Category Archives: L. Randall Wray

The Greatest Myth Propagated About The FED: Central Bank Independence (Part 1)

By L. Randall Wray

It has been commonplace to speak of central bank independence—as if it were both a reality and a necessity. Discussions of the Fed invariably refer to legislated independence and often to the famous 1951 Accord that apparently settled the matter. [1] While everyone recognizes the Congressionally-imposed dual mandate, the Fed has substantial discretion in its interpretation of the vague call for high employment and low inflation. For a long time economists presumed those goals to be in conflict but in recent years Chairman Greenspan seemed to have successfully argued that pursuit of low inflation rather automatically supports sustainable growth with maximum feasible employment.

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Financial Governance for Innovation and Social Inclusion

The workshop on Financial Governance for Innovation and Social Inclusion brought together international economists working on issues related to “Reorienting Financial Reform” and “Re-shaping Financial Institutions for Innovation and Development” - under the Reforming Global Financial Governance  initiative of the Ford Foundation. Below are the appeareances of Drs. L. Randall Wray and Jan Kregel.  Recorded November 25th, 2013.

MMT 101: A Response to Critics Part 6

Policy Aspects of MMT

By Eric Tymoigne and L. Randall Wray

[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]

From the theoretical framework discussed in the 5 previous installments, MMT draws specific policy conclusions about fiscal, monetary and financial policy. In this final post we address the policy implications.

In line with Keynes and Minsky, MMT recognizes that unemployment, arbitrary distribution of income, price instability and financial instability are central problems of market economies that require some government involvement for resolution. 

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MMT 101: A Response to the Critics Part 5

Adding the Foreign Sector

By Eric Tymoigne and L. Randall Wray

(Revised Figure 8 on 12/6/13)

[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]

Paul Davidson has recently written:

What is Bitcoin?  According to Modern Money Theory, bitcoin can not be money since it is not accepted in payment of taxes by any government — nor is it issued by any government via the governed purchase of goods and/or services from the private sector.  So what is bitcoin in terms of MMT?  I do not know what MMT  proponents would respond to this query?

Similarly, Tom Palley argues that government currency is demanded for reasons other than paying taxes and that foreigners who may want to hold the domestic (foreign to them) currency do not pay taxes to the domestic government. In addition, he says, in some countries the domestic private sector does not want to use the domestic government currency in many, or even most, economic transactions even though the government is imposing a tax; thus taxes do not drive currency. 

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MMT 101: A Response to the Critics Part 4

Adding the Central Bank

By Eric Tymoigne and L. Randall Wray

[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]

Beyond the inflationary aspect of MMT, Palley (2013) argues that MMT does not account for the flooding of reserves in the economic system that results from a monetary financing of government spending. In this case, a deficit leads to a decline in interest rates and potential financial instability.

Fiebiger (2012a, 2013) argues that Treasury operations do not lead to a change in the level of central bank liabilities and so there is no monetary creation, and that it is disingenuous to exclude the Treasury General Account at the Fed (TGA) from the money supply. He also wonders why the Treasury continues to issues bonds when the fed funds rate (FFR) is effectively zero today, if, following MMT, bond offerings are voluntary operations used to drain excess reserves.

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MMT 101: Response to the Critics Part 3

Adding the domestic private sector

By Eric Tymoigne and L. Randall Wray

[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]

In the previous installment, we focused mostly on the government side of the circuit. In this piece, we study the interaction between the government and nongovernment sectors while retaining the consolidation hypothesis.

For the purposes of the analysis, we will think of the nongovernment sector as equivalent to the domestic private sector, however, the analysis could just as well include state and local (nonsovereign) levels of government as well as the foreign sector in the nongovernment sector.

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MMT 101: Response to the Critics Part 2

The Simplest Case: The Circuit with a Consolidated Government

By  Eric Tymoigne and L. Randall Wray

[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]

MMT is frequently criticized for consolidating the treasury and the central bank. (Palley 2012; JKH 2012a, 2012b; Lavoie 2013; Fiebiger 2012a, 2012b; Rochon and Vernango 2003; Gnos and Rochon 2002). They note that this hypothesis does not describe the current institutional framework of developed countries, and claim it pushes MMT into unnecessary strong logical claims. In this post, we will address these issues by tackling problems surrounding the nature of money and the role of taxes, and by beginning to deal with the consolidation argument.

The theory of the circuit discussed in Part 1 is a good starting point. Like all theories, it simplifies the existing economic system in order to draw causalities from logical reasoning. From the circuit theory, one can better understand Keynes’s point that spending is what makes saving possible (Keynes 1939), and the importance of distinguishing financing (initial finance) from funding (final finance). Parguez (2002) and Bougrine and Seccareccia (2002) have shown how the circuit theory can be extended to include the state, and reached similar conclusions to MMT.

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MMT 101: A Reply to Critics Part 1

By  Eric Tymoigne and L. Randall Wray

[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]

This is Part 1 of a six part series in which we deal with critics of MMT. As readers of this blog know, our critics continually raise the same old tired critiques of MMT. They scapegoat MMT by attributing to us claims we’ve never made. They take our words out of context to build up a strawman that they attempt to destroy. No matter how many times we respond to a particular critique, another critic tries to use it again. Warren Mosler used to use the analogy of the “Bop a Gopher” game at the arcades: you bop one and another pops up.

While we know that it’s a Sisyphean task to disabuse the critics of their cherished and wrong-headed arguments, we thought it would be useful for those who come to MMT with less prejudice to have at hand responses to five categories of critiques. Today we will provide an introduction to the series. Each of the next five posts will deal with one of the critiques. We’ll also append a list of the references used for this entire series.

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Bow down to the Bubble: Larry Summerian Endorses Bubbleonian Madness and Paul Krugman Embraces the Hansenian Stagnation Thesis*

By L. Randall Wray

{*Sorry, I couldn’t resist. As many of NEP’s readers know, Michael Hudson has long advanced the argument that America’s policymakers have purposely created Bubbleonia—NOT to generate growth but rather to enrich the thieves at the top. And many of you are familiar with the work of Geoffrey Ingham—a fellow Chartalist traveler—who has focused on J.M. Keynes’s “Babylonian madness”, the period after Keynes had discovered the writings of A.Mitchell Innes that led him to explore the origins of money in Babylonia. Hudson is also a scholar of that period. Alvin Hansen reintroduced the thesis of secular stagnation, giving it a Keynesian flavor.}

Larry Summers has made a big splash by (finally) recognizing that the US has had a series of financial bubbles. (See here.)  Duh! Who wudduv thought? The Reagan years were just a bubble, driven by thrift excesses. The Clinton years were just a bubble, driven by dot-com excesses. And the most recent real estate boom and bust was just a bubble, driven by Wall Street’s thieving Investment Banks. Bubbles-R-US. It’s all we’ve got going on.

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The Circular Logic Behind Scott Sumner’s Claim That the Fed’s Policy is Contractionary

By L. Randall Wray

OK, I’m flabbergasted.

I came across, and commented on, a piece by Scott Sumner a few days ago. (DID SCOTT SUMNER FIND MMT’S ACHILLES’ HEEL? ) He claimed he had proof MMT is wrong: if the Fed doubles the base then ipso facto nominal GDP must double and ipso facto MMT is wrong. Well, the Fed tripled the base and nominal GDP didn’t budge. In any case, even if that had worked, it is not evidence against MMT. All Sumner did was to string together a series of non-sequiturs.

Sumner’s also behind an inane proposal that the Fed ought to use its demonstrated impotence to target nominal GDP. Right. I wish the Chairman would reduce the earth’s wobble instead.

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