Tag Archives: MMT

Awakening the Investor-in-Whole-Society

By J.D. ALT

There’s a lot of handwringing now about how central banks have no ammunition to fight a recession. The fact that this is apparently true—and, perhaps, uniquely true in modern history—is all the more reason to explore MMT’s premise that central banks are not just instruments of private commerce, but are, as well, instruments of collective, democratic will. The bankers are in a box of their own making, but that box, in fact, is inside another box which, as MMT makes clear, has lots of ammunition not only to fight a recession, but to pursue the betterment of American society whether an economic downturn unfolds or not.

Let’s consider the central bankers’ basic dilemma: If private enterprise begins to slow, they would love to issue more money to get it back up to speed. But inside their box the only way to do that is by encouraging private enterprise to borrow more money. Private enterprise, in turn, decides to borrow more based on production and spending decisions tied to the making of potential profits. The only lever the central bank has to affect these profit calculations is the manipulation of interest rates—lowering rates to make the profitability of enterprise more feasible (hence, encouraging more borrowing and more money creation) or raising rates to do the opposite. So, if interest rates are already close to zero, the central bankers are out of ammunition if private enterprise, on a large scale, decides to slow down operations and lay-off workers.

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Why Moscow Mitch needs MMT

By J.D. ALT

Mitch McConnell is desperate to find investment funds and businesses that will create jobs for his Kentucky constituents. America, it seems, is mostly incapable of being a source for either. Such is the diminishment of our impoverished private enterprise system that only foreign companies seem interested in bringing U.S. dollars to America to build the factories that will employ us.

America, for example, has not built an aluminum rolling mill in over forty years. It must be easier (read “more profitable”) just to import the stuff. If you want to create jobs, though, in exchange for votes from your constituents, “profitability” takes on new dimensions. And while those additional dimensions don’t seem to appeal much to American enterprise, for some inexplicable reason they are appealing to foreign “investors”—especially ones from Russia. Russia, it seems, has discovered a new form of American “politico-capitalism.”

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A Modern Money Explanation

By J.D. ALT

Since the Democrat’s presidential debates, the attacks on progressive candidates for their “unrealistic” proposals to address the biggest challenges we face as a collective society have intensified dramatically. The primary criticism is the enormous price-tag associated with each of the big-ticket issues they propose to undertake: universal healthcare, mitigating climate-change, eliminating college debt, free pre-school daycare, re-envisioning and rebuilding America’s infrastructure, a job guarantee and a universal basic income for every citizen. The attacks come from both conservative Republicans and centrist Democrats, each of whom are avowed believers in fiscal “responsibility” and balanced federal budgets.

Unfortunately, while there is growing sympathy with the progressive goals themselves, the advocates of those goals still don’t have a convincing explanation or formula for how the federal government will pay for it all. The best they can come up with is that we’ll increase taxes on the super-wealthy and the big corporations—or that it’s simply unacceptable, conceptually, that the world’s richest democracy cannot manage to achieve these goals for a healthy society. So long as these are the progressive narratives—even if they manage to win the upcoming elections—the goals will never be achieved. To create genuine, wide-spread support for undertaking the big-ticket issues we face, it will be necessary to explain to America how its monetary system actually works.

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MMT Carbon Initiative—a modest proposal

By J.D. ALT

With great interest, I’ve been reading about the “Terraton Initiative”—a program designed to enlist farmers to sequester one trillion tons of carbon in their soil using innovative and “regenerative” planting techniques. The initiative was recently rolled out by Indigo AG—a young and rising Boston company recently named by CNBC as “the world’s most innovative company.” Indigo AG’s mark has been the establishment of a sophisticated platform enabling grain-farmers across the country (and around the world) to differentiate the quality-characteristics of their harvest (e.g. organic, non-GMO, heirloom varietal, etc.) and connect directly with buyers seeking those quality-characteristics. What got my attention was the fact that Indigo AG, with its recently announced “Terraton Initiative,” is now proposing to help farmers deploy strategies to maximize carbon sequestration in their fields—and then pay the farmers $15 for each ton of carbon they sequester. (Current agribusiness farming techniques, promoted by Archers Daniels Midland and Monsanto—now Bayer—add 4 billion tons of greenhouse gas to the earth’s atmosphere each year.)

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The Visible Hand we need today

By J.D. ALT

According to the “invisible hand” theory—long celebrated (in America) as the most effective mode of human economics—private commerce should now be busy directing our efforts and resources toward those things we truly need to prosper as a collective society. Instead, the “invisible hand” seems to be willfully guiding us in the opposite direction. How can that be? Has something fundamental shifted, causing the mechanism of the Great American Enterprise to steer not just blindly, but recklessly?

The answer appears to be YES. And what has shifted is that the secret formula of the “invisible hand”—the profit-motive—is no longer capable of ignoring, or hiding, the collateral damages (unpaid “costs”) that have floated from its wake for two centuries. Or, to put it more accurately, while the profit