By Dan Kervick
A common criticism of Modern Monetary Theory is that it is a naïve doctrine of free lunches. The critics grant that a country like the United States, which issues its own freely floating fiat currency, can always make the policy choice to issue whatever quantity of that currency it deems appropriate. The US government can spend as many dollars into the private sector economy as it chooses, without obtaining those dollars from some other source first, and it can always pay any debts that have been incurred by borrowing dollars. But the critics will go on to charge that MMT mistakenly concludes from these few institutional and operational facts that there are no economic limits to the wealth-generating capacities of the government. They caricature MMT as a doctrine of manna from heaven, in which the power of issuing a generally accepted medium of exchange confers the power of conjuring real wealth into existence by prestidigitation. In short, they see MMT as a disordered syndrome characterizing people who are experiencing massive money illusion.
But this criticism misses the mark. MMT does focus a good deal of attention on the monetary system and the banking system, and on the operational mechanisms of public and private finance. But the whole point of analyzing and clarifying the monetary system is to help people see through the glare of the economy’s glittering monetary surface to the social and economic fundamentals that operate below that surface. The point is certainly not to deny real limits on our capacity for economic development and progress, but to correctly identify where those limits lie – and where they don’t. MMT’s criticism of some standard economic and public policy approaches is that the standard discourses sometimes incorrectly locate those limits, and as a result manufacture artificial barriers to progress where none exist.
Our real opportunities for economic progress are grounded in our ability to apply work, cooperative activity and creative ingenuity to the real resources we already possess. By the enterprising application of our industry and intelligence, we transform the things we have into different and better things, and exchange our work and the products of our work among ourselves to make our lives better. Our real limits, then, are the constraints imposed by our inherently finite nature: we only have so many resources; we can only work so hard; our cognitive capacities are only so great; we only live so long, etc.
But what we must try to avoid is the imposition of artificial barriers to progress that are only the psychological fallout of confusion about the complex social institutions we ourselves have constructed. When we possess resources that are not used to improve our lives in the ways they could be used, when there are unemployed people in our societies who are both able and willing to do the work needed to improve those resources and realize their potential to yield value, and when people are suffering needlessly or living under deprived conditions as a result of the underemployment of resources and people, then we are somehow failing as a society to seize our real opportunities, and have succumbed to artificially imposed limits.
The monetary system is best seen as a public utility that is employed by its users to finance the production and exchange of goods and services. It is a system of institutions created by human beings to help realize opportunity, and match opportunities for the creation and transfer of goods with the potential producers and recipients of these goods. It’s our monetary system, and we can do whatever we want with it to achieve our society’s full potential. We can create, destroy, transfer or manipulate the monetary medium of exchange as we see fit to advance the good of society and improve the condition of our people. Thus there can be no such thing as an economic limit due solely to our society as a whole being “out of money”. That’s like saying we can’t organize better schools, or write more and better books because we have run out of words.
Many of the key ideas of Modern Monetary Theory go back to the years during and immediately following the Great Depression and the Second World War, when great thinkers and public servants applied bold, creative thinking and practical problem solving to the daunting economic and organizational challenges of their times, and helped their societies overcome systemic failure, triumph over threats and adversity, and achieve renewed optimism and growing prosperity. One of those thinkers was Abba Lerner, who developed the concept of functional finance, which he described this way in his paper “Functional Finance and the Federal Debt”:
The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and withdrawal of money, shall be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine what is sound and what is unsound.
Lerner then articulated two “laws of functional finance”, which I think still very well capture the spirit of the MMT approach to economic policy. The two laws are given as follows:
The first financial responsibility of the government (since nobody else can undertake that responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce.
The second law of functional finance is that the government should borrow money only if it is desirable that the public should have less money and more government bonds, for these are the effects of government borrowing.
These two simple rules of action yield immediate logical results that people still find surprising or counterintuitive, and sometimes even find impossible. Recall that taxation generally reduces the total rate of spending and government spending generally increases total spending. Thus, a combination of tax changes and government spending changes will tend to increase government spending if it increases the government deficit, and will tend to reduce total spending if it reduces the government deficit. So, suppose the country is running a deficit, but suppose the total rate of spending in the country on goods and services is less than that rate which at the current prices would buy all the goods that it is possible to produce. Then the first law says the government should increase its deficit. But suppose it is not desirable that the public should have less money and more government bonds. Then according to the second law, the government should not issue more bonds. It should not finance the increased deficit with more borrowing.
But how is this possible? If a government wishes to increase its deficit, doesn’t it necessarily have to borrow to cover the larger gap between revenues and spending? No, it does not. A government that is the issuer of its own currency has the option of increasing its deficit without increasing bond sales. It can issue new money in the very act of spending it. And that is what the two laws of functional finance recommend in the hypothesized circumstances.
Unfortunately we have not made full use of this inherent governmental option, and have not implemented the laws of functional finance. Congress has legislatively implemented a system in which deficit spending automatically triggers bond sales, without regard to any calculations as to whether it is in fact desirable that the public have more government bonds and fewer dollars. And we have divided up the two important functions of issuing money and issuing government bonds between two different operational branches of the government – the Treasury and the Fed. Happily, there is some degree of a workaround available for those who might want to apply functional finance within our current legislatively determined framework, so long as these two branches of the government are able to work cooperatively. The Treasury can issue bonds and sell them for dollars, while the Fed is at the same issuing dollars and using them to purchase government bonds. But the system is probably not as efficient as it should be, and its functioning can be hampered by institutional jealousy over policy turf, and by the neoliberal preoccupation with central bank independence that characterizes the thinking of the most powerful members of the global financial class, a preoccupation which imposes a pressure for the Fed not to be seen as not cooperating too closely with the Treasury. So to fully implement functional finance, we might want to think about changing the current system.
Now note what the first law of functional finance says about a situation in which the total rate of spending in the country on goods and services is likely to be greater than that rate which at the current prices would buy all the goods that it is possible for the economy to produce. The result is that prices would then rise until spending and production at the new price level are in balance, and Lerner’s first law thus entails that the government’s responsibility in such a situation is to decrease spending so as to prevent or curtail such price increases. So here is where functional finance takes account of the real limits of our economy, the ones built into our limited resources and limited capacity to produce.
Now, to be frank, Lerner’s first law of functional finance is perhaps overly austere. It views the economy as analogous to a factory or business enterprise, and views the government as a sort of demanding manager whose chief job responsibility is to assure production up to the level of full capacity. But our economy is not a wartime factory; it is a democratic society. And whether or not we produce everything that it falls within our capacity to produce should be a matter of public choice, not iron policy law. We might choose a somewhat more leisured and relaxing life than the one we would have if we were producing up to our full capacity.
