Solving the Political Problem

By J.D. ALT

There was recently a breakthrough of sorts in media coverage for MMT. The Huffington Post published a piece covering the “People’s Convergence Conference” in Washington, D.C. on September 8-9. The conference brought together leaders and activists from all corners of the progressive political spectrum—including the “Draft Bernie for a People’s Party” movement. The conference apparently succeeded in creating the roots of a coordinated alliance between the leading progressive parties—including the Green Party, the Progressive Independent Party, and the Justice Party—which agreed, among other things, to the possibility of holding progressive primaries that would then field a single progressive candidate in the general elections. Most notable, however, the Huffington piece concluded with the header:  Progressive Economics: “How do we pay for it?”

In the concluding paragraphs, MMT—and the fact that taxes do not fund federal spending—is admirably broad-brushed by Steve Grunbine of Real Progressives, who was an active attendee at the conference. An LA Times op-ed by Stephanie Kelton, titled “Congress can give every American a pony (if we breed enough ponies)” is also prominently discussed. The upshot of the explanations is that “the only obstacle” to implementing the expensive goals of the progressive platform—e.g. Medicare for all, free College tuition, a Job Guarantee—becomes simply an issue of “politics, not economics or ‘how to pay for it.’”

This, it seems to me, is a crucial moment for the MMT community. Not only has a historically fragmented progressive movement apparently begun to coalesce into a unified voice, but that voice—of necessity, I believe—has actually begun the difficult process of convincingly explaining the workings of modern fiat money to the political mainstream. This is something even Bernie Sanders never attempted to do, even though he had one of the most competent personal coaches for the doing of it in Prof. Kelton. The reality is, the understanding of modern fiat money is what will make the progressive agenda ultimately work—and as that realization and understanding spreads, it should dramatically strengthen and empower the progressive alliance on many fronts.

Rather than celebrating this apparent breakthrough, however, the MMT community should be sounding alarm bells and quickly mobilizing its best efforts to do the one thing that might assist and enable this new progressive alliance to actually succeed in putting out its message: We need to create a succinct, easy to understand and remember, narrative that progressive leaders and activists can consistently use to explain how they are going to pay for their initiatives. This narrative needs to include not only “talking points” but, perhaps even more important, “deflecting points” to quickly defuse the mainstream bombs that are going to inevitably be lobbed at it.

As I recently discovered at an Economics of Happiness conference, no matter how well you believe you understand it, MMT has the disarming characteristic of being extremely vulnerable to attack by people who “understand” that “just printing money” is a dangerous political gimmick; who “understand” that if the government spends more than it collects in taxes, the deficit will increase; who “understand” that if the government continues to run a deficit, the national debt will become unsustainable, that taxes will have to increase, etc.,etc.—and all of this from ultra-progressive interrogators!

These words—“printing money,” “the deficit,” “national debt,” “increased taxes,” are the political problem we confront—and the political problem the newly emerging progressive alliance must overcome. It is an oxymoron in the everyday human psyche to say, “It’s Okay for the federal government to deficit spend.” It is illogical to say, “The federal government doesn’t have to repay the National Debt.” It is cognitively fantastical to hold the position that we can increase federal spending without “increasing taxes.” Because of these ingrained think-patterns, it is not enough to simply say it is a “political” problem and not a “fiscal” problem, because the political problem is the fiscal problem. And the fiscal problem is powerfully—and stubbornly—defined by the unavoidable language we must use to talk about it.

Hence the crucial importance of providing the new progressive alliance with a “handbook” of the operations of modern fiat money. There can’t be a dozen different explanations—there can only be one, consistent explanation repeated again and again by every progressive leader and activist. And they can never falter in having a specific, positive and understandable response to every mainstream attack that will come their way.

How can this “handbook” be created in the most expeditious way? There is not a lot of time before the explanations will have to start being made in earnest. And if the explainers aren’t prepared, the results could be a disastrous setback for MMT and the progressive movement in general. I have some ideas about it, but before I put them to paper, I’d like to defer to the MMT community, especially its leadership—i.e. Msrs. Mosler, Wray, Kelton, Mitchell, Tcherneva & Black—for their thoughts on the matter: How can we organize the best effort we can muster to put the most effective, easy-to-use-and-understand MMT narrative in the hands of the newly emergent progressive alliance? Time is of the essence.

