A Contest: MMT for Eighth Graders

What’s the best way to communicate the principles of MMT to an audience who doesn’t know any economics?  Can you draw out the implications of the sector balances or explain the importance of sovereign money without complex jargon?  Can you do it a way that will resonate with the average eighth grader?  Can you do it in 25 words or less?  We’ll collect the best submissions and post them next week.  Give it your best shot!

*UPDATE*  I can see that we are off to a bad start.

Identify a single MMT principle and then explain that principle in 25 words or less.  We are not asking you to explain *all* of MMT in 25 words.

“Without jargon” means that you should not use words like: “fiscal”, “reserves”, “GDP”, “debit”, “credit”, “policy space”, “bonds”, “capital”, “austerity”, “monetary policy”, etc.  You’re communicating with someone who has an eighth grade education, people!   In the USA.  Think about what that means.

227 responses to “A Contest: MMT for Eighth Graders

  1. Matt McOsker

    I created this infographic for a post over at Angry Bear. I did not do a word count yet, but its not very wordy.


    • Cool infographic, Matt. I like the three scenario compare and contrast. I would only delete the term “print” and replace it with “create,” or something else. Just a minor linguistic tactic.

  2. Sunflowerbio

    Twenty five words or less! Given the total number of words written explaining MMT to adults, I should think twenty five is an impossible goal. Perhaps one thousand or twenty five hundred, but not twenty five. I await the results, but refuse to hold my breath.

  3. Government spending always pays for itself fiscally. It either ends up as tax or extra savings. It can’t go anywhere else.

  4. To all those people worried about mere fiscal numbers, MMT says: Get Real.

  5. The foreign sector is not some Old Testament God that can cast down its wrath without any effect on itself. They are people like you and me just trying to make their way in the world.

  6. Government borrows in the same way as your bank borrows when you pay your salary in.

  7. Companies don’t hire people or spend money for the sake of it. They do it in response to solid demand for their products and services.

    Which you can only get when people start spending money.

  8. People actually do choose to work, because it is more about meaning than money. Give people mere money and you may save the body but you will lose the soul. Give people work to do and you save the body and the soul.

  9. The government has a Super Platinum Credit Card: it has no spending limit and it gets Cashback from *every* transaction in the entire economy.

  10. Water flows from a tap into a Super Big Pail A, which over time overflows into a Big Pail B and over time flows into a medium Pail C and so on… more pails or bigger pails will hold more water. If there aren’t enough pails and water overflows onto the floor, open the drain-hole to prevent drowning. Or you can just drink the water.

    Some Facts;
    Water keeps flowing until you turn off the tap
    Water can only be removed if Mom opens the drain
    Water flows downwards
    We all need water to live
    Big Pails hold more water
    Small Pails hold less water
    All are good pails because they can hold water
    A pail is a tool
    Pails are most well used when they are full
    Pails are less useful when there are no handles to be used as a tool.
    Pails are useless if there are holes.
    If water keeps overflowing the pails and the drain is closed, the pails are useless and we all will drown.
    You can drink all the water and create a different water- Urine.
    But urine isnt nice because you cannot live on urine forever, it becomes yellower everytime you urinate.
    You need water to make urine.
    You either drink from the tap or from other pails to make urine.
    You have to be careful where you urinate.
    Urine fills the pails too
    But urine must be covered otherwise it will stink.
    The urine filled pail must be kept away from other pails.
    If there’s too much urine in a pail, it’s better to scoop out the urine and pour it down the drain to avoid putting them into other pails.

    Tap & Drain = Treasury / Fed (Govt)
    Water = Money
    Pails = People, Businesses
    You = Banks
    Urine = Debt Money

    oh well i had fun… lol… there’s more, but im tired heh

  11. ” I can see that we are off to a bad start.”

    You don’t filter with brainstorming until you’ve got the ideas down.

    Nothing good is ever written. It is rewritten.

    Reply and simplify.

  12. Principle- Who Makes Money

    Who Makes Money? Banks do! 5 They do it by loaning 10 money to people who can 15 then get goods and services 20 in exchange.

    You can ignore the numbers, they’re just there to help me count the words- 22 by my count.

  13. romeroberto

    There is nothing inherently good or bad about budget outcomes, which are merely a function of economic conditions. Government’s role is to mitigate negative economic conditions.

    • romeroberto

      For example, when households reduce their spending to pay their debts and taxes, businesses experience a reduction of sales. When the economy slows down, employers layoff workers. Government then receives fewer taxes because of fewer workers. At the same time it is obliged to partially make up for the lost income of idle workers. This often leads to government spending more than it takes in, which is called a budget deficit.

      Our government is able to create its own currency which means its spending is not constrained by the size of its deficit. The only limits to the government’s spending is the availability of real products and resources for sale. If the government creates more currency to spend than the real products and resources in the economy this can lead to a negative economic condition known as inflation.

      Fortunately, the government has remedies to reduce inflation. These include reducing its own spending and raising taxes to reduce the spending of households and businesses.

  14. Principle- What is Money good for?

    What is Money good for? 5 To pay Taxes! There are 10 other things you can use 15 for exchange, but only Money 20 can be used for Taxes.

    The full 25.

  15. Worrying about government debt is like worrying about how many runs the “pitcher” is giving up in a tee-ball game: THERE IS NO PITCHER!

  16. Principle- What are Taxes?

    What are Taxes? Taxes are 5 an obligation owed to the 10 State for State provided services 15 like Defense and the Rule 20 of Law.

    22 Again. Hope I’ve got the flavor of it. No more time to waste, but it was a fun game to play.

  17. Cory Hoffman

    These are some I’ve come up with: I think the best bet is to describe it in terms of a metaphor understood by 8th grade kids (an 8th grade boy as I used to be).

    I would definitely understand the Cheat Code References for the Computer Games “The Sims”; “Command and Conquer” and “Age of Empires” and the idea of a “Money Tree”.

    So here are my examples:

    “If you had a magical money tree with infinite U.S. dollars, could run out? No. Our country a magical money tree called the FED.”

    “For the United States government, money does grow on trees. They have a money tree with infinite dollars if they want to use them. ”

    “If the government gave you a printer and said you were allowed to print your own money, would you ever be worried about running out?”

    “When you play the Sims and know the cheat to add money to your Sims’ wallet is it possible for you to be worried about running out?”

    “When you play Command and Conquer and you know the Cheat Code for Money, isn’t it true that you can buy anything for your Army?”

    “In Age of Empires, when you know the Money Code, you can use it to build as much of an empire as your people can muster. ”

    I think Age of Empires works particularly well because it’s like a micro civilization that you control and it fits the MMT story about how you’re limited by real potential output of your civilization. In AoE…you can have an infinite purse when you enter the cheat code. You don’t have to send your people out to mine for Gold then but instead can concentrate on building your army and/or your societal structures but you’re limited by what your population capacity can build. Kind of like the FED issuing dollars that can be spent rather than needing to obtain them from taxes/borrowing.

    Maybe shorter….”The Government knows the Money Cheat Code. It doesn’t have to mine for gold…borrow…tax…etc.”

  18. Cory Hoffman

    I still remember the money code for Age of Empires II:

    “Robin Hood” would get you 1,000 pieces of gold in your purse and you could type it in as many times as you want.

    Really, it’s probably not much different than what they do over at the FED.

    Just like you don’t have to mine for the Gold in Age of Empires when you know the Robin Hood code, the U.S. government doesn’t have to tax or borrow to obtain dollars. Just enter the code.

  19. My simple explanation would be that in an economy, every entity lives by a simple truth (start counting!): One entity’s spending is another’s income. The only entity for whom this is not true is the government, which supplies new monies to grow economy.

    • Crap. I immediately knew this was so wrong. I guess what I was trying to intimate is that the government is not like a household, but that reads terribly. Back to the drawing board.

  20. peanut gallery

    Not even close to 25 words, but maybe 8th grade level:

    An economy is one way a society organizes to make and distribute stuff everyone wants or needs to live. Money is used to make it easier to trade some of this stuff for some other of this stuff. If you had all the money there is, you could buy exactly all the stuff there is, with no money left over. Money has no value in itself, the stuff has all the real value. All the money there is comes from the Federal government. The Federal government can’t ever run out of money – duh! If it makes more money and the amount of stuff stays the same, all the stuff will cost that much more – what they call inflation – but if the new money is used to make more stuff, like by hiring someone to work and make that stuff, that doesn’t happen. All that happens is you have one more person with a job that didn’t have one before.

  21. Money doesn’t appear from nowhere. When you spend money, it always ends up somewhere else and can be accounted for. It does just disappear.

    • sorry, should read “Money doesn’t appear from nowhere. When you spend money, it always ends up somewhere else and can be accounted for. It doesn’t just disappear.”

  22. Better… 🙂
    One entity’s spending is another’s income. All entities’ spending except the government’s are income constrained. Government creates new money to satisfy needs of growing economy.

  23. If a country doesn’t employ everyone it can, it is loosing out on real wealth. This loss is permanent and cannot be regained, ever.

  24. Loosing out on real wealth affects everyone in the country and the ability of the country to meet the needs of the population, eg healthcare.

  25. Currently the government borrows money and then spends it just like your Dad. They don’t need to borrow, they can legally make it before spending.

    • Greensachs

      Thank you John!
      The difference between the Federal Reserve and Treasury is key. Spending it into the economy via minting a Platinum Coin (Seigniorage–something claimed by a sovereign {U.S.} or superior as a prerogative or right) versus borrowing it into existence.

  26. In a State with sovereign currency: government spending creates private wealth; the taxes impose the currency; unemployment can be fought!

    …20 words! 😉
    maybe it’s too complicated?

  27. JohnfrmCleveland

    The economy is like the water cycle, but with no evaporation. Dollars flow from the government to the poor, get spent a few times before they trickle up to the rich, where they form oceans of retired dollars (bonds). Repeat.

    40 words.

  28. Robert Kelly

    Money grows on special government trees. Government can supply (grow) more if there is recession or tax (shred) more if there is inflation.

  29. When you spend money in a candy store, the owner gets some money. His profit helps him pay his bills and buy things he needs.

  30. Spend less in his candy store, he has less to spend on things he needs. If everyone spends less everywhere, we all get poorer.

  31. Marvin Sussman

    Impossible in 25 words. But try this (about 320):

    The federal government is not a business that needs to balance its budget. It is a sovereign state that can issue any amount of its own fiat currency, need never borrow the money that it can create out of thin air, and can never become insolvent. Unless we lack real physical resources, we can spend as much on infrastructure as we wish.

    But spending without sufficient physical resources could result in harmful inflation and must be avoided. Instead of balancing its budget, the federal government has to balance full employment of all our resources against inflation, the only real restraint on spending.

    The public has been given a false conception of federal debt. When the federal government spends, each dollar flows through the economy and finally settles in one of only two places: either Treasury tax revenue or private sector savings (including foreign holdings). If Congress does not tax the public enough to get its entire spending back, its annual budget deficit is equal to the annual savings of the private sector. Our national debt is equal to total private sector savings.
    That federal debt (and that private wealth!) is not our problem. Our problem is the annual federal debt interest expense. Because of a strange law, Congress does not allow the Federal Reserve System to use the money it creates out of thin air to buy interest-free bonds from the Treasury. Instead, to finance a deficit, the Treasury must sell interest-bearing bonds on the open market and pay interest to the bond-holders. Because of this strange law, trillions of dollars have been redistributed from middle class taxpayers to the rich. These trillions are now the cause of our debt interest expense, our inequality, and our poverty.

    Stop Congressional borrowing and paying interest! Repeal Congress’ strange law! Create fiat money and spend as much on infrastructure as possible, balancing full employment of all resources against harmful inflation! That’s the only way out of this mess.

  32. geerussell

    Printing press owner’s manual: Spend enough so everyone who wants can work and tax enough to avoid inflation. Rinse, repeat, enjoy prosperity.

  33. Government can produce its own dollars, so they can always pay debts and spend. Spend more than the country can supply and prices go up.

