More Tropes of the New Populism

By Joe Firestone

The New Populism, if it exists, and isn’t just a creation of Washington villagers wanting to give an attractive name to the new feint of the Administration toward the progressive base of the Democratic Party, can be a turning point for America’s domestic economy, but only if it can avoid certain tropes, shibboleths, and myths that people associated with it, such as Bernie Sanders, and various other supposedly “left” members of the Democratic Party in Congress seem to delight in reinforcing. Again, Robert Borosage’s little piece on “The New Populism” provides more examples of such tropes:

Much of this debate has been framed around the faltering recovery, as the Congress perversely punted on the opportunity to rebuild America when we could borrow money for virtually nothing, with construction workers idle and eager to work. But in the end, this is a question of making the public investments we need, and paying for it by ending the tax dodges and tax breaks that enable the rich and the multinationals to avoid paying their fair share of taxes. The Congressional Progressive Caucus budget shows what is possible, while still bringing our long-term debt under control.

Well, Congress did that, and the Treasury certainly could have borrowed “money for virtually nothing,” and spent it on infrastructure and the public commons while creating many millions of new jobs and cutting greatly into our massive unemployment problem. However, why should Borosage and others writing about the new populism assume that such deficit spending has to be accompanied by borrowing money?

It’s now two and one half years since the idea of Platinum Coin Seigniorage (PCS) was first discussed in the mainstream press. Have Borosage and other new populists never heard of it? Have they been oblivious to all the articles in December 2012 and January of 2013 that debated it? Did they miss the further discussions at the time of the Government shutdown in the fall of 2013? Are they ignorant of the President’s comment that it is “off the table” because using it would displease people who buy our securities (but by implication not because he doesn’t have the legal authority to do it)?

If not, then why not at least mention a proposal like minting the $60 T coin as an alternative to borrowing for virtually nothing in order to fund programs for the public purpose? Does Borosage think that it’s better to issue debt instruments to facilitate Congressional deficit spending appropriations than it is to issue Platinum Coins to force the Fed to use its reserve creation power to fill the public purse after Congress makes deficit spending appropriations?

If so, and that’s what the new populists really think, then I ask: “what kind of new populism is it that objects to the Treasury using its legal authority to harness the Fed’s power to demonstrate that the Treasury can always pay for deficit appropriations of Congress without ever running out of money?” And what kind of new populism is it that suggests the inference that we need to exercise a rare opportunity to borrow money at virtually no interest to “pay for” what we need from non-Government sources, when we need not borrow any money at all, but can simply create it?

And why is this “. . . a question of making the public investments we need, and paying for it by ending the tax dodges and tax breaks that enable the rich and the multinationals to avoid paying their fair share of taxes”? Now, I’m all for seeing to it that the rich pay their “fair share” of taxes. And I also think that their doing so is a moral issue. But, if the new populists are claiming that making the pubic investments we need right now is dependent on us getting the rich and the multinationals to pay their fair share, than that is just wrong, and tells us that there is another lesson the new populists must learn.

The new lesson is that taxing the rich and multinationals, and deficit spending to create and maintain full recovery and full employment are two separate fiscal issues that are unrelated in the short-term. We can have recovery without having that additional tax revenue and we can also get that tax revenue and still not have recovery.

In fact, getting the additional revenues from taxing the rich, and doing nothing else to compensate for the resulting loss in aggregate demand can bring the economy down further into depression. On the other hand, getting the deficit spending on recovery and the proper full employment programs, can work to get the economy roaring and to increase tax revenue, even without any tax reform at all.

I am not arguing against tax increases on the wealthy as a plank in the new populist agenda. Such increases can work to decrease economic inequality and to dampen asset bubbles and decrease inflation when we have some. But what tax increases cannot do is effect the capacity of our fiat sovereign government to spend what it needs to in order to meet our problems.

That capacity is the same whether we increase taxes or not. We don’t need to tax or borrow in order to “pay for.” The new populists should repeat that mantra to themselves 35 times a day.

Another core challenge will be to revive our ability to make things in America once more. America needs a manufacturing strategy to ensure that we not only remain a center of innovation, but also a center of production.

I agree with the general idea of having an industrial policy and have said so recently. And I certainly think we ought to have a renaissance of manufacturing in the United States. But we are still very far away from a world government, and my view is that we are too dependent on other nations for manufacturing capability, and that this needs to change. But, I also think that the trope of “let’s manufacture again” shouldn’t morph into “let’s manufacture everything or anything.” I think we need to pick our spots carefully.

Borosage implies this by calling for “a manufacturing strategy,” and this is good. But the new populism needs writing and debate on this strategy and also needs to be careful that the strategy doesn’t preempt the need for reinventing our public commons and public spaces and for protecting our environment and the climate.

This new manufacturing strategy must also respect the limits we need to place on the private sector, so that the public sector can flourish again in the United States. Over the past 40 years we have learned again that there are many things that the private markets cannot do either best, or at all, and that must be entrusted to all of us working together through the Government. We need a rebirth of that as much as we need a rebirth of manufacturing.

80 Responses to More Tropes of the New Populism

  1. The 60T coin is not the only way. The act of congress that enabled printing the greenbacks for Lincoln during the Civil War and US Notes until the 70s as I recall can still be used to take full seigniorage on paper currency.

    • Joe Firestone

      That’s true Charles, but I believe there’s a limit on US Notes in circulation, and that the face value of these can’t exceed about $350,000,000. That won’t go very far, I’m afraid.

      • There WAS a limit, but since U.S. Notes possessed by Treasury were all burned in 1996 (and without accruing that amount – $250m – to the government account either, BTW), it’s not clear there is any limit remaining. Ray LaHood and Dennis Kucinich apparently didn’t think so when they introduced their respective bills to Congress after 1996 to create new U.S. Notes. LaHood wanted to created about 100 times to old amount – $350B – to pay for highway infrastructure, and Kucinich wanted to replace ALL the currency with Treasury issued U.S. Notes, doing away with FRNs altogether. Both, unsurprisingly, never made it out of committee.

        • It seems to me that Lahood recognized the old limit, that’s why he wanted Congress to legislate 100 times the old amount.

      • True and they can’t be used as reserve currency which causes banks to detest them. The 300 or 350 million cap is self imposed and can be increased by congress if they are willing to take on the banks.

  2. Well put, Joe. It is discouraging to read well meaning “progressives” and socialists echoing the tropes of the neo-liberals and conservatives about the need to pay down our “unsustainable” debt. I have submitted a question along these lines to Bernie Sanders who is going to have a national call in teleconference on Wed. It will be interesting to see if my or a similar question gets asked.

    • Joe Firestone

      Hi Sun, I too submitted a question to him. I’m awaiting an answer.

      • I sent Bernie a letter and the 13-minute video the MMT students made in which Bernie is lamenting the deficit and the students take him to task for it. I doubt he will read the letter or watch the video. I saw him on C-Span in the last few days saying we have to get the deficit under control. I’ve sent videos to my congress critters as well. I got back a letter that says “thank you for the dvd about deficit control. Rest assured I’m doing everything to balance the budget blah blah blah…” I want to hit my head against the wall.

    • Did the Sanders call in happen? I waited and waited for the call, but it never came.

  3. Joe, can I plead that you don’t attack your allies? Educate them.

    Borosage’s call has much to commend. Don’t let that get lost. MMT is new to most people, and I can’t claim to have got my head around it yet, so I’m not sure. I do see it raises central questions though. So give people a chance to get to know it.

