By L. Randall Wray
In previous instalments we have established that “taxes drive money”. What we mean by that is that sovereign government chooses a money of account (Dollar in the USA), imposes obligations in that unit (taxes, fees, fines, tithes, tolls, or tribute), and issues the currency that can be used to “redeem” oneself in payments to the government. Currency is like the “Get Out of Jail Free” card in the game of Monopoly.
Taxes create a demand for “that which is necessary to pay taxes” (and other obligations to the state), which allows the government to purchase resources to pursue the public purpose by spending the currency.
By Stephanie Kelton
Scott Fullwiler spent part of the afternoon reading (and reacting to) a paper that John Cochrane just gave at a conference on central banking in Stanford, CA. I haven’t read the paper yet, but judging by Scott’s reaction on Twitter, there’s lots to like about it. (Mostly because it appears to draw heavily from a broad swath of at least a decade of published work from MMTers.)
We’ll have to wait for Scott’s forthcoming post to see just how close the parallels are (and how much Cochrane 2014 departs from Cochrane 2009). It will be interesting, particularly because several years ago Cochrane wasn’t interested in garnering insight from outside the mainstream. “Every now and then,” he confessed, “there’s an excluded subgroup that turns out to be right.” But he readily admitted — nay, disparaged — “I haven’t read their specific work. I’m busy, and I try to read what is considered interesting and valid.” Being right matters, and I think that’s why MMT has begun to seep into the mainstream. The risk (though this is not how Noah sees it) is that “all the interesting heterodox ideas [will] quickly get incorporated into the mainstream in some slightly bastardized form,” leaving the discipline as a whole only marginally better off, while those who did the heavy lifting remain at the margins.
By William K. Black
The reason we have recurrent, intensifying financial crises is because we learn the wrong lessons from our prior crises and actively make things worse. The consistent explanation for our making things worse is that dogmas lead to “doubling down” on failed faith-based policies. The dominant ideologues in the U.S. and Europe on financial policies are theoclassical economists and their fellow choir members – neoclassical economists. A small article in the Wall Street Journal provides a classic example of the continuing destruction driven by these dogmas.
The WSJ article, of course, sees none of this. It fails to distinguish between two very different concepts. The Office of the Comptroller of the Currency (OCC) is supposed to regulate “national banks” – the largest banks. The first concept is where examiners’ offices are located. The OCC uses “resident” examiners in the largest banks. This means that hundreds of OCC (and Fed) examiners have offices in the huge banks. Resident examiners are a terrible idea because they invariably “marry the natives.” When the Fed “marries the natives” it constitutes incest because the NY Fed (which examines many of the largest bank holding companies) has traditionally been one branch of the inbred Wall Street family. The OCC, under Presidents Clinton and Bush, was nearly as bad because it was engaged in a “race to the bottom” with the Office of Thrift Supervision (OTS) to see which could “triumph” as the worst federal banking regulator.