  34. To make a profit, businesses need customers and customers need jobs. If businesses won’t hire, government must – to provide income, ensure spending, and generate profits.

    • Stephanie Kelton

      Liking this…..

      • Yes, I like it too.

      • But not quite in 8th grade terms. Anyone have a good Halo, pirate, or similarly recursive tie in?
        Get into that raging hormone, ridiculously awkward, starting-to-hate-everyone-over-20 frame of mind!

        • Mario Bros is probably a much better option than shooter games. And players actually collect coins, right?

          The game gives you coins for performing certain tasks. How cool would it be if you could use those coins to save money or buy stuff? What would happen if the game stopped giving them out?

          When the game give you a coin, does it cost you (or Mario) anything?

          Does the game need to take back any of the coins it has given out to ‘finance’ itself?

          (You know, even though they look like gold coins, they’re just digital bits and bytes. Anyone is welcome to run with this.)

          (Some distinctions at work too; most video games not open-ended like a govt; and there’s no chartalist aspect to this metaphor; Mario Bros game doesn’t have to tax coins back to encourage and enforce their use; otoh, they are the only currency available in the game.)

  35. Regarding the sectoral balances thing, I always found that excel chart with the red, blue, and green lines on it very helpful/informative..

    “Every dollar spent by the government that was not collected from taxes is added to households and businesses as a whole.”

    “Every dollar collected from the private sector via taxes beyond what the government spends is removed from households and businesses as a whole.”

  36. “For you to earn a dollar someone else must spend a dollar. Everyone can’t earn more than they spend unless govt has a deficit.” 24 words
    “For every +1 on your balance sheet, there must be a -1 on someone else’s balance sheet.” 16 words
    “A -1 one on the govt’s books is also a +1 on the non-govt’s books.”. 15 words
    “A growing population with a growing amount of economic activity needs a growing amount of money.” 16 words

    25 words is too limited. But Matt’s infographic is great.

    In my opinion, as a non-economist, the sectoral balances it the most important thing to understand. When I was in high school, I remember thinking “To earn a dollar someone else must spend a dollar. So how could it even be possible for all of us to earn more than we spend?”. I couldn’t figure it out so I kinda forgot about it for close to a decade, then I found mmt, it answered my question and instantly made sense. But I can’t get others to understand it, they just can’t seem to make the jump from a micro context to a macro context.

    Everyone wants to earn more than they make, yet that’s not possible unless the govt has a deficit. It literally boils down to 1-1 = 0.

  37. financial matters

    MMT is a happy story about money. We make it and we can use it to make the most people happy. Live and work well.

  38. I’m pretty sure it’s been used before (probably by you, Prof. Kelton), but an analogy to scores in a video game might work. Though some rationale first…

    I think the main hurdle to overcome with MMT is the belief that adding money dilutes the existing money. That is, the old saw about “money chasing goods,” which really means “money representing goods,” then falling into a ceteris paribus black hole, in which adding money means that each dollar now represents fewer goods.

    The more appropriate analogy is probably something like Pac-man (or whatever, though I don’t know if Angry Birds is scored), where the score of the game represents the player’s skill and/or obsession. More skill needs more points to represent them—but a higher score doesn’t dilute existing points, but is required in order express higher levels of skill. On the other hand, if Pac-man were designed with a fixed upper score, then nobody who plays for points would ever develop skills beyond what could be represented. (As it is, the original Pac-man is actually limited by an overflow in the level counter that causes it to freak out and crash, though that’s probably not something the average eighth grader knows.)

    Hence the job of the government is not to limit the number of points, but to make sure that it scores the economy correctly. And underscoring is at least as bad as overscoring.

    This idea seems incomplete, but maybe it could be a starting point for something more coherent…

  39. Sunflowerbio

    Here’s my try.
    A sovereign currency issuing nation, like the United States, either mints, prints, or computer keystrokes its money into existence. The value of this (fiat) money is not fixed to any object or commodity like gold. Rather it is allowed to float freely on foreign exchange markets where its value is determined by the relative strength of the countries economy.
    The sovereign country issues money by spending it into the economy to purchase goods, like desks, services, like scientific research, or to build infrastructures such as roads, airports, and dams. Most of the government purchases go into the private domestic sector of the economy, but some also go into the private foreign sector. Because both these private sectors want to save money either for investment or future use, the government sector must either continually issue new fiat currency, or see the total amount of circulating money and economic activity shrink as more money is “saved”.
    Neither the domestic private sector, nor the foreign sector can create the countries’ money. Only the sovereign government can issue new fiat currency. Because both private sectors want to save, it is up to the nation’s government to create new fiat money to prevent the savings “leakage” from shrinking the economy, possibly all the way to zero.
    Governments can, and do, take some of the circulating money out of the economy, by collecting taxes and fees, and this too tends to shrink the economy. However, because the government spends the money it collects as taxes and fees (the government’s revenue), the money does not leave the economy. If the government takes more money out of the economy than it spends into it, this money can only come out of one or both of the private sector’s savings. When this happens, as it did between 1996 and 2000, the government is said to be running a budget surplus. Budget surpluses may seem to be a good thing, but they shrink one or both of the private sector’s savings and leave them with less money to invest to grow the economy. A shrinking economy produces a lower standard of living, on average.
    Ultimately, the sovereign government must spend a least as much as it collects in revenue, plus whatever additional money the private and foreign sectors wish to save, just to keep the economy from shrinking. If the economy is to expand, the government must spend even more money, for government is the only sector that can “create” fiat money.
    Spending in excess of revenue in a given year is called annual deficit spending. The collective amount of annual deficit spending, less any budget surpluses as between 1996 and 2000, is called the national debt. The national debt can also be called the net investment of the government in its people. This net investment reflects the effort the government has made since its founding to advance the welfare of its citizens by growing the economy and creating the infrastructure and institutions that improve their lives.

  40. JohnfrmCleveland

    Governments create pieces of paper (dollars) for their citizens to use. Because many of those dollars end up being saved, the government must create more of them. This is deficit spending. The saved dollars are the national debt.

    38 words.

  41. The Goldilocks approach:
    Too much spending makes the economy too hot, but too little makes the economy too cold. Keep it just right and Goldilocks is a happy capitalist.

    When the government spends, someone, somewhere, is made richer.

    When a government creates money, it is called deficit spending. When an individual creates money, it is called counterfeiting.

    If you can’t find a job, a government sponsored job to put your time to good use means everyone wins.

    Your grandkids will worry more about their failing roads and bridges than what the debt/GDP ratio was in 2013.

    My favourite:
    The government is here to issue currency and chew bubblegum, and its all out of gum.

    (Although it could buy more gum, provided the price of the gum was denominated in the currency which it issues)

  42. The government creates money to buy real things from people. People provide the real things in order to pay taxes with the money they get.

  43. When the government creates and spends additional money on real things, people who sell the real things earn, spend and save those extra dollars.

  44. The government should never fall in love with money, for money is government’s creation and must not be allowed to become its master.

  45. While businesses try and grow and compete with other countries’ businesses, government must spend enough money to keep everyone who wants to work employed.

  46. – Money is a contract with which you can get other people to do work for you, or you do work for other people to get more “contracts”. These days it is printed on paper.

    – Money is a contract to work, a small paper contract without anyone’s name on them. When there are many people out of work, then there is a reservoir of work that can be freed by having more contracts. The government can print these contracts and put them into the economy.

    – When people are out of work, it is clear that these contracts can be printed without problems, because they will go to a good use immediately, by getting people to work. There will not be more contracts than people willing to work, so prices will be stable.

    – Every year, we need to set aside some contracts, so the people who protect us and who teach us and who build our roads can do work. This is called taxes.

    – More contracts are needed every year, for the new young people who want to work. The government needs to print more contracts for them, otherwise they cannot be contracted to work. Misleadingly, this is called deficit, because of old accounting words. However, it is an investment for the future.

    – Sometimes, people pledge part of their work in advance to a bank. The bank then can exchange this pledge for the contracts called money which it gets from the government.

  47. A nations government needs a system that distributes its wealth among its citizens to insure life, liberty and the pursuit of happiness. TRUE CAPITALISM !

  48. People have values.
    Sometimes they like to exchange things according to their values.
    ‘Money’ is in infinite (-1) supply, dividing selfishness from inclusiveness.
    Self-interest widens to become inclusive when selflessness is more valued and self-interest deprecated.
    It’s a long story ….

    Words are just symbols (41) – it’s meaning that counts! Then the significance … One thing I notice is the solution resides in the human heart first of all; then mind. That takes a little bit of understanding, and humility. It’s a 200,000 year story.

  49. Tax increases and spending cuts produce the same result: less money in the pockets of the American people. Then, sales fall and people get fired.

  50. John Turner

    Sovereign Governments issue a currency. The limit to their ability to buy goods in exchange for that currency is the availability of the goods.

  51. “You’re communicating with someone who has an eighth grade education, people! In the USA. Think about what that means.”

    We’re in over our heads unless we can tie it in to Halo III or the Kardashians?

  52. Private bankers and governments work together to create money in order for the public to get it and provide for their families well-being. Most of the people in power right now believe the government should stay out of the way for businesses to handle this money getting out to the public, but mmt says they will always always ruin things and make the poor more poor and the rich more rich, mmt levels the playing field the rich keep their stuff and suddenly finds work!

  53. And the poor suddenly find work. Should have proof read it first.

  54. Principle: a monetarily sovereign government is not financially constrained.

    Lesson: If you had a magic printer that made dollars, you would never need to borrow money and could buy anything offered for sale in dollars.

    Principle: taxation destroys money.

    Lesson: If you had a magic printer that made dollars, you could shred every dollar anybody ever gave you without consequence to your ability to spend.

  55. Dan Kervick

    People working together as a community can achieve the full employment of our fellow citizens, the full realization of our country’s potential, and full lives of dignity and security in a way that people working separately as owners and workers in private businesses cannot.

  56. Trish Flanagan

    When governments spend more than they collect in taxes, the total savings of everyone outside government increases. When banks lend money, the total debt of everyone outside government increases.

  57. You have to spend money to make money and government creates its own money. Spend it on needs and it pays for itself.

  58. We need one of those brief, clever animated videos. But, as a template in general, one of Dr. Kelton’s presentations from the grassroots 2012 MMT Summit in Rimini, Italy is still my favourite:

    Dr. Stephanie Kelton: Modern Money Theory Explained

    I’m convinced, if only the entire nation heard this mp3 or saw its video, our nation would have their minds blown.

    MediaRoots.org used to have an audio player with the audio of that presentation, but it’s temporarily missing. Abby and I, at Media Roots, are working on something of a website overhaul. (So, some things are temporarily missing.)

  59. Mark Robertson


    Perhaps MMT would fare better if its proponents used images the way newspapers use editorial cartoons.

    For examples of satirical images that lampoon austerity, while instructing about MMT, see my own blog…


  60. Charles Robinson

    Policies that reduce production today don’t make tomorrow richer. The whole isn’t like any of the parts, and austerity is not the same as saving.

    Money is not wealth, or an immutable store of it. Wealth is the capacity to organize, survive, adapt and produce.

    The future will not send money to the past to pay for current expenditures. The government shouldn’t permit maldistribution to paralyze the economy and inflict widespread hardship.

  61. Money is like blood. The government can always make it and never owes it to anyone else.

    If you trace every dollar back to its birth, you will always find it was spent into existence by the government.

    Every dollar you spend is a dollar someone else receives. Spending and income will always equal one another.

    Dollars are like points in Halo. They have no inherent value, they are just used to keep score.

    Money is like your blood-you didn’t borrow it from anyone, your heart just pumped it into existence.

    The government and private sector are like kills and deaths in halo. The more kills one team has, the more death’s the other has.

    • “Dollars are like points in Halo. They have no inherent value, they are just used to keep score.”

      Now imagine what would happen if Halo stopped handing out points when it was supposed to.

  62. Trish Flanagan

    Government spending for everyone’s benefit is only limited by what a society can produce if everyone who wanted to work had an opportunity to work.

  63. Today’s economy needs to grow to succeed. To grow, the economy needs more money. National governments create more money by spending more than they tax.