But I believe the spirit of Lerner’s recommendations is still valid. If we are faced with a society in which there are many people who want to be working and contributing and producing, and earning incomes as a result, but who are not provided with the opportunity to do that work; and if we are presented with a society in which there is a general sense of stagnation and a general dissatisfaction with the levels of output, innovation and improvement, then surely it is our responsibility to act through our government to boost employment and the pace of economic development.
We owe all of our fellow citizens an opportunity to participate fully in the common work of building a prosperous life for ourselves, and we also owe them a fair share of the economic goods that all of that work produces. And when we finally do right by them, perhaps they will at least be able to buy a well-earned lunch.
“The monetary system is best seen as a public utility that is employed by its users to finance the production and exchange of goods and services. ”
Money and Monetary theory is not a public good. Saying it, doesn’t make it true.
It is created for and by the folks who need to store some value, and figure out they can SAVE CAPITAL on paying for private security, if they form a govt. and run it for their own interests.
This is what happened at America’s formation. This is what you just saw happen when the USSR fell.
To get others, little people like yourselves, to go along with it, some rights and security are granted.
IF YOU DON”T ADMIT / ACCEPT the reality of the who, what, when, where, and why of govt., money and MT, you will routinely make dumb and naive mistakes like MMT.
You don’t have the guns, you don’t have votes, you don’t have the money. You are basically dirty hippies.
And IF your situation was truly helpless, if there was no better counterplan, you’d be allowed to waste you time on this, I mean what else are you going to do?
But there is a better way to do things, that works within the boundaries of the who, what when where and why…
No, people like you will not run MP. No, the govt will not pretend it controls money. Yes, the govt. will continue to worry most about the interets of those that actually HAVE ALL THE MONEY. This is basically the top 1/3 of America.
BUT, everyone can have a job. And you MMTers want that right? No. you will not have any say over the kind of job they have. but they will have a job.
And that’s enough for you right?
Good to see you again Morgan.
“You are basically dirty hippies.”
Thanks for this well thought out and articulated response. I really appreciate the caps so that I can easily identify the important points and your use of spacing after every sentence really helps to set your distinct points apart. Your use of unanswered rhetorical questions and ad hominems really helps solidify my opnion that MMT is a load of BS without having to think too hard about viable alternatives. I like how you have totally destroyed Dan’s argument without providing one of your own. Again, thanks a lot. I hope you continue posting your inciteful (pun intended) comments.
aj, excellent response.
I agree with Morgan’s cynical view of the state as is, but not in his defeatism about its potential. Rather than attempt to create the conditions under which unequal power may be dissolved entirely, his plan would replace the state’s monopoly with an expanded form of oligarchy, viz. his requirement that no-one turn down work offered under the GI+Auction scheme.
What the JG proposal uniquely provides, particularly in the more individualistic presentations such as Pavlina’s recent work, is the possibility that individuals can, within a regulatory framework, define the value of their own labor. Morgan, on the other hand, while insightful enough to recognize the value of replacing a gold-standard definition of money with a labor-hour-standard definition of money, is unable to get over his own emotional lack of trust in his fellow man to let people define their own value.
Thats because Morgan hates 90% of his fellow men.
I do think Morgan accurately portrays what TPTB say and think when they are alone and know no one outside their elite group can hear them. They are terrified of the 90% (its not 67% like Morgan tries to argue) figuring things out and collectively acting. Their response?…….. We will kill you if we have to…… and they probably would try for a while……… but then it all would end….. for them as well. Those that own it all have the most to lose. Many would start to turn on their “fellow 10%ers” in an effort to salvage something. The human spirit to live as freely as it can would prevail and those willing to torch the whole thing would lose. Most people do not want to torch the whole thing, only a few of even the psychopaths want to take it that far. The last thing they want is a world where they have to DO all the production. They just want to do all the consumption while PAYING FOR the production.
Good post Dan.
One thing Ive started thinking about lately is the idea that no society progresses without generosity. Its not thrift that moves us forward its generosity. If everyone were thrifty (miserly) the world would be a miserable place. Generosity is the value/emotion that moves things forward. Whats interesting tome is that virtually everyone knows this but too many refuse to take it to heart.
There are no free lunches but there certainly are lunches where we dont worry about whether the tab is divided equally, we are just happy we are eating with everyone who is there.
Morgan, you should see a psychotherapist of some sort. I really mean that. It is quite obvious that you have some serious psychological and emotional problems. Please seek help.
“It is created for and by the folks who need to store some value, and figure out they can SAVE CAPITAL on paying for private security, if they form a govt. and run it for their own interests.”
This is the definition of a public good.
I agree with the Mr. Kervick’s theme and I would like to know more about how MMT and the author conceptualizes deficits. Briefly, are increases in the money supply which could be considered government liabilities (money introduced into the domestic private sector the government agrees to accept in payment of taxes) treated as contributing to the Domestic Government balance deficit in the macro accounting identity?
Elaborating the question in another way, in the Randall Wray Primer, Wray proposes a macro accounting model Domestic Private Balance + Domestic Government Balance + Foreign Balance = Zero. Wray stresses that the equation will strictly apply to the accounting of balances of any currency.
As the Gov’t increases the supply of money (looking at M2 monetary aggregates for example we can see the U.S. money supply increasing over time) is that increase in the money supply categorized by MMT theory as a minus(or deficit) of the Domestic Government Balance when the increases in money supply leave the Fed or Treasury and a plus (or surplus) for the domestic private balance or foreign balance?
When the Fed buys newly issued Treasury bonds, adding to the money supply (M (zero)), but keeping the assets for the Government does that transaction get treated as a domestic government balance surplus?
Is it wrong to think of money as both an asset of the government and a liability on a Central Bank balance sheet?
In sum, how are changes in the money supply reflected in the macro accounting identity?
Hello D M,
Here’s my understanding:
Well, first M2 is a a broad measure of the money supply that includes commercial bank demand deposit balances and savings account balances, as well as money market accounts. M2 can increase without any government action via the lending activities of banks alone, which may – but may not – require any additional Fed provision of bank reserves. The component of the money supply consisting of direct government liabilities – mainly currency and bank reserve balances – is MB.
A second issue is that the sectoral balances equation is derived form the national income and accounting identities. The categories of flows in these equations are supposed to represent only spending on final goods and services. Many government payments to the non-government sector would thus be excluded, such as transfer payments, purchases of financial assets and payments of interest on reserves, even though those payments can increase or decrease MB.
When accounting for its total debt subject to limit, my understanding is that any unredeemed treasury bonds held by the Fed are indeed counted as part of the debt. And if a payment is made to the Fed to redeem those bonds, that counts as part of the government’s overall spending, and would therefore go into calculations of the government’s deficit or surplus. And of course dollar balances in Treasury’s account can be thought of as liabilities of the Fed and assets of the treasury. Similarly Treasury bonds held by the Fed are assets of the Fed and liabilities of the Treasury.
