Category Archives: MMT

Toward Monetary Enlightenment: An Integral Approach to Macroeconomic Policy

By Dan Kervick

One staple of economic policy debate is the running conflict between those who lean toward a reliance on fiscal policy and those who lean toward a reliance on monetary policy. Continue reading

Sovereign Currency Issuers Are Always Solvent

By Joseph Hykan

Another great video developed for Eric Tymgoine’s modern money course.

Why Does Uncle Sam Borrow?

By Dan Kervick

The Unites States government operates a fiat currency system.  The government is therefore the monopoly supplier of the final means of payment in our dollar-based economy, and is ultimately responsible, in one way or another, for any net increase in dollar-denominated financial assets in the private sector.

And yet, we continue to hear bipartisan expressions of fear and angst about the budget deficit and the national debt.  Both major parties seemingly agree that we are “out of money”.   They wrangle over various competing approaches to shrinking the gap between tax revenues and government spending.  They appoint commissions to study the government budget and recommend some combination of slashed spending and higher taxes in order to close that budgetary gap.   They warn us that we will transform ourselves into banana republic status if we do not urgently address our public debt problems.

This situation should be perplexing.  Why does a government that is the issuer of the national currency have to borrow that currency back from the public to which the currency is issued?   And how could such a government ever experience the kinds of budgetary squeezes and debt burdens that can pose severe problems for households and businesses?

I wish to make a radical suggestion:  Public borrowing is an outdated practice, and we could dispense with it entirely.   Borrowing by the public treasury and the accumulation of government debt obligations are legacies of the era that preceded the development of modern fiat currency, an era when governments were primarily users of traditional means of payment that lay outside their control, and not the producers and issuers of the primary means of payment.   That pre-fiat era is now dead in the US, and the chief remaining role of government borrowing in our time is to bamboozle the public, and to obscure the true nature and effects of government fiscal and monetary operations under a bewildering maze of bookkeeping ink and financial legerdemain.  Eliminating public borrowing, and replacing it with operations that are simpler, more direct and more transparent, would advance the cause of informed democratic debate over public spending and taxation.  Above all, the change would eliminate needless obscurity and confusion and help us all understand exactly whose bread is being buttered by the budgetary decisions made by politicians.

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MMP Blog #47: The JG / ELR and Real World Experience

By L. Randall Wray

There have been many job creation programs implemented around the world, some of which were narrowly targeted while others were broad-based. The American New Deal included several moderately inclusive programs such as the Civilian Conservation Corp and the Works Progress Administration. Sweden developed broad based employment programs that virtually guaranteed access to jobs.

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MMP Blog #44: The Job Guarantee and Macro Stability

By L. Randall Wray

The JG posts here at MMP have generated a huge number of comments. I have focused my responses at the comments more-or-less directly directed to the actual posted blogs. I can understand the impatience: many questions have not been answered. However many of these questions and comments concerned upcoming topics.

Let us move on to macro stability issues. I have given JG talks all over the world and the two main objections raised always refer to inflationary impacts and exchange rate impacts. It seems to me that those who respond with these fears have not paid attention to the set-up of the program and to the MMT arguments.

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Responses to Blog #43: Job Guarantee Basic Design

By L. Randall Wray

Thanks for the comments, many of which get ahead of the story.

I’d like to remind readers that we are ADDING the JG onto the EXISTING system. So the correct comparison is NOT against some UTOPIAN IDEAL in which we all live like Wall Street’s finest in some sort of Ayn Rand blissful Fountainhead. But RATHER to compare the existing system against one in which the JG is added. I realize this is a difficult mental gymnastic. I hope this will be clear as I respond to seven comments (the others concern upcoming topics; indeed, even these really are about topics we have not explored in detail but they are worth discussing).

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MMT for Austrians Part 4: Is Description Without Theory, Ideology or Policy Desirable? Is it Even Possible?

By L. Randall Wray

This will be the final part of this series. Next week we turn to the Job Guarantee/Employer of Last Resort.

The answer to both questions posed in the title is, I think, a big fat no.

I’m not going to go deeply into methodological debates. First, I’m no methodologist. Second I don’t think many readers here are that interested in such debates. And, third, it really isn’t necessary.

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Is Greece’s Rescue at Hand?

Marshall Auerback’s latest assessment of the ongoing Greek crisis.  Watch here.

MMT FOR AUSTRIANS 3: How Do YOU Propose We Deal with the Elderly, Disabled and their Depts?

John Carney agrees with me that supporting our elderly is not an “affordability” problem,but he claims that I fail to see the “real” burden—the dependency ratios and all that. Actually I’ve been writing about that since the early 1990s. The“real” burden is the only thing that matters.
Here’s justa short list of easily accessible things I’ve written at
Public Policy Brief No. 55 | August 1999 Does Social Security Need Saving?
This is just a small sample; the last one listed (PPB 55) and WP 468 are probably the best things to read first, then do PN 2006/5.

MMT FOR AUSTRIANS 3: How Do YOU Propose We Deal with the Elderly, Disabled and their Depts?

John Carney agrees with me that supporting our elderly is not an “affordability” problem,but he claims that I fail to see the “real” burden—the dependency ratios andall that. Actually I’ve been writing about that since the early 1990s. The“real” burden is the only thing that matters.

Here’s justa short list of easily accessible things I’ve written at

PublicPolicy Brief No. 55 | August 1999 Does Social Security Need Saving?

