetary “transmission” mechanism that uses fiscal policy space to replace the “pushing-on-the-interest-rate” lever of these theoretical monetarists.

          The problem is that there is no real money transmission lever available to actually increase and decrease the supply of “money”, neither with MMT nor with the interest rate pushers. I have heard of its simplicity. But the “endogenous” money tenet maintained by MMT is a clear transmission clutch-slipper, in reality rendering the monetary policy arena more or less a free-for-all, with the profit incentive debt-issuers clearly in charge. I see a more-debt and more-taxes outcome.

          Understanding monetarism as a true transmission mechanism puts the money-quantity determination in what economists call the money “rule”, which today is described such as either Friedman’s Constitutional Amended 3-5 percent annually(A Program for Monetary Stability) or directly determined by monetary authority formula, as in the Kucinich Bill.
          There is no restriction on bank lending. But neither is there contraction of the money supply when banks do not lend, only a reduction in debt.

          • By “monetarists” I am referring to advocates of what is called the quantity theory of money. Their patron saint is Milton Friedman.

          • MMT is not devoid of arguments about reforming the playground of the debt issuers, nor that of increasing taxes in the right conditions. Steve Keen is over my head, but he has mapped out how a pure credit economy COULD work … sans the Minsky problem of Ponzi finance.

            Golfer1john: “commodity of money”
            Is it only a wonky point that Wray makes that money is not a commodity, but a Unit of Account, aka Accounting Units? Maybe that point is merely not applicable to the meaning of your statement.

            Forgive my Noob-ness, please.

            • I didn’t mean to contradict Wray, and wasn’t using the word “commodity” that way. Can’t think of another one right now …

  29. “”And so the way that an MMTer approaches the current deficit hysteria is by pointing out that as the Federal government spends through keystrokes that credit bank accounts, it can afford anything for sale in dollars.””

    This statement is true as an expression of what any sovereign government with a non-convertible fiat currency COULD do, but it is not true as an expression of what our sovereign government ‘can do’ today.

    The identity of the sovereign government being able to afford anything for sale in its currency in that nation is accurate. However, affordability is not the issue. A nation that establishes laws and rules for operating its government’s finances establishes other ‘financial’ realities that prevail for policy makers over this theoretical affordability question. You have to change the rules to reach the affordability threshold.

    That Greenspan and Bernanke observe the CB role in expanding the reserve balances of the Member institutions “by using keystrokes” is a far cry from, and somewhat irrelevant to, that which the ‘real’ government can do – the one that IS involved in the austerity debate.

    That real government never creates real money by spending through keystrokes that credit bank accounts. That real government, again the one that receives my taxes and pays my social security benefit, is via legal construct – a.k.a. a self-imposed constraints – prevented from creating new money when it spends. That real government must have “credit’ balances that are debited before it spends, and thus the discussion quickly reverts to how to provide those credit balances. If not austerity, what?

    Here we join what should be the predominant issue of the mechanics of the modern monetary economy. Since the sovereign government COULD create the new money needed to achieve sustainable prosperity, and the morality argument will be around whether government SHOULD create the money, and since the Constitution maintains that creation and issuance power as a governmental role, it seems what we should be talking about is exactly what is necessary to bring the operative words from ‘should and could’ to ‘can and does’.

    Which is why the debate about reform to the national monetary system should not be relegated to we cranks.

    In Minsky’s 1994 paper (Levy Institute W.P. No. 127)he called for a new National Monetary Commission and the inclusion of public money for consideration. We would all be well served to advance our reliance on his work to that which is the most relevant today.

    • In your approach of how do we get from where we are to where we need to be, i heartily agree. It is rather clear, I think, where we are, so next step agree on where we need to be …

      The challenge for any theory of money, ISTM, is how formulate an agreed upon picture of where we need to be – so for MMT what would that picture look like such that MMT is the best tool for getting there – the idea of reverse engineering, if you will –

      The process of figuring out that step would be quite enlightening, methinks, perhaps even for the MMT folks 🙂

    • I like to point out that as “weird” as ideas about a Platinum coin might be, our current rules mandate that Govt must borrow from insolvent Zombie banks, by issuing Securities at auction to Primary Dealers.

      So the Govt has to loan or give money to Zombie banks, so the banks can then loan that money to the Govt. That’s the statement I’ve been throwing around.

      Now it’s also true that the Zombies were mostly bailed out by the Fed, and with that money they were able to pay back TARP, and that’s just scratching the surface. As I read it, MMT does not deny that there are legal and institutional impediments. Mosler differentiates between operational reality vs self-imposed constraints created or maintained by Congress.

      Congress CAN change laws when it sees fit, sometimes quite rapidly, such as when there’s a lot of lobbying pressure and money behind changes. Randy cited the bypass and killing of Glass–Steagall by Citi and friends as an example.

      • Great point about forcing the GUVUS to borrow from the zombie banks – it explains pretty clearly Durbin’s statement after the crash: “The banks own this town”.
        If it’s true that ‘whoever owns your mortgage owns you’, you’re at the junction of moral hazard meets political corruption.
        I recognize that most MMTists acknowledges the legal constraints that exist against the exercise of sovereign money powers. At the same time, many deny it.
        What I don’t recognize is EXACTLY what MMT thinks those legal constraints are, and what MMT might propose to do about them, so that we might restore the money power to the government where it belongs.
        As you said – Congress can change laws when it sees fit.
        When the people understand money – the Congress will see fit.

  30. I’m not an economist, and have only begun to try to educate myself over the last 2 years.

    MMT caught my attention because, when understood, it demands political accountability regarding the distribution of resources.

    This uneducated dummy doesn’t see a moral problem with money as an intangible. Rather, morally, that seems as it should be. Morality comes into play regarding things like food, health care, etc…. And the hoarding of money points by the few at the expense of the many.

    If people understood that the only real economic question is producing and moving resources from point A to point B, and that affordability is never an issue for the Fed Gov, then the political demands would, it seems to me, be much higher.

    It seems to me that a lot of people are turned off by what seems so simple: government creates money out of nothing and so can afford anything. People just don’t think that things can be so simple. If they were, then why don’t we have plenty rather than scarcity?

    Confusing the simple with the easy is pretty common.

    • You’ve learned a lot in two years, more than most economics PhD’s learn in 7.

      What a monetarily sovereign government can afford is only the tip of the iceberg. The consequences of the government buying everything it could want are the issue. Whenever Congress quarrels about whether to buy more guns or more butter, the compromise is to buy more of both. Accountability, as you say, is the issue. MMT does need to address the question of inflation, which it can do most effectively.