40 Responses to Solving the Political Problem

  1. Warren Mosler has started the ball rolling a long time back. He is a master of the metaphor – he kills it for me when he likened the ongoing battle being waged against inflation by the central banks to the battle of New Orleans which took place AFTER the American Civil War ended.
    Stephanie Skelton is also a master of the metaphor – likening the economy to the game of Monopoly, with an overarching banker doling out the money before the game starts, and automatically topping up the players every time they pass Go, pointing out the fact that the game cannot even start without the initial injection of spending by the super banker.
    In the conversations with my fellow Kiwis now, I like to draw their attention to the fact that our tax department – called Inland Revenue Department or IRD – is NOT a bank that collects tax payments and credit them to a bank account for the government to spend, and that all it does is to extinguish the tax liabilities of the tax payers to the government, and it then REMOVES the money from the banking system, and hence there is no such thing as tax payers’ money circulating in the banking system. That usually put an end to the “government spending is funded by taxpayers’ money” conversation pretty quickly.
    So my humble recommendation is to go the full monty down the metaphorical highway because us humans are hardwired to understand metaphors in a big way….

  2. The question, how to convince the general public that the federal government is not constrained in expenditures by the revenue collected via taxation, is the critical link that is missing from the narrative of the progressive left. It is THE place where the rubber meets the road. Without a creditable explanation understood by a majority of citizens, progressive proposals will be crucified on the same cross of gold that William Jennings Bryant railed against over 120 years ago.
    I believe the answer to this imbrogelo is to involk the ancient practice, honored for centuries in almost every culture with a fiat currency, of Seniorage. Joe Firestone has outlined the case for involking Seigniorage, in the form of High Value Platinum Coin Seigniorage. The general public may scoff at the concept that federal taxes do not fund federal expenditures, and may reject the concept that the deficite and national debt are irrelevant, but anyone can understand that the intrinsic value of a $100 bill is no greater than the intrinsic value of a $1 bill. That the government can profit handsomly from minting coins of high face value to fund desirable programs should appeal both to progressives and conservatives, who champion operating the government like a for profit business. Let the government buy low and sell high, it is the Capitalist Credo.

    • JD. Thanks. Some timely observations here.
      James Cooley, Thanks.
      “” how to convince the general public that the federal government is not constrained in expenditures by the revenue collected via taxation, is the critical link that is missing from the narrative of the progressive left. It is THE place where the rubber meets the road.””

      It is indeed one of the places that lacks traction, but only half of the actual MMT fiscal policy conundrum that is at play here. I would await the offering on ‘how to convince them’ on the former, being that it is un-provable and factually in error, but more importantly, the real problem for MMT to explain is the second part.

      If you get everyone to believe that the government doesn’t need tax money because it can spend as much as it wants to buy anything that is for sale, REALLY believe it (somehow), then how do you also get them to believe that they have to, or should, borrow money from private bankers, at perennial interest, in order to pay the government’s Bills. Something about pro-financialization ??
      I mean.
      How dos that work? If they really believe the first part ?

      Get the wrinkle ?
      The memes don’t work in the real world of public finance.

      Fortunately, there really is a solution to this progressive predicament.
      The Kucinich Bill actually empowers the government to do what MMT says it can do now (which it can not do), through non-debt, seigniorage-funded spending, and it also eliminates the need for borrowing to achieve a budget whose spending is balanced by taxation and public money administration.
      It’s Kucinich.
      It’s progressive.
      And, it works.

      For the Money System Common

      • Joe,
        I agree with you. JD’s post talks about progressives getting together. Somehow, MMT folks and AMI folks need to get together. The part of the NEED Act (the Kucinich Bill for anyone reading this that doesn’t know – not you Joe) that I have a hard time with is the 8% limit on interest. That seems way too high to me, given the extremely low cost of funds today for the banking and finance industry, and considering the synthetic “investments” they have come up with to cover their “risks”. I think Warren Mosler and others have explained it well that the natural rate of interest is zero, and it does matter a lot that money is a creature of the law, not a finite fixed commodity, as Stephen Zarlenga explained so well. Scott Smith at the The Foundation for a Better Economy has proposed elimination of interest and making banks store fronts for the Federal Reserve. The banks would receive a loan origination fee, but would no longer receive interest payments for the duration of loans. I would be interested in your comments on this idea, recognizing that it would be disruptive to institutions we have gotten used to.

        In reply to your comment about unbridled government spending, I thought there was common ground between MMT and AMI – i.e. that there needs to be a bias for public purpose and serving the common good in government spending decisions. We have to trust the political process on spending decisions. But deficit hawks would do well to take a page out of AMI’s and MMT’s play books. The political discourse today is dominated by penny pinching, budget balancing, bean counting and misrepresentation/mischaracterization of our government’s finances. All of these habits are very destructive and limiting to what we are capable of doing as a society. In a lot of ways we are our own worst enemy. As Stephen Zarlenga explained, the future of our species depends on us figuring out how to make the money system work to the good of everyone.