  64. Money let’s us “instruct” others or buy ready “instructed.” It doesn’t matter who creates the “instruction” but too little causes deflation and too much inflation. (25 words)

  65. Wealth is determined by real resources (your house, your car, your ability to work). The most powerful being in society (normally government) keeps score of who has the most wealth using “money.” Strangely, how well it organizes this score keeping can determine how many real resources are enjoyed by all.

  66. Each and every person’s income comes from somebody else spending it first.
    When it comes to money things, everything comes from somewhere and goes somewhere.
    When you start to record these movements then you start to understand MMT.

  67. Gary Goodman

    If the total supply of Dollars is a ginormous apple-pie chart, it gets sliced into America and Outside World. If the Outside World gets too much pie (for selling us I-pods and stuff), or if some people hoard too much pie for future desserts, so other people suffer and go hungry, then Govt can and should add more apples from it’s endless orchard. That way, everybody can join in on a bigger better pie party.

  68. Gary Goodman

    (Note: more pie does not actually “debase” the value of apple pie. Because apple pie is fantastic. But even if it did reduce the price or value over many years, it’s still much better to have a bigger better party for everyone instead of some people left hungry and sad outside the party.)

  69. Gary Goodman

    I like the “Cheat Codes” answer too, except it sounds like “cheating”.

    The Master Controller software behind any video game can award unlimited bonus points to players with no risk of running out of points. WoW never has to borrow points from Age of Empires. (I’m not a gamer myself.)

    But that answer is partial — just showing how govt spending works — and could be used to defend “moral” austerity — because points have to be earned and it’s hard to conceive a general shortage of points or explain why some people should get free points if their score is too low.

  70. reserveporto

    The gov’t pays for what it buys by selling money. To make certain that the money it sells is valuable, it insists on getting some of it back as taxes. People need to pay taxes so they want to sell the gov’t useful things in order to get the money it’s selling. It doesn’t need, or want, all the money back because money is useful and people like to save it and use it for their own reasons and not just for taxes. Because people like to save money, which the gov’t sells, the gov’t needs to sell them more money than it takes back in taxes when those people can’t get foreign money to save instead. The federal gov’t debt is just money that pays interest. People like saving money that pays interest even more than they like saving regular money, which lets the gov’t create even more money to buy all those things that people want to sell it than it could if it just created regular no-interest money. The gov’t can create as much money as it can sell. Oddly enough, even with this much power, gov’ts that try to sell much much more money than people want to buy are really quite rare – usually only appearing shortly before being replaced. Banks also create such interest-bearing money but people don’t trust the banks’ money as much so they insist that the banks’ money can be exchanged for the gov’t’s money – this fairly frequently causes quite a bit of trouble.

    More than 25 words, but it covered a number of topics.

  71. Gary Goodman

    addendum to above
    Banks can LEND out apples from an almost unlimited orchard, but the borrower has to pay back the bank by getting apples from other people.
    Govt has the power to PAY apples to helpful people or companies or GIVE away apples to people for any good reason, like an apple shortage — or maybe bad reason — and the result is everyone has more apples.

    Apples are consumable commodities, not virtual units like video game points.
    Apples DO however literally grow on trees.

  72. Faramirrrr

    The economy is the game and goverments give points to all the players. If there are not enough points, the game is too hard for most people, otherwise it can be real fun!

  73. UC Berkeley econ washout

    All 25 words or less:

    The government creates money. If it spends more than it taxes, we’re getting more money. But if it does the opposite, we’re getting less money.

    When people don’t buy things, businesses fire people that make things, but the government can stop that by buying more things with money it creates.

    The government creates money by pressing buttons on a computer. It’s that simple. No printing press, just buttons. We have plenty of keyboards.

    If the government spends less that it taxes, then more money is going to the government than is coming out, so we’re all getting poorer.

    If the government buys less things, then business make less things and fire people. Then those people buy less things, and business fire more people.

    First, the government gives banks money it owes them and lends them more. Then, banks lend money back to the government. Doesn’t that sound stupid?

    Anyone can work for the government if they want. They’ll have more money, so business will hire more people to make and sell them stuff.

    The government isn’t a household. The government doesn’t need to borrow money, it can just press buttons and create money to spend, you can’t.

    Think of the all the money everyone has as a pool. Government can add water in by creating money and spending it, taxes drain water.

    How money gets made: Someone in the government presses buttons.
    How the total amount of money we all have increases: The government spends that money.

    A long time ago, a smart guy named Keynes figured out government needs to spend more. Then a bunch of dicks from Chicago ruined everything.

    Alright, maybe not that last one so much.

  74. Some people want a job but can’t find one. What a waste! We could give them jobs doing stuff to make this country even better.

  75. When a government with its own money spends more than it collects, people can keep more than they pay. This is a good thing and can go on forever if well managed.
    (My best shot at 32 words…)

  76. Every self-governing country that has it own money can afford to pay for whatever goods or services are available in that country. (22 words)

  77. When individual businesses will not, or cannot, hire workers, then the government can spend money to create jobs and hire people who want to work. (25 words)

  78. Peter Shaw

    Your size limit rules out anything fancy, so –
    Selling stuff to government creates permanent money in hand. Buying stuff destroys money as tax, so government can buy what you don’t.

  79. “In Monopoly if players accumulate money it must have come from the banker. If the banker runs persistent surpluses the players run out of money and the game stops.”

    29 words.

    • Cory Hoffman

      I was thinking Monopoly would be a good metaphor too…

      “If none of the monopoly players want to roll the dice or buy properties, what could the banker do? Pass out more money”

    • Monopoly is actually a really good analogy, because one doesn’t question where “the banker” in the game gets the money, the money just exists, which for illustrative purposes clarifies many points in MMT.


      • The only issue I see with Monopoly (in regards to this post…) is that there supply of money held by the banker is fixed. On that point, video games involving digital money seem like a better fit?

        Do any MMT folks have kids who get this stuff? They’re probably a good (better?) crowd to ask.

        • Actually Arturo, you are on to something. Any teenager (all of them these day?) who has ever played World of Warcraft has a much better understanding of the economy than the people currently running it. Virtual economies are surprisingly sophisticated, and almost entirely designed around MMT principles.

          There is the equivalent of monetary policy (fixed prices for required items set by the game) and fiscal policy — taxes to manage the level of gold in the game, referred to as “gold sinks” because everyone intuitively understands that the digital money just disappears into the ether. You can learn professional trade skills to make goods or provide services, there’s a market-based auction house to sell those goods and services, and even a job guarantee (called “dailies”) to earn gold for anyone willing and able to work.

          They may not understand the fancy jargon, but “kids these days” know a lot more about economies than we give them credit, if framed properly. Forget Monopoly, they are way ahead of you. The key is to remind them that they can’t stab a rabbit in real life and expect a pouch of coins to drop from the corpse. Other than that minor detail, everything else works pretty much the same. 😉

          • Great points. An existing game might offer MMT a turnkey approach to popular education, rather than building something from scratch.

            OTOH, I would still keep Monopoly around. It’s a wonderful instrument for teaching kids how certain economic policies end up screwing almost everybody save a ‘winner.’

      • Isn’t the phrase monopoly money used to indicate a money so devalued (by inflation) that it’s worthless?
        Wrong connotation to me. I wouldn’t suggest using it.

        • I think using the term “Monopoly ” TM money is usually derisive in the sense that the money referred to using this term is play money and not real as compared to the US dollar. It is usually used to deride the currencies of other competing countries or blocs like Canada or the Eurozone,who all have non-serious colorful play money. Just an example of U.S.cultural imperialism.

    • I was thinking about adding another N something words:

      “Unlike in Monopoly, there is no box with a fixed amount of money to play with, the government makes more by typing them into a Fed spreadsheet and taxes by erasing numbers from our accounts. It needs to tax so that we agree to use its money – we need it to pay taxes”.

  80. “Government money is like autographs. The govt cannot run out. We need the autographs to pay taxes, so they have value. If not enough money exists we try to earn it and fail (unemployment).”

    34 words

  81. I’d like to ask what is the actual objective of the exercise? I mean this rhetorically, as it obviously serves to help distill our thoughts, with the overall goal, I presume, to effectively market MMT to the public. But I sense from reading here at NEP a de facto ongoing RFC, if you will, with hit and miss initiatives to try and get the word out. This being just another attempt. Hence, a few thoughts about method.

    First, is explaining the best approach out of the gate? To whom will it be explained? Do you have their attention? Is the target audience only a derived demographic constructed from personal encounters and comments sections and then projected to the masses at large? If so, even if the sample is enormous, is the inherent subjective bias acceptable?

    I think in activities like this we assume too much what others know and don’t know, and the things that matter to them. We then argue with these ghosts in our head, and develop our case, but when a real opportunity presents itself, it often falls flat, because the ghosts were just that, and not who the people really are.

    Notwithstanding the deep pockets and entrenchment of the “other side,” what do they do that makes them successful? They conduct formal market research: surveys, polling, focus groups, etc., and apply the vast well-developed science behind marketing to the data. They also engage professionals for presentation.

    Depending on the market segment, they may not even try to “explain” anything. They may only appeal to emotions at one level, just to secure attention and sympathy for the cause. At another level, they may incorporate talking points, and by endless repetition, put basic sound bites into the public discourse. More details are available at other levels: editorials, blogs, talk show appearances, etc. Undergirding all this are well developed position papers that do explain things in detail. This all works interdependently to systematically inform the culture — explanation is often indirect and subliminal.

    For example, monetarists no longer need to explain “a rising tide lifts all boats.” Imbuing the common sense through numerous channels with various thoughts and impressions over time leaves the societal mindset ripe to accept such an encapsulation without critique. Hence, our 25-word exercise becomes somewhat cart-before-the-horse. Without first preparing the ground, it is a frustrating task.

    MMT is a new product rollout. How do you evangelize it?

    This is a major undertaking and should be considered a formal fully-scoped project, conducted much as a business would. It will require a comprehensive and coordinated plan of action. It faces formidable adversaries, but has few resources and neither budget nor central organizing authority. While it is clear MMT’ers recognize all this, and have the enthusiasm still to engage it, without formal structure, they will remain so many voices crying in the wilderness. These things must be addressed.

    MMT is an exciting theoretical approach, which if understood and applied at the policy level, will have enormous beneficial impact. Its delivery insists on being taken to the next level.

    • golfer1john

      Right on. The product is great, the marketing is lacking so far, mainly for lack of resources. If Stephanie and Warren were on ABC and CBS every week, and in the NY Times and Washington Post, the problem would be solved. The other side is there, we’re not.

      There needs to be a breakthrough of some sort, perhaps a best-selling book by the likes of an economic Stephen Hawking or Carl Sagan. The answers here might be useful input for such an effort. 25 words might even be too many. Nowadays, it has to fit on a bumper sticker. (“If government doesn’t print the money, who will?”)

      How about “Atlas Awoke”, a take-off on Atlas Shrugged. All the MMTers got frustrated with the world, and austerity, and went off to their own secret place where they implemented their policies and thrived. Imagine the firestorm of discussion that could ignite!

    • Sunflowerbio

      Thank JRM for the excellent comments. Reading all the submissions has been interesting, but like you, I feel something more substantial and systematic is needed. Perhaps some form of subscription could get the ball rolling. Just a thought.

  82. Cory Hoffman

    With The Age of Empires analogy/Metaphor:

    I played this when I was in 8th grade so that’s why I like it…I’m sure it works similarly with the New Sim City game etc. I feel…more so than 25 words…people need a good metaphor that they can identify with.

    When pressed: “But, putting in the code instead of having your people mine for gold is cheating”

    Answer: “Is it cheating or is it a better way to make your Empire more awesome? What if those little polygons were actual humans that were suffering and you knew you had the power to stop it??” It almost in a way shows why fiat Money is better than a gold standard anyway…The guy with the keyboard…both central banker and gamer…just presses some key strokes instead of having to wait for people/polygons to find gold and mine it.