But the important thin to remember about those latter class of assets and liabilities is that they are intragovernmental – one branch of the government owning a liability of an other branch. Thus when conceptualizing matters from the standpoint of a consolidated government account, the result nets to zero.
Somewhere on one of these blogs or web sites is a document with pictures showing how transactions such as spending, taxing, buying and selling bonds, and making bank loans affect the T-accounts of the various players in the economy, and the sectoral balances. It will answer all your questions. Maybe there should be a link to it near the top of this site, if there is not. M1, M2, etc., don’t play in this view of things.
Thank you, Dan. Sometimes we all need a reminder of the real purpose of MMT. I think it would be great if we focused just a bit more on preaching MMT as a way to promote public policy to benefit people (as your article does), and maybe just a little less about the mechanics of fiscal and monetary actions (which quickly loses many people).
Regarding progress and limits:
Steve Keen has a far-sighted project up and running that you could call Thermo-Economics – subtitle “Energy, Production and Entropy”. Good stuff. As MMT begins to win the purely economic argument, it will need to stretch out to embrace rational resource-planning in a global and comprehensive way. We need to recognize energy and environmental limits – i.e., not just our own “inherently finite nature” but the finitude of nature itself. Not doing this is a longstanding and much-remarked failing of traditional economics, and another big agenda item for MMT going forward.
Not much point in saving society from its monetary fears and prejudices only to then use it to destroy the rain forest – and, thereby, human civilization itself.
Good job of getting closer to reality.
But definitely not there yet.
At some point MMT needs to decide whether it will make the move from ‘academic’ theory to some form of governmental policy initiative. Or, as they say, reality.
This is best accomplished by constant reminding of what is reality and what is theory.
You say today’s critics of MMT acknowledge the ability of government spending without taxation or borrowing. Where is this acknowledgement, except in theory? The reality is that those in government who follow the rules of government finance never say such a thing. What they say is that, in theory, it could happen if you change the rules. And that is ultimately what you are saying here.
The quotes from Lerner, while implying the ability of government to spend without taxing or issuing debt – in theory, also portray the tax-or-borrow and spend dilemma.
And you correctly point out that Congress has implemented a legislatively constricted system that requires the government to borrow its deficit balances today. This is why at the April 2010 Fiscal Sustainability Teach-In, my first question was “Where is the list of so-called self-imposed constraints that would need to be changed by legislation in order for MMT to ever become reality?”
Still waiting. UMKC?
For some reason, most MMT adherents are not even willing to acknowledge that there would have to MAJOR legislative action before the benefits of public purpose money can be realized for the people. Warren emphatically denies it, saying that it is merely the Fed’s overdraft Rule that needs tweaking for the TGA.
And so, I ask again. Avoiding the wide gap of factual differences between we the traditional Greenback monetary reformers and MMT, what reality that MMT propounds cannot be achieved by passage of the Bill presently before the Congress Assembled as H.R. 2990 – the Bill that reforms the money system, abolishes the government’s borrowing and debt-limiting requirements and restores creation and issuance power for all of the national circulating media to that where it was placed in the Constitution? In reality.
You say today’s critics of MMT acknowledge the ability of government spending without taxation or borrowing. Where is this acknowledgement, except in theory? The reality is that those in government who follow the rules of government finance never say such a thing.
You are probably right joebhed. I was thinking of critics in the world of economics discussion. But I include economists who have a prominent public role, such as Paul Krugman. It seems to me that Krugman always recognized the in-principle ability of the government to spend in excess of its revenues without borrowing. It also seems to me that over the past few years he has become decidedly less critical of MMT, and so the policies he endorses have come closer to the ones MMTers would endorse.
Why do you deny that it is just the Fed’s overdraft rule that is the main thing that needs tweaking? Suppose the Treasury starts with a $0 surplus/deficit and Congress authorizes $15 trillion in annual spending which is all carried out during the fiscal year. Suppose at the same time that existing tax legislation only succeeds in bringing in tax revenues of $14 trillion. Right now, that will trigger $1 trillion in bond sales. Now suppose Congress passes new legislation the result of which is that the Treasury is permitted to run a permanent overdraft in its account at the Fed – not a debt to the Fed, but just an overdraft that never needs to be repaid and is booked as a pure liability of the US government in the same way the Fed’s balance sheet accounting treats its own issuance of currency. And suppose the legislation provides that the Treasury can add up to half a trillion dollars to that overdraft account each year. In other words, this mechanism authorizes the Treasury to “print $500 billion” each year. Then when the government experiences that anticipated $1 trillion dollar deficit, only $500 billion in bond sales are triggered, and the rest is financed by the overdraft.
Now, we can also imagine variations on this proposal, variations that permit, say, some government supervisory agency such as a joint Fed-Treasury committee to adjust the desirable overdraft each year in light of macroeconomic conditions, and make decisions on bond sales in light of Lerner’s Second Law. But the basic proposal is the same, and I think Warren is right that the no-overdraft rule is the key issue.
There are all sorts of other things that we can consider doing, including major financial sector and banking reform – maybe even public banking or the like. But I think the overdraft rule is the key factor preventing the functional finance vision from becoming reality.
Thanks. Very thoughtful. Downright innovative.
And, ever closer.
First, I do agree that Krugman is slowly coming around on a few MMT points, but not the majors. I hope his debate with Steve Keen, over whether DSGE modelers MUST include money and debt, might enlarge his thinking about how financial instability is influenced by debt.
Thanks for postulating the legislation where the government could “actually” print the money needed to ensure the public good is achieved. This is the first time that I have seen ANY proponent of MMT mention legislation; a thought-provoking advance. This is what a properly-functioning monetary system does, and what I believe both Lerner and Fisher had in mind. I did a video once: “They’re Not Deficits – They’re New Money”.
The postulation for changing the law brings into question a couple of matters. The first would be why it is related to the overdraft rule at all. “Congress has the authority to create the money and in adopting this budget – $500 Billion of new money is created, for issuance by the Treasury as contained herein”.
The purpose of monetary policy is already spelled out as full employment and protection of the purchasing power of the currency. Whatever it takes. Always.
What Fisher proposed (100 Percent Money) was that in abandoning the Gold Standard (the real one) there was a NEED to operate by Rule. This was done to avoid any potential political influence over a properly functioning money system. This “Operation by Rule” was precisely the reason that Free-Market Friedman supported the Fisher proposal. I’m not sure Randy gets that.