        An idea included in Smith’s New Operating System for the American Economy, besides the idea of dramatically lowering the tax burden for wage earners and property owners, and eliminating spending vast sums of money annually on tax compliance, is provision of a National Dividend to all adult US citizens. As you know, this idea was proposed in the NEED Act, and earlier during the Great Depression by Clifford Hugh Douglas (Douglas Social Credit), as a means of stimulating aggregate demand and optimizing utilization of our chronically under-utilized (surplus) productive capacity. I like the Job Guarantee advocated by MMT also, and recognize the psychological benefits of keeping people employed during economic down turns. A National Dividend has the benefit of being easier to implement. It might allow people to move to less expensive areas of the country without necessarily limiting relocation choices based on job opportunities.

        In closing, I am fond of the words of advice from Canadian Monetary Reformer Will Abram (in your interview with him at the AMI Conference several years ago): “instead of right and left, we should be talking about what is the right thing to do”.

  3. How do you explain that the Earth goes around the Sun when it is self-evident every day that the Sun moves around the Earth? How do you explain that you steer into a skid in a car when it ‘feels’ natural not to?
    How do you explain that you push the stick forward in an airplane to stop yourself falling out of the sky?

    All of these things you have to learn by the application of education and rationality. The whole Enlightenment was about putting aside superstition and becoming a rational thinker.

    So you have to use the same trick. Just as the weak mind stuck to medieval notions that effects were caused by self-evident ghosts and goblins, we have to associate the ideas of the mainstream with superstition and irrational fear.

    . What matters is the narrative, the story, the religion. Human brains can only handle about 150 connections. That’s the limit of fact based though. The narrative myths we create allow us to work together in groups larger than that.

    The one lesson from Trump is that you need a powerful narrative. In the world of persuasion, facts really don’t matter.

    When there is a war to fight, military equipment to buy, or a bank to bail out nobody in power talks about money or deficits. It just happens, the finance system continues and the world keeps turning.

    We can use precisely the same trick to provide healthcare for all, jobs for all and education for all. The only people that are likely to suffer are a bunch of bankers.

    • David Harold Chester

      Its like those school children who wear their school bags and carry heavy books on their backs. The idea is so they will stand up straight. But this program forgets is the fact that when they are not journeying to and from school, these children then oppose their tired muscles by slouching forwards for a good deal more time than when carrying their school satchels. If I were designing school bags I would deliberately arrange for their bags to be carried on their chests!

      So too in economics it is not cleaver to force taxes out of a resistant population, when all the while a vast unexplored source of national income lays untapped below ones feet (to parody Newton and mention Land Value Taxation)

  4. John Bloomfield

    The publication of the Mitchell/Wray/Watts ‘MMT Theory & Practice….’ academic level textbook is a major advance – an important milestone that must be urgently built upon.
    As Bernie Sanders often says “Change never takes place from the top down, it comes from the bottom up.”
    While much essential and important work on defining/refining/explaining/promoting MMT has necessarily resided in academia and the blogosphere, it is time to attack the source of persistent neoliberal economic orthodoxy embedded in each upcoming generation – secondary school ‘economics’.
    I have a son presently in his final year of high school – the economics they are taught is from neoliberal ‘gold standard’ textbooks – all the household budgeting analogies, tax revenue funds spending, deficits are unsustainable causing interest rate increases/inter-generational debt etc. No effort is made to separate currency users from sovereign currency issuers, and virtually no analysis of fiat currency driven macroeconomics.

    To ‘stop the rot’, brainwashing a fresh set of young students each year with false knowledge must be challenged and changed – but the major hurdle that I am finding insurmountable is the absence of any suitable MMT reality based teaching resource/textbook.
    Even if a secondary school was enthusiastic about introducing MMT into the curriculum they would find virtually no MMT teaching resources available.

  5. Richard David Feryok

    Bloomfield is correct. The brainwashing has been going on through entire lifetimes. The sentiments are deeply ingrained. It takes some time and effort, repeated confrontation with the logical inconsistencies before the truth starts to get in. This stuff needs to be represented in high school and college. The wealthy and powerful will fight this tooth and nail. Expect to be set up to be embarrassed, discredited, depicted as fools. Expect your weakest member to be called forth so to be easily defeated publicly. On TV expect to be shut out, shouted down, treated with contempt, framed as fringe, zany professors, laughable, but no to be taken seriously, falsely portrayed, your ideas distorted.

  6. I have been talking with my husband for years now and sending him MMT easily-understood articles and have often identified real-life examples of how deficits are really spending into the economy, and he will never believe me. Good luck with explaining it to a whole country!

  7. My best metaphor:

    Although many people treat it like a commodity–a lump of gold, for one example–money is actually (and historically) a measurement, more like the score at the ballgame. It’s a way to keep track of obligations. It evaluates debt; it is an IOU amount and marker. No one yells “Hey! You’re about to run out of points!” to the scorekeeper. That would be *crazy*!