    Why choose the gold standard when you could have sovereign money and put all of your people to work right away on making your Empire/Civilization better with tax driven fiat money? Have your workers start building “Wonders” (what they call the great architecture of civilization like the Hagia Sophia) as opposed to mining for gold and waiting years/decades of faster productivity/wealth/greatness/growth that you could have now.

    If you run out of gold/wood etc. and you can’t find any more…your workers sit idle.

    It brings home the point that…you, the person in charge of the civilization have the choice to put in the code and put your people to work building your society or you could have them just sit there and do nothing or go try to find gold.

    Kind of like how our Leaders are just sitting there while we sit idle when they have the power to do otherwise!

    Almost kills two birds with one stone: Shows why gold is inferior to fiat money and that the people with the power over the issuance of that fiat money are choosing to allow mass unemployment/game idleness.

    If anybody is interested in checking out an overview of the game you can see one here:

  83. Three principles that are crucial to understanding everything about economics are:
    My spending is exactly as a recepients income.
    Money can not cross borders except in our pockets.
    Government is established for our own good and can print money to serve our own good.

    30 words.

    The major message of MMT is: Money is paper or numbers on the screen if it is not spent to get real things like goods and services and all of it came from government and more can come when needed.

  84. Too many words, but and 8th grader should be able to understand it.

    Taxes Drive Money:

    Historically, trades often took place where one person borrowed something now to be paid back with something else later, it took time to settle such a debt. Debts were tracked on some kind of list. Money replaced the list and made the debts settle immediately. It happened, in a land far far away and at a time long long ago…

    Most trades worked like this: Hey man, I’ll owe you 5 sacks of grain next fall if you will spot me 5 sacks of potatoes this winter. The list showed that the grain farmer was negative 5 sacks of grain and positive 5 sacks of potatoes and vice versa for the potato farmer. When both of these obligations had been met, the debt was settled, crossed off the list.

    Then some guy names himself ‘Prince’ and started taking 1 bag of grains and potatoes from each of these debts. ‘Prince’ found it difficult to supply his soldiers with weapons when all he had was piles of grains and potatoes. The ‘List Keeper’ realized that if ‘Prince’ issued coins and required that taxes be paid in those coins, then ‘Prince’ could get all the grain and potatoes he wanted, but he could also use his coins to buy weapons instead of grains and potatoes. If the ‘Prince’ didn’t want weapons, most people would continue spending their time producing grain and potatoes. The money system encouraged people to produce what ‘Prince’ wanted. If ‘Prince’ pays more for weapons and less for grains and potatoes, and everyone has to get his coins to pay their taxes, some people will make the weapons. So, it is the taxes that give money its value. Otherwise, the people would have gone on producing grains and potatoes for their families and their trading partners and tracking it all on lists as they had always done.

  85. Our prosperity and living standard is based on the exchange of what our government spends plus the goods and services which we have available now.

  86. When the private sector proves inadequate for addressing critical needs and services and livable wage jobs to that effect, the government can and should step in to fill in the gap with fiat currency.

  87. 1. Chartalism: To avoid academic penalty, you need course-credits. To avoid tax penalty, you need tax-credits. The School issues grades; the State issues currency. (22 words)

    2. Sectoral Balances (Part 1): In order to collect stamps, someone has to issue stamps. The more stamps printed, the more out there for you to collect. (22 words).

    3. Sectoray Balances (Part 2): If the stamp-maker started collecting rather than printing stamps, eventually there’d be non left for everyone else. (17 words).

    3. Full Employment: A good classroom creates learning oppportunities and rewards study with academic-credits. A good state creates work opportunities and rewards work with money-credits. (22 words).

    4. Sales Create Jobs: No matter how good your lemonade, you won’t ask your sibling to help with your stand unless you have more customers than you can handle. (25 words)

    5. Governments are not Households: On the football field, everyone needs to earn points except the umpire. In the economy, everyone needs to earn money except the state. (23 words)

  88. golfer1john

    The most important idea is “monetary sovereignty”. “Sovereign” means “King”. The King can do anything he wants. The monetary sovereign can create money from nothing.

    The US government is the monetary sovereign for US dollars. Nobody else can create US dollars. Not you, not Citibank, and not China.

    The US government does not need to borrow dollars from anyone. It can create dollars and use them to buy everything it needs.

    The US government does not need to tax the people to get dollars. It can create all the dollars it needs to spend.

    The monetary sovereign can never “go broke”. It can create all the money it needs to pay all its bills, no matter what.

    The monetary sovereign supplies money to the people by spending more than it taxes.

    When the sovereign creates more money than the people create stuff, the price of stuff rises. This is called inflation.

    The prices of different kinds of stuff go up and down all the time. This is not inflation.

    Too much inflation is the only economic reason for the monetary sovereign to levy taxes. It should always buy what it needs.

    If there is too much inflation, it is because the monetary sovereign is not taxing enough, or is buying stuff it doesn’t really need.

    If the people save some of their money, then some of the people will be unemployed, unless the monetary sovereign supplies enough money for savings.

    If too many people are unemployed, it is because the monetary sovereign is taxing too much, compared to its spending.

    Once you understand these things, and graduate high school, you can spend 7 years learning details about why they are true, and be an economist.

    • A very good list that’s well worth working with.

      For example, “Too much inflation is the only economic reason for the monetary sovereign to levy taxes” needs modification.

      The primary reason for taxes is to make the sovereign’s money necessary.

      Another use of taxes can be to restore equity when the economy fails to produce it.

      • golfer1john

        It’s true, taxes are what gives the sovereign’s fiat its value, but I would call that a side effect, in terms of why sovereigns levy taxes.

        The primary, and original reason for taxes is to support the government. The sovereign could collect taxes in kind without sponsoring a currency, like in Hagar the Horrible. Or demand that taxes be paid in the currency of some other sovereign, as US States and Euro nations do. If you look at it that way, the reason for having a currency is that it gives the sovereign a more convenient way to levy and account for his taxes (vs. in kind collections), and control of the unit of account, i.e., more sovereignty. Indeed, the reason for Greece today to sponsor its own currency would be to avoid conditions of austerity being imposed by the current monetary sovereign.

        Even if the sovereign were economically self-sufficient and needed no taxes, and needed no goods and services from the people, and decided first to sponsor a currency, and then levied taxes in order to give it value, I would call that a political reason, not an economic one.

        Once the currency is established, the amount of taxes is not important, in terms of giving value to the otherwise worthless currency. Indeed, taxes might be zero for some time, and as long as the possibility of a tax exists, the currency would continue to have value.

        “Equity” is in the eye of the beholder. There are those who say that in order to restore equity to the tax system, we must lower the tax rates on high incomes, and tax all incomes at the same rate. Few readers here would agree with that version of “equity”. If the sovereign were to use taxation to impose his own version of “equity”, it would be no different than using his Army to do the same. It’s just an exercise of sovereign power.

        Taxes can also be used, and are used, to influence behavior. If you tax an activity, you will get less of it.

        Like most of these, 25 words is just a statement, not an explanation. There’s lots more discussion to be done for each of them.

        • The primary, and original reason for taxes is to support the government. The sovereign could collect taxes in kind without sponsoring a currency, like in Hagar the Horrible.

          Yeah but “taxation in kind” is not modern financial taxation. “Taxation in kind” is real-taxation, which in modern terms is government spending. Look at Kelton’s & Henry’s papers on Old Kingdom Egypt. The Pharaoh spent when he credited a village’s account in his Treasury for having paid their taxes-in-kind to him at the prices he set. His financial taxation was the periodic depletion of this account and demand for more taxes in kind. The villages could overpay in good years – equalling accumulating currency – to have a positive balance that would serve them in the future, against the possibility of a bad year.

          • golfer1john

            OK, so “crediting the account” (= having a currency) is a convenient (“modern”) way to account for the taxes. That doesn’t mean that the primary purpose of taxation is to give value to the currency. A sovereign doesn’t need to give anything in return for what he wants. He can simply take it. He doesn’t need a currency to collect his tax (just an army).

            It’s a different concept from “the reason a fiat currency has value is because the sovereign demands it in payment of taxes.”

        • At the risk of straying from the core subject, I offer the following for consideration:

          The attempt to separate the political from the economic was and is a problem with economics. For example, economist Emily Northrup, who teaches at Southwestern University in Texas,

          “points out that the notion of unlimited wants puts all wants on an equal footing: one person’s want for a subsistence diet is no more important than a millionaire’s want for precious jewellery. This equality of wants reflects the market value system that no goods are intrinsically more worthy than others – just as no preferences are more worthy than others. This is clearly a value judgement and one that many people reject. Yet economics, which unquestioningly adopts this approach, claims to be an objective social science that avoids making value judgements!”

          The preceding sentences are from The Economics Anti-Textbook (2010), by Rod Hill and Tony Myatt, professors of economics at the University of New Brunswick.

          Their next paragraph begins “It is noteworthy that Keynes disagreed that ‘all wants have equal merit’.”

          • golfer1john

            I don’t see how it is “a problem for economics”. It may be a moral dilemma for the economist, if he should venture to design or implement a macro policy. The economics of it is simply to explain the results when various choices are made, not to suggest that any particular choice ought to be made.

            The physicist explains the results when cars travel at various speeds, but does not determine that the speed limit should be 25 or 65, or what the penalty should be for exceeding it. Because making the speed laws is a political decision informed by physics does not make enacting speed laws an exercise in physics.

            Economics can tell us what happens when free markets enable some people to outbid others for various resources, but does not attempt to allocate particular resources to particular purposes. Politicians do that, or leave it to markets (free or “rigged”). Because some of them might rely on the input of economists in making those decisions does not turn a political decision into an exercise in economics.

          • golfer1john

            “economics, which unquestioningly adopts this approach”

            If politics and economics are inseparable, then the chief “economists” of the so-called “managed economies” (Stalin, Mao, Mussolini, et. al.) of Socialist, Communist, and Fascist political systems certainly did not unquestionably adopt that approach.

          • golfer1john

            “It is noteworthy that Keynes disagreed that ‘all wants have equal merit’.”

            I don’t think that any economic theory says that all wants have equal merit. On the face of it, that would be quite a silly thing to believe. My understanding is that classical theory only states that in an ideal competitive market the resources would be assigned to those willing and able to trade the most for them. It’s not about the merit of the wants, it is about the mechanics of that type of market. Other types of markets, or substantially competitive markets with varying amounts of outside influence (government regulations, for instance) might allocate resources differently. The problem of people’s wants exceeding their resources is not addressed by that portion of the theory.

            It is not only in economics that ideas or forces of lesser merit sometimes prevail over those of greater merit. Or that the merit of each is not always easily identified and compared.

  89. Your rulers assembled an army by giving farmers, tailors, arms manufactures etc. I.O.U.s in exchange for the things that they need to maintain that army. They (your rulers) then tell you, and everyone else, that if you don’t give them what they want, you will be punished (they have an army – use your imagination). But what do they want? They want those I.O.U.s back – or at least that’s the only thing they will accept to absolve you of the threatened punishment. So you’d better make yourself useful to those lucky farmers, tailors, or allied trades persons who already have some of those I.O.U.s; or you make yourself useful to the rulers themselves by finding something else an army could use. But here’s the problem: if your rulers demand the same number of I.O.Us back that they gave out, with the stipulation that everyone under their rule owes the same amount, this could be a problem for you – especially if you weren’t one of those lucky farmers, tailors, etc. that got their hands on the I.O.Us in the first place. If any one of these folks have enough I.O.Us to pay their bill and are uncertain enough about the future to hold onto the rest, how are you going to come up with the I.O.Us to free yourself from punishment if your rulers don’t exchange more for things and services? Its like musical chairs.

  90. Michael Boudreau

    Money isn’t real, it measures real things. The work we do, trees and wheat are real. We’re REALy rich. Lets focus on real.

  91. My submission for MMT in less than 25 words:

    Money is valuable because we pay taxes with it. One persons debt is another persons savings. Money is government debt.

  92. My (corrected) submission.

    Money is valuable because we pay taxes with it. One person’s debt is another person’s savings. Money is government debt.