In considering these implications, you have created a joint Fed-Treas “Committee”. The Kucinich Bill puts the “quantity-of-money” decision by legislation in the hands of the Monetary Authority, as does the recent IMF paper of Benes and Kumhof. Noted Japanese Economist Kaoru Yamaguchi puts it the Public Money Administration. A Rose by Many Names.
The essence of public money creation by your proposal is what amount( $500 Billion) is needed to achieve a certain public function. At this point, Dan, a second threshold issue comes forward. Why should anyone except the government create all the money? Maybe that’s too hard for MMTers to contemplate.
It’s our money system. MMT purports its intention to putting that system to work for the Restofus. Tweaking the overdraft rule leaves untold problems yet unresolved, the major of which for this progressive is the ‘debt’-basis for money. What we have is a debt crisis. Ever wonder why?
Perhaps it purposely goes unsaid, and perhaps it is simply not understood, but what I see as truly significant to both Lerner and Fisher’s proposals for public money “printing” is that it is NOT debt-based.
Whatever money is created by your ‘tweaking’ of the o.d. Rule is permanent, non-debt-based money.
As such, it is freeing from those unseen and unelected controllers of the national purchasing power, and achieving this objective is worthy of this struggle.
I have been working for a while on a post tentatively entitles “Debt Free Money?” So hopefully we can have a good exchange about that one when it’s done.
I look forward to that.
I look forward to that post as well. A small group of us near Cleveland Ohio have been meeting for the last couple years and hosting public meetings on “monetary reform” matters. We have members from the “MMT camp” as well as the “money as debt” camp. I’ve been trying to reconcile the two viewpoints, and ultimately sense there is more common purpose than many of the proponents of each group would let on.
For example, the MMT crowed acknowledges the US as a monetary sovereign, and exercises it’s monetary powers by spending money into the economy, then taking back some through taxation. The “debt as money” flank would also acknowledge that the US is a monetary sovereign, but gave the money creation powers to the banking sector, then borrow her money back via bonds or taxation. Whichever operational approach is accepted, both would promote the idea of more direct government spending on infrastructure, health care, and the like until we reach full employment.
I think helping each group understand they have a lot in common would be useful, and in the overall public interest.
“They’re Not Deficits – They’re New Money”
Sounds like a new meme to me.
If the result of the effort were to make that true today, we’d be halfway home.
Thank you, Dan Kervick, for your post and responses to the comments. I must confess, however, that this statement from your post confuses me: “we have divided up the two important functions of issuing money and issuing government bonds between two different operational branches of the government – the Treasury and the Fed.” It is my understanding that the Fed is not a government agency at all, but rather a private entity owned by its member banks. Can you clarify this?
From what I have been able to learn about MMT so far, it seems that it might hold great potential to improve public policy in a democratic society. However, it does not seem likely to me that the Money Power would allow this to happen. Could you comment on this?
The Fed is the central bank of the United States and describes itself as “independent within the government.” Here is a statement from the Fed’s website: “The Federal Reserve, like many other central banks, is an independent government agency but also one that is ultimately accountable to the public and the Congress.”
Note that the internet domain extension for the Fed is “.gov”. The central bank does sit at the top of a banking system – the Federal Reserve system – that consists of privately owned banks. But the central bank itself is part of the government.
The fact that many people believe the Fed to be a private sector entity is, in my view, an artifact of and nod tpward the economically conservative politics that dominates the reigning neoliberal financial order. A lot of people seem to have difficulty accepting the fact that banking system of the most famous capitalist country in the world is centralized, hierarchical and predominantly state run. Congress helps preserve this superstition by taking a generally hands-off approach to the agency it created to exercise the government’s monetary authority.
The author, significantly, in his own defense of MMT within America’s boundaries, completely omits to mention the impact of the excessive US public and private debts and demand for foreign credit on foreign economies by a rapidly and constantly devaluing dollar as a consequence of excessive global currency manipulation or excessive MMT policies — via QE. He just didn’t bother to explain any of its more detrimental effects. By constantly churning out dollars and increasing the global moneybase of a world reserve currency, this means that the purchasing power and value of the US dollar is constantly and deliberately being eroded which, in turn, illicitly erodes away all the savings of these foreign creditors. And bye the way, eroding dollar value and purchasing power this way also rapidly devalues the dollar in the ordinary US citizen’s pocket. Usually, the blame for this sad economic situation travels to China as the scapegoat, who is still constantly accused of tying her currency to the America dollar(which is being deliberately eroded in value by the Fed’s QE policies). Even Paul Ktugman has been telling economists to shut up on this issue — since China’s renminbi has appreciated by 40% since 2006. How much yuan depreciation is enough then?
As far as I can ascertain, MMT just just works to preserve the old status quo of forever increasing debt — implemented by the old corrupt ways of US political office whose policies are entirely bought and sold by the financial barrons of America. I take much of my own thinking from Michael Hudson’s good books and more than a smidgen of sway from William Black’s writings.
So just to be absolutely clear — you really haven’t sufficiently convinced me of the usefulness of MMT. You badly need to expand your critique to include how America’s use of MMT will benefit the rest of the world.
A more honest and complete critique, if you will.
Thanks for the comment. Maybe to have a basis for discussion you could give some statistics on the rates of domestic inflation, and also rates of dollar depreciation vis-a-vis a sample of foreign currencies?
Don’t feed the trolls.
Dr. Kervick, thank you for your thoughtful reply. I correct myself after reading your twitter bio, and realizing you hold a Phd.
“The point is certainly not to deny real limits on our capacity for economic development and progress, but to correctly identify where those limits lie – and where they don’t. MMT’s criticism of some standard economic and public policy approaches is that the standard discourses sometimes incorrectly locate those limits, and as a result manufacture artificial barriers to progress where none exist.” This is well stated.
It is funny how people remember something like TINSTAAFL, and treat it as gospel, when it is clear that some people are afforded a free lunch at the expense of others. David Cay Johnston wrote a book on the tax code with the title Free Lunch hoping to break that misconception that there is no free lunch.
I take it then from your reply that increases in the monetary base, as the money enters the private banking system and is spent into the private sector that the increase in MB then becomes a deficit of the domestic government sector and a surplus for the domestic private sector or foreign sector. If I am wrong in this, please correct me. http://research.stlouisfed.org/fred2/series/BOGAMBNS. Thank you.
Are you asking whether QE adds to government deficits?
I’m not sure how I should put it DM. According to the national income accounting equations and the sectoral balances equation derived from those equations, those Fed-induced increases to the monetary base are not part of the government’s deficit, since movements of financial assets that are not payments for goods and services are not included. But I agree that to get the full picture that includes the movements of all financial assets, and illustrates net financial claims of each sector against the other sectors, you need to add those in to get some sort of financially turbo-charged Godley equation (sectoral balance equation).