    If, rather than cash, you accept an IOU from a neighbor who is buying your lawn mower at your garage sale, then use the IOU to satisfy a debt with another neighbor, that IOU amounts to a “money thing.” It has both purchased goods and paid off debt. The IOU measures or tracks the obligation(s) throughout the process, and makes the transaction more precise. As economist Hyman Minsky used to say: “Everyone can make money; the problem is getting it accepted.”

    Perhaps the most common money technology is checking accounts. When we have such an account it is our asset, but to the bank, it is a liability (an IOU or a debt). When you write a check, you’re assigning a portion of the bank’s liability to the payee. The assets and liabilities are exactly the same item; which one is which depends on one’s perspective (bank or depositor).

    This is true for the currency in your wallet, too. Dollars are, in effect, checks made out to “cash” in fixed amounts, drawn on the Federal Reserve (AKA “the Fed,” the United States’ central bank). The Fed carries currency on its books as a liability just as your bank carries your checking account as its liability. Banks also have liabilities for interest-bearing savings accounts and the Fed has an equivalent to such accounts in T-bills and Treasury bonds.

    The sum of all dollar financial assets in circulation in the economy therefore equals, to the penny, the national “debt” (a word written in quotes because it is so different from household debt). That statement is not exotic economics; it’s double-entry bookkeeping.

    Even so, the marketing of panic about national “debt” is widespread and well funded. We’re constantly told national “debt” is like household debt. For just one example, Obama compared the federal budget’s deficit to credit card debt.

    But no one ever goes to their bank to demand it shrink the amounts in checking accounts, or to say that the bank’s debt is going to crush their grandchildren, and would the bank please diminish its own liability (i.e. the depositors’ assets in their accounts) by increasing its fees or decreasing the interest paid on savings accounts. That would be *crazy*!

    Nevertheless, Pete Peterson and other billionaires are funding think tanks, “Fix the Debt” speaking tours and the like. Congressmen sponsor a Peterson-funded Concord Coalition “Budget Workshop” to poll participants about the best ways to decrease national “debt”–in other words to decrease the population’s assets we call “savings.”

    What happens historically when the population plays the “Fiscal Responsibility™“ con game, and significantly reduces national “debt”? The last time this occurred was the Clinton surplus. The previous time such a reduction occurred was in 1929. Andrew Jackson actually paid the “debt” off in 1835. There are seven such major “debt” paydowns since 1776. What happens 100% of the time is that these fits of “Fiscal Responsibility™“ are followed by Great Depression-sized holes in the economy, the worst of which was the Panic of 1837.

    The disastrous economic fallout from reducing the population’s assets makes some sense, too. Creditors don’t say “There are fewer dollars in circulation, so we’ll forgive this month’s mortgage payment.” No, they say “Pay your payment or we’ll take your house.” So diminishing the population’s savings in dollar financial assets crushes debtors, and leads to waves of asset forfeitures and foreclosures. Vulture capitalists like Pete Peterson profit mightily from such events, but most ordinary citizens don’t.

    There are two other surprising corollaries to the observation that the money government spends and leaves in the economy (rather than retrieving it in taxes) is the population’s asset, not “debt”:

    Sovereign currencies (dollar, yen, pound, but not euro) do not provision the governments that issue them. They can’t. Where would taxpayers get the dollars with which to pay taxes if government didn’t spend them out into the economy first? The notion that currency creators must wait for tax revenues to fund programs is really just deflation and austerity promoted in service to vulture capitalists. “Pay as you go” is plausible for households (currency users), but not for governments who are currency creators. It’s practically a logical tautology to say you cannot pay taxes until you have the dollars spent by government, but you’ll hear “tax and spend,” rather than the more accurate “spend, then tax” whenever you listen to mainstream pundits.

    While taxes don’t pay for (federal) government programs, they are necessary, however, to make the money valuable. The promised payoff implied by currency is that it will retire those inevitable future tax obligations. Taxes make the money valuable; they don’t provision the (federal) government.

    The Federal government makes the money and does not need yours. If you went to the Treasury building in Washington D.C. and paid your income taxes in cash, after marking your bill “paid,” Treasury would shred the dollars. They don’t need your money, and make as much as they need whenever policy makers ask for it. Witness the aftermath of Lehman’s bankruptcy when, according to its own audit, the Fed pushed $16 – $29 trillion out the door in 2007-8.

    No one ever says “Hey, we’re out of money” when it comes to a war or bank bailouts, public officials only say that for social and environmental programs.