    I suffered the same sort of bagging in a small way, in a review on Amazon of my book Sack the Economists. The tone is very critical, and my crime is that I didn’t feature MMT (though it does get a mention). I didn’t feature it because, frankly, I find the explanations jargon-ridden and difficult to penetrate. So keep working on plain-English explanations, stripped down to the essentials. And don’t bag your allies for being stupid or ignorant.

    My book has much more to say about creating a fairer society, and a five-star, positive review would have helped get that message out. See http://www.amazon.com/dp/B00GS01GE0/ref=pe_245070_24466410_M1T1DP .

    • I’m not entirely convinced that all of the people who are aware of, and convinced of, the evidence of MMT would generally consider themselves or be considered progressives or even progressive leaning. Occasionally one sees articles describing interviews of chief economists at major financial companies where those economists point out that things like the public deficit = private surplus equation are a part of their analysis. Does the chief economist of Goldman Sachs qualify as a progressive?

      • There are parts of MMT that are not new. There used to be a universally known concept of “fiscal drag”, meaning that austerity – raising taxes or cutting spending, cutting the deficit – would be a detriment to GDP. Only since the deficit became a political football has anyone been allowed to get away with saying that the way to boost the economy would be to cut the deficit, or balance the budget. No doubt there are many financial managers who understand whatever parts of MMT they need to know in order to do their jobs. They are not necessarily on the Progressive political side of the discussion about what things government ought to be involved in. And even most academic economists either don’t understand or don’t agree with much of MMT theory, likewise for economists working for politicians. They’ve not all been paid off, they mostly learned their trade in a different era.

      • Joe Firestone

        I didn’t say all MMTers were progressive. But certainly the heavy majority of MMTers are progressives or populists judging from their blogging opinions. There are some right wing people who share MMT’s analysis of the economy, but not the major values MMT writers often mention.

    • Joe Firestone

      Hi Geoff, Thanks for your comment. How are they my allies if they’re going to follow long-term deficit reduction policies because they’re all about “pay fors”? You know there are a lot of politicians over in Europe who claim they’re socialists, and claim that they’re on the side of the people. And when they get into office, they play the same sort of footsie with the globalizing elites that the conservatives do.

      For years now, MMTers have been trying to get the attention of the “progressive left.” Very frankly, they’re just ignoring us. It’s time to make it impossible for them to do that any longer. All I’ve done above is to point out Borosage made some serious errors in his post, from an MMT point of view. I think he and others need to understand that.

      • Joe, I understand your frustration. I have the same problem. I argue, as a scientist, that neoclassical theory is utterly irrelevant to real modern economies, which are far-from-equilibrium self-organising systems – entirely different beasts. Evidently it will take a long time (or special circumstances) for that message to seriously challenge the deeply entrenched meme – free markets are (mostly) good. Wrong. We can say nothing general about free market goodness or efficiency – we just have to look at each market and see if it’s doing what we would like.

        Back to your articles – it’s the tone of frustration. It puts people off, makes them defensive, then they fight back instead of listening. My challenge is to pitch my message to potentially receptive people (which is not most mainstream economists) in a way they might receive. It’s not easy.

        I have my own take on money and banks (compatible with MMT as far as I can tell so far), but I have to accept the most people haven’t thought about it, don’t know about it, or have serious misconceptions. Nevertheless they may be doing good work in other respects – like Borosage. We need to work together at every level to improve the mess humanity and the planet are in.

        • Sorry Geoff, it just doesn’t work without people out there who are nipping at their heels. Paradoxically, they’ll be more willing to listen to you, when I’m out there blasting them for sloppy thinking. I think the thing eeveryone has to understand is that there is no one strategy or set of tactics that is going to allow us to break through the screens of the DC village. It’s multiple strategies and sets of tactics working at once that create the opportunities for a breakthrough. There’s a role in this for my frustration and anger and for your charm approach. So, I’ll take on the role of tough guy and you play the music of sweet reason and maybe that will give them an incentive to risk their pay checks.

        • Fair enough Joe. Actually I do the same thing regarding mainstream economists. So power to all of us and all our approaches.

  4. Joe, until you and other enthusiasts for monetary innovation as a solution to everything come up with a coherent and responsible policy rule for fiscal and monetary policy coordination under your new systems, these alternatives are dead in the water. No responsible US government is ever going to go down that road of carrying out a massive public investment program just by printing greenbacks, minting trillion dollar coins or crediting accounts with electronic balances summoned up from the aether – not unless they have well-considered and theoretically well-justified technical tools for deciding where the boundary lies between a responsible and progressive expansion of the deficit and a reckless and stupid descent into banana republic monetary madness.

    You can’t just hand-wave about satisfying metaphorical “savings desires.” At this point, nobody has any metrics for measuring these aggregate savings desires. You also can’t assume that so long as there is unemployment, the economy can safely absorb more monetary assets without financial turbulence. In a capitalist economy there is no reason to think that full employment is an automatic by-product of a sufficient infusion of monetary assets into the private sector. So the policy rule, “Just keep spending until everyone is employed,” is neither plausible nor viable.

    Bernie Sanders is not some fake progressive. He’s the real deal. And I don’t blame him at all for refusing to bet the extremely meager political capital the struggling American left possesses on some pie-in-the-sky heterodox vagaries that are all airy abstraction at this point without a sophisticated model and without detailed technical guidance.

    We have a lot of very big social decisions to make about the distribution, employment and allocation of real resources, real wealth, and real political power. There are no monetary fixes for these problems. The real material and human capital needed to educate our young people doesn’t magically appear if we just manufacture more of the medium of exchange; the real material and human capital needed to house, feed and provide a good quality of life for an expanding population of retirees doesn’t magically appear if we just manufacture more of the medium of exchange. The owners of the means of production won’t magically employ everyone if we just manufacture more of the medium of exchange and throw it into the economy via helicopter drops or tax cuts. The fundamental economic issues and challenges of our time are not monetary problems but are structural, real economy issues. Innovative money mechanics can be a component of the broader program.

    It’s all very well for you to opine that we don’t “need” – in a purely technical, operational sense – taxes or public borrowing to spend more. From a purely mechanical point of view we can always implement some kind of monetary innovations that enable us to spend without issuing treasury debt or boosting tax revenues. But of course we do need those other operations in a broader, policy sense because we need some kinds of constraints on our emissions of dollars in order to implement sound progressives policies that don’t undermine themselves economically and politically by causing bubbles, financial disruptions and price instability. Until you have something more sophisticated and concrete to put on the table, nobody is going to buy what you’re selling.

    • There are two viable proposals that I am familiar with from serious and competent sources that have proposed detailed changes to the present monetary system to enact changes that will benefit the citizens of the nation. There may be more. Dan Kervick needs to look no further than the books that have been written by Ellen Brown on public banking and the material published on realmoneyecon.org prefaced with the following:

      “Real Money Economics is an economic theory which proposes to change the current monetary and fractional reserve banking system as follows:

      change the bank depository and payment system to a “Trust Banking System”;
      change the bank credit system to a mutual fund system;
      to keep price stability, change the new money creation system from a deposit creation system as follows:
      create a new entity owned by Treasury to be in charge of this, under the control of the Federal Reserve Bank, but not owned by it;
      increase the money supply by a modified Taylor Rule
      grant the resulting seigniorage to Treasury thus paying off the national debt and greatly lowering taxes.
      This process consists of both a transition and a steady-state economic plan:

      1) The Transition: from the current fractional reserve banking system using a modified version of the proposal [1] urged by Irving Fisher during the height of the Great Depression (often called the Chicago Plan) and recommended by 235 economists of the time [2]. A recent working paper by members of the Research Department of the International Monetary Fund has updated and tested this on the US economy (The Chicago Plan Revisited, 2012, updated 2013 [3] ). The transition will be over a weekend with banks closed. (see details below)

      2) The Steady State operations after the transition will be “Limited Purpose Banking [4]” as outlined by Laurence Kotlikoff, formerly on the (US) President’s Council of Economic Advisers. (see details below)

      The plans given by Laurence Kotlikoff and the proposal expounded in great detail by Ellen Brown are different but not mutually exclusive. Both have real merit and obviate the statements made in the comment above.