If we look at things from that enhanced perspective, it is important to consider that not all government spending is equal. There is a large body of MMT discussion and research – and increasingly mainstream research backing it up – that money entering the private banking system as reserve balances created by the Fed, does not get spent through in accordance with any reliable formula or causal mechanism. Rather, bank lending precedes and causes additions to reserve balances – not the other way around.
See this paper by Scott Fullwiler for a comprehensive discussion of the relationship between central bank operations and bank lending:
“Rather, bank lending precedes and causes additions to reserve balances – not the other way around.”
So really the only limit to reserve creation and more private sector debt/money is the bank’s willingness to lend and the amount of qualified borrowers out there? The bank creates the loan first, and figures out where to get reserves later. Assuming they couldn’t borrow from another bank, the Fed would always create more anyways right? While it may not be counted as part of the traditional government deficit, I agree it is necessary information for looking at the economy as a whole – especially when you had private sector debt levels up around 300% in 2008.
Or perhaps I did not read attentively enough. “The categories of flows in these equations are supposed to represent only spending on final goods and services. Many government payments to the non-government sector would thus be excluded, such as transfer payments, purchases of financial assets and payments of interest on reserves, even though those payments can increase or decrease MB.” Increases in the monetary base that are in category of flows excluded from the macro. balance equation do add to nominal GDP, don’t they? I’m thinking of the sector financial balances shown as a percentage of GDP (as on Figure 1.3 p. 29 of Wray’s Primer and elsewhere on NEP), that shows the balances being mirror images of one another, and wonder how the changes in the money supply whether MB or private bank lending created money affects these sectoral balances. Wray writes that “this is a convenient scaling that we will use often in the Primer. Since most macroeconomic data tend to grow over time, dividing by GDP makes it easier to plot.” Is the increase in the money supply reflected in the GDP denominator, but not the sectoral financial balances numerator?
re:”and it can always pay any debts that have been incurred by
borrowing dollars.” computer keystroke.
There. Fixed it. No charge.
The “lunch” has already been paid for – with our own stolen purchasing power via money (“credit”) lent into existence by the government backed/enforced counterfeiting cartel, the banking system. And now that “lunch” is in danger of being destroyed by deflation as loans from that cartel are repaid and with interest that does not even exist in aggregate UNLESS the monetary sovereign spends it into existence.
Could you maybe restate that in layman’s terms, I feel like I’ve read similar sounding posts and never quite understood them. Are you talking about the shadow banking system?
With the banks, “Loans create deposits” but not the purchasing power for those new deposits. That purchasing power is stolen by dilution from all other deposits in that money and from the money itself. Nor is the interest created in aggregate.
In effect, credit creation is a form of counterfeiting, though it is legal.
I don’t see why that is true. A good deal of lending is used to finance capital spending. That is it is used to help to fuel the country’s capital development by growing the country’s capital stock and output. It doesn’t dilute anything.
A good deal of lending is used to finance capital spending. Dan K
Irrelevant. Theft is theft regardless of what the proceeds are used for.
It doesn’t dilute anything. Dan K
It robs the workers of their fair share of productivity gains. Instead those gains go to the banks and their business borrowers. Yes, consumer prices are generally lowered but what good is that if your job has been automated away with your own stolen purchasing power?
I really don’t understand the point you are making. You are speaking some dialect of Austrian – assuming that all money creation somehow involves a dilution of the purchasing power of the dollar because you are assuming a fixed supply of goods and services. But that’s not how it works. The economy is constantly growing. The volume of goods and services available for sale is constantly growing. For the purchasing power of the dollar to remain constant, new dollars have to be injected into the economy constantly. The usual way they are injected is as part of the process of financing the production of new goods and services. Bank money is a liability of the bank. The bank creates this liability and exchanges it with a borrower for an interest-bearing repayment commitment, which is a liability of the borrower. The borrower spends that bank money on equipment, supplies and labor – say to start up a new pizza shop. The result is a certain output of pizzas whose total value hopefully exceeds the costs of the equipment, labor and supplies, thus making the pizza shop a viable enterprise. There is now more money in the economy and more pizza. As a result, the average purchasing power of everyone’s dollars can stay exactly the same. If the shop owner’s business is making a profit, he can gradually pay back the initial loan, along with the interest. The interest is the bank’s share of the owner’s profits, the bank’s service charge reward for advancing the original monetary capital to the pizza entrepreneur. That’s capitalism.
Now if you don’t like the idea of private sector financial businesses profiting from the provision of capital, you could propose a public banking system. The entity that makes the loan is an arm of the government, and the money that is advanced is a direct liability of the government. And the repayment commitment the borrower makes carried no significant interest – only a much smaller service charge to pay the modest salaries of the government workers who staff the public financing bank. Everything else works the same, but the pizza shop owner is on the hook to the public and not a private firm, and therefore pays back less money. Maybe the loan is even subsidized in some cases so that the successful entrepreneur pays back less than the amount borrowed. That’s one form of quasi-socialism, where the financial sector has been socialized but not all businesses and industries have been socialized.
But on neither of these pictures is there any “dilution” going on. At the aggregate level, additional money is being injected into the economy at a pace that repays the debts incurred in conjunction with the previous injections, while prices remain stable. The whole point is to figure out what financial and monetary mechanisms to use to make the economy grow and add value. If there is growth, so that either more of the same kinds of goods and services are available, or new kinds of higher quality goods and services are available, the supply of money needs to grow along with the growth in production just to keep the price system stable. The private and public models are just two ways of doing this. In the private case, the private financial firm receives some of the monetary profits in the form of interest. But some would argue that we benefit from the competition among private banks. On the public model there is no competition among banks and no interest, and the shop owners keep a larger share of their profits.
And if your concern is the workers at the pizza shop who you think are probably not receiving their fair share of the value they have generated, that is a more serious matter. But the issue here is not the monetary system. It is the power structure based on private ownership of the means of production in a capitalist economy, and the relative bargaining power of workers and owners in an economy that permanently operates at less than full employment. The pizza shop owner is a proprietor, boss and owner. He probably does some of the work, but is afforded certain legal rights as owner of the shop. Among those rights is that he gets to say how much everyone in the shop is paid out of the revenues – including himself. He might then exploit the workers. But that is something that can happen even if there were no money involved at all, that is, even if the shop produced a surplus of pizzas and all of the workers were compensated in pizza. Again, it has nothing to do with any dilution of money.
I think I almost understand what Mr. Beard is talking about, but I’m never sure what his prescription is. If I understand him correctly, he is upset that money creation from banks comes attached with interest. That means that the sum total of liabilities (principle plus interest) always exceeds the current amount of money in the supply at any given point in time. This is basically a Ponzi type scheme that requires more money to come into existence in the future. The only way this becomes solvent is if someone injects debt-free money into the system. Currently this never happens.