  31. People have the same moral problem with taxes. They think it is bad that “the government” takes away stuff, through the power of law, that private people have produced. It’s pretty hard to make progress with radical anti-government people who simply reject the basic social contract of democracy, and reject the idea that they are members of a society whose members each owe some of their output to their fellow citizens.

    If you have any kind of functioning democratic society at all, there are going to be things that the citizens of that society do together as part of an organized public effort, and things they do as individuals. If they do some things together, they will need material resources to do what they do. There are only two ways the public can acquire those resources: either the public already collectively owns some raw materials and means of production, and they then manufacture the things they need as part of a public enterprise; or they tax away some of the things that are made by private enterprise.

    The monetary system is organized by government as a public utility in such a way that the possession of money confers purchasing power on the people who have it. As a result, the government is able to give people purchasing power in exchange for goods. The ability of the government to do this is not a free lunch, because the power to create and maintain the public monetary system requires a lot of damn hard work – building a functioning system of government with the power to make and enforce law is no picnic.

    • In other words, framing can help, but you can’t overpower the ramparts of an opposed moral philosophy with better framing. You can’t shove a square libertarian or laizzez faire peg in a round democratic hole, even if you grease it up with better rhetoric.

      • MMT is one thing. The nature of how we collectively decide to govern ourselves in quite another. Forget about libertarians. They’re fringe. Not everyone who thinks government can be overreaching and inefficient is a libertarian. Many folks on the left and right don’t care for blank checks and or gross mismanagement by government. Many sensible people loathe the military industrial complex. Others dislike the massive graft and corruption that centralized government spawns. You don’t have to be anti government to desire a system of governance that is much more responsive and accountable than ours. One person’s public good is another person’s public evil. This is why I am big on justifications on why and where the money is going to be spent. Claiming it’s for the general welfare is meaningless, even to a lefty like myself.

        It’s one thing to say deficits don’t necessarily matter operationally because of MMT, but if you stop there you’ll rightfully lose the fight. Deficits, or any government taxing and spending for that matter, don’t take place in a vacuum. Even if you get your meme across and the majority accepts the validity of MMT, it in no way implies they would or should embrace any particular notion on the size and scope of government. Reasonable people can and do disagree on policy issues. If MMTers have a political vision/agenda to go along with the operational realities of the monetary system, then by all means express said views. Don’t hold your breath waiting for the divided county to rally around you though. And I hope MMTers don’t go heavy on the condescending tone. It has that annoying Judeo- Christian, moralistic ring to it, which makes it a real turnoff.

        • The issue of the size and scope of government is a separate one. MMT should not get tangled up in that, except to invalidate the issue of “affordability”.

          “Taxes are too high for the size government we have” (Mosler). That is the stance MMT must take, if it is to win.

        • “It’s one thing to say deficits don’t necessarily matter operationally because of MMT, but if you stop there you’ll rightfully lose the fight. Deficits, or any government taxing and spending for that matter, don’t take place in a vacuum. ”
          It’s true that MMT as a study of monetary issues focuses on narrow basics, but NOT to the exclusion of policy issues. I think Mosler makes it clear — if quietly — that these political and policy decisions are very important, but separate from affordability and solvency.

      • Kevin Carson as a Left Libertarian raises some points from Marx & Mises for good fodder, if not good policy, IMO.

        While we have arguments about democracy and fair distribution, Carson points out the various hidden (from most people) ways in which Govt sticks it’s hands in the market to redistribute wealth upwards, other than by normal profits, FAR more than it redistributes wealth downwards, by means other than wages.

        The wealth imbalance is not PURELY a result of neutral “market forces”, the Invisible Hand. KEY POINT!!

        Also, EBT Food Card program does not give money to “people”, they get a card with credits and a share of abundant food that we have to pay farmers to limit the supply. The money-transfer from the Fed (or govt account at JPMC) goes to major corporations, retail and wholesale.

        Likewise, Section 8 money does not go to poor people. People get vacant houses. Under socialism, the govt might buy or seize vacant houses and give them to the poor. Instead, these are auctioned or sold to local (typically) investors, the professional class which buys them for another income stream and wealth accumulation, such as for retirement or college for kids.

        I think Soc Sec is the ONLY program that puts money straight into consumers’ checking accts, and even THAT goes mostly to big corporations and investors too, albeit not as directly as EBT and Section 8.

        Poor, working and middle class are the “pass-through” as “qualified” recipients to “entitlements”.

        • ‘The wealth imbalance is not PURELY a result of neutral “market forces”, the Invisible Hand. KEY POINT!!’

          The wealth imbalance is as neutral as the money-power imbalance.
          In a debt-based money system, all money is created as a debt.
          No debt. No money.

          Loans that are made go, NATURALLY, looking for the highest return on its investment.
          Also, the loans that are made go, first, to the most creditworthy borrowers.
          So, the less you need the money, the more of it there is for you- cheaper – to make the highest return.
          The more you need the money, the less of it there is for you – and more expensive.
          The people that create the debts collect the rents from the people who need the money.
          Finally, if loans are not made, we have no money.

          So, wealth concentration is at play. And the debt-based money system feeds the greed.
          Follow the money.
          From folly to austerity.(*)
          You are here(*)
          For the Money System Common.

    • Other than anarchists, everyone agrees on a legitimate role for government, starting with what is laid out in the US constitution, for Americans. Many go beyond that.

      So there is no widespread view that the government should not be taking anything by taxation. The widespread view is that taxation is necessary to pay for the legitimate functions of government. If it were limited to its Constitutional duties, MMT might decide that there was no need for any substantial Federal taxation. State taxes required to be paid in $US would be sufficient to give value to the currency, and spending on the common defense and the general welfare would probably not exceed (at least not by much) what would be necessary to offset the savings desires of the non-government sectors.

      It is accepted folklore that the only certainties in life are death and taxes. No sense objecting to either of them.

      • spending on the common defense and the general welfare would probably not exceed (at least not by much) what would be necessary to offset the savings desires of the non-government sectors.

        Do you include the net savings of the top 1% in that estimation? Most of the bottom 50% – 90% has little savings in pension funds and limited savings in 401K funds. Others have pointed out what a ripoff 401K is, with so much profits siphoned off to the middlemen, and the frequent market crashes, such that a person’s life savings in 401K could easily amount to a net loss vs checking accounts and CDs.