      Those who benefit directly from the present system think they have a lot to lose but they may have a lot to gain along with all the rest of us. A rather famous ( or some would say infamous) philosophical person once opined that the changes in the social and economic fabric of the world that would occur from people generally becoming aware and educated on monetary systems would be as significant as those experienced from the world population generally becoming literate which we know was truly enormous. Ezra Pound was the person who made the observation.

      • Here is my problem with both proposals: They both tend to assume that financial stability is a function of the “money supply”, which in my opinion posits an unjustifiably sharp distinction between money and other money-like assets. In any capitalist economy, where people are free to make private financial promises and create new kinds of negotiable financial instruments, it doesn’t matter that much how we regulate the specific asset we presently call “money”. On the other hand, in “From Central Bank Independence to Democratic Public Finance” I proposed several modifications of our existing monetary and fiscal mechanisms that should be attractive to the Positive Money and Debt-Free Money folks.

        The Kotlikoff and Chicago Plan is a very conservative plan that will result, I believe, in economic stagnation and sluggish capital development. It is also a plan that dates from from the early 30’s and was designed to address a problem that no longer exists: runs on uninsured bank deposits. In 2008 we did not have a run on commercial banks and their deposits. We had a run on more complex derivative assets in the shadow upper reaches of the financial system. So the plan addresses a problem we don’t have and fails to address problems we do have.

        Also, which Taylor Rule? Taylor Rules, as usually understood, are interest rate rules, not quantitative rules. But in any case, if Joe has such a rule in mind connecting inflation rates and quantitative monetary policies, then he should put it on the table if he doesn’t expect sensible people to be scared off of what otherwise looks like his anything goes coin-minting and coin-spending proposals.

        • Well, there are lots of possibilities for ways to constrain the free-spending urges. Assuming the acceptance of MMT in general, and the idea that the purpose of taxes is to limit aggregate demand in order to prevent inflation, I would propose the following:

          Eliminate FICA

          Keep the income tax, but simplify it and lower rates for the current brackets, and add new brackets at $1M and $1B.

          Replace the corporate income tax with a business (not only corporations, all businesses) gross receipts tax at a low rate (maybe 3%) with no deductions or exclusions.

          Add an “independent” board modeled on the Federal Reserve Board to periodically (maybe quarterly) adjust the tax rate of the business tax. The Board should have limited discretion, but Congress should specify rules along the lines of a Taylor rule about when and how much to raise or lower the tax rate, based on the JG work force and the inflation rate. Adjustments would be in tenths of a percent of tax rate.

          If we’re at 2% JG workforce and Congress enacts new spending that caused a rise in inflation, the board would be required to raise the tax rate, choking off the inflation. Should Congress reduce spending, or the economy slow down, and the JG workforce begins to rise above 3%, the board would be required to lower the tax rate.

          I’m sure there would be other ideas, based on understanding of MMT.

          • Thanks Golfer1. That wasn’t so hard, was it Dan? Just a skeleton with no flesh, but it’s a start.

        • Debt-free money can, has (U.S. Notes), and is (Coins) being used. WWII is not the only or even best example of gov’t spending that boosted the economy too, and certainly not with debt-free money. The money spent on WWII was anything but debt-free (nor, conversely, did increasing the debt act as any kind of a “brake” on getting involved in that or any other war) Lincoln issued the country’s first debt-free paper money, and the first legal tender, to pay the Northern war costs in 1862-63. In a recent New Yorker article, Obama claims that Lincoln is his favorite president, but he seems to ignore how Lincoln’s Greenbacks were 40% of the currency (Zarlenga) during the war, and the nation’s longest-lasting currency. He certainly has ignored his options whenever the unconstitutional debt ceiling comes up. For example, see here: http://www.opednews.com/articles/Debt-No-More-How-Obama-ca-by-Scott-Baker-Banks_Constitution-In-Crisis_Constitution-The_Constitutional-Amendments-131018-391.html

          As for controlling inflation and preventing the speculator/monopoly class from jacking up prices, we need to simultaneously rein in the rentier class with taxes on rent-seeking activity. See the interview of me, about 6:00 minutes in, by Abby Martin from RT TV’s Breaking the Set, here: http://www.opednews.com/articles/Talking-about-Geoism-with-by-Scott-Baker-Andy-Martin_Geoism_Georgism-140124-854.html for how that might be done, though more details would include not only Land Value Taxation, as discussed, but also a tax on any kind of natural monopoly (oil, coal, even pollution rights, etc.), as well as a stock transaction tax like that used in Europe for decades.
          The middle class is not causing inflation, they don’t have the money. This comes from commodity bubbles created by the Money Power through their asset speculation. It’s time to put a tax on their taking from the commons.

    • Joe Firestone

      Hi Dan, I’ll comment on a number of the statements in your lengthy comment.

      “Joe, until you and other enthusiasts for monetary innovation as a solution to everything come up with a coherent and responsible policy rule for fiscal and monetary policy coordination under your new systems, these alternatives are dead in the water.”

      Do I have to come up with one rule, Dan? Bill Mitchell seems to say “no rules, just right,” and I think that’s were I am too. :) :) :) But more seriously, I don’t think and have not said here that monetary innovation is a solution to everything. I’ve pointed out that Borosage is wrong to take the position that the Treasury can only spend appropriations if the TGA has credits generated by sales of debt instruments or by tax revenues. I’ve also pointed out in various places that if a $60 T coin were minted, then the reserves generated would fill the TGA to an extent sufficient to repay all debt instruments and interest on them as they fall due, and in addition would be sufficient to allow the Treasury to spend Congressional appropriations in excess of tax revenues for many years.

      I’ve said in addition that those reserves would take off the table the rationalization that the US Government is out of money every time a useful proposal requiring deficit spending is offered by progressives. Now, beyond that, the solutions to our problems still depend on Executive and Congressional leadership and action passing legislation that will work to solve our various problems.

      Next, I’ve haven’t been vague about the policies I favor to solve many of our problems. I’ve specified them in the penultimate chapter of my e-book. The proposals aren’t limitless. Most of them are found in programs from other MMT writers including Warren, Stephanie, and Randy, though my emphasis perhaps a bit different. I think these policies, especially the JG would produce full employment, and I don’t see the causal channel for them to result in any serious inflation to speak of whether debt instrument or seigniorage financing is used toi mplement them.

      “No responsible US government is ever going to go down that road of carrying out a massive public investment program just by printing greenbacks, minting trillion dollar coins or crediting accounts with electronic balances summoned up from the aether – not unless they have well-considered and theoretically well-justified technical tools for deciding where the boundary lies between a responsible and progressive expansion of the deficit and a reckless and stupid descent into banana republic monetary madness.”