You are speaking some dialect of Austrian – assuming that all money creation somehow involves a dilution of the purchasing power of the dollar because you are assuming a fixed supply of goods and services. Dan K
Not at all. I’m saying the increase in goods and services is not ethically financed so the profits are not justly distributed. And having the government doing the credit creation is no improvement even if the the new money is lent at 0% interest unless everyone is entitled to exactly the same amount.
And then there is lending for housing. Have houses gotten cheaper or more expensive due to credit creation? So money has certainly been diluted wrt to buying a house.
If I understand him correctly, he is upset that money creation from banks comes attached with interest. aj
That’s just part of it. Even 0% loans of new money are a form of unjust financing IF those loans are made in a government enforced/backed monopoly money supply for private debts (as we currently have). Either the non-borrower is outright robbed of purchasing power via dilution as has happened with housing or else he is robbed of his share in the profits in the case of consumer goods where prices often remain constant or fall.
The banks are a government enforced/backed counterfeiting cartel EXCEPT they lend, not spend their “product” into circulation. In some ways the banks are even worse than traditional counterfeiters since traditional counterfeiters do not require their money to be returned to them, much less with interest.
It seems then that now would be an even better time for either debt writedowns, tax reduction, or government spending. If you can get enough money to the people without utilizing this “cartel”, then they will not have to be debt slaves, eh?
If you can get enough money to the people without utilizing this “cartel”, then they will not have to be debt slaves, eh? Jerry
Yes. Some say a debt write down is the only solution but a universal bailout, including non-debtors, would fix everyone at least in nominal terms. And if we wish to avoid price inflation risk, then why not ban further credit creation and meter the new bailout money to just replace existing credit as it is repaid?
I know you are fond of Keen’s modern debt repatriation proposal and it does include the nominal per-capita equalizer. I say it tries to normalize the lack of wealth-distribution over the past generation or two. We look forward to Keen’s new modeling results. But, of itself it does not either accomplish or propose true reform to the money system that would prevent it ever happening again.
Not sure what that’s worth.
The result of the modeling done by IMF researchers Benes and Kumhof included not only the reforms to the money system recommended in the original Chicago Plan, but also the same type of debt-rationalization component as in the Keen proposal.
Comprehending the research paper itself is a past-brainy slog that is complex and highly technical in the monetary-economic science. Worth the commitment for very few.
But I’m reminded of Atlanta Fed Credit Officer Robert Hemphill’s “staggering thought!”.
“”We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.””
In some ways, that’s what we do here.
A quick read of the abstract and conclusion show that the idea of better wealth distribution can have a positive effect on our economy.
Which makes it worth pursuing.
For the Money System Common
“We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon.” Atlanta Fed Credit Officer Robert Hemphill via joebhd
If the Federal Government never run budget surpluses, never borrowed, and at least sometimes ran budget deficts then those budget deficits would create permanent government money, no?
Surely if a government budget were funded by something other than debt and taxes, it would need to be by ‘printing’ real money.
Once a true ‘permanent-money’ system was in place, the need for any borrowing by the government would be extinct. Taxation would allow continual re-use of existing money, and the amount of new money to provide that needed for economic growth can be “budgeted” into existence and manifest itself through the payments system – as MMT claims is done now for all money.
It cannot be done for all money – only for new money.
Or too much money would come to exist.
And at that point, taxation could also be used just exactly as MMT says it is now – to remove any excess monies from the economy in times of slow or no growth.
What confuses me about critiques of MMT is that they typically take the said theory and make comments regarding what will happen when it is put in place. Yet, this fundamentally misses the point. MMT is not prescriptive, it is descriptive. It is an observational theory which describes the current sovereign monetary systems not a hypothetical ones. Hence, all of the concerns regarding inflation, currency devaluation, and the like should have already occurred . In terms of Dr. Wray’s push for reframing MMT, it seems like a good way to approach the task would be to ask why people know what they know about how our monetary system works? Where in their lifetime did they acquire there understanding of money and its relationship to the economy? I don’t think people question their own knowledge enough. As such “MMTers” task is not to convince…their task or duty is to create an environment where individuals are able to explore their own institutional beliefs and are able to ask whether they are still relevant.
The flows of money you/Abba Lerner describe sound like Keynes on slumps and booms, that the purpose of public policy should be to abolish slumps and keep us in a “quasi-boom.” It may help to know that this countercyclical principle is ancient, going back in biblical literature to Joseph (Genesis 41). For anyone interested, last week Counterpunch published my article on this, The Fate of Keynesian Faith in Joseph’s Countercyclical Moral (Nov 30-Dec 02).
There is a different tack here that needs to be explored. For anyone familiar with the dynamics of fraud, part of the game is the fairly predictability of the people who are being defrauded is that they will remain civil and polite. This is used against the people being defrauded and even against those who are aware that fraud in being perpetrated. There is HUGE contradiction within the Fiscal Cliff fraud, in that the same people had no problem at all with perpetrating under a cloak of silence regarding the $29 trillion that was consumed in bailing out the SDIs/Too Big to Fail criminal enterprises. This is a major weak point in the blather pressing the austerity illogic. Why is it reasonable to spend $29 trillion in baling out and rewarding fraud, while at the same pretending that the logic of household budget applies as a moral/ethic posture to ratify class warfare. Who is really on the hook for the stealth debt being held on the books of the Fed. ? Just who is going to be held responsible for paying off that debt? If just one $1 trillion was used to fund an ELR/JG program the so called recession would be over. In this case the best response is to use their lack of fiscal responsibility against them. It may actually require calling a spade a “spade.” The defense of Soc Sec. can follow the same process. Why is such fraud accepted? Please, some one with the access to media. Bill Black does this at a lower level relatively frequently, but even he has not quite taken it to the level of challenging the $29 trillion fraudulent debt. There is no interest rate on the QEs TARP and the rest of these scams. Pressing the Repugnants and the Demo-philes on this will at least reduce them to a further level of gibberish. Polite reasoning in effect enables the ongoing fraud. Unlike the garden variety trolls, they need to have their massive fraud and two faced economic rationalization challenged. This may evoke some level of appropriate reaction from the public as well. The emperor is buck naked, and it needs to pointed out, rather than ignored under the expectation of a captured sort of civility. It may be that the majority of the MMT professors are not willing to risk this level of nominal disrespect for pretense and criminality. In effect this pseudo civility is allowing a sort of a twisted sort of Stockholm syndrome. Capiche? I’ve seen this many times, in various non-profits. The recent posting of the Mark Twain cartoon that Dr. Kelton posted, assumes this sort of professional courtesy, when it is entirely unearned and actually complicit to the fraud. People in effect avoid admitting the active fraud under an unearned sort of civility.