This is justa small sample; the last one listed (PPB 55) and WP 468 are probably the bestthings to read first, then do PN 2006/5.

Now to besure, I think that while his argument that paying benefits to great grandmasomehow makes young women infertile is bit of a stretch, there is a tiny bit oftruth in it. Research shows that the best form of birth control is the risingstatus of women. If you liberate women from the drudgeries of subjugation, youkill two birds with one stone, so to speak. They choose to have fewer kids(better for the environment and long run sustainability of the species—althoughI suspect Carney and the other Austerian Austrians don’t accept the results ofscience) and they get to enjoy greater equality with men.

There couldbe some impact from Social Security as well as all the other progressivegovernment programs that increase women’s security so that they do not feel sodependent on boorish husbands who just want to knock them up and keep thembarefoot in the kitchen. So, OK there is a loose link. As I said, the “publicpurpose” is inherently progressive. Government has an important role inpromoting gender equality. And that’s good for the environment, too. I considerboth of those to be important roles for government to play.

Carney and Iagree 100% on the MMT conclusion that we can always “financially afford”grandma. I think there is a bit of a disagreement on taxes and Social Securityspending, however. We make the benefit payments by keystrokes. The purpose ofthat is to move resources to grandma—we credit her bank account so she can shopat a store rather than dumpster dive.

Now, why dowe tax workers with the payroll tax? Not to pay for the benefits (Carney agreeson this, I think). Rather, it is to prevent current workers from buying up allthe output, competing with grandma’s small benefit checks for scarce goods andservices. That would of course cause inflation once we exhaust capacity.

(I want tobe clear here: I’ve always opposed the payroll tax as a poorly designed way toachieve the goal of ensuring demand doesn’t exceed capacity to produce. Betterto have a progressive tax that hits everyone. And John would probably agreewith Warren Mosler and me that payroll taxes improperly reduce the incentive towork—which is exactly the opposite of what we need if the problem is thatproduction is too low!)

So the worryis about the real resources. The question is about capacity to satisfy workers,their kids and other dependents, and all the grandmas and grandpas and peoplewith disabilities who collect Social Security. Clearly there is no problemtoday, and has been no problem in the postwar period. (WWII was a differentmatter as we had to shift half of all production to the war effort.)

We’ve alwaysoperated way below capacity (US capacity plus the net imports foreigners wantto sell to us). Indeed, our economy would have performed much better if we’dpaid all the grandmas more—to raise aggregate demand, to increase employment,and to let entrepreneurs produce and sell more so they could get more profitsencouraging ever more investment and creation of capacity.

Carney andother enemies of Social Security always claim the problem is in some distantfuture—not today—when dependency ratios rise, when we will have fewer workersper grandma. They say the “fact” is that the burden will become too great.

OK NEP hastwo responses.

1: He’s gothis facts wrong, as we have demonstrated in many publications. There are twoimportant issues here. First the total dependency ratio (old + young) peakedaround 1965 and will (likely) never reach that level again. Remember thatworkers had to support 3.7 kids on average back then—so there were fewergrandmas but more Biffs and Buffys. The kind of support needed is different(and yes, grandma support might possibly be more “socialized” than support ofkids—but even that is questionable, and that is a political not economicconsideration). But kids are a “burden”, too. (Believe me; I’ve got some. Thereare times I’d trade them for a few grandmas.)  Second, on all projections (even pessimisticones) the real living standard of workers will continue to rise even as workersare called on to support more old geezers. In real terms, they will be betteroff than today’s workers.

(As anaside, the presumption always is that gramps and grandmas do nothing tocontribute to production. False. Even if they do not work for pay, they helpout. Indeed, most of the care for the extremely old people is done by womenover age 65—and most of that unpaid. The idea that elderly people are nothingbut a burden is false. I’d go ahead and pay them for some of that work. Cananyone say Job Guarantee?)

2: But moreimportantly: what is the alternative? Soylent Green? Support ‘em or eat ‘em,that is Hamlet’s question. Even if we eliminate Social Security entirely thereal burden remains.

And indeedit most likely gets worse. Here’s why. Workers of each generation will need toset aside more saving (to avoid being turned into canned food or reduced todumpster diving or living with ungracious kids who are resentful that they gotstuck supporting parents who live too long) over their whole lifetime. Soconsumption out of wages will be chronically insufficient for firms to recovercosts. Sales will chronically fall short due to the “sinking fund” of workersaving. The inducement to invest and innovate would be much lower. AND THEN SAVINGWOULD BE LOWER! (Investment creates saving, you know. Trying to save more doesnot actually mean you get more saving—paradox of thrift. So unless budgetdeficits or trade surpluses rise to fill the gap created by lower investment,we end up with less saving to take care of elders thrown off the safety net ofSocial Security.)

And we knowfrom experience (think 1930s before Social Security) that workers never reallysaved enough (surveys at the time showed that huge portions of the elderly hadno visible means of support)—so many will be reduced upon retirement to livingon the fringes of society supported by handouts and fighting with stray dogsfor scraps of food.

I know thatsome Austerian Austrians actually relish such a dystopian future. They love themovie A Boy and His Dog, or Mad Max. It is just the sort of freemarket society they are trying to create.

But theproblem is that it can only be implemented undemocratically. As Carney andothers lay their proposals out on the table so that we can see what kind ofgovernment they want, the reaction by most people is sheer horror.