  93. [Each one 25 words or fewer]

    The government creates money and can never “go broke.” People need that money to pay taxes but the government does not need taxes to spend.

    Money is in one giant pool in one of two parts, either the government or the private sector. There is nowhere else it can be.

    Money spent by the government is money gained by the private sector. Therefore, government spending increases private sector income.

    Money collected by the government is money “drained” from the private sector. Therefore, money collection (“taxes”) decreases private sector income.

    Spending creates income, income creates sales and sales create jobs. The government can always spend in order to create more jobs, both private and public.

    Government spending is not constrained by an amount of money—it can always create more. But the government is constrained by real-world resources.

    If government spending exceeds the capacity of real-world resources, inflation may result. If inflation occurs the government can “vacuum up” the excess money by taxing.

    But spending tends to increase the real-world capacity. For example, more factories producing more goods can be built. Therefore, the risk of inflation is low.

  94. Gov’t needs desk. Person builds/sells desk to Gov’t 100$. Gov’t debits account 100$. Gov’t credits builder’s account 100$. Nothing borrowed, no debt, no repayment.

  95. Here goes nothing…

    Sovereign Money:
    Money is a way of keeping score. Government is the scorekeeper. It has to award points fairly. But it can never run out of points.

    Deficit Spending:
    Government spending and taxes are like the throttle and breaks in your car. You need both. But how much of each depends on the road.

    Sectoral Balances:
    All income comes from spending. If we, and our trading partners, want to save more than we spend, then government must spend more than it taxes.

  96. Because many people want to save dollars, and not spend them, government must spend more than it taxes, or many people will be without jobs. (25 words.)

  97. In a world where people save and pay tax, there will always be some people who cannot find a job. This is why the government must step in.

  98. With money we “instruct” others or buy “ready instructed.” Under or over bidding is created or destroyed by public and private partnership acting under law. (25 words)

    • financial matters

      I think these are very important points. As Michael Hudson has pointed out this is a serious struggle to see if democracies will win out over the financial sector. Bill Black has pointed out the importance of a job guarantee program not only for economic reasons but to help with social issues of crime, substance abuse and family stability.

      Abject poverty next to extreme wealth is not a good situation. This can breed terrorism and infectious disease threats. We are all better off with more balanced societies.

      A previous post here showed that the bottom 60% in the US has only 7% of the wealth and gave some suggestions on how to improve that.. http://neweconomicperspectives.org/2013/05/the-penny-game.html

  99. Alex Seferian

    Stephanie – If I had to communicate one MMT principle in less than 25 words, I would pick this one: Governments that are fully autonomous do not need to tax back or borrow their own money in order to spend.

    However, I wanted to take advantage of this post to suggest that a perhaps more interesting challenge would be to ask NEP followers to help write a “new chapter”. When it comes to explaining core principles, the MMT community has already done a fantastic job; through written articles and books, radio and television interviews, as well as live conferences including that held in 2012 in Rimini, Italy.

    However, surprisingly very little is said or written about the “distributional aspects” of government spending and taxation. I think this is detrimental to MMT. Something that is referred to as a “modern theory” is unlikely to be given the benefit of the doubt; those parts of a relatively unknown set of principles that are not fully covered are more likely than not to become an Achilles heel.

    The fact is that many people are intuitively at odds with MMT. These critics are generally anti “big government” types, and many of them moreover form part of what one may call the “elites”. The most enlightened of these realize that MMT demonstrates that the policy space available to a sovereign government is much broader than most believe, or care to admit, in respect of government spending. As a result of this realization, many tend to connect MMT with “big government” and in turn, therefore, connect MMT with benefits that they believe are likely to accrue mainly to the other, “non-elite”, social segments.

    A simple and flawed set of connections, and yet they exist… The result: you have a group of people who are opposed to MMT right from the get go. The issue is that these people are highly influential, including in the fields of politics, finance and media. It is a very steep uphill battle to try to achieve widespread acceptance of MMT without winning over their hearts and minds. The question then becomes, how does one convince all segments of society that MMT is good for everybody? How does one better explain that MMT is not about creating a government that is bigger than it needs to be?

    For me the answer has a lot to do with being more overt and explicit about the “distributional aspects” of government policy, and therefore about the implications of MMT on that front. MMT is almost “shy” when it comes to explaining distributional matters. There is no reason for that. There is a Professor Emeritus at the University of Nottingham in the UK, Richard Wilkinson, who demonstrates how everybody is worse off in societies with poor income distributions; not just economically, but in terms of everything from life expectancy and health to security. His dataset is worth noting.

    No doubt, the distributional aspects of government spending and taxation depend on how, and on what, the government spends, and how it taxes. There are countless possible policy mixes, but whatever the final outcome may be, the main point is that almost all government policies have distributional aspects. Moreover, the greater the budget deficit, the greater will be the government’s ability to distribute income, and the more difficult it will be to determine which segments stand to benefit the least or the most (as we know, budget deficits potentially carry with them the risk of inflation). All that deserves to be further clarified.

    The inflation issue puts off many people who approach MMT. Admittedly, MMT singles out inflation as the metric to be on the lookout for, when it comes to budget deficits. However, some argue that this is not enough. For example, can a policy generate inflation in the long- or medium-term instead of in the short-term? Put differently, can a policy create some form of “pent-up” inflation that could be eventually unleashed if savings desires changed, either on the part of locals or foreigners? In such cases, would it be sufficient to suggest that any policy can be reversed, if and when the time comes? Theoretically perhaps yes, but would that be politically realistic? Should any of this matter?

    As a summary remark, most policy inherently has distributional aspects, and MMT can unleash a force of good on that front. MMT will benefit if more is written about the inflation issue, and if a stronger case is made in favor of the distributional aspects potentially implicit within the MMT framework. There is no benefit to not being very explicit when it comes to income distribution, as the attached video clearly demonstrates.


    • golfer1john

      The problem with getting people to accept a Progressive redistribution policy is that it is perceived as taking from those who have worked the hardest and produced the most, to give to those who have done the least.

      Americans like sports analogies. The Cubs (not sure of the facts, but this is the legend, and I apologize to the Cubs and their fans if it is not true) win fewer games than all the other teams. Suppose MLB decides to “fix” this, and declares that the other teams shall forfeit 10% of the games they play against the Cubs, so that the Cubs can have a winning percentage closer to the other teams. That would be perceived as grossly unfair.

      I know you don’t feel this way, but that is how your redistributionist policies would be perceived by most Americans. It is that perception of unfairness that you must overcome.

      Americans are very charitable, and give more than most to those in need and less fortunate. They are also somewhat proud, and would prefer to work for what they get rather than receive charity. Full employment would go a very long way to raising the standard of living of the poorest in society, and would not be perceived as redistribution. I would prefer that MMT continue to talk about the Job Guarantee, and only later push your vision of social justice.

      • Sunflowerbio

        These are excellent points, Golfer, but sports fans and Americans in general (if that isn’t redundant) do accept some forms of wealth redistribution. The teams with the poorest records get to choose first in the drafts, get the most opportunities to pick early in the lottery, share equally in television revenue, and those with the highest payroll pay a luxury tax. All of these measures are to insure that poorer and weaker teams have an opportunity to succeed, and are generally accepted by most sports fans. Forfeiting wins is not.

        • golfer1john

          Yes, and in economics Americans accept the progressive income tax, negative income tax, AFDC and other kinds of payments to the poor.

          It’s a little different in the sports world, because most of the things the leagues (team owners) do are for the purpose of making more money for everyone by making the games closer, thus more exciting and more appealing to their customers, the fans. If the team that got the first draft pick always won the title the next year, then they would quickly find a different way to do draft picks.

          In both arenas, some small pushes and prods are acceptable, but none of them assure equality and none involve taking from one to give directly to another, as in forfeiting or redistribution.

      • Alex Seferian

        golfer1john – Always a pleasure to exchange thoughts with you… and by the way I very much like your list above (preceding my post). However, you missed the point regarding what I wrote. Perhaps it is me who didn’t explain things properly, but I am not advocating any redistribution policy. Moreover, in terms of your Cubs analogy, I don’t think that anything I wrote has anything to do with “fixing” a game or cheating… if the Cubs analogy is to be used, at most it would be finding a way for its players to get better training so they can better compete to win.

        In any event, the more important point that I was making is that all policies related to taxes (T) and government spending (G) inherently have distributional aspects. It doesn’t have to be as extreme as “taking from Paul to give to Peter”, although some government’s have systems that do indeed resemble that. MMT is correct in saying that G and T impact aggregate demand, but MMT in my opinion only glosses over the fact that G & T also result in that aggregate demand being less for some, and more for others. This always is the case… there is always some distribution taking place when G & T occur. A side point I make is that the exact beneficiaries of that distribution are harder to identify when in addition there is inflation.

        My final point was that many do not warm up to MMT precisely because they are afraid that when the “cat is out of the bag”, in terms of how much policy space a sovereign government has to spend (and therefore to distribute income), all hell will break loose. MMT will probably never be appealing to those sorts of skeptics, especially if the focus of the debate is on the operational realities of money and G & T. All that is important, but in addition, I argue that to win the hearts and minds of those skeptics (many of which form part of the “elites”) it is helpful to make the point that societies that have extreme distributions of income, are societies where almost everybody is relatively worse off. The video I recommend looking at makes this point better than I do and with hard facts and data.

        • golfer1john

          Hi, Alex, and thanks.

          It’s true, G and T do influence incomes. But that should not be their purpose, nor should it be a consideration at all in spending decisions.

          Government should spend on what it needs in order to do its agreed functions, as determined (in the US) by the Constitution and the Congress, and with the agreement of the President and the Supreme Court. All are free to supply the goods and services that government demands. Some choose to do so, others choose to serve other markets. The distribution of income between them is their business, not government’s.

          It is when government expands to pay for things that it does not itself consume that things get muddled.

          If aggregate demand is inadequate, the proper remedy is a tax cut, not some spending that would be considered inappropriate under other conditions. That approach should be immediately popular with the “elites”. JG needs some selling, but the price anchor quality of JG should be popular with the elites as well. JG should go a long way to reducing the ratio between the highest and lowest income quintiles.

          Who should pay taxes, and how much, and on what basis, is important. Our tax system is the Accountants and Tax Lawyers Subsidy Program. It needs work, regardless of aggregate demand.

          And the Cubs are free to bid for the services of the same coaches and players as the Yankees. If their training is of lower quality, it is because of the choices they have made. I suspect they feel that their fans are not willing to support the higher payroll costs. Maybe they are right, maybe not.

          • Alex Seferian

            Golfer1john – Thanks for the message again, although I disagree with some of what you write.

            Some countries face limited resources relative to the “needs” of their populations. Yes, “agreed functions” for the governments in those countries may exist, but that does deny that in order to reach the inferred “agreements”, difficult choices need to be made: where and how real resources (eg, labor and capital) are appropriated, and how and where they are allocated (eg, guns or butter). When a country faces limitations, all decisions related to “resource” appropriation and “resource” allocation, affect the “resource” distribution of its society.

            Now introduce the concept of money into the above. Nothing should cease to be true. Appropriation can be thought of as “T”, and allocation as “G”. Replace the word “resource” with “income”.

            Back to your post, we concur that G and T do influence incomes (resources). Whether or not achieving some income (resource) distribution should be a partial purpose of G and T, is a political question. Irrespective of that, G decisions affect income (resource) allocation, and so income (resource) distribution has to necessarily come into play when considering G decisions… it has to by definition… unless you assume that there is a limitless supply of real resources available to address all “agreed” public needs.

            MMT stipulates that all such needs (ie, those that serve the agreed upon “public purpose”) should be met, irrespective of whether government deficits are created in the process. The only thing to be on the lookout for is inflation.
            MMT’s position assumes that governments will adequately define “public purpose”. The related “agreements” will not be overly influenced by the private, vested interests of a few. This may be true in the US, I don’t know, but it is a dangerous assumption in some less developed, yet still sovereign, countries where I have lived.