      This is just your opinion, Dan, which you evidently share with Ezra Klein and Kevin Drum, but which is not tested by any available evidence. A President,most probably not this one, may take office, and if they have a hostile House of Congress facing them, may decide that they don’t want to have to cope with any debt ceiling or how we gonna pay for it BS, and may may decide that they want to fill that pubic purse, given that they have the authority to do that. No one can reliably predict whether that will or will not happen, because there’s no science that allows us to predict what an individual human will do when faced with the variety of options the President has in this context. Btw, I don’t recall any “banana republics” using fiat currencies to fund a full employment program, so there’s absolutely no historical basis for using this epithet to describe a president using PCS, it’s just pejorative labeling with no basis in either history or evidence.

      Next, MMT writers are pretty clear that one ought to stop deficit spending when full employment is reached, or demand-pull inflation will result. They’ve also said that it can happen earlier than that if one doesn’t use a job guarantee and in the process of deficit spending one pours too much aggregate demand into particular industries that don’t have the capacity to handle them. So, I think the point is that you implement a JG program early, and when you’ve got full employment that way you watch carefully for sector inflation and pull back on spending and increase taxes to cool off demand. The JG program itself cools off deficit spending, since spending on it decreases as JG employees are hired by the private sector. If, as part of the recovery program, a full payroll tax holiday has been enacted, then taxes can be increased automatically as inflation increases, provided a provision allowing for that is enacted as part of the payroll tax holiday bill.

      “Bernie Sanders is not some fake progressive. He’s the real deal.”

      What makes you so sure of that? What parts of his record in the Senate do you think establish that? Also, whether he is or not is beside the point. My complaint is that progressives and new populists have been paying lip service to false conservative shibboleths. And when it comes to deficit reduction, Bernie has been among the worst of these. It does little good for someone to advocate for jobs programs and Medicare for All, and then say in the next breath that we must have long-term deficit reduction. It also does little good to say we need these things but have to raise taxes first to pay for them.

      The penultimate paragraph in your comment s just straw-personing what I wrote. I never advocated for helicopter drops or pouring of money into the economic programs, but only fr spending programs that would pay off debt and produce outcomes having social and economic value.

      “It’s all very well for you to opine that we don’t “need” – in a purely technical, operational sense – taxes or public borrowing to spend more. From a purely mechanical point of view we can always implement some kind of monetary innovations that enable us to spend without issuing treasury debt or boosting tax revenues. But of course we do need those other operations in a broader, policy sense because we need some kinds of constraints on our emissions of dollars in order to implement sound progressives policies that don’t undermine themselves economically and politically by causing bubbles, financial disruptions and price instability. Until you have something more sophisticated and concrete to put on the table, nobody is going to buy what you’re selling.”

      Well, again, I think 1) that I’ve proposed policies every bit as concrete as those proposed by others, and 2) your opinion about whether some of them might find favor more broadly in the political system is just that, an unsupported opinion. On the matter of whether we need Treasury debt or tax operations to constrain our emissions of dollars we have no disagreements when it comes to needing taxation to contain inflation. However, when it comes to debt instruments, I deny that there is any evidence that issuing debt instruments in the context of deficit spending is any less inflationary than issuing reserves alone to implement spending programs. My analysis of the likely lack of any special inflationary effect of deficit spending based on seigniorage in my e-book as well as Scott Fullwiler’s writings on this subject both suggest that debt instruments have no role in constraining inflation when used n conjunction with deficit spending.

      • Joe, Drum, Yglesias and other mainstream pundits only supported the coin as a desperate, last-ditch measure to deal with out-of-control Republican brinkmanship, and only because they could correctly emphasize that it would not be used to carry out any spending that had not already been authorized and so would not be an act of monetary recklessness. They did not support it as a routine, long-term addition to our fiscal techniques. Klein, in fact, had a meltdown over that suggestion if I recall, and did not even support the more limited suggestion.

        I think you are too inside this platinum coin hobby horse and have lost perspective. A president who proposed platinum coin minting as a way to carry out fiscal policy might as well “Here I am with my wheelbarrow full of Weimar-slugs to save the day!” He would be an utter laughing-stock … or worse. Global markets would go haywire and descend into panic. He couldn’t do worse if he said he was going to start buying aircraft carriers with bitcoins.

        Last year, Randy wrote a piece about 25% inflation in Argentina and seemed to say, “Well, that’s life. There are worse things than 25% inflation.” I would suggest that statements like that are an absolutely terrible way to win friends and influence people. Nobody in power is going to take advice from people with these kinds of casual attitudes.

        So, I think the point is that you implement a JG program early, and when you’ve got full employment that way you watch carefully for sector inflation and pull back on spending and increase taxes to cool off demand.

        How do you pull back Joe? If the spending has already been authorized, then the only way it can get pulled back is for Congress to pass a new law that cuts some spending. But once spending outlays are enacted, it is very hard to cut them. Unlike a central bank, where 7 people can just call a meeting and set a new policy target, even small tweaks in fiscal policy involve a gigantic political rigmarole. Now we can imagine ways of changing that, ways in which broad fiscal authority is delegated by Congress to some kind of spending administrators who have the authority to dial spending up and down in response to economic indicators. But I think specific proposals like this need to be part of the pitch.

        BTW, I am not claiming that running deficits via PPC issuance are necessarily more inflationary that running them by issuing treasuries. My complaint is that we need a much better and more precise theory of price stability management and budget management than MMT has been willing to come up with so far. It would be nice if supporters could get over their airy heterodox disdain for mathematics and models, and develop something more formidable than intuitions, a priori reasoning and a few stylized facts.

        Recently, the rhetoric has gone in the direction of claiming that since deficits are “endogenous” we never have to worry about them and making them a focus of policy is pointless. In my opinion that’s a really bad argument, and is just a punt.

        • Klein started the banana republic BS. Dan, I’ve answered everyone of your arguments here in my e-book. The laughing stock argument just isn’t credible once the $60 T is a fait accompli. As soon as the proceeds start paying down the debt, and no more debt is being issued any laughing will quickly turn into sighs of relief from the 99% and a lot of teeth gnashing on the part of the 1%. On the question of my losing perspective, I think it’s you who are lacking it. You can’t imagine how people might react to a really no nonsense presidential move that immediately changes the backdrop of public finance. Any first day ridicule from silly pundits would very quickly turn to Congressional anger as soon as they realized that they can no longer use poor mouthing to deny unemployment insurance extensions, food stamps, job creation programs or many other initiatives. American politics would change in the space of a few weeks.

          And why would global markets go crazy over the president removing the debt ceiling as a weapon and paying off all debts as they fell due? I really don’t see this. Perhaps you can illuminate the causal channels that would make this happen.

          You ask how do we pull back? The way we pull back is by putting the pull back triggers into the legislation. When full employment is reached SS payroll taxes automatically take effect again. Appropriations for the JG are in the form of continuing authority to spend the money to fund all the people who apply for full time jobs. Then the money needed ges up or down as the number of applicants go up or down. Other taxes can be also pegged to indicators of inflation. Pulling back just isn’t that big a problem. And yes, specific proposals about pullbacks have already been part of some pitches.

          You say we need a better theory of price management and better models to implement that theory. Maybe so but have you read Pavlina’s modeling work on the JG? I think it’s pretty good. In what way do you think we should be adding to it?

          Anyway, I like better theories and better models so I am for this suggestion. But I also think we know enough now to act and to implement a policy that will produce both full employment and price stability. The cost of waiting is too high not to try out our present ideas, especially since I haven’t seen any good critiques of these ideas. Just opinions about what is likely to happen if we implement them.

          You conclude:

          “Recently, the rhetoric has gone in the direction of claiming that since deficits are “endogenous” we never have to worry about them and making them a focus of policy is pointless. In my opinion that’s a really bad argument, and is just a punt.”