    • “People have the same moral problem with taxes. They think it is bad that “the government” takes away stuff, through the power of law, that private people have produced. It’s pretty hard to make progress with radical anti-government people who simply reject the basic social contract of democracy, and reject the idea that they are members of a society whose members each owe some of their output to their fellow citizens.”

      So now along comes MMT and says, “basically you are right” – After all, if gov’t is perceived as “needing” the money to pay for social services, you could at least appeal to even a conservative’s concept of “yeah, if i want something i have to pay for it”. But now, if their taxes aren’t needed to pay for these services, then why are they taxed? “Hmmm, we must be taxed because they (the Gov’t) are what we always thought they were, just thieves stealing our hard earned money to give to someone else ….!” Now of course you could say “Sure, we can abolish taxes ” and they can say “Hooray!” and then you mumble something about “of course, if there is inflation ….” and they say “aha, i knew there was a catch”. I suggest that trying to paint gov’t as a good guy when you have just pointed out they are taxing you when they don’t even have to, especially after you happen to mention that they rather already know this – might present a problem … I suggest that in your tax narrative you emphasize that taxes, in certain circumstances, are important and why …. Starting out with “the government doesn’t need taxes …” seems like leading with your chin, to me …

      Such theoretical conversations may seem foolish – but i suggest it is only in the course of some such that you smooth out your thinking, fill in the cracks, discover where the faults are and tweak if you must – rather like an attorney preparing his/her client for trial … Throw everything at it, including the kitchen sink …

  32. Randy, I love it. Such a wonderful explanation of how naif’s respond when I tell them we can’t go broke. But, I always tell them to think of how money even came to be. Some ancient government (I am not sure whom, but probably Alexander or the Egyptians) decided that money made sense as a substitute for trading and bartering. Money has no value, except as a facilitator of transactions at its very base reality. Even today we have other means of purchase or repayment (the famous, my credit card isn’t accepted, I guess I’ll just have to wash dishes). But, in a large and complex economy, money makes sense. But, the bottom line is that actual currency is simply a social simplifier before we add up the massive complexity of general commerce between people and countries. Then, it immediately and irretrievably become hugely complex and demanding. I like to point out to the “doubting Thomas’s” as to MMT, just look a the FED’s QE programs. All of their generation of money is electronic. Not a dollar is actully printed. And, as a result, what inflation? Oh sure, there is some, but really, Zimbabwe? Weimar? For an economy our size, considering that between the asset buys, Treasury buys, and QE, the FED has electronically created many trillions of “dollars” in the past couple or three years, with deminimus effect, except to, perhaps, prop the economy in relatively minor ways. I don’t know what the new meme could be, but a simple reality check might suffice.

    • to the “doubting Thomas’s” as to MMT, just look a the FED’s QE programs. All of their generation of money is electronic. Not a dollar is actully printed. And, as a result, what inflation?
      More to the point, the QE money did not enter the economy of money-in-circulation though *lending* either. An acct balance sitting in reserves is non-inflationary. If that acct balance actually went to create Deposits, that *could* have been inflationary. Inflation — of Real Estate prices — that was the *intended* outcome.

  33. This is all good stuff. This is sort of how I explain it.
    MMT should really be termed something like Modern Monetary Technics – it is mainly a description of technical monetary operations.

    Most people have a mental model of money as real stuff (even if they know it is a social contract there is a strong sense it involves hard values of trust, obligation, and justice). My metaphors for money avoid hard stuff – so if the economy is a car then money is not the gasoline but it is lube that keeps all the parts in the engine operating smoothly – we might argue on what gasoline to use, where or how to drive etc, but most agree to damage the engine due to lack of lubricant is madness.

    The other metaphor is the game of monopoly: we discuss how the game works with the banker/government issuing money at the outset and creating money from bits of paper if need be; the need for the government/banker to put more money into the game as people join the game (population growth); and the idea that is the government/banker decided to recover all this money (pay of the national debt) by collecting money every time a player passes go – and then watch that game grind to a halt.

    All this aims to show that in a growing economy with population growth – net issuance of money by government to keep pace with the goods and services is a fundamentally good thing. This then poses question marks about the idea of a government ‘surplus’ being necessarily good (which is what most people assume).

    I present MMT as non-political – the amount of net issue of money (not termed as debt) is determined or constrained by the real economy: unemployment (spare capacity), wage inflation (not commodity spikes), and exchange rate. The political debate occurs in how that the net issue of money is distributed (mix and type of taxes spending and investments). The fact that this approach gives greater freedom for governments to act.

    Governments (monetary sovereign etc) “are not households” is the corollary of governments controlling the issue of fiat money. However this does not provide a replacement mental model – One way through this is just adapt the household budget model. If there was an alternative for explicitly setting the constraint – ie an independent body (democratic process) sets the net issuance of money that is appropriate based on employment, inflation, and exchange rates – then the government still operates as now to meet that budget.


    • Once you get across the idea of how money is (net) created – by deficit spending, then the necessity of deficits is easily proven. Large economies require more money than small ones. Nobody can argue that. From that it follows that growing economies require creation of money – regular and continuous deficits. Population growth is not necessary, only growing wealth.

    • Hmm – once you use an analogy that others are familiar with, remember that you don’t have control over which features can be accented – e.g.
      “Monopoly – oh yeah that game where i can lose all my money and be out of the game because I happened to land on spaces owned by folks with all the money and hotels …that is the game MMT is like?”

  34. Economists should at all times use ‘shipwreck victims stranded on uninhabited islands’ metaphors. 🙂

    • Economists should at all times use ‘shipwreck victims stranded on uninhabited islands’ metaphors.

      LOL. Until I listened to Keen, I hadn’t realized that Crusoe and Friday were actually used as economic models.

  35. A meme is a thought fragment at its lowest, simplest granular level. Its elegance is that an entire conceptual structure can be built upon it if it is good and solid. For example: One Man, One Vote. Good start. That, of course, was not granular nor comprehensive enough. It became One Person, One Vote. Three cheers for granularity and its refinements like 18 years old. Progress made possible by a simple meme to build on. Companies are People: Hiss! Bad meme.

    I think the meme to build a monetary system on is the uniquely serialized digital one dollar bill. One dollar, one unique serial number. Like the old paper dollar we could hold in our hands. It is now digital but in conversion to the virtual world it lost the serial number, as well the paper it was printed on that gave it real identity and perceived validity. It lost its singular identity. A “real” true dollar that cannot be faked. Good thing there are still a few around to remind us that there was such a concept as hard cash money.