            Moreover, even if “public purpose” needs were adequately agreed upon, MMT’s position is akin to simplistically saying: allocate the necessary resources to meet the needs until you can’t anymore (because there is no capacity to continue). When you reach that stage, stop, alter, reverse, or partially reverse the original policy that got you in this “muddled” state.

            I argue that all of this is a bit simplistic. Take the example of a hypothetical country that is operating at full capacity and follows a policy that allows it to maintain a trade deficit thanks to an equally sized government deficit. According to MMT, “imports are real benefits” and “exports are real costs”, and so the policy could be said to serve “public purpose” and there would be no cause for concern if it did not generate local inflation (which it probably wouldn’t because the demand would be for foreign goods and services). However, if ever the savings preferences of those foreigners changed (as they undoubtedly would have to one day in order to convert “electronic credits” or “paper” into something “real”), the foreigners would then exchange their FX holdings for local goods and services. Everything would be reversed, the local economy would have to incur “real costs”, and inflation would kick in, all other things equal.

            The above policy would not have created inflation while it was being implemented, but it would have created what one may call “pent-up” inflation. The severity of the inflation when it materialized would depend on the suddenness of the change in savings desires. The more sudden, then less effective would simply halting the policy be… it would have to be reversed if inflation were truly considered a taboo. T would have to be increased and/or G decreased… both theoretically possible, but potentially also politically difficult or even unrealistic, depending on the circumstances.
            You write: “It is when government expands to pay for things that it does not itself consume that things get muddled”. OK, I understand you are talking about deficits and inflation, but even if a government were to consume everything, things could still get muddled if what that government spent on only benefited some segments of society, or if that government spent excessively on wasteful projects… and I am not only thinking of “bridges to nowhere”. Although it may not seem after this post, I am a fan of MMT. My friendly critique has to do with how the concept of inflation is covered within the MMT framework, and my belief that MMT should be more aggressive when it comes to conveying the benefits of MMT as a means to facilitate some income distribution. Anyone who is even moderately progressive knows that extreme distribution of income makes the cake smaller for all.

            • golfer1john

              “Some countries face limited resources relative to the “needs” of their populations.”

              Are you talking about small, underdeveloped, third-world, poor countries? If they are resource-constrained, operating at full employment, then maybe the answer is more technology, higher productivity, things like that. Things to raise the standard of living, rather than trying to employ more people, as we need to do in the US and Europe today. In that case, perhaps some sort of industrial policy, sponsored by the government, might be appropriate. I would oppose such policies in developed countries where the private sector is fully capable of doing the required invention, R&D, etc. And there is not the same margin of error as in the US, so more care is required. One “Solyndra” could devastate a much smaller economy. (Solyndra was a solar power company that went bankrupt after the government gave them $500 million. A drop in the bucket for the US, but could be a full year’s budget for some.)

              The definition of public purpose in the US is quite the moving target. Congress passes new laws each year that, in print, run to thousands of pages. The representatives are influenced by many things, including by design the varying interests of their constituents. Conflict is built into the system. Bribery is illegal, and is punished when it can be proven, but no doubt the powerful and wealthy can influence the outcome by financially supporting representatives who agree with their positions, and that is not prohibited. Usually, though, there are powerful and wealthy interests on both sides of the issue. I have not resided in other countries, but I have visited several, and in the poorer ones the problem seems often to be not that private interests can influence the government, but that the government itself is corrupt, and public officials are the ones who benefit financially from distortion of the public purpose. Certainly in some authoritarian regimes that is the overt purpose, and changes occur when one faction violently overthrows another. It is widely believed in US businesses that if they wish to do business in certain other countries, bribery is not only not prohibited, but is required. I’m not sure MMT or any economics is going to do a lot of good for the people in such an environment.

              “However, if ever the savings preferences of those foreigners changed…”

              If the economy were operating at full employment with a JG for price stabilization, and exports suddenly surged, causing shortages and price increases which were not dampened by automatic stabilizers, then it would be necessary for government to alter policy. Such things don’t happen overnight. One would observe a decreasing trade deficit for probably several years, accompanied by a drop in the JG workforce, and there would be time to react before inflation accelerated.

              When government spends on things it does not itself consume, then the definition of “public purpose” is what gets muddled. I was thinking of transfer payments, for instance, Social Security. If it is “public purpose” to give money to people who are retired, regardless of their wealth or other income, then what could possibly be excluded from “public purpose”? Can there logically be any limits on what other sorts of payments government could make, or to whom it could make them? If it is public purpose to provide medical care to all, because it is a necessity of life, then how can one argue that government should not provide food for all, and housing, and utilities, and transportation? There is no longer any boundary between “public purpose” and anything else.

              There would not necessarily be any affect on deficits or inflation, as long as spending and taxing were properly balanced. Sometimes, though, the availability of transfer payments will influence individual decisions that could reduce employment and production, and real wealth. Because government provides benefits to the retired, we are encouraged to retire earlier than we might otherwise do. Some types of transfer payments, such as education subsidies, could cause increases in production and wealth, so they can be justified on the grounds of a strictly defined public purpose.

              I’m still not understanding the part about government spending on things it needs benefitting only certain segments of society. What segment of society is not allowed to be a government employee, for instance? Or to work for a government contractor? Or to start a business as a government contractor? Perhaps this is another US vs. other distinction, because we don’t allow discrimination in housing or employment by race, ethnicity, age, or gender. If you simply mean that the only companies that receive government payments are those who provide services to government, then yes, the payments are asymmetrical, but government contractors are not a “segment of society”.

              • Alex Seferian

                Thanks golfer1john for your comments. Actually I was not referring to underdeveloped poor countries, nor to issues relating to corruption. There is a post that came out today by Dan Kervick and I’ll try to make my point there since he describes a hypothetical example that helps clarify matters.

      • But, John, what will happen when the banksters and fraudsters and fixers in the political system are finally exposed. Won’t people realize then that most people with the really big money only got it gaming the system and defrauding others and not by actually “earning it” in the way that they’ve earned their money? And, if they do realize that, will they then be so opposed to progressive redistribution of wealth?

        • golfer1john

          I think everyone would approve of bringing fraudsters to justice, regardless of their wealth. Except the fraudsters, of course. Likewise for political corruption.

          But “most” is not “all”. People don’t make the assumption you seem to be making, that the degree of fraud is measured by the degree of wealth. They would not approve of punishing those who came by their wealth honestly, however great their wealth is. There are those of exceptional talent in business, just like in sports or entertainment, who have achieved great wealth by their superior performance, and not by any fraud.

  100. Cory Hoffman

    If everyone in your community simply stopped spending any money that they earned and stuffed it under their mattress, how would the businesses do?

  101. All our money comes from indebtedness. Money is the credit part of the debtor – creditor relationship. Anyone who creates new debt creates new money. Government’s debt is total accumulated sum of money government has created for the use of its citizens.

    I don’t think there is need to over simplify. What people don’t understand right away will linger in their minds and become clear later after some more pondering is done.

  102. Government spending gives us money. Government taxation takes money away from us. Government can increase our wealth by simply spending more to us than it removes in tax payments. This does not merely shift existing money around, it creates new money. Increased public indebtedness is the manifestation of this new money.

  103. Ben Johannson

    If we print money and use it to create jobs, schools, submarines, scientific research and solar power, how does that cause inflation?

    Anyone you speak to at this educational level will immediately object to “money printing” by citing inflation. They have no idea how this will work but it’s what they’re trained to think.

  104. Money is entry on a balance-sheet. It’s paperwork, it’s accounting. Government can mark up these numbers freely on its balance-sheet. We call this government debt, but for the government it is just a number. We need to stop worrying about nominal numbers government can freely mark up on its balance-sheet and start worrying about real things that are affecting daily lives of our citizens, like crumbling infrastucture and unemployment.

  105. There is simple reason for unemployment: people are too poor to purchase all output that economy can produce at full employment levels. Government can increase wealth of its citizens by simply spending more than it collects in taxes, that is called deficit spending.

  106. Deficit spending is like dropping money from helicopters. People will collect this money and save most of it, spend some of it. Increased spending will help to rejuvenate our economy.

  107. Deficit spending is government’s gas pedal to the economy. You don’t want to step on gas pedal too much and break the speed limit, nor do you want to step on it too little and hold up the traffic.

  108. Picture a bathtub. Government (prints) fills the tub to replenish spending in weak economy; opens drain to remove money (taxes) when tub threatens overflow (inflation).
    (25 words! Thank you J.D. Alt)

    Myth: a government surplus is a good thing.
    Fact: when the government has had a surplus, businesses and consumers have suffered.
    (21 words!)

    Pre-1971, printed $s = value of our gold.
    Post-1971, dollar printing is discretionary to encourage spending; removed (through taxes) when spending gets too strong (inflation).
    (25 words!)

  109. I think MMT economists should communicate openly, frankly, maybe even briefly.

    Why would you not? You know you are right, and your opponets are either confused or misinformed. In the end of the day, everyone is entitled to their own views. Just explain to listeners that you think they are wrong, why do you think they are wrong, and agree to disagree if need to be.

    • At this point MMT is practically new economic “school” challenging mainstream economics, we don’t just call it that. There is no need to build consensus between rivalling economic schools, no need to “soft down” essential MMT insights. A new school can replace the old.

  110. When we think of money, we mostly think of stacks of dollars, we don’t think about how money flows from one person to another person, from one bank to another bank, or from the government and back to the government as taxes. It is more realistic to think about money as flowing around a system. The flow of money is what creates the wealth in our country. Sometimes money stops, like when we save it in a bank and sometimes it evaporates, like when we pay our taxes. Most of the time, though, it flows from one hand to another, from one business to another and from one bank to another and all the time that it move it creates wealth. But where does money come from in the first place? Money orginates with the government. The government creates a continual supply of money to support all the economic activity in the country. The flow of money supports all the businesses, all the workers and all the public services we rely on. The government can never run out of money , but if it doesn’t spend enough money then the economy can slow down, or even stall. When this happens people lose their jobs and can’t pay for food and shelter.
    Sorry couldn’t do it 25 words.

  111. John Rosenfield

    The government of the United States of America can always make enough money for every adult and teenager in the country to have a job.

  112. Money is created when government spends and destroyed when government taxes. MMT works to find the right balance between the two. (21 words)

    • John Rosenfield

      Are you Congressman Paul Ryan? If so then I applaud your willingness to participate with Dr. Kelton’s post, and that you read New Economic Perspectives regardless of any political-economic position that you may hold.

      • golfer1john


        I wish Congressman Ryan would engage here, but I’m sure that wish will go unfulfilled. And those 21 words do not reflect his understanding of how money is created.

  113. All of us have to understand the big damage we do to each other by not knowing who spares the money we all work for.

  114. Larry Kazdan

    Two submissions:

    The coin in your pocket was issued by the federal government. The other side of the coin is a federal deficit. You can’t have one without the other!

    Money doesn’t circulate in the national economy if corporations hoard it, or when paid to foreigners for imports. The government must replace that lost purchasing power or people lose jobs.

  115. Carlo Vittoli

    25 words may be too few to communicate a point of view so different from what is
    generally accepted as common sense today. I have read a joke about Keynes in an
    Italian economics blog which I have slightly adapted:

    A and B are discussing about improvements in public infrastructures and services:

    A) We need to build more hospitals and schools, and hire doctors and teachers to
    staff them, and we need to improve public transportation so that people can easily
    reach them.

    B) But we don’t have enough resources for that!

    A) What do you mean? Don’t we have enough people in this country to build these

    B) No, we have enough workers, but…

    A) Then maybe we don’t have enough concrete, bricks, steel or other materials to
    make them?

    B) No, of course we have enough materials, but…

    A) So, are you thinking that we don’t have enough specialize doctors and
    teachers to hire?

    B) No, this is not the problem. But we don’t have enough money to pay for all of

    A) Money is just numbers that the government prints on paper or writes into a
    computer. So, what do you mean by “we don’t have enough numbers for that”?

  116. I don’t have time to respond now, except to suggest that some version of this invitation/thread be linked to on the home page on an ongoing basis. A useful exercise…and one that should continue, I think.