Who is really on the hook for the stealth debt being held on the books of the Fed. ?
Nobody. The Fed is the nation’s central monetary authority, not a business. It’s assets don’t really matter as far as its operational integrity goes, and the only reason it cares about whether the debts it holds are paid is because those anticipated flows out of the private sector are part of its monetary policy. Once the debts are paid, it wouldn’t matter if the Fed just erased the dollars from its books. The Fed can face no solvency constraint, and so it would never have to be bailed out. If the Fed’s semi-fictional balance sheet suddenly went several trillions of dollars in the red, nothing bad happens. The Fed can go on making payments and doing its business just as before.
“The first financial responsibility of the government (since nobody else can undertake that responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce.”
Does Lerner have any comment on what happens when all the goods that are demanded by consumers do not match all the goods that is it possible to produce? For instance, what if everyone is employed, and producing all that can be produced, but there is a shortage of some goods and a surplus of others? The producers of the “others” will lay off workers, but if the workers don’t have the right skills, the producers of the “some” will not hire the laid-off workers, but will bid up the price of the already-employed ones. Thus we would have both unemployment and inflation, were the government to spend according to this law. It seems to assume perfect substitution of labor as an undifferentiated commodity.
A JG program can mitigate this situation. Did Lerner make his laws contingent on that?
In the papers I have read he didn’t address it directly. It’s a good question, and I know that a lot of wartime Keynesianism sometimes seems to implicitly assume a kind of industrial steady state society, with the continual displacements caused by Schumpterian innovation. My view is that the full employment society should include a permanent program of adult education.
My view is that the full employment society should include a permanent program of adult education. Dan K
Do the rich need continual education? Or is an adequate income sufficient?
The problem is maldistribution of wealth. Workers have been cheated out of their fair share via the money system whereby their purchasing power is stolen or a best borrowed without genuine permission and without adequate competition via loans from a government backed/enforced “private” money creation cartel.
The “manna from heaven” quote may well be from me. That is exactly what I said recently about MMT as promulgated on an MMT Facebook forum. The timing of this article fits. I don’t know of anyone else who has used that phrase about MMT.
This article does not correctly characterize my issues with MMT. Previously I criticized MMT advocates who vociferously claimed that MMT means zero taxes on anyone. One of MMT’s leaders, Pavlina Tcherneva, stepped in and said that no taxes idea was wrong.
My problem with MMT advocates like this one (and most of MMT’s theorists) is that they draw on a human nature that does not exist. It is a world free of self-serving politicians with no sociopaths seeking wealth, power and control. They implicitly and explicitly say that government should just spend as needed and everything will be wonderful. Pavlina has at least listened when I said this is exactly the trap of Marxism – a great theory for a fantasy world.
Would anyone here believe for one second that if the US Congress could materialize any amount of money at will – and had significant public and academic backing for it – that the outcome would not be a disaster? You see, MMT advocates think that the money would go to them, that they would ‘get theirs’ along with others in their financial class. But there is no evidence that would happen, and ample evidence it would not.
There is great value in MMT theory. Marxism is relative twaddle, just a minor Ricardian worker model. The MMT analyses are correct in terms of mechanics to a great degree. Where MMTers fail utterly is in their implicit ideas of human nature when they create ivory tower prescriptions. Those prescriptions are, indeed, “manna from heaven”.
Nor do MMT advocates deal head-on with the glaringly obvious problems they already have within their community of adherents. Those adherents speak with religious fervor. They seek the promised land. Most people are never going to understand or deal with complex matters that require mathematical ability. And that is why people advocating for MMT have a cacophony of voices. Something grabs their fancy. Some say “Full employment!” and anything less than full employment means there is not enough government spending. Others say, “No taxes for anyone! Government creates money!” (viz. Mike Norman, a stock analyst). Others say other things.
And nobody in MMT looks at ROI of spending, nor seeks to find methods of mild modification of the current system. What we have in front of us is a massive regulatory failure. And I am well aware that some within the MMT community are happy about that. They see it as an opportunity to unseat a system in revolutionary fashion. This is just a variant on the old communists and anarchists who hope and pray for revolution in the streets so they can gain power.
The system we have evolved over millennia. It attempts to balance human/primate greed for power and wealth against the public good. It has done very well, at least within the culture of the West and the near east. Private credit as a method of money creation caused European culture and people to explode across the world. But lets be clear about the human motives involved. Just so, let us be absolutely clear about the motives of Wall Street’s “Master’s of the Universe” and what their machinations are for. Those guys are out for themselves. We are already seeing serious problems because they have essentially taken over the executive branch of government. Those guys have been protected by the current and previous administrations. But only Obama has directly run interference to protect them from prison. And that, folks, is what defines a banana republic.
So we already see what those kind of people do when they are too close to and have control over the current central bank and spending process. Mr. Kervick is arguing for above is that all the control systems, all the barriers that still exist be torn down.
That is my criticism. Mr. Kervick’s article, like many in MMT, is arguing with straw men of his own creation. He is not engaging with me, nor with the heart of my criticism. But he pretends to here. All of those in MMT need to cut it out and actually deal with those criticisms. I have stated them clearly here.
Would anyone here believe for one second that if the US Congress could materialize any amount of money at will The US Congress can right now. If you think otherwise you don’t understand MMT or the current system – and had significant public and academic backing for it – that the outcome would not be a disaster? There is significant public and academic backing for already – the outcome is sometimes disastrous, sometimes not. Usually the disaster is visited on those the US government has randomly decided to bomb though.
You see, MMT advocates think that the money would go to them, that they would ‘get theirs’ along with others in their financial class. But there is no evidence that would happen, and ample evidence it would not. It is a political struggle. But it is a significant fact that the “bad guys” find it necessary to propagate ridiculous, idiotic lies, the comical pseudoeconomics of the last few decades. There were major struggles in the 30s, 40s, 50s and 60s that the bad guys lost.
And nobody in MMT looks at ROI of spending, nor seeks to find methods of mild modification of the current system. First of all, MMT is merely a mild modification of the current system. Just going back to the postwar “system” is halfway there, and its recommendations are quite close to the USA circa 1942. The basic policy of MMT is non-inflationary government spending – the only sort of goal for “ROI of spending” which even makes sense.