    M2 money only has “substance” and existence as a sum in an account and total of all accounts. It moves from account to account in dollar sum transaction amounts. What if a new “balancing concept” was introduced where every single digital dollar in the M2 digital universe was serialized at the one dollar level and it was associated by some means with its related bank account number and (total of all discrete single, same account related digital unit dollars) equal to the total sum in the related bank account. Transaction amounts on the account side would “explode” to their related serialized unit identities on the fixed unit dollar side. New owners of the unit dollar would replace current owner. The rule would be that all single digital dollars must have a related bank account. A unique serialized dollar could not be related to more than one bank account. Initially a government account. Once serialized into existence the digital serialized one dollar lives forever. Positive idea. Taxes merely suspend a digital dollar in the government account subject to rules for when it may or may not be reintroduced to the active system by spending. If there are not enough dollars in suspension new serialized units are created subject to rules.

    The uniquely serialized digital dollar meme introduces the concept of a fixed single, central record of money at its lowest micro granular level, the serialized digital unit dollar where the variable bank account owner associated with that dollar changes. Where the single dollar does not change or flow but accounts do as single dollar ownership changes. On the macro mirror image fixed record bank account side, dollars in total transaction amounts continue to be the variable that moves, flows among accounts. Both sides balance in real time in a footing and cross-footing manner. Balance sheet accounting concepts and their applications are entirely downstream on the bank side. Either side, the money unit or account side, provides a best tool designed to its own purpose for system, operation maintenance and control. Banks for accounts, a monetary authority for the unit serialized dollars in those accounts.

    This would deal with big numbers of records as well as transactions. However if you want to relate that to the scale of magnitude and speed of today look at the new IPv6 system. It has 1 followed by 35 zeros of unique addresses. Computer trading examples for speed and volume. The magnitude of our entire system that is doing all this today.

    Once money is identified at this unit level it is data, information and knowledge. We can know where it is, what it is doing but most of all what it is at the lowest level of granular existence. Accounts are aggregated money and created to serve an accounting system. Money is not accounting. The lowest granular level of the unit dollar is a component building block in an accounting system that deals in aggregates of money. Memes are currently built on that aggregate of money. National Debt is an account and has its meme. There is no meme on the unit money side. Is that what we need to create?

    Our National Debt account equals our National Savings account plus and minus stuff. The debt meme dies when the National Debt is translated to the virtual existence of single uniquely serialized dollar bills at the unit level that support, and is equal to, the total sums in saving accounts plus or minus wherever else money can exist in a balancing account. I suppose this presumes a Chicago Plan type of asset money based system.

    I only have a raw understanding of how economics or even MMT , which is better economics, works. However I can see and understand how digital money works if it was serialized unit dollars at a central maintenance authority point and related to the owner in the bank accounting system. I can understand my single digital dollar bills even if they are virtual serial numbers on a screen that I can count if I want to simply validate the trust I have in the system. Each dollar has, in effect, my name on it. Even if I owe someone for the right to put my name on it. That is a downstream debt account thing that remains after I spend the money. I could understand and maybe trust a system built on, or at least academically explained, using the serialized digital dollar meme. I am as c0mmon in understanding as any common man. Fortunately I know that this will be read by uncommon minds that might grasp a pony somewhere in it even if it is in the fantasy realm.

    • Not that it invalidates your meme, but you have to be able to account for fractions of dollars. If 4 people each give me $0.25 virtual dollars, I have one more dollar with my name on it, but they don’t lose any. It’s one of those granularity refinements.

    • “I can understand my single digital dollar bills even if they are virtual serial numbers on a screen that I can count if I want to simply validate the trust I have in the system. Each dollar has, in effect, my name on it. Even if I owe someone for the right to put my name on it. That is a downstream debt account thing that remains after I spend the money. ”

      If i understand you properly, methinks you have reinforced the importance of, somewhere along the line, being able to say “this is mine, it belongs to me ….”

  36. The previous comments have been very thoughtful and most have been very good. I share many of views expressed, but also have a different point of view.

    First, while I do think that “framing” MMT as effectively as we can is essential; I also think that “frames” contain “fact-value-emotive-and prescriptive elements especially when the frames are spun out and used in narratives. So, I still think that facts are very important in persuading people, especially those with open minds, while I also think that those facts must be placed in the context of the frames within which they fit.

    Second, I agree that one of the reasons why we may not be creating as rapid an acceptance of MMT as we would like, is because we’ve not been providing it with a moral framing, or at least a consistent, explicit one, but rather with a predominantly descriptive framing. In contrast, what the conservatives have done and always seem to do is to provide a moral framing. To most people who call themselves progressive that morality framing of conservatism is barbarous and highly immoral in many ways. Yet progressive economists won’t oppose that moral frame with one of their own. Why not?

    I think this is due to the commitment held by many progressive economists that economics is a science, and that science ought to be value free. Given this commitment, progressive economists prefer to describe, to offer facts, or to offer prescriptions in the form of conditional means ends statements, rather than to offer prescriptions with the force of moral judgments behind them. But, the trouble with this is that without the moral judgments, it’s very, very difficult to generate the passionate arguments we need to spread MMT far and wide.

    So, to the extent we adhere closely to the value-free “objectivity” norms in our discourse we are also constrained in our ability to use the moral framings that alone will create interest in MMT in the larger population, because 1) our opponents are using moral framings, at least in popular discourse (blogging and policy debates); and 2) our audience of people interested in politics, policy analysis, and economic policy looks at politics, and policy from a moral or goal/values point of view first, and then at policy as the means to get to moral goals and objectives. That’s another way of saying that their interest in “economics” is more along the lines of how it fits into action and getting things done, while the economist’s is often more along lines of the need to explain and understand, and perhaps to predict.

    Now as it happens, even though I have a very strong commitment to “science” and my own constructions of scientific norms and processes, I haven’t, since the early 1960s believed that science, “hard” or “social” was value-free. Once, during the first part of the 1970s I wrote a very long book, which, through a series of mischances I couldn’t get published, which developed an alternative epistemology intended as the foundation of the sciences that looked at scientific theory as a fusion of fact and value. The full story of that will have to wait for another day or another year; but I did at one point in recent years revise a chapter in that book criticizing the fact-value dichotomy, and placed it online. It’s here. Over the years since the 1970s many others have come out against the dichotomy. And in 2002 I was particularly gratified to see that Hilary Putnam, who I had always viewed as something of a logical empiricist wrote a book entitled The Collapse of the Fact-Value Dichotomy.