    • Yes, I think so too. Everyone can contribute their little brick to a growing edifice of assertions for 8th graders. Then one day, we may be able to fill an MMT text for 8th graders.

  117. “Government credit and government currency are really one and the same thing.”

    Plagiarized from FDR. Second Fireside Chat.

    My comments: Everybody used to understand MMT. Everybody intuitively understands MMT. It is easy to identify the most intuitive, easiest to understand parts of MMT. They are the parts that even MMT academics call “counter-intuitive”.

    But wass ist bekannt, ist nicht erkannt. (What is familiar is not rationally known.)

  118. davidgmills

    Since 1913 our money has been privatized. Privatization of our money caused the great depression and great recession. MMT wants to make money public again.

  119. David Freund

    OK, this is quite limited, and it’s cheating, because I’m only quoting Randy Wray. But it is a powerful 19 words:

    “Money is essential not just to exchange or to accumulate, but to make production possible because production takes time.”

    • Nice! Now to put that in middle school terms.

      “People need to spend, save, and invest money. Where does that money come from?”

      Of course you assume away credit and trade, but at this level, that’s probably fine.

  120. I have a very basic question, being a newcomer to all this. Why, if the government issues the currency it spends into the economy by buying goods and services from the private sector, do even MMT’ers keep using the term “government debt” and then assure people it’s not a problem? It just compounds the confusion. How can it be a debt if you’ve issued the currency? Who do you owe? Of course, if I buy a T-bill and get interest, then that is debt, but in that case at least it makes sense to say it’s no problem to pay it off.

    • golfer1john

      Keep reading. MMT recognizes that all money is debt. The currency (or electronic equivalent) itself is a debt of the government, because it represents the government’s promise to extinguish your tax liability.

      One series of Randy’s blog entries was about creating different “memes” for use by MMT, and one of them would include not using the same word (“debt”) to refer to different ideas. Government debt is not the same as private debt. But, if you just start using a different word for it, nobody will understand what you are saying. That’s why changing a meme is difficult.

    • I think it’s the need to communicate, even as we tear down the old paradigm. I have, however, suggested other terminology here.

    • Fair point. The semantics around govt liabilities are contentious.

      I think that to be consistent, if one calls UST ‘debt,’ one should also call USDs debt, as they are both USG liabilities in accounting terms. Just my 2 cents.

    • Ben Johannson

      My point for two years. Each time we use the terms “debt” and “deficit” we play into mainstream hands. So I don’t.

  121. Johnny Desperado

    I think questions are the way to go, even kids want to answer and if the answers are easy….
    What is money? It is the tool we use to make an economy work.
    Is $1000 enough for an economy with only two people in it? Yes
    What if you have $1000 and 1000 people? Do you need more money in a larger economy? Who is going to make these extra dollars?
    Asking these questions yield simple answers that can be built upon. Jumping into deficit spending and taxes give value to money is a little like jumping in the deep end.

    But I think kids will get this stuff quick. Adults on the other hand….

  122. Sunflowerbio

    If your father borrows $20,000 from your trust fund to prepay your college tuition, do you feel that he needs to repay this loan? 24 words

    • What zip code do you leave in where you’d assume most eighth graders know what a trust fund is???

      • sunflowerbio

        Ok, how about dad borrowing against his life insurance policy to pay your collage tuition. If dad dies before the loan is repaid, does his estate owe you the balance that the insurance company withholds to settle the loan? Here’s a simpler version. If you move a ten dollar bill from your right pocket to your left, do you owe $10 to the right pocket?

        • golfer1john

          “If you move a ten dollar bill from your right pocket to your left, do you owe $10 to the right pocket?”

          Maybe, if your “right pocket” is an account administered by a custodian, like your 401(k). But, so what? What is the relevance to this discussion?

          • sunflowerbio

            Well, I thought the $10 example was simple enough for an eighth grader to understand. If the government (self in this example) spends money to benefit future generations, the future generations do not need to repay the money (national debt) as they are the beneficiaries of the spending. Is that too simple?

            • golfer1john

              I get the point now, that deficit spending today is a benefit to future generations, because it raises output today, some of which will not be consumed immediately, and is not something the current generation borrowed and that the future generation must repay.

              However, in your analogy, the current generation borrowed from the future generation, and you’re saying the current generation (not the future generation) doesn’t need to repay the loan. There is no analog in our economy to the trust fund or life insurance policy. We borrow today not from our descendants, but from our contemporaries outside the family. And the deficit spending is not all for the benefit of future generations, it is mostly for current consumption.

              The future generation must still pay the interest and principal (or roll it over to maybe be paid by yet another generation). The point of MMT is that it is no burden for them to do so. More importantly, the point of MMT is that it would be no burden on us today to redeem all previous borrowing, and that the borrowing today is not necessary to fund the spending today, as it is necessary for the non-monetarily sovereign father.

              • Sunflowerbio

                Wouldn’t a robust economy with high employment, innovation, good health care and education, and a sound infrastructure be the patrimony of the future generations, and thus somewhat like a trust fund or insurance policy for our descendents? It doesn’t really matter where we “borrow” the funds, for as you say, there is no inherent need for future generations to repay the debt, it could simply be rolled over or, even better, paid with fiat currency. In the $10 bill example, the person has the money, so no borrowing is necessary; it’s simply a matter of moving the resources around as a sovereign government can do. No borrowing, no debt.

  123. Money makes you fly – 25 words:

    Money Mechanics and Aerodynamics: human labor (thrust) must be greater than consumption (drag), and the money supply (lift) must be greater than the expenditure (gravity).

    The right of earning money – 25 words:

    Money must flow into the hands of all people, in the same way as goods and services produced by workers and machines. Otherwise everything stops.

  124. In a monetary economy, output is measured using money.

    In a business card economy, output would be measured using business cards.
    The business cards would have no store of value to the issuer of the business cards
    The business cards would have value to the holder because they could be used to buy stuff either now or in the future.
    Taxed business cards would be destroyed because of wear and tear and because now that they are back with the issuer, they have o value.
    The issuer could remove business cards by promising business card holders more business cards in the future.
    The issuer would never run out of business cards
    Private banks could issue their own business cards
    The issuer could ensure the private banks business cards would be accepted by guaranteeing to exchange the private bank’s business cards for its own i.e. those in which output is measured on demand.

    Did I come in under 25 ?

  125. Government gives people and businesses money by buying things from them. People and businesses use this money to buy government bonds, stuff, and pay taxes.

    • And to save. That (along with taxes and, nowadays, QE) is the critically important demand leakage that must be offset over the long-term by the net of deficits + net exports.

  126. Thanks very much for all the good answers. I now understand that the “currency (or electronic equivalent) itself is a debt of the government, because it represents the government’s promise to extinguish your tax liability.” It makes sense once you get the point that the system is a kind of spreadsheet, but this application of the term “debt” is far from obvious to the average citizen. I suspect the language of accounting, which at least is familiar to business people, would be far more intelligible. And in fact, the federal deficit or “debt” is nothing other than a debit on its ledger, if I have understood correctly. At the same time, it would be clear that the deficit is clearly the private sector’s “asset.” That settles the emotional storm around our “debt,”–now converted on the gov’t side to “debit,” and on the private sector side, to “our assets,” which of course is music to our ears.

    • This might be one of those cases where it’s OK for an economist to have two arms:

      On the one hand, in an accounting framework, USDs and USTs (etc?) are properly viewed as liabilities of the USG.

      On the other hand, as a purely practical matter, there is no operational limit to the number of liabilities the USG can issue, as long as it remains a functional [functionally dysfunctional?] institution. The only constraint is inflation.

      So the first question of economic policy should never be, are deficits or interest rates too high? It should be, are we at full employment, and is inflation at a tolerable level? If the answer to either question is “No,” then we can look at the federal budget lever and debate what ought to be done.

    • golfer1john

      Well, not exactly. In accounting, a “debit” is an addition to the left side of the ledger. For an asset account, like “cash” or “accounts receivable”, it is a “plus” for the business. For an expense account, like “salaries”, or “entertainment”, the debit represents a “minus”, of sorts. For an income account, like “sales”, a debit is a reduction of the account. For a liability account, like “loans outstanding”, the debit is a reduction of the liability.

      So, when government sells a T-bill, it debits its cash account and credits T-bills outstanding (the “national debt”).

      If you call the national debt a government “debit”, the accountants will think you’re nuts.

      The layman’s perception is the reverse. When the store says it will “credit your account”, which is the “accounts receivable” account for them, that’s a plus for you, a minus for them. Thus the general public thinks of a “credit” as a plus for themselves, whereas on their own books, if they kept books, what they would have done would be a debit to their liability account, “accounts payable”, which is the plus for them.

      Adhering to the terms of the accounting profession would only confuse the issue more.

      • I use the old fashioned rules.
        You can lay every transaction out for all sectors (6 entries with Govt transactions) on one row on a spreadsheet and everything sums to zero across and down.

        Strict double entry accounting rules as follows:

        To increase an asset debit or + the account
        To decrease an asset credit or – the account
        To increase a liability credit or – the account
        To decrease a liability debit or + the account
        To increase an expense debit or + the account
        To decrease an expense credit or – the account
        To increase income credit or – the account
        To decrease income debit or + the account

        • golfer1john

          Exactly. So an increase in the national debt is a credit, not a debit. Anyway, those words are prohibited in our 8th grade.

  127. Here’s my attempt at an 8th Grade MMT Primer:

    In the US, money is like the gold awarded in many video games. Just as the Gamemaster cannot run out of gold, the Government cannot run out of money.
    Any country that has its own currency that can move up and down freely, is in the same situation.
    There is no money in the economy until the Government spends it into existence. Like the Gamemaster, it just takes a few computer keystrokes.
    The Government does not need taxes to spend money. It needs them so the people will use the currency to pay their taxes.
    The dollar used to be convertible into gold. In 1971, President Nixon took us off the gold standard. Now we have an unlimited supply of money.
    Even though it’s not “worth” a certain amount of gold, people value and use the dollar because everyone else does: to pay taxes, to buy things.
    Most people do not understand this. They think: Government overspending will lead to deficits. Debt will pile up. We’ll be broke.
    Even if they know we can “print” more money, they think the more we print, the more inflation we will have, forcing the dollar’s value down, until it is worthless.
    The big problem is that most people don’t know what causes inflation, when prices go up. They think it’s Government deficits and making new money by computer keystrokes.
    It’s not. Inflation happens when we run out of extra capacity to make things, so that the new money does not lead to more production. It leads to higher prices.
    But when we have lots of unemployed workers and partially unused factories, new money calls more workers to be employed, more factories to step up, and more product produced, not higher prices.
    So what about deficits? People think they are bad, when the Government spends more than it receives in taxes, but they aren’t. They are actually essential.
    GDP (Gross Domestic Product) is the total of all the spending in the economy – private consumption, private investment, government and exports less imports, or GDP = C + I + G + (X – M).
    Total spending must and does equal total income. One person’s spending is another person’s income. So GDP, with adjustments, equals National Income and then Personal Income.
    Personal Income is either spent in consumption, used to pay taxes, or saved, or Personal Income = C + T + S
    Since GDP = Personal Income, then C+T+S=C+I+G+(X-M)
    Simplify and rearrange, so G-T (Deficit) = S-I (Net Saving) + M-X (Trade Deficit). So Government Deficits fund Net Savings plus the Trade Deficit.
    Rearranging again and we prove that flows from the three Sectors must add to zero; i.e., flows from the Government, the Private, and the Foreign Sectors will always add to zero.
    Solid economies have a Private Sector surplus, or Net Savings. Many economies, like the US, run Trade Deficits. If you have a Private Surplus and a Trade Deficit the Government must be in deficit.
    Trying to force the deficit down to balance the budget will simply not work, unless the Private Sector becomes a Net Borrower, an unsustainable situation.
    When the US ran a surplus under President Clinton, the Private Sector was forced into deficit borrowing, which led to over leverage and the housing asset bubble.
    So in the US, we need deficits. And we need to stop being afraid that we are going to run out of money and go broke.
    When we wake up to the truth, we will see that it is only our own fear that has kept us from spending the money we need to upgrade our country’s infrastructure, provide healthcare to all, and most important, provide jobs for anyone who wants to work.
    This is not the age of Scarcity. It is the dawn of the Age of Abundance. Yes we must watch out for inflation. But we cannot let this fear keep us from giving everyone a “fair chance and a fair shot.”