    • Mr. Dempsey, thanks for this exposition. Many useful “framing” insights that I think can be used by explainers. I especially like the checking account analogy…

    • Francisco Flores

      Mark: That’s too much for a blurb. May I suggest:

      “The US government debt is not a problem in any way shape or form. In fact, it can be repaid tomorrow without a negative repercussion. That would simply involve replacing government bonds with deposits at the Federal Reserve Bank with similar interest and maturities. The similar or even better risk/reward terms assure no change in investor savings/spending preference or desire to hold dollars.

      Private Debt, by the way, can be a problem and is largely responsible for many of our recessions.”

  8. The most simple and easy to understand framing is to ask, “How can the govt collect taxes to operate BEFORE ever spending money into the economy?” Reagan’s “tax and spend” mantra was obviously backwards, the cycle is and must be “spend and tax.”

  9. I believe everyone who comments here understands the game of “MONOPOLY”. None of us would play the game if the “BANKER” was allowed to play using the “EXTRA” money furnished for the game, the “BANKER”, by rules, is allowed to only supply money to the game as set forth in the rules of play, the banker is prohibited from play! The game works because it is a fair contest of wit! Every player realizes “Monopoly Money” is only a score keeping device. Of course, there are Winners and Losers.

    In our Economy there are very few effective rules limiting Bankers from “exploiting” the situation by any means they see as useful to their interests. In reality Bankers have, as an entity, unlimited access to money for use in whatever manner they see as useful (when this is inadequate they persuade the Fed, the Treasury or the Congress to cover their unforeseen needs). How else could Wall Street have obtained its present position?

    With “commodity money” Private Banking may have some utility, however, the banker has an unreasonable economic advantage. With “fiat money” Banking must be a “Public Utility” and be carefully required to “play only by the rules”! Fiat Money is the score keeping device for the Economy, the “Score Keeper” (banking) must have the trust of the whole of the Society.

    In our present circumstances Bankers have no interest in “the people” coming to understand “How Fiat Money Works!”! The IGNORANCE OF THE PEOPLE is the major reason for the magnificent success of their “exploitation industry”, there is no incentive for them to do anything but preserve the “status-quo”! It probably can not be any better for them.

    During WWII our Society behaved spectacularly. It was very much a planned and controlled Economy. The planning and controlling was eliminated with the end of the War. I was a young Navy Sailor during that time and watched things unfold with wide open eyes and the enthusiasm of youth. This Society did something right during that time but we have invested very little effort trying to document what it was, why it worked or how we have lost it in the time since. MMT is an iteration of truth but it will remain obscure sociologically as long as Banking and Wall Street retain their current dominance.

    POMPO

    • Thanks for these thoughts. The essay “Playing Monopolis Monopoly” could be improved with your insight about why the banker can’t be allowed to play the game. This is good stuff.

  10. We need a “manifesto” published in the Atlantic or Harpers that explains MMT but also answers the predictable criticisms of educated liberals with understanding and sympathy. It all just seems too good to be true, and you have to take that reaction seriously. Prof. Kelton has helped a lot with her two recent op-eds, but they just aren’t long enough to convincingly answer the understandable reactions of people of good will who have not been introduced to these ideas.

  11. An Unnecessary Predicament
    This Op Ed column was published in my local newspaper (the Eau Claire Leader Telegram) a couple weeks ago in response to Op Ed columns by Matthew R. Shay (CEO of the National Retailers Association) and Economist Dean Baker (Director of the Center for Economic and Policy Research), on Corporate Tax Reform: Shay thinks the federal government should reduce the corporate tax rate because in the end, workers and consumers pay for corporate taxes in lower wages and higher prices. Baker thinks corporate taxes should be scrapped in favor of the government requiring companies to pay their tax liabilities with an equivalent amount of non-voting company shares. I disagree with both of these points of view. Shay’s idea for tax reform doesn’t go far enough, doesn’t directly help individual income taxpayers, and does nothing to simplify the U.S. Tax Code. Let’s admit it, America’s tax laws are such a disaster that the tax code should be condemned and dismantled in its entirety. Baker’s proposal, while admirable for originality and creativity, is a non-starter. What about all the companies that are privately held or don’t have shares? How would those companies pay their taxes?

    The fundamental flaw in their ideas is the premise that the federal government needs our tax dollars to “raise revenue” to “pay for” government programs, functions and services. This is simply not true. Since 1971, when President Nixon permanently took the U.S. monetary system off the “Gold Standard”, the federal government has successfully operated under a fiat money system. The federal government, under the authority of the U.S. Constitution and its Legal Tender laws, for nearly 50 years, has been issuing all of the Dollars used to pay for government spending. This money does not come from the taxpayer. Nor does this money come from sales of US Treasury securities. It is merely spent into existence. One of the things that has not caught up with our permanent transition to our fiat money system (meaning “currency created by government decree”), is our tax system. Our current tax system puts our entire nation in an unnecessary predicament.