    Since I don’t believe in the fact-value dichotomy, I rarely have restricted my MMT writing to purely descriptive and operational concerns, and I have most frequently discussed the implications of my views on MMT in a moral/policy/values context, often harkening back to the idea of MMT for the public purpose, and a framing of the public purpose in terms of FDR’s Second Bill of Rights. I’ve noticed that Randy, Stephanie, Pavlina, and Marshall Auerback sometimes frame things in ways similar to my own in their blog posts. In addition, Bill Mitchell is out front with this kind of framing every day, and Michael Hudson, and Bill Black are not exactly what I would call “cool” unemotional economist types who avoid moral framings either.

    Among leading MMTers, only Warren cultivates a cool unemotional, though very good-humored demeanor, but, also when he talks about MMT-based policy he invariably talks about public purpose and points out the correspondence of various MMT policies and public purpose. So, even he gets involved to a degree in political, and normative, theorizing and not just descriptive economics.

    All in all, I’m inclined to think that moral frames have been emerging in MMT writing for a long time, and were always there to some degree even from the beginning. I also think the MMT moral framing is about public purpose, giving meaning and content to that term, often with reference to FDR’s economic bill of rights, and also in terms of a number of subsidiary objectives important for the good society, which MMT-based policies ought to contribute to.

    I’ve given my view of the MMT Fact-Value Framework here, as part of a series on the Job Guarantee. I don’t offer this as a correct distillation from the MMT literature; but as one theory about what a construction of the knowledge claim components including the value and moral aspects of MMT would look like. Of course, public purpose is at the center of this construct and other components radiate out from there. That reflects my view that MMT-based moral frames should develop outward from the idea of public purpose, and the moral obligation of all of us, including people and the politicians to implement policy that will achieve the public purpose. Now let’s see if that or something similar is “the meme for money” that Randy develops in Part Two.

    • First you say “we’ve not been providing it with a moral framing”

      and then you describe how everyone in MMT, except Warren, writes in terms of moral framing, always from the Progressive point of view, some loudly and obnoxiously.

      I think the latter is true, not the former. More generally, I find moral justification to be the most prominent feature of Progressive economic ideas, while those of conservatives need only meet the most basic moral requirement not to violate the rights of others, and are justified mainly on grounds of efficiency or cost-effectiveness, their moral aspect being considered universally recognized and not needing to be specified.

      I am glad for MMT that Randy appears to be toning down the moral arguments. I think those who would be receptive to them are easy converts, but not a large enough number, and more will be turned off by the tone than turned on by the facts. There aren’t that many with minds open enough to ignore a tone that irritates them.

  37. I’m very much looking forward to part 2 (and 3, etc?) and couldn’t agree more that developing a positive “public interest” frame-meme-metaphor for understanding money is a fruitful focus for the MMT community.

    In case any of you haven’t seen it, George Lakoff has a recent piece on the “fiscal cliff” at HuffPost, which I’d recommend. While it doesn’t provide specific answers or suggestions, it helps to clarify the nature of the framing challenge and key things to keep in mind in addressing it.

    • It’s an interesting article, although I don’t get the idea that he knows the real issue.

      “Krugman points out that the idea of the fiscal cliff is tied to an economically false argument about the dangers of the deficit.”

      No, the idea of the fiscal cliff is tied to an economically sound argument about the dangers of austerity.

      It seems to me that the fiscal cliff metaphor is totally consistent with MMT and every other economic theory. And everyone knows it. Increased taxes and decreased spending would put the economy into a recession. That’s the cliff. What is odd is that both sides of the political debate seem to think that if we go down a slope instead of a cliff, the economy will be helped, not hurt.

      But the idea of some metaphors being hard to overcome is most relevant. The meme of government as a big household is one that gives MMT a very hard time.

  38. “We need a social metaphor, a public interest alternative to the private maximization calculus. We need to focus on the positive role played by government, and its use of money to serve us well.”

    Even as I agree with the above, the below background is false:
    “The need to pay taxes means that people work and produce in order to get that in which taxes can be paid”.

    “we work hard to get the government’s money because we have to pay taxes”

    >> We actually work for what we can keep after taxes, not to be able to pay taxes…unless the tax is on one’s very existence not income..and the latter is not a socially desirable goal or individual.

    MMT has way more to nuance itself than say that a sovereign issuer can print and hand over money to anyone to meet its judgment on optimum money supply, and/or that it can tax back as it deems fit. The Gov enables an economy and its player, not owns them.

    • It’s easy to miss, but the point is that we work for the government’s money because we need it to pay taxes. If the US government demanded tax payments in euros, we would work for euros, not dollars, and US dollars would be worthless. And, yes, there are taxes on things other than income, and it is still true that if you work in the US for euros, you still have to pay your US income taxes, and all the other US taxes, in US dollars. And it’s a macro thing, not micro. It is enough that someone must pay taxes in the government’s money to make that money have value. Once that is true, it has value for everyone, even if they have no personal tax liability, because it is universally accepted.

      MMT does say more than just that it is possible for government to create money and tax it away. As sponsor of the economic system, they have to moral obligation to manage it properly, for the benefit of the people.

      • Your last paragraph methinks hits one of the nails poking up squarely on the head – the idea that once we accept the concept that the gov’t has all this power over money – we will obviously need to rely on it to manage it properly – looking at our governments of at least the last couple of decades, can anyone here think the man on the street will accept this idea without a snicker if not an outright guffaw?

        • Well, as Progressives like to point out, government does do a variety of things pretty well. The ascendancy of the US from startup to sole superpower in only 200 years could not have happened if government were always as incompetent in managing the economy as it sometimes is in other fields.

          • You have a point – but then i suppose one would then argue that we have done well “in spite of”, not “because of” the gov’t ….

            i think part of the problem is that in our “twitterized”, ADHD society there is no patience for the type of sustained discussion required to really tease all this out and come to a “meeting of the minds” – no more Lincoln/Douglas debates …. So the meme that gets most “twittered” is the one that wins. The embrace of this by “progs” is a two edged sword, methinks …..

      • YES: If the US government demanded tax payments in euros, we would work for euros, not dollars, and US dollars would be worthless.

  39. Seems that one fundamental problem we face is how to introduce some means of disciplining government spending in the event MMT were to be widely accepted. We all agree that the real government budget constraint is inflation, but that is a rather vague concept and if you hand that over to Congress, they will exceed all prudent spending limits and cross the inflationary threshold in no time flat.

    So how about this.

    Separate the government budget into two parts. Perhaps this scheme could even be enacted via Constitutional amendment (once the theory behind it is widely socialized and accepted … big “if”).