          I think MMT says that deficits are partly endogenous and that attempts to manage fiscal policy by managing deficits to target debt-to-GDP ratios are harmful to maintaining the objectives of full employment and a growing economy, and are pointless anyway, in that they cannot hit their deficit targets and, in fact, can even increase deficits if things go badly. I think there’s plenty of evidence that this is the case from the post-crash period we are living in.

          As far as never worrying about deficits is concerned, MMT doesn’t say we never have to worry about that, it says we don’t have to worry about that as long as we’re running a trade deficit and don’t have full employment. I think MMT is right that under these conditions we don’t have to worry about it. On the other hand, I think MMT has been quite clear that when we each full employment we should cease deficit spending except for that which is necessary to compensate for demand leaks due to the trade balance and private sector savings. So, I think at that point MMTers would be concerned about deficits, but not more concerned about them than about maintaining full employment and price stability.

          • It’s not just that MMT is less concerned about deficits. MMT says concern about deficits should be the same as concern about the price of tea in China. The only concerns are inflation and unemployment. Spending should be what is necessary to provision the government, and achieve the public purpose as defined by Congress and the President. Taxes should be adjusted to achieve the inflation and unemployment targets. Whatever deficit that resolves to is fine. It will depend on the savings desires of the non-government sectors. Those will change. Deficits will fluctuate. It is of no concern. Not less, none.

            • In practice, it seems like the same thing. If fiscal authorities are going to be empowered to try to hit an inflation target, and have tools in their hands for adjusting tax rates or bills to achieve that target, then it is likely that what they will be looking at is what overall level of tax revenues are appropriate given the level of spending. In other words, they will probably target a deficit.

              I doubt there can be such a thing as an unemployment target in that sense. Unemployment is not a thing that can be dialed up and down through some sort of pure macroeconomic money management, including the use of tax cuts. There is no systematic relationship between the amount of money that is left in the hands of the owners of the means of production and the level of employment. There is no “jobs multiplier.” Government employment policy has to be a micro policy.

              • I don’t envision the fiscal authorities targeting a specific $ amount of taxes (or deficit, which is the same thing when the level of spending is given). I see them meeting each quarter (or so) and deciding to raise the rate, lower it, or leave it the same. They might have models that tell them how many dollars that means, but the methodology is not to let the number of dollars be a target, just to let the tax rate be the lever to move in one direction or another. I don’t assume any ability to judge the proper size of the move, so it would be limited to 0.1% at a time, and maybe disallow consecutive changes unless the indicators are still getting substantially worse in the same direction. That should reduce overshooting, which the Fed seems to be prone to.

                And the tax to be adjusted is not one that targets the owners of the means of production. It targets consumers. It targets spending and aggregate demand as directly as possible, not through income.

                Actually, income taxes are not a very good way to adjust aggregate demand. To the extent that they are progressive, they fall disproportionately on high incomes, where the propensity to consume is low. Nearly half of filers don’t pay any income tax, and the reconciliation comes far too late for the income tax to be responsive enough. To control demand effectively, the tax must be broad-based, which probably means it would be regressive. That implies the necessity to eliminate high-rate regressive taxes, like FICA, and to keep the rate very low. While of little macroeconomic use, we probably ought to keep the income tax anyway, to keep the overall system somewhat progressive.

              • MMT doesn’t have an employment target in the sense of a percent unemployment. The JG policy offers a full time job to everyone who wants one. So once it’s implemented, there’s no involuntary unemployment, but full employment instead. On this:

                “In practice, it seems like the same thing. If fiscal authorities are going to be empowered to try to hit an inflation target, and have tools in their hands for adjusting tax rates or bills to achieve that target, then it is likely that what they will be looking at is what overall level of tax revenues are appropriate given the level of spending. In other words, they will probably target a deficit.”

                I don’t agree. The fiscal authorities could stop spending on the most inflationary programs, as well as increase taxes. I see them as doing that until inflation is cooled, and see the rate of inflation as what they would be managing, not the deficit per se.

                • Right, with JG there is full employment by definition, but the size of the JG workforce will vary with economic conditions. You don’t want it to get too large, or to be constantly increasing; that would mean the private economy is underperforming. And you don’t want it too small, as that means the buffer is insufficient and private sector wages would be bid up: inflation. Warren said he thought 3% was about right, and that seems right to me, too. When I learned economics they said there was always 2% just because of “friction”, people changing jobs. Today’s job skills are more differentiated, so it may be higher. There will be a learning curve when we actually start doing it.

                  “The fiscal authorities could stop spending on the most inflationary programs”

                  What does this mean? My view is that government should spend whatever it costs on the agreed public purpose. (The agreement might change if the cost becomes excessive.) What if Obamacare fails and we go to single payer, and health care costs begin to rise rapidly again, perhaps because of a flu epidemic and shortages of nurses and hospital beds? Does that make it the “most inflationary program”, and spending on it should stop? (Obviously that one couldn’t completely stop, but neither could most others.)

                  Besides, the responsibility to determine spending belongs in Congress, and Congress is not responsive enough to manage the economy in this way. Limited authority to make small adjustments to one tax rate is something they can delegate to a more nimble organization.

            • Actually golfer, think yours is a better statement of the MMT position, but there is a subtlety here. Specifically, one of Randy’s more well-known bog posts says that deficits do matter but not in the way people think. By this he means that when we reach full employment, whether or not we run deficits matters. However, that’s because at that point they start causing demand-pull inflation. So, the more precise notion is that the inflationary contributions to the deficit have to be ended. Insofar as these end the deficits too, that is an artifact of the remedy.

              • It always matters in that way, but to the extent that it is endogenous there really is no choice. With a trade deficit and positive domestic savings desires there would be a budget deficit even at full employment.

                Mosler says that unemployment is the evidence that taxes are too high for the size government we have. Likewise, a demand-pull inflation would be the evidence that taxes are too low. And that’s true if the budget is in deficit, or balanced, or in surplus.

  5. “No responsible US government is ever going to go down that road of carrying out a massive public investment program just by printing greenbacks, minting trillion dollar coins or crediting accounts with electronic balances summoned up from the aether.”
    Isn’t that pretty much how the US government financed WWII? Sure there were bond drives and tax increases, but they were largely to keep inflation in check, without many specific guidelines, while the heavy lifting was carried out by the Treasury.

    • Right. Bond drives which extracted dollars from the economy that would other wise have been used for consumption. And rationing. The US virtually had a planned economy during WWII, with forced saving and mandated restrictions of private sector consumption. It didn’t just give everyone a tax cut or helicopter drop money into the economy.

      Also, there was a war going on. There was a giant spike in inflation from 1941-47. Would people accept that during peacetime? Or would the inflation discredit the politicians whose policies caused it?

      • Thanks Dan. The check you wish to have explained IS inflation. You spend until inflation begins to set in. Then decrease spending and raise taxes to deflate the inflation.

        • I’m not sure that’s a realistic approach. Government spending is enacted in large fiscal packages. There is no spending Czar with a garden hose and a money nozzle who can adjust the flow up and down on a daily basis in response to sudden changes in the price level.

          Also, how much inflation should be regarded as too much?

          I’m not saying there is no practical solution to these challenges. But people proposing novel policies that require politicians to stick their necks out need to develop and propose very specific mechanisms for implementing those policies. This is especially the case given that we have just lived through a massive global financial debacle caused by the recklessly deregulated financial economy of the country that controls the world’s reserve currency. No responsible politician in such a country is going to take a gamble on a policy proposal that consists in “manufacture money and spend it until the results seem OK.”