    Think about all the natural disasters that have occurred recently, and the additional financial burden these events place on federal, state and local government budgets, due to humanitarian aid and disaster relief. Under the current “pay for it”, “revenue constrained” thinking of the status quo, we are constantly making unnecessary “beggar thy neighbor” choices. We constantly hear our elected officials giving us the lame excuse that we “can’t afford” to do things that, as a civilized and wealthy nation, we absolutely can afford to do. Or we hear: “if we do that, your taxes are going up”. What if there was a way to put an end to that kind of talk, and the taxpayer resentment that goes with it, to the betterment of our society?

    Our lives would be so much simpler and more prosperous, if we were to harness the full potential of the fiat money system. The workings of the federal government’s fiat monetary system (in plain English and easy to understand diagrams), and some ideas as to what we could afford to do as a society can be read about in the book “The Millennials’ Money” by JD Alt. A tax reform proposal called the “Payments Tax” is an excellent idea, based entirely on taking full advantage of our current fiat money system. This tax would replace all current forms of taxation as we know them: Federal, State and Local income taxes, real estate and property taxes, sales tax, cell phone taxes and embedded fees, estate taxes, etc. Instead, every payment would have a very small 0.2% discount applied during the check clearing or bank accounting settlement process. Under the Payments Tax, when you buy something at Walmart, or pay your Verizon cell phone bill, Walmart and Verizon pays the 0.2% tax (i.e. they receive 99.8% of the purchase price or bill in their bank account. And in the case of your cell phone bill, the customer would no longer pay all the ridiculous fees and taxes that have traditionally been tacked on to your cell phone bill). All tax compliance costs: tax accounting, recordkeeping and reporting (between $400 – 600 Billion spent annually by the private sector) would be eliminated. You can learn more about this proposal and its many benefits at http://www.thefoundationforabettereconomy.org. The ideas are also explained in a new book entitled “The New Operating System for the American Economy” by Scott Smith.

    I urge readers to consider new thinking, and to demand reforms that will make our lives simpler, less expensive, and that may actually pay dividends. (End of column)

    The Payments Tax is consistent with MMT principles (including the concept of “Tax Driven Money” in the sense that PT can only be “paid” with US Dollars), and I think it would work in harmony with J D Alt’s final diagram explaining the workings of our modern monetary system. It is consistent with Alt’s final diagram in the sense that the tax money spigot is a drain of money from the private sector “tank” that doesn’t go anywhere! Astonishingly, the quantity of money from the 0.2% Payments Tax “discount” is automatically subtracted from the private sector money supply during the electronic check clearing process (at the Fed), and automatically vanishes. The 0.2% Payments Tax money does not need to be tracked by a cadre of bean counters, collected, aggregated and sent to the IRS or US Treasury, as this money resembles cancelled government-issued IOUs. The US Treasury does not need these cancelled IOUs. The 0.2% Payments Tax serves primarily as a moderator against price inflation.

    Since the Payments Tax would be applied to all economic activity (Financial Settlements which exceeded $5 Quadrillion in the US in 2015) , it could also be viewed as a mathematical function related to all carbon-producing activity, functionally equivalent to a carbon tax. Only, a Payments Tax is far simpler and possibly more palatable to those who find the words “carbon tax” unacceptable.

    • I’d be very interested to know how the MMT explainers respond to the idea of the Payments Tax–and to Scott Smith’s TED talk (which I think is masterfully put together). I agree, in many ways it matches the diagrams. What’s most interesting about this is that it uses a specific tax-reform proposal to explain modern fiat money. That’s coming at it from a whole new direction. I’d also be interested to know how Scott Smith responds to MMT.

    • Coming at this from a Functional Finance point of view, the function of taxation is to tamp down catastrophic inflationary increase in prices if the growth in production of goods gets outrun by the growth in money. So if .2% of all payments happens to be the amount that accomplishes this, fine. Otherwise the rate of the Payment Tax would have to be tuned to match circumstances. It seems the calculation of the .2% rate makes that the rate that would fund federal spending, but I don’t believe that federal spending is the only reason for the money supply to grow.

  12. You really nailed it, Mr. Alt. MMT has insisted upon tightly clenching these counter-intuitive memes in the hopes of somehow coming across as having come down the mountain with the tablets that will save us. You know very well why Bernie didn’t take Kelton’s guidance – she said it herself – it would be political suicide.