    Part one pays for the job guarantee program and this program is entirely “off budget”. It is “paid for” with freshly created money and “tax money” doesn’t enter into it. This part of the budget will act as the ultimate “automatic stabilizer”. It is completely flexible and accordion-like, responding to the needs of the economy without anybody having to manage it.

    The second part of the budget will be discretionary spending, and we can require that for this part, spending is equal to taxation (“balanced budget”). It is possible for this part to be firm and rigid, because the first part is flexible enough to accommodate the changing needs of the economy without the Congress having to micromanage the macroeconomic budget stance (which they are not well-suited to do).

    Maybe a macroeconomic program framed in this fashion would be a somewhat easier sell.


    • First problem, there are other expenditures, and taxes, which act as automatic stabilizers. They are not rigid, and it would be virtually impossible to balance receipts and expenditures under changing conditions. To try to do so might be just as austere as what’s going on now. In fact, totally equivalent. The two sides have decided what they want the deficit to be, and are now only quibbling about how to do it. It’s just like your scheme, except with a non-zero deficit target.

      Second problem, how do you know that the JG workforce will be the right size if the rest of the budget is balanced? We don’t want 25 million in the JG workforce. If it turns out to be 25 million, then the rest of the budget should have a deficit, and I don’t think you can know in advance how much it should be. Conversely, it is theoretically possible that if JG wages are set too high, there could be excess aggregate demand when the rest of the budget is in balance. I think it’s unlikely, but not theoretically impossible.

      • I think there should be an anti-inflation tax that is flexible and administered by someone under authority delegated by Congress and according to some rules. If I were king, it would be a board constituted similarly to the Fed, the tax would be on business gross receipts, and adjusted quarterly in increments of 0.1% according to the inflation rate and the JG workforce headcount. Congress would have a chance to act in review of proposed changes, if it wished.

        • Methinks you would have to give careful thought to what “inflation” means – if you tax because the cost of food is driving inflation, e.g., does that mean the cost will go down because folks are buying less of it in order to, or because they can’t afford to, pay the tax? – and how much “less buying” might they have to do to lower the price? Or would the tax revenue be rebated to the less well off – but in that case how does that lower the cost? Maybe there should be another mechanism as well for controlling “inflation”??

          To tell you the truth, it always seemed to me that we should divide up the economy in such a way that things that folks need should be public services, enjoyed by all and paid for by all, and the other stuff – let the “market” have. And if the “market” is successful enough in turning our “wants” into society’s “needs”, then it will have to turn it over to the public sector ….

          • “the cost of food is driving inflation”

            Not sure what this means. If food is 10% of CPI, and goes up 10%, and CPI goes up 1%? Then, no, the rules would be written to recognize that as a change in relative prices, not a general rise in prices. Only wages and oil have the power to spread price changes throughout the economy. When food gets expensive, it doesn’t cause other things to also get expensive in the same way that wages and oil do. Oil supply shocks should be accommodated. Wage increases have to be watched carefully, but if other prices don’t rise, too, that could also be simply a change in the distribution of the rewards of production from capital to labor.

            If the tax does go up, it would reduce aggregate demand, reducing upward price pressure on most everything. It could be integrated with the income tax, and rebated to lower-income folks along with other refundable credits.

            I’m thinking the Fed will continue in existence, and would be raising interest rates at the same time the anti-inflation tax is raised. Other than increasing taxes and interest rates, the only other lever is spending. What did you have in mind, a pay cut for Congress? Layoffs of government workers? My approach is that spending should be what the people, through their representatives, say it should be, and taxes are what needs to be adjusted in order to manage the economy. You don’t stop building a bridge in the middle of the project because of the economy. You build the bridge because it is needed, regardless of the economy at the time. If you don’t need it, you don’t build it, regardless of the economy at the time.

            The division of public and private based on what folks need is sort of vague, and quite a change. People can go a lifetime without visiting a National Park, but they are public. Would you privatize them? People need food and shelter, but they are private. If some people need something, but others don’t, is it public or private? I think the system we have is good, let the public sector do what the private cannot, or does not so well. There will always be disagreements, and differences among the States, and the public sector is continuously growing as a % of the economy. Maybe, in the end, it will all be public anyway.

            • I guess what I am trying to tease out is the difference between inflation as a “number” and inflation as it is experienced by people – perhaps an example is the toying they are doing with the CPI in order to change the COLA for folks on SS, say (did i get those terms right – i think you know what i mean …) As Twain might say, figures don’t lie, but liars can figure … so that if food is my major expense, when it goes up 10%, my own COL goes up 10%, never mind what the “CPI” is … Again, you theory will be judged not by what is does to the numbers in the CBO, but what it does for the cans in the pantry …

              As for the public/private dichotomy – you have a point if you view what we “need” strictly from a materialistic utilitarian POV – but even here, especially from a planetary sustainable resource POV, one can argue that these parks, et.al . are indeed needed by the public at large even if we never “visit” them physically …. As for food – we and most other counties treat it as a need in the sense that the entire sector, from seed to plate is regulated and subsidized along the way and our insistence on leaving it officially “private” while treating it in many ways as public has meant these subsidies are totally skewed and wind up serving more private than public interests and leaves many hungry … Leaving the public sector to do “what the private cannot” – well shucks, what IS that, precisely – it depends on who you talk to. Seems to me stuff that folks need to survive in a particular society (and that may, in fact vary from society to society) should be produced without “profit”, provided by the public sector. All the questions you ask about what should be private, what public need to be asked and debated both publicly and privately – failure to do so has led to our current stampede toward privatizing everything …

              For example, in my own profession – docs need to sit down and say “how much is enough? why did i get into this field?” I posit that we need to force these conversations all over – and if we can find a system that will ensure we get that “enough”, we may find we can be satisfied with far less – can MMT help do that?

              • Well, there are many indices that measure prices of various different baskets of goods. Probably none of them measure the same basket as any individual. That’s not the point. The GDP deflator tries to measure the basket that all of us, as a group, buy. The “headline” CPI is for urban consumers. Inflation is not guaranteed to affect everyone equally. People’s feelings about inflation will vary according to the price changes in their unique mix of purchases, and even more so according to the coincident change in his income. If you’re suggesting that SS should be adjusted based solely on food prices, be careful what you wish for. They go down as well as up. I forget the final resolution, but there was once a move to base the SS COLA on a CPI geared to the expenses of retired people. Or to end that, and make it some other CPI instead. The difference was after the decimal point, but it had enough of an effect on the budget to make it worthwhile for Congress.