          And I don’t think it is helpful to mock and deride these politicians for failing to grasp the higher monetary enlightenment of endless fiat money.

          • The following comment caught my eye:

            “And I don’t think it is helpful to mock and deride these politicians for failing to grasp the higher monetary enlightenment of endless fiat money.”

            It is very helpful to deride them because the endless supply of fiat money is as obvious as believing the sun will come up in the East each morning. It is a “no brainer” and we do not need folks who deny the obvious in our political establishment.

            • I think most politicians are entirely aware of this no-brainer. But they also don’t think its is all that important, because they believe that responsible public officials shouldn’t implement fiscal policies that treat fiat money as though it is “endless” – like a miraculous basket of loaves and fishes.

              • Dan, you are looking inside the heads of those folk to see what they think, an admirable and necessary task to sell a product or an idea such as this one. However when I look in there I see something quite different. I see frustration and fright. They know a $100 bill is made with just 9.7 cents worth of real resources, ink, paper, utilities and labor. And they know when applied to operation of the national government that means the government only costs about a billion a year in real resources to operate, not a trillion. That is their frustration. They also know Andrew Jackson bucked the banks and won a short lived victory as did Abe Lincoln. They also know that issuance of silver certificates and US Notes ended after Jack Kennedy was assassinated, two facts that are true even if unconnected. That is their fright, they are frightened by the power of the banking interests and their willingness to use it. We hear no discussion of these issues in the public media because they are afraid to touch it too. Over a century ago such issues were freely discussed in politics and the media but that was in the era of gold and silver as money. The stakes are higher now, much higher, with fiat money. So it is not an intellectual/logic kind of battle nor even a political battle in the normal sense. It is a classic power struggle that will only be decided when people generally recognize and understand the issues which led Ezra Pound to opine that when that happens it will cause social and economic changes equal to what happened following the arrival of literacy in the general population.
                Another note: I am sure there are many people here that have these same concerns and some who work to mitigate the potential of the discussions moving to what they consider a dangerous point.
                But I think education of the general citizenry should be the goal because that, in the end, is the only way the issue will be settled. Those experts who join in this effort in the open on whatever side of the discussions are to be applauded and thanked for their contributions by us neophytes in these subjects.

                • Dan, you are looking inside the heads of those folk to see what they think, an admirable and necessary task to sell a product or an idea such as this one. However when I look in there I see something quite different. I see frustration and fright. They know a $100 bill is made with just 9.7 cents worth of real resources, ink, paper, utilities and labor. And they know when applied to operation of the national government that means the government only costs about a billion a year in real resources to operate, not a trillion.

                  Sorry Charles, I think that’s an extremely bad argument. The value of a unit of currency has nothing to do with the value of the separate materials that go into producing it.

                  Currency is valued for its extrinsic properties, not its intrinsic properties. And the extrinsic properties that are relevant in the case of currency are the role the currency plays in our social practices of exchange, not its value as a commodity for consumption or some industrial process. If there is a stable social convention to accept some kind of currency in exchange for goods and services, then the value of the currency is equivalent to the value of whatever it will fetch in the marketplace. It is not equivalent to the mere sum of the values of its material ingredients.

                  If a person is willing to accept $1000 dollars for 40 hours of work, and the $1000 will fetch a nice television at Best Buy, then roughly speaking that means the television is worth 40 hours of work, and that the $1000 are worth 40 hours of work, and are also worth one television. That’s what value in the sphere of money consists in: what people are willing to exchange for it. In fact, the less value the components of the money have as individual commodities, the better. Because if the stuff money were made of were commensurate to the exchange value of the money, then money in circulation would constantly be withdrawn from circulation, which would destabilize it. If we could make an extremely strong but gossamer-thin currency note for 1/4 of one cent, that would be even better than the 9.7 cents we have to spend now.

                  It is an important role for government to use law and legal sanctions to add stability to our social conventions and prevent wild fluctuations and unpredictability in their application. In the area of money, these supporting legal mechanisms consist in tax payment laws, legal tender laws, and court-enforced debt contracts.

                  If these are the kinds of thoughts that are making a lot of people afraid, then it strikes me that they are so deluded and confused about the fundamental nature of money that it is grounds for concern.

                  • I agree with all you say about money in the economy; 40 hours work/$1000/nice TV. That is all very fine.
                    The issue comes from government spending; .97(labor and materials) paying for 40 hours of labor or the .97 paying for the nice TV when purchased by the government. Seigniorage is very real. The government now takes it on minting coins, pennies and nickles having negative values but the seigniorage on paper currency is enormous and it is very closely guarded in the operation of the current monetary system. There is, of course, that fairy tale about interest on the debt paid by the Fed being the seigniorage but it is only a fairy tale. So why doesn’t the government take full seigniorage on all of it’s expenditures as Abe did with greenbacks? Put that on the table and you will see the fright level start.

                  • Sure, seigniorage is real. But there is nothing wrong with it. The ability of a government like the US government to reap seigniorage value out of the currency it issues didn’t just come from nowhere, but took a lot of hard work. You need to have strong and well-functioning government institutions to be able to produce and sustain the value of a currency.

                    Beethoven was able to take some ink, quills and paper and turn them into musical compositions whose value is priceless. Should we say that a person who shells out $100 bucks for a Beethoven concert is behaving irrationally because these compositions are really only worth pennies?

                  • Yes, nothing wrong with seigniorage as long as it goes into the right pockets. I like your Beethoven remark/observation but for me the money would have been better spent to listen to the music of the Carter Family…I’m just saying…

          • Joe Firestone

            You don’t pass the deficit spending in isolation. What you do is spend it with provisions to raise taxes if inflation appears by specified amounts, so that the water adjustments through the garden hose become part of the automatic stabilizers. What’s too much inflation? There’s no one answer to that. It’s a political question. Could be 4% or 5% or 8% annually. It could vary in War time. Let the politicians argue about that. But let them also pass programs that protect those on fixed incomes.

            On mocking and deriding politicians, I think there’s a place for being nice and a place for using other tactics if you need to get them to pay attention. People are systematically ignoring MMT. They’re doing it because they’re paying no price for that. Sometimes sarcasm, criticism, satire, mocking, an start increasing the price they pay. And then they might be willing to try to figure out how to get you to shut up. When things reach that point they have to find out what you want first in return for getting off their backs.

            I’m easy for CAF or Bernie to shut up. All they have to do is quit making flat statements that are clearly in error.

            • “They’re doing it because they’re paying no price for that.”

              Right, because nobody they care about is hearing it.

              “And then they might be willing to try to figure out how to get you to shut up.”

              Only when your message reaches enough of the right ears, and is not dismissed out of hand.

      • A quick look at the inflation index 1940 to 1947 shows relatively mild inflation with the peak coming in 1946 and especially 1947, as price controls were lifted and rationing ended. Inflation never got above 15 % (’47) and receded quickly after that, except during the Korean conflict and the Vietnam War (hmm, a pattern?) until the 1980’s. None of this seems like hyperinflation to me.

        • Joe Firestone

          Point well taken of course. Randy Wray had this to say the other day about the JG and inflation.

          “Here is what WE propose: Let’s provide a job at a decent wage to anyone willing to work.

          Here’s the reaction from the crazy right: Zimbabwe! Weimar! You fiat money proponents would destroy the value of our currency.