    I don’t know what you expect from a “handbook” that would be based upon the byzantine workings of our current monetary system – you think that is an easier sell than coming clean with the American people? That yes, the government IS empowered by the Constitution to PRINT money for public purpose and the only reason it doesn’t is because of a very powerful banking sector that has wrested this power away. No MMT’er will deny that virtually all money (you can call it “credit” if you prefer) enters the economy through the private banking system. Doesn’t sound very “progressive” does it and yet this is what MMT wants to continue to embrace and to somehow inspire the public to see the power they’ve had all along (the Ruby Slippers)?
    In your handbook, why don’t you include the concept that We the People should have complete power to create money and to spend (not lend) it into the economy for progressive public purpose? MMT succumbs to the same stale belief that the rest of those misguided progressives do, that the current debt-based system of money creation is the only way to go because….well because that’s just the way its always been. You can do better than that.

    And let me tell you, debt-free public money WILL sell. Mainly because it makes sense, it is straightforward, no twisting of common usage of the language, and the economics and macroeconomic modeling are airtight (as opposed to what MMT has to offer).

    Unfortunately, we now see that, in its panic, MMT has initiated a full frontal assault on progressives (the wrong kind) and anyone who would dare question the legitimacy of their claims. No dialogue, no debate, just smears, slurs, derision and innuendo. It’s a dead end.

  13. We’ll definitely need a better metaphor than a “pony for everyone” as advocated in the LA Times editorial. I’m sure I’m not alone in thinking about the ecological catastrophe that would result if everyone had a pony – polluted streams and city streets, clearcut forests, and land used to grow hay instead of food. The reality is that our earth can’t provide 10 billion people with 10 billion ponies.

    The metaphors in “the handbook” have to be consistent with green MMT, and the vision has to be one of vibrant ecological and social communities. The great thing about Sander’s proposals are that the resource implications of improved healthcare and education are modest. If these don’t work, I’m sure Mathew Forstater and Stephanie Kelton can get together to come up with some better ones.

  14. I noticed you did not address inflation. There will surely be an attack saying deficits will cause inflation and what will you do about that as people’s money becomes valueless, as some will say.

    It is also easy to say something like the government doesn’t need taxes to spend, since they print it. But that begs the question about deficits and inflation. I have heard it said that we can pass single payer without any taxes. Great. But if the fed now pays a trillion and single payer costs three trillion plus there is a two trillion deficit for which there are no taxes provisioned. Now what? Do we wait until inflation hits or provision it within the bill at some trigger point or roll it out a little at a time. The issue of taxes needs to be addressed in all legislation and not by putting on blinders. Long term programs need to recognize taxes.

    Finally, a personal issue with me. Obamacare attracted a lot of attention to repeal as a result of special taxes like special taxes on gains from investments and Medicare taxes. Same will occur if someone inevitably will want to tax financial transactions or such. Taxes for the most should be within the progressive tax rate schedule. That is just my personal bitch.

    BTW somewhere in my memory, I recall Randall Wray trying to develop memes for MMT, as well.

  15. Francisco Flores

    RE: “… I noticed you did not address inflation …”
    – Inflation shouldn’t be an issue under a Job Gty as part of a Full Employment Fiscal Policy. As long as there is slack in the economy (unemployed folk) the added spending induces private sector to go waky waky and hire more people to produce more goods and services. The added goods and services offsets the added money issued by the govt to hire Job Gty folk. Moreover there are 4 tools to manage inflation. See my blurb right above for their listing.

    RE: “… begs the question about deficits and inflation. …”
    – Again inflation can be managed through the 4 tools. Also the level of federal debt is not a problem in any way shape or form. (see blurb).

    RE: “… Do we wait until inflation hits or provision it within the bill at some trigger point …”
    – Yes, I would say when it hits 5%, take action. But that’s just me.

    RE: “… That is just my personal bitch. …”
    – Nothing will pass if its too progressive. Rich folk can and will fight back. Just get everybody working and reduce inequality by setting the Job Gty wage.

    Easy Peasy.

    I’m looking forward to some memes. Maybe we should hire some Russians to spread the word.

  16. Its amazing that some people here thinks the government currently prints money or creates money in order to spend. Just plain false.

  17. Francisco Flores

    OOOppps. Please delete post just above. This is what I meant:

    How about this for a meme: Waiting for Hyperinflation
    http://mmt-inbulletpoints.blogspot.com/2017/10/blog-post.html

  18. Good luck. I’ve been trying for 5 years, and have been banned off of public platforms for trying – by the same types who believe they “understand” (based on mainstream economics).

    Prepare for fighting and active attempts at discrimination and silencing, on every front.

    It took me a few years to ‘grok’ MMT fully, in a way that I could develop mature arguments against opponents – without stumbling over myself, through mistakes in my understanding and narrative – it’s going to be hard to distil this into something that the average joe can understand quickly.