                I don’t know how MMT can help doctors get “enough”. Nor do I know how docs as a group can decide what is “enough”, even though each individually might have some idea. One size doesn’t fit all.

              • No, I am not looking for a system to “help doctors, per se, get enough” – what we need is a system to help everyone get enough – but to do that we have to have some sort of idea of what “enough” really is and that will take a good deal of discussion and introspection. The point being if we have a system that we can be confident will supply us with our needs and a bit more, we will not always have to be fighting to get more, “just in case ….”

                That is the transition, ISTM – if we were confident we lived in a society that would not abandon us anywhere along the spectrum from cradle to grave, we might just be able to loosen our grip on that need to “own” – so i would suggest that if MMT could provide the basis for such a society, it’s otherwise “counterintuitive” concepts might be more easily acceptable, and even embraced ….

                • if we were confident we lived in a society that would not abandon us anywhere along the spectrum from cradle to grave, we might just be able to loosen our grip on that need to “own”
                  Profound, and precisely the opposite of the conservative meme.

  40. The way to get people to think about money and the economy is to have them think about the whole thing without the money. We get to consume what we produce. The relevant questions are:

    – What should we produce?
    – Who does the production?
    – Who gets to consume what we have produced?

    The notion of money just gets in the way of these fundamentals of economics.

    • Great place to start! I would add “What production can the planet sustainably support” as the boundary of our calculations …

  41. This is a good place to start;

    “If people understood government is the source of our financial wealth, who on earth would oppose government making us wealthier?”

  42. What is money?

    Money is a bearer contract for labour, contract that can be enforced only within the same jurisdiction that governs that pool of labour.

    The story so far:
    We have been using money for a good few millennia, and we have so far failed to find a good definition of it. Most of us think of money as something with inherent value, and this is a great trap.

    I have read somewhere that the greatest failure of humanity is the failure to really understand the exponential curve. Surely the failure to understand money and the way it works must be number two. 🙂

    Yes, I have read Adam Smith, and the Money Illusion, and Benjamin Franklin and Karl Marx.

    A. Mitchell Innes is the one that gets closest to it. (http://moslereconomics.com/mandatory-readings/what-is-money/). Although he has not made the jump to the final conclusion and definition, his analysis is spot on. Respect!

    Closer to our times, Modern Monetary Theory (MMT) and its similar splinter groups have explained how the money flows around the system very well (http://moslereconomics.com/mandatory-readings/)
    – and they are about the only ones who got it correctly. They understand what money is, in their bones, but without a formal definition. As a result, MMT has a Public Relations (PR) problem: it talks about money in its own terms, and people at large think about money in their terms.

    So here it goes again:

    Definition of money:

    Money is a bearer contract on a fraction of the pool of human labour available within a jurisdiction, contract that can be enforced only within the same jurisdiction that governs that pool of labour. .

    Points to note:
    It is a contract, and therefore subject to all contract problems – enforcement, breach etc
    The human labour it contracts is not fixed. It diminishes with time – it is called inflation. Nominal value vs Real value. In normal times it is tractable on a weekly/monthly timescale. Longer than that… you just never know… 🙂
    Its value is governed by two variables: number of contracts/money in circulation and the value of the pool of labour. They both vary simultaneously, so it is difficult to track it down. Also there is a great inertia to a system as big as a whole country economy, so changes take time to propagate.
    Human labour is the source of all value (thank you, Marx and Ben Franklin) – whenever we buy something we essentially buy the human labour that has gone into making it. This applies to
    natural resources (labour to extract it), water (water to pump it and make it potable), land (labour to set up the system of registration and ownership and (military) labour to protect it from invasion) etc.
    The jurisdiction limits to its validity and enforceability, as for all contracts. There is of course forex to go outside the jurisdiction, but that is just a mechanism to trade between jurisdictions.
    In short and in conclusion, money is a token representing a futures contract to be drawn on a certain division of the pool of labour and means of production.

  43. Pingback: Randall Wray’s alternative meme for money | Reality-based World View

  44. Stanley Mulaik

    Here’s my summary of MMT:

    Modern Monetary Theory is the description and theory of fiat money systems and their management by a central government sovereign in its control of the money supply. The central government justifies its existence by establishing justice, insuring domestic tranquility, providing for the common defense, promoting the general welfare and securing liberty for all. In the economic realm it seeks to maintain stable prices and full employment as required by the general welfare.
    Money is representations (tokens) issued by the government in units of account of debt obligations between parties in the economy. Money is not a commodity as such. It is a measure of obligation. Money concerns a social obligation. The government has exclusive power to decree what money is in its realm and to regulate its value and its value with respect to foreign money. By requiring that all taxes, fees, and fines be paid in the government’s money, it establishes a need for the citizenry to acquire and use that money, which they do in exchanges in the economy. The government will vigorously oppose and punish counterfeiting to prevent fraud and maintain its monopoly on the money supply.
    To maintain the general welfare of stable prices and full employment the government must insure that there is sufficient money in circulation to sustain the vast number of debt obligations occurring in the economy, be prepared to take steps to remove excess money from circulation to prevent inflation and to create and spend new money into the economy to overcome deflation in the economy.
    MMT sees the central government’s budget making process as requiring attention to more than taxes and spending. All sources of the nation’s inflow and outflow of money to and from circulation must be considered with the aim to seek balances among all these sources to the advantage of the people. Among sources of inflow are deficit spending (which leads to money creation and expenditure), tax-based government spending, buying of bonds by the central bank, exports or sales of goods and services to foreign nations, investments which draw out savings to grow and expand productive capacity, and loans of banks .
    Sources of outflow of money from circulation are taxes paid to the government, sales of bonds by the central bank to banks, imports (which send money out of the country to pay for foreign made goods and services), savings which take and retain money out of circulation, and redemption (payback) of bank loans.
    The primary limitations to the money supply when considered in terms of the government’s general aims are the availability of material and productive resources and workers to do the work at stable prices and wages.
    Several consequences follow from the above.
    (1) Government does not absolutely need taxes to spend.
    (2) Government uses taxes to withdraw money from circulation.
    and to make citizens acquire and use the government money.
    (3) Deficit spending leads to new money creation and spending.
    There is a time and a place for everything:
    (4) In recessions government must cut taxes, increase deficit spending to retain and introduce new money in circulation, since recessions occur when not enough money is circulating to sustain the full production and purchase of goods and services, leading to unemployment. Government must invest in education, build up and modernize defensive forces, renew and expand the nation’s infrastructure and public security forces.
    (5) In inflations–when excess money in circulation is pursuing available goods and services–government must do some combination of the following: spend less, reduce deficit spending, raise taxes to withdraw money from circulation, sell (through the central bank) bonds and securities to banks to drain money from the reserves of the banking system, encourage imports by eliminating or lowering tariffs, encourage private savings, raise interest rates on loans.
    (6) The central government cannot go into bankruptcy, be insolvent, unless through ignorance the government constrains its powers to create and spend money. In a proper fiat money system, the government routinely pays off its debts by use of newly created money.
    (7) The following equality holds:
    (T – G) + (S – I) + (X – M) + (L- R) = 0
    T – taxes
    G – Government expenditure
    S – private savings
    I – investments
    X – exports
    M – imports
    L – private bank loans
    R – private loan redemptions