          Hold it, we argue. We already have a fiat currency. Exactly when the USA went over to the dark side of fiat money is perhaps a judgment call (I’d put it back to 1789), but there is no sentient creature in the USA who does not recognize we’ve been on a “fiat” standard since Nixon went off gold. Get over it. We’ve got a government that buys thousand dollar hammers and toilet seats priced in the six figures. And they still have not managed to stoke the fires of a Weimar-type inflation. Heck we’ve got Uncle Ben flying $29 trillion dollar helicopter drops onto Wall Street (in the form of loan originations at effectively zero rates) and even he cannot get inflation stoked.

          – See more at: http://www.economonitor.com/lrwray/2014/01/27/lets-compare-the-job-guarantee-to-the-alternatives-not-against-some-distant-utopian-vision/#sthash.hjttHOYG.dpuf

          Using PCS to repay the debt and for deficit spending won’t create serious inflation either.

      • Joe Firestone

        When production of consumer goods and personal credit is limited by war, then bond drives to increase consumer savings will dampen down inflation. But you can’t validly compare that to our present situation where government deficit spending isn’t anywhere near pushing against the economy’s productive capacity. In the present situation, spending without draining off dollars by bond issues won’t be any more inflationary than the alternative.

  6. From Dan Kervick post:

    “The owners of the means of production won’t magically employ everyone if we just manufacture more of the medium of exchange and throw it into the economy via helicopter drops or tax cuts.”
    __________________________________________________________________
    I think that is why MMT places such emphasis on the Job Guarantee as a policy:

    The Social Enterprise Sector Model for a Job Guarantee

    http://neweconomicperspectives.org/2014/01/social-enterprise-sector-model-job-guarantee-u-s.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+neweconomicperspectives%2FyMfv+%28New+Economic+Perspectives%29

    By Pavlina R. Tcherneva

    It’s time to change the conversation from creating jobs for the jobless now, to creating jobs for the jobless always. The Job Guarantee provides the solution. I have explained elsewhere why neither the private sector nor the flawed bastard Keynesian pump-priming policies can get us there ……

    • The job guarantee as usually proposed does not contain a mechanism for stabilizing prices upward, only downward.

      Also there is no way someone like Bernie Sanders ever will – or should – say that his plan for America is to turn America’s lowliest into a minimum wage “buffer stock”, whose level of employment and wages in their “starter jobs” will be tweaked up and down to keep the riff-raff off the street and manage price stability for the benefit of America’s billionaires. That kind of plan might fly when Warren Mosler is having a steam bath with Donald Rumsfeld, but not in the circles of America’s progressive politicians and activists.

      The job guarantee needs to be fused with a genuinely progressive plan for productively employing all of our people and attacking socio-economic equality, and detached utterly from any mechanisms for achieving price stability. Price stability needs to be maintained by draining purchasing power from the top, not manipulating the bottom.

      Which brings us back to the fact that until the soft money, deficit-friendly approach to fiscal policy is married to serious policy models and tools for maintaining price stability, tools that are acceptable to a progressive vision of the country, it will be ignored.

      What will also be ignored are silly “Que, Sera, Sera” slogans about the deficit being “endogenous” and thus something that fiscal policy makers shouldn’t even be concerned about.

      • “The job guarantee as usually proposed does not contain a mechanism for stabilizing prices upward, only downward.”

        I don’t know what you consider the usual proposals, but there is a Center for Full Employment and Price Stability that says that the JG would be an anchor for wages, and through them, prices.

        • It says that, but this issue has been debated several times and, in my opinion, the case for that claim has never been compellingly made.

          • That may be, Dan. But where’s your critique of the academic work done by Bill, Pavlina, and Randy, and the Warren’s theoretical work arguing that the JG wage will be a price anchor?

  7. Fake Dan Kervick trolling the comments section? Or change in heart over basic economic concepts?

  8. The exchange between Joe and Dan here is really interesting, and both made good points in my opinion. I have some sympathy for what I take to be Dan’s problem with a lack of specifics. I have not spent the time to really educate myself (maybe Joe’s book is something I should read), so that may not be fair. But after enjoying the eye-opening revelations that MMT contains, I’ve been more interested in hearing proposals about how to get from here to there (a more just and efficient economic system).

    I once asked Dean Baker in an e-mail some questions about MMT and the JG, and part of his response was that it might be possible to have a ‘youth’ JG in the current environment. That seemed like a pretty reasonable idea from someone with a lot of sympathy for the ideas in MMT.

    Another gap, it seems to me, is trade policy. The MMT prescription seems to be that a trade deficit is a good thing … full stop. It doesn’t matter how large, how long it continues, it is completely and totally irrelevant. I really don’t believe it is as simple as that. I’ve asked some questions regarding trade and industrial policy on various blogs (Wray, Mitchell, Mosler), but I never get an answer at all. I get the feeling that even something as large-scale as trade and industrial policy is too micro for MMTer’s. I’ve spent my life as a Scientist working for industrial companies so I have a different perspective. My feeling is that the MMT theorists have never entered a factory in their lives and are entirely clueless as to how food, goods, housing, energy etc. arrive at their doorstep. These gaps need to be filled in a bit, I think.

    • “Another gap, it seems to me, is trade policy. The MMT prescription seems to be that a trade deficit is a good thing … full stop. It doesn’t matter how large, how long it continues, it is completely and totally irrelevant. I really don’t believe it is as simple as that. I’ve asked some questions regarding trade and industrial policy on various blogs (Wray, Mitchell, Mosler), but I never get an answer at all. I get the feeling that even something as large-scale as trade and industrial policy is too micro for MMTer’s. I’ve spent my life as a Scientist working for industrial companies so I have a different perspective. My feeling is that the MMT theorists have never entered a factory in their lives and are entirely clueless as to how food, goods, housing, energy etc. arrive at their doorstep. These gaps need to be filled in a bit, I think.”

      If you check their bios, I think you’ll find they know very well what factories, mines, and other industries look like from the inside. I also can’t believe you didn’t get an answer from Bill Mitchell. He’s usually very responsive.

  9. Is the JG a micro or macro program?

  10. I have read both of Mosler’s books and read many articles, comments and postings here but I still have some questions about MMT that have not been answered by my study so far.

    1. Does MMT support keeping the money umbilical from the Treasury/BEP via the Fed to the privately owned, for profit commercial banks or do they endorse severing that connection?

    2. Does MMT agree that the sole need for a CB (and the FDIC) is to support fractional reserve banking?

    3. I have seen very little in the MMT material about seigniorage. The FG now takes full seigniorage on coins. Does MMT support the FG taking full seigniorage on paper currency as well?

    4. MMT makes an excellent argument that the national debt is really a CD like saving account. However the fact is it establishes a cash stream of about 200B$ per year into mainly the pockets of the 1%. In view of the fact MMT’s arguments assert that the national debt is really not necessary does this inequitable aspect of the debt/CD interest flow bother MMTers?

  11. Joe Firestone

    “1. Does MMT support keeping the money umbilical from the Treasury/BEP via the Fed to the privately owned, for profit commercial banks or do they endorse severing that connection?”

    Some MMT economists endorse the Government taking over the banks. Others just look for ways to use the present system to accomplish public purpose.

    “2. Does MMT agree that the sole need for a CB (and the FDIC) is to support fractional reserve banking?”

    MMT argues that bank reserves aren’t lent out and don’t determine lending. The idea of fractional reserves leading to a money multiplier is considered a myth by MMT.

    “3. I have seen very little in the MMT material about seigniorage. The FG now takes full seigniorage on coins. Does MMT support the FG taking full seigniorage on paper currency as well?”