    The problem is, every single attempt will immediately trigger huge skepticism, which sets an extremely high bar for the level of convincing that needs to be done – with every single response you give, easily being dismissed with fallacies like “well, why isn’t it being done already then?”, which leads you down a rabbit hole of incredibly unconvincing responses, which totally discredit you.

    Trying to explain MMT is by far the best way I’ve ever discovered, of inflicting extreme cognitive dissonance on anyone, to the point that it’s impossible for them to overcome it.

    Sorry, I wish I had something more positive to say here. I definitely applaud this progress and this initiative, and want to see it lead to something very fruitful – just highlighting the main problem, as I see it.

    • Francisco Flores

      I’ve thought this through. List the objections (in relation to my blurb which I posted above) and I’ll give you pithy responses.

  19. Well, the first thing you have to do is get people to understand where currency comes from. I can go ask 10 random people on the street what gives their money value, and on a good day only 7 will say gold. I rarely get anyone to say its the government’s word that gives it value. People in this country (US) are economically ignorant. Thats why the issue is so easily driven in the wrong direction. If people knew the basics of how money enters the system, it then makes a lot more sense to them that taxes dont pay for it. If you want to develop talking points they have to get to the basics that people can start to understand. You are facing the headwinds of a couple billion in astro-turf “think tanks” that will be out there fighting at every turn.

  20. Susan Mercurio

    Why are you asking the academics only for a succinct description of MMT? Why not ask knowledgeable laypeople for input? We know from experience how we grew out of the myths we grew up with into an understanding of MMT. We are already explaining it to others. Each One Teach One. We know exactly how to explain it to people who are where we were a short while ago. We’re not as stupid as you think.

    • Francisco Flores

      Do I look like an academic?????!!! ———————————->

    • Well said, Susan Mercurio! I happen to be one of those laypeople you’re referring to, and I find it exceedingly difficult to be a successful explainer except when I’m talking to my computer keyboard which is unable to reject or refute any of my logical gems. I’d genuinely like to know what you’ve found to be a successful explanatory framing or strategy! It may well be helpful to all of us. I started getting involved in this because it seemed the economists were not talking to laypeople. In the end, it’s the laypeople who have to understand if anything is going to come of it!

  21. Until the Treasury General Account with its required tax and treasuries credits and its Treasury spending debits, and its no overdraft provision are explained away, discredited, discounted, or otherwise shown to be strictly an artificial, meaningless, self-imposed constraint, it will be difficult to convince legislators and other people that taxes and treasuries sales do not fund the government. I have never seen a clear debunking of the TGA. As long as the law mandates that funds flow into and out of the TGA and that it not drop below zero, it appears that MMT’s tenets are speculative.

  22. Francisco Flores

    Per my blurb above: Revise Federal Reserve Act so Federal Reserve Bank reports to the Treasury.
    End of hand-wringing.

  23. Francisco Flores

    Folks: My blurb is the solution:
    http://mmt-inbulletpoints.blogspot.com/2017/09/im-just-responding-to-various-economic.html?spref=fb
    I have a pithy response for every objection. Throw them at me.

  24. As for a “handbook”, I would submit that the basic handbook, exclusive of accounting complexities, already exists in the form of Rodger Malcolm Mitchell’s excellent book “Free Money” which, although not strictly MMT, offers a compelling, logical view of modern money attributes. It certainly altered my understanding and led me to MMT.

  25. A lot of good comments. Here’s an old answer to that very question:

    ONE HOT SUMMER DAY IN 1935, federal relief administrator Harry Hopkins presented his plan for alleviating the effects of the Great Depression to a group of shirt-sleeved Iowa farmers, not noted for their liberal ideas. As Hopkins began to describe how government-sponsored jobs on public projects would provide both wages for the unemployed and a stimulus for foundering businesses, a voice shouted out the question that was on everyone’s mind: “Who’s going to pay for all that?” Hopkins, with his characteristic flair for the dramatic, slowly took off his coat and tie, rolled up his sleeves, and looked out at the now-fascinated audience sitting outside on the Iowa University campus. Everyone knew the extent of Hopkins’ influence in Washington. He spoke for the president. “You are,” Hopkins shouted, “and who better? Who can better afford to pay for it? Look at this great university. Look at these fields, these forests and rivers. This is America, the richest country in the world. We can afford to pay for anything we want. And we want a decent life for all the people in this country. And we are going to pay for it.”1 Ever optimistic as to the future of America, even during the dark days of the Great Depression, Hopkins was convinced that there was no good reason “for any American to be destitute, to be illiterate, to be reduced by the bondage of [unemployment and poverty] into either political or economic impotence.”2

    This is the beginning of June Hopkins’ book on her grandfather – Harry Hopkins: Sudden Hero, Brash Reformer, St. Martin’s Press (1999) p.1