  128. From the Fiscal Sustainability Teach-in #3:

    Q: [00:37:30] [Joe Bongiovanni, Kettle Pond Institute] When you floated your proposal on your blog about the European central bank paying out a trillion dollars, I asked you the question, “Is anybody going to issue any debt to do that?” And eventually you answered me back and said, “No, there would be no debt issued.” Am I right about that?

    A: [00:37:52] [Mosler] It’s just a payment. It’s not a loan, it’s a payment.

    Q: [00:37:57] [Bongiovanni] So, does that hold true for deficit spending by us, then? That is to say, our central bank, when we’re going to deficit spend, can they also just make the payment without issuing any debt?

    A: [00:38:10] [Mosler] What I’m saying is, if the federal government pays you money, it can either pay you money or loan it to you. If it pays it to you, you have no debt. If it lends it to you, you have a debt. So when the European central bank pays… makes a per capita distribution of a trillion euro [to] the member nations, it’s not added to their debt, they don’t owe it back to the European central bank. When the Federal Reserve makes a payment, it goes into someone’s checking account. We can call that a debt, if we– it’s how you define which account that money is in. We don’t count that as–

    A: [00:38:50] [Stephanie Kelton] It’s like helping our state governments.

    A: [Mosler] Right, right. But if the Federal Reserve makes a payment to anybody, whether it’s a payment to the state of Connecticut or a payment that goes out and buys a box of pencils, it goes into somebody’s checking account. It goes into a reserve account at the Fed, through your member bank. We don’t call that “debt.” It’s only when we move the money from the checking account to the savings account that we call it “debt.” So, what’s called “debt” at the Federal level I would not call it “debt.” I never would have called it “debt” from the beginning. It used to be called “debt” because we owed the gold that were in reserves. Once the gold was gone, it’s no longer debt, it’s payment in kind. It’s just a store of nominal wealth for the other guy. It’s not a debt. The European central bank hasn’t started on a gold standard, so they don’t automatically call something debt that isn’t debt, so they don’t have the problem of creating debt when they spend. It’s a little bit of a technical answer, but the answer is that a payment from the European central bank is not booked as debt anywhere, because the never have booked it as debt. We book it as debt because we have a gold standard tradition that caused us to book it as debt. It’s both– they’re all the same thing.

  129. Money is a tool we, together, can control to make sure all the resources of the planet are put to best use.

  130. I think it is a complete waste of time to teach 8th graders economics. Wait a while. As for adults who have an 8th grade level of education or reading ability, they have no significant impact on the course of events. Better to think of how a young adult might be taught the subject–and someone with at least some ability to reason correctly and think impartially. The land is full of people whose minds are ruined by our education system and are hopelessly subjective and formed by propaganda. The blogosphere bears witness to an ocean of this mentality.

  131. Blue Pilgrim

    If you’re running a game of D&D, you provide treasure for players to find, so it’s a good game: not too much or too little.

  132. @golfer1john

    Thanks very much for this! A little knowledge (mine) is a dangerous thing! There has to be some way the simple fact that gov’t spends into the economy constitutes an obvious gain for the private sector. Economists clearly haven’t been able to explain this so that laymen can grasp it quickly and intuitively (Mosler excepted–I still 7DIF is a masterpiece of exposition), so I was hoping accountants could do a better job explaining our spreadsheet system.

    • golfer1john

      “The monetary sovereign supplies money to the people by spending more than it taxes.”

      But it’s not the first thing one needs to understand. The others take more than 25 words in total, and even singly the 25 words is just the statement, understanding requires thought and discussion and explanation.

      We need a best-selling book, or a popular TV show. How many people who never studied physics now recognize the doppler effect, because Sheldon went to a Halloween party? If 4 genius nerd scientists can be the stars of a good comedy show, why can’t 4 genius economists do the same?

  133. how the world works – 25 words:

    If people have to borrow money to build their future together it means that they are enslaved by those who are controlling the money supply.

  134. In any sport the ref can never run out of points. As long as someone is earning points, the ref can always give them.

    We’re the players, and we’re so used to trading our points between each other that we forget where they came from: the ref (government).

    If everyone gave each other too many points, 1 point would be less special. The government takes our points away to make sure we always value them.

    Our points would be less special if the ref gave them out to people who didn’t earn them.

    The debt is a score of how many points we’ve earned from the government, but that doesn’t mean a high score is better. There’s nothing to win.

    There’s no reason to let people sit on the bench. If someone wants to earn points, the ref can always give them.

    If we earn too many points from the government, we might try to do less for each other and that’s not good. We do a lot of important things for each other.

  135. In a “fair” financial system, you can only spend if you have credit. Who makes the first transaction? Welcome to the world of MMT.

    (Of course, the answer is that somebody must spend by borrowing in order to create credits elsewhere in the system. Who that is and who that should be can be answered by framing the discussion in the context of MMT. Perhaps this is too hard for children to solve?)

  136. This is a tricky one alright; few aspects of MMT are easy to explain, yet MMT does need a vastly simplified narrative, to reach wider audiences.

    Here are a handful of things, which come at the MMT narrative from a slightly different perspective:

    On money creation by banks:
    When a bank makes a loan, it creates and puts money into the economy; when that loan is repaid, money is taken from the economy.

    On money creation by government: (preferably contrasted with the above)
    When government creates and spends money, it puts money into the economy, and when government taxes, money is taken from the economy.

    On sovereign money:
    Money created by government, can be used to benefit society; money created by banks, is used to benefit banks/finance, to the detriment of society.

    On inflation: (important in my view, as it’s the first point of scaremongering about public spending)
    When too many people try to buy a good in short supply, the goods price increases. To avoid this, supply bottlenecks should be avoided.

    On money and resources:
    Government can keep on creating/spending money, so long as money is avoiding supply bottlenecks (the most important of which, is a shortage of workers).

    On debt-based money:
    Banks create debt 1:1 for every dollar. Government creates money debt-free. When excessive debt chokes an economy, only government can provide money for recovery.

    On taxes (left a few other uses out):
    Government using money creation, does not need taxes for funding. Taxes are used to discourage harmful acts (e.g. pollution), and discourage spending on supply bottlenecks.

  137. Peter Vanderwaart

    Money is a medium of exchange. You can buy things with it. Money is created by the government, which accepts it for taxes and other payments.

  138. dannycatron

    Federal government spending creates money. Federal taxes destroy money.

    A federal budget surplus is when the government destroys more money than it creates. A federal budget deficit is when the government creates more money than it destroys.

  139. Ken MacIntyre

    Money is a social relationship underpinned by the State. A government which controls its currency can never run out of money.

  140. bubbleRefuge

    Loans are funded using keystrokes. Banks steal money by making false loans, charging transaction fee’s on loan, then selling the loan off to the next suckers.

  141. Money comes from government spending.
    Too much money? Taxes take money back.
    Balance spending and taxing correctly: Everyone gets a job and prices are stable. (25 words)

  142. We can do whatever we need to so long as the necessary materials and people exist. It’s not about money.

    (Did it in 20.)

  143. This is more than 25 words, but it does show how MMT works – just replace the fellow leaving $100 with the Motel Innkeeper with Uncle Sam as the spender of last resort (Sovereign Currency Issuer implementing MMT) and Uncle Sam “does not” pick up the $100 but leaves it in circulation to cycle several more times in the town (or more to the point the economy) to grow employment; thereby increasing the GDP –

    It’s a slow day in some little town……..
    The sun is hot….the streets are deserted.
    Times are tough, everybody (the private sector) is in debt, and everybody lives on credit.

    On this particular day a rich tourist (Uncle Sam implementing MMT) comes to town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the feed store. The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit. She, in a flash rushes to the motel and pays off her room bill with the motel owner. The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves. (Uncle Sam leaves the $100 to keep circulating in the economy and even adds an addition $100 on the counter for the second round)

    NOW…the whole town is out of debt and is looking to the future with much optimism. (working towards full employment) – what’s not to like?

    • golfer1john

      The 8th graders might buy it, but I don’t. In your town, everyone owes each other. All of them have net assets of zero. During the GFC, everyone owed one guy, the banker, who had positive assets, and the homeowners all had negative assets. One $100 bill would allow the innkeeper to repay his loan to the bank, but he’d never get the bill back to return to the counter, and the butcher and the prostitute and everyone else would still be in debt, and the innkeeper would be in debt to the rich tourist, if he didn’t take the room.

      And if Uncle Sam doesn’t take the money back, he takes the room (buys something with it, doesn’t give it away.)

  144. Ed Presley – while your example is entertaining, I believe it is misleading. The government (the tourist) needs to spend the $100 before there is any beneficial impact. Each of your characters (the hotel owner, the butcher, etc) at the start not only had a debt of $100 but also an asset of $100 (the money owed to them). Thus, on a net basis, none were “in debt”. At the end of the exercise, each of the characters has lost their debt but also had lost their asset. Everyone was where they started. Until the government spends the money into one of their coffers, there is no benefit.

    My entry for the “25 word” contest: The objective of government should be a “real world” objective of improving the lives of the people for whom it serves. This goal has no relationship with silly “accounting” objectives like “balancing budgets”.

  145. Money is a medium of exchange. – i believe this must be the starting point.

  146. Money is a medium of exchange. It is created by the goverment and it’s volume is increased by private banks by creating credit. Too much private debt creates asset price inflation.

  147. As an importer, the US government can run a deficit or a surplus. If deficit, households spend from savings, using credit for mortgages or car loans. If surplus, households struggle to save, and spend on credit. Savings transfer to banks through interest payments and defaulted collateral.

  148. Wealth,all the goods and services that benefit mankind in this universe.
    Money is the term used to allow for the transfer and/or exchange of any portion of wealth by individuals or groups.A fiat currency is the material representative, receipt, or record of any ownership of any wealth that can be transferred or exchanged without limitation to time and space.
    As Frederick Soddy said, “Money is now the NOTHING you get for SOMETHING in order to exchange for ANYTHING.”(“The Role Of Money” 1926,1933).
    A government is given the duty to manage (control quality and quantity) its own nations wealth.


    “Money (NOTHING),you get for SOMETHING to exchange for ANYTHING. Managed by your government to control quality and quantity of the wealth of the nation. “

  149. ” I can see that we are off to a bad start.”
    NO! Keep them coming; this is useful.
    I have a lot more than an 8th grade education, but am not an economist. I have had trouble figuring out MMT (I have another life, after all). If over-educated news-junkies-are not sure what you do, there is a problem.
    This is making things clearer.
    (Must say, some of the longer entries are more illuminating.)

  150. vic marcucci

    Give and it will be given to you. For with the same measure that ye mete withal it shall be measured to you again.

  151. ” In the USA. Think about what that means.”

    How sad. Are we forced to educate in sound bites now?

  152. Maybe MMT should focus on democratic vs undemocratic control over money creation?

    That seems to me, like an incredibly powerful moral argument, that can be used as a moral principle to build up MMT on:

    “Private banks have the ability to create money from nothing; this is undemocratic, and is used exclusively by the banking elite for private profit”

    “The only democratic way to control money creation, is to have government in charge of creating and distributing money, through government spending and public banking”

    I think these two sentences, do more to create a powerful moral/political argument, in an extremely easy to understand way, than anything else I’ve read so far on the topic.

  153. Congress creates money per Constitution. Spends money for public good. Public receives money; uses it for private good, taxes and savings (savings is government debt).

  154. Money is created when:
    – banks make loans
    – government spends
    Money disappears when:
    – loans are paid off
    – government taxes
    Details are important, but that’s basically it!
    [25 words]

  155. The government can buy anything that dollars will buy. Then there will be less for other people. They should buy unemployed labor. [22 words]