So we already see what those kind of people do when they are too close to and have control over the current central bank and spending process. Mr. Kervick is arguing for above is that all the control systems, all the barriers that still exist be torn down. But the current central bank and spending process is not “a control system” in the sense you mean. The independent central bank is a tool of the Wall Street financial oligarchy, not a restraint on them. Get rid of it. Simplify the system. Make it clear to everyone what is happening. That is the main virtue of the government spending by “printing money” – not minuscule differences with the current system, which are in no way a control on spending or predatory behavior – rather the reverse – they disguise welfare for the rich and corrupt and their predations.
I disagree with Dan though, MMT, sound economics certainly is about free lunches. Otherwise what good is it?
Would anyone here believe for one second that if the US Congress could materialize any amount of money at will The US Congress can right now. If you think otherwise you don’t understand MMT or the current system – and had significant public and academic backing for it – that the outcome would not be a disaster? There is significant public and academic backing for it already – the outcome is sometimes disastrous, sometimes not. Usually the disaster is visited on those the US government has randomly decided to bomb though.
Most people are never going to understand or deal with complex matters that require mathematical ability. It is not a mark of mathematical ability to be unable to explain such “complex matters” to most people, so that they can deal with them themselves.
And that is why people advocating for MMT have a cacophony of voices. Not really. The academics, the real MMTers are pretty harmonious. Some say “Full employment!” and anything less than full employment means there is not enough government spending. All of the above say: absolute, complete full employment. Others say, “No taxes for anyone! Government creates money!” Nobody who understands MMT says this.
You see, MMT advocates think that the money would go to them, that they would ‘get theirs’ along with others in their financial class. But there is no evidence that would happen, and ample evidence it would not. It is a political struggle. Struggles over public money always are. But there is nothing new about “the money” of MMT proposals. There were major struggles in the 30s, 40s, 50s and 60s that the bad guys lost. It is a significant fact that the “bad guys” then found it necessary to propagate ridiculous, idiotic lies, the comical pseudoeconomics of the last few decades.
And nobody in MMT looks at ROI of spending, nor seeks to find methods of mild modification of the current system. First of all, MMT only suggests mild modification of the current system. Just going back to the postwar “system” is halfway there, and its recommendations are quite close to the USA circa 1942. The basic policy of MMT is non-inflationary government spending – the only sort of goal for “ROI of spending” which even makes sense. The point is not to abolish “private credit”, but to restore the knowledge that modern banking is not really “private credit”, but “public/private credit”, and so must be closely regulated and restrained.
So we already see what those kind of people do when they are too close to and have control over the current central bank and spending process. Mr. Kervick is arguing for above is that all the control systems, all the barriers that still exist be torn down. But the current central bank and spending process is not “a control system”, a “barrier” in the sense you mean. The independent central bank is a tool of the Wall Street financial oligarchy, not a restraint on them. Get rid of it. Simplify the system. Make it clear to everyone what is happening. What you are calling “control systems” are actually “barriers” to scrutiny of the acts of malefactors of great wealth.
That is the main virtue of the government spending by “printing money” – making it clear how it works, how it has always worked. Not minuscule differences with the current system, which are in no way a control on spending or predatory behavior – rather the reverse – they disguise welfare for the rich and corrupt and their predations.
I disagree with Dan though, MMT, sound economics certainly is about free lunches. Otherwise what good is it?
“free lunch” is the wrong meme, so to speak.
Lunch is a real good, not a financial one. It is created by real people doing real work. It is never free. Even if the person eating it didn’t pay somehow, it was paid for by someone else. It was never free.
I asked Randy directly one time what he meant by saying there were lots of free lunches, but he never answered. I can guess that what he meant is that proper macroeconomic policy would increase the real wealth in the world, and that it takes no more effort to do proper macroeconomic policy than it takes to do poor macroeconomic policy. That would miss the point. Proper macroeconomic policy would result in higher employment (more real work being done by real people), and the resulting wealth is the product of that work. It is not free.
To shift attention to the lower level of the economic predation/pecking order, those who who would benefit most from a progressive basis for macro economic fiscal policy, such as those who have had their food stamps cut by a third to satisfy a political ideology tend to be so victimized by the neo-liberal/classical pseudo morality that that they have difficulty mentally making it from day to day, and can’t even imagine not being abused by such institutionalized manure. The long term effects of underemployment are actually horrendous. Using the unemployed and the underemployed as a “buffer stock” supported by welfare against unionized and productively employed people is just another variety of multi-generational class warfare. Economic literacy at this level is only a distant fantasy or something that looks like another way further disappointment. A women I know has serious anger issues that she directs toward nearly everyone around her, mostly because that is the sort of environment that she grew up in. I fully expect that a lot of the ambient anger is directly a result of multi-generational under and unemployment. So when she can’t afford her “medication” she is is a hazard to everyone around her. I was also told that her son was recently convicted after a prior stint in the penitentiary for essentially a “life” sentence. People who have recently lost their homes are experiencing real tragedy, had assets to lose. The full projection of the consequences of the privatization and dysfunction of our monetary system needs to be front and center. The additional victimization people already on social support provides the sickest morality possible. This why there needs to be a progressive approach to the regulation of capital and fiscal priorities. So much for the morality of the fiscal cliff/austerity terrorists. The obvious result of more of the same, is more of the same, not anyone’s A”happily ever after,” except for the plutocrats and their courtiers. Occasionally it is a positive to simply project the radically different outcomes beginning from the “charter” of Human Rights. The free lunches are actually the product of “investments” in the political process by such as Adelson and Peterson, not to forget the aspiring fiscal idiocy of the politicians who measure their success by their post-presidential speaking fees. The day to day unreality at the opposite end of the privilege scale needs to be recalled to ground our advocacy. The true free lunches are at the top, and always have been.
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MMT theorists repeatedly say that the government with its fiat money can always pay off its debts, no matter how large. Some even concede that the Fed’s purchases of the T securities from banks has transferred the government’s debt from the banks to the Fed. If that is so, then our government is not capable of paying off its growing debt like MMT theorists assert, because the government entity capable of paying off that debt is owed for that debt. Or is this a result of confusion both at the Fed and the Treasury owing to the fact that they keep separate books, and the government itself, which integrates the two has no book. So, if the Treasury (for the government) sells a security to a bank in return for money to conduct deficit spending, that debt is not seen to be the Fed’s debt, and when the Fed buys the security from a bank that holds it, using money the Fed creates out of thin air, as the government’s money creator and issuer, it does not see that it has redeemed the debt for and by the government. Furthermore it does not see that it is just an agent for the government, so it’s claim to be paid in full for the securities it has purchased with money it created out of thin air for that purpose is as invalid as the claim of a bank clerk to be paid for the value of securities it buys from bank customers for the bank with bank money. The law states that the Fed is owed 6% of the interest on the security as a transaction fee for the purchase. But that is different from saying the Fed is owed for the full value of the security. There is no national debt that has not already been paid off or will be paid off easily.
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