  45. Stanley Mulaik

    You have to think of the economy as like a big tank. Inside the tank there is money flowing around in circulation chasing goods and services. Coming into the tank is government money (from taxes and also from new money created with deficit spending), investments taken from savings, exports (our goods sold to foreigners in dollars), bank credit (loans on credit cards, mortgages). Leaving the tank at the bottom are drains from taxes, from savings, from imports (buying foreign goods like oil and merchandise made in China and sold at Walmart and Target), from paying off private debt, from buying government securities and bonds. As long as the amount of money flowing into the tank is sufficient to equal the amount of money flowing out, there will be a constant amount of money in circulation in the tank. (You see now that it is not enough to have a balanced budget, with taxes equaling spending, because you can still have lots of money going out through buying imports which reduces the money in circulation in the tank, i.e. leading to recession, unless countered by deficit spending.) The balance should be sought between all these input and output sources to leave private savings (by the People) positive in growth. So, given a certain degree of outflow, you have to adjust the inflow accordingly. And deficit spending is the greatest inflow of new money under our direct control. We should increase deficit spending when there are massive leaks from the tank. We should decrease or stop deficit spending when there is inflation, occurring when we have reached full employment and full production and are still creating and spending new money.

  46. Stanley Mulaik

    My latest concern through MMT began with the fiscal cliff which all grew out of Congress’s impass in dealing with the “debt-ceiling. And we are about to visit that issue again. The national debt is seen by most Americans to be the accumulated debt from borrowing of money for deficit spending that ends up at the Federal Reserve. Because this “debt” is huge, in many trillions of dollars, they think we are approaching bankruptcy, that we will be so indebted that our children and grand children and great grand childfren will be unable to pay the debt. Few Americans realize that the money they spend came into circulation through money creation by government in deficit spending. If we were to pay back this money, since we believe it is based on borrowing, then all that money would leave the economy into a black hole at the Fed. And we’d have no money. It would be the worst depression imaginable.
    So, there must be some way around this national debt. I think there is: there is no national debt. It’s a myth, the Emperor’s new clothes, an urban legend, a false understanding. And this false thinking pervades all levels of society and government, because few Americans understand our monetary system of fiat money and how it is created and works. And the economists, especially the older ones who are advisors to government, learned economics before the dollar went off gold, or from texts written by economists who learned their economics from texts written by those who did not adjust to the new fiat money.
    Why is there no national debt? Well, it begins with Congress wanting to spend more than it has in tax revenues. The Treasury (an agency of the United States) has to get money to cover the deficit. It does this by issuing securities, which are IOU’s of the Government of the United States with a promise to pay back the lender at a specified future date a principal amount plus interest. It sells these securities at public auction, where banks bid on them, and some end up buying them. The money from the banks goes to the Treasury, which spends it on whatever Congress authorized. The banks get the securities, which state that the United States owes the banks for the money they gave the Treasury plus interest at a future date. At this point there is a debt of the government to the banks.
    The banks lost reserves when the money went from a deposit they created at their banks to the Treasury, which deposited it in an account at the Fed, from which Treasury draws to conduct spending. The banks now had fewer reserves and could make fewer loans, which is the way they make make money. So, they may have gone to the Fed or put the securities up for auction to get money to replenish their reserves, and the Fed then buys these securities, essentially with fiat money it creates out of thin air for the purchase. (It just issues new money by crediting the banks’ reserves for the securities). The banks get their money back. The Fed’s created money is added to the money supply, increasing it. And the result is the same as if the Treasury created and issued its own debt-free money. But the effect is that the Fed’s purchase of the securities automatically and implicitly redeems the debt of the government to the banks.
    At this point the question arises, does Treasury now owe the Fed for the debt? Most people think that it and other securities the Fed has bought constitute the ‘national debt’. But this is Emperor’s New Clothes. And like the little boy in the story who says, “He doesn’t have anything on”, we see the Fed, a government agency (in this case) buying the securities from the banks with government money: this is what we would see if the government were to redeem the securities. We do not see the Fed as an independent, private agency buying the securities with its private money. Buying the securities with newly created money issued to the banks’ reserves, is buying with government money. Nothing stands between the governmental action of creating and issuing the money and the banks receiving it. That is government action.
    The Fed has no more valid claim to be paid the value of the securities plus interest than a bank clerk would have in claiming to be paid the value of a security it has bought from a bank customer, for the bank, with bank money. The Fed in these transactions is as an agent or servant acting for the government by using government powers granted to it in the U.S. Code to create and issue money to buy the securities.
    But one might say that the securities are just collateral backing the Federal Reserve dollars given the banks. And the securities are obligations of the United States to pay the bearer with the corresponding amount of United States dollars. Doesn’t this imply that the Treasury must use taxpayer money to pay the Fed? No, the law simply requires that if the collateral are debt obligations (like securities) of the United States, the collateral has to have equal marketable value to the dollars issued. Well, they do, because the Fed is authorized to turn around and sell these same securities at public auction again to banks at the same value to drain money from the banks during inflations. The Fed just holds the securities for the United States until it sells them again or swaps them for new securities with the Treasury (also authorized). At this point they are just uncommitted securities with no new creditor to pay back their value to.
    However, there is still a debt owed to the Fed for the purchase of these securities. It is to be paid a transaction fee of 6% of the interest on the security. This is mandated in law. In this way the Fed gets funding for its operations without depending on Congress for appropriations.
    This analysis teaches us that what we call deficit spending ends in money creation and spending of it into circulation. Also we now understand that the Treasury ends up effectively with debt free money to spend, but not the debt-free money given the banks by the Fed.
    The Treasury’s money is debt-free because the debt was redeemed by the Fed’s money. The Fed never directly gives the Treasury this money.

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