    I don’t know what you mean by “support.” MMT recognizes seigniorage and, at various times, Warren, Randy, Scott Fullwiler, Stephanie Kelton, Bill Black, Mike Norman, and, of course, myself have all written favorably about Platinum Coin Seigniorage (PCS)

    “4. MMT makes an excellent argument that the national debt is really a CD like saving account. However the fact is it establishes a cash stream of about 200B$ per year into mainly the pockets of the 1%. In view of the fact MMT’s arguments assert that the national debt is really not necessary does this inequitable aspect of the debt/CD interest flow bother MMTers?”

    It has always bothered me. See, for example: http://www.correntewire.com/which_would_you_rather_cut_social_security_or_interest_foreign_governments_and_rich_bondholders Warren’a also advocated for some time that the Treasury issue only three month debt, and the Fed keep the FFR at 0 %, so that interest on the national debt would be close to 0. So, perhaps it bothers him too. A for Bill Mitchell, he’s always wondering why we bother to issue debt to get back money we can more easily create.

    • “Support” in item 3 should have been “advocate”. Thanks for the response. I feel better about MMT but minting T$ coins does not answer the issue of seigniorage on paper currency. Paper money will stay with us and the issue of seigniorage will continue as long as that umbilical in item 1 stays in place. But thanks again for your response. Your answers are very illuminating.

      • I believe that the Treasury sells Federal Reserve Notes to the Fed at cost. The seigniorage is taken by the FR when it sends cash to the banks, but the Fed then remits most of the seigniorage back to the Treasury, keeping 6% for operating expenses. Since cash is only a small fraction of the quantity of money in circulation, seigniorage is not a significant part of the government’s operations, but it would be absolutely crucial if the government were to mint high value platinum coins.

        • I agree generally James but has anyone actually calculated the difference or equality of what the Fed gives back to Treasure vs the (face value – printing costs) of the currency sold to the Fed and not used as replacements of defaced currency?

  12. Re item 2: I understand that argument about reserves not being lent out and the money multiplier being a myth however banks do “lend” money they do not have and that provides the elasticity in the money supply that is needed for an active economy. Perhaps we need a new term to replace “fractional reserves” because that really is a relic of the gold as money era and does not fit the fiat money era. Perhaps “intangible money” would be a better and more appropriate term. Calling it “credit” is misleading, making it sound like it is nothing more than bookkeeping. The reality of the fractional nature or its intangibility would be reveled by a change in currency where FRNs would be swapped for a new currency, say US Notes, as generally described by Laurence Kotlikoff. If that happened per Kotlikoff banks would come up short about 19T$ on currency and would have to borrow that from the treasury making the USA a creditor nation, not a debtor. To be accurate, Kotlikoff didn’t advocate changing the currency to do it but establishment of trust banks which would do the same thing. So whatever you want to call it, banks only have a “fraction” of the money they owe to folks.

  13. The one hesitancy I still have about MMT is a question about how the following situation will play out.

    All the infusion of liquidity by the Fed’s QE policy has little affect on the economy, because all that liquidity gets squirreled away from lack of good things to invest in. Will there come a point that the trillions of dollars that are lying idle suddenly come flooding back into the economy? The Fed claims that they are preparing for such an eventuality and that they have a strategy to combat the inflation that would arise. Can anyone describe what that strategy is?

    I have just started reading “Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems”, so maybe I will be able to answer these questions myself after I read it.

    • Steven, I think the answer is that these QE reserves are irrelevant because reserves are not what is loaned by banks. They could just as easily make the loans without the reserves, so the Fed would face the same problem of an over heated economy, QE notwithstanding. Raising interest rates might slow things down a bit, but as Randall points out, if the banks and businesses see opportunities to profit, higher interest rates will not stand in the way at least up to the point where they eat up all the profit. Perhaps the Fed’s plan, whatever it is, will be just as effective in slowing the economy as its QE policy has been in stimulating it. Fiscal policy would be the right tool to use.

      • Sunflowerbio,

        Your point, “Perhaps the Fed’s plan, whatever it is, will be just as effective in slowing the economy as its QE policy has been in stimulating it.” is well taken.

        So what is the Fiscal policy? Run a huge surplus by taxing the crap out of those overheated capitalists?

        • In general it would be to raise taxes enough to dampen inflation. Perhaps a special capital gains tax on reserves paid to purchase MBS s would be a just start, since the Fed has bought these at face value when they are about as inflated as a Macy’s Thanksgiving Day Parade balloon.

    • The Fed’s strategy- the only one they have – would be to raise interest rates. Until they finish selling off all the assets they bought to inject excess reserves, the only way to do that would be to pay a higher rate of interest on reserves, which would be counter-productive in fighting inflation. With excess reserves in the system, they could announce a new target rate, but they could not prevent the banks from lending their excess reserves to each other at lower rates.

      The MMT way would be to raise taxes, if the automatic stabilizers were not sufficient to reduce the deficit on their own. Based on recent experience, they have been more than adequate to raise taxes enough to dampen demand, even with the pathetic growth rates of the past 5 years.

      • Golfer1, what do you think about the idea of the Fed announcing that it is going to auction off all of the MBS securities it has acquired over the last five years to establish their market value, and that any surplus that banks obtained from selling the same securities to the Fed will be taxed at a capital gains rate of say 80%?

        • I think the banks that sold the toxic ones to the Fed in the bailout should buy back the ones they sold at the same price. No capital gains.

          What the Fed has been buying in QE is agency-backed debt, Fannie and Freddie. I don’t think it’s a big problem, or a fraud concern. I would not worry about how many the Fed holds, or how to reduce them. Keep interest rates at 0 forever, and let them mature.

          • Thanks for replying, Golfer1. Your insights and comments are always valuable and insightful. I agree that the banks that sold toxic assets should repurchase them at the same price, but I’m not sure how that could be mandated legally. If they were put up for auction, the really toxic assets would bring little or nothing, so the capital gains would be greatest on those assets and the Fed could recoup much or most of its bail out. I agree that the Freddy and Fannie papers could just remain in the Fed’s portfolio until maturity, but if the goal were to reduce the excess reserves in the private banks’ accounts so that they could not undermine a higher interest rate target, then this would be a mechanism. This was Stevens concern, but we both agree that raising interest rates would not be MMT’s method of choice to reduce inflation and would in fact be counter productive.

            • Perhaps if the government prosecuted the banks and their executives for making and selling fraudulent loans, then instead of going to a criminal trial with imprisonment a possible outcome, the banks and executives might enter into a plea bargain, agreeing to buy the assets back, plus a fine, raising the money from clawed-back executive bonuses and bank profits. And after the first one goes to jail, the others might be easily persuaded to do the deal.

              80% is not enough, IMO.

              • I like your solution too, I just don’t see the Obama Justice Department taking that action. The 80% figure was simply pulled out of the air. I think many of the MBS assets would be worth less than the Fed paid for them because at least some of the mortgages would have matured and been paid off or reduced, so I was taking that into account, but I wouldn’t baulk at 90% or even 97%.

    • Actually, I don’t see why the Fed would have any difficulty quickly draining the excess reserves. Without raising IOR, they could announce a new target rate of 0.5%, for instance, and also that all their QE purchases are now for sale at a price appropriate to that 0.5% rate. If the overnight rate did not instantly rise to 0.5%, then arbitrageurs could borrow at the overnight rate and buy the 0.5% securities from the Fed, until they were all gone. That works quite directly for short-term treasuries bought during QE, but also for anything else at the proper risk-adjusted or term-adjusted rate.

      • And if they want to drain reserves without raising rates, just offer the assets at 0.3% while the target is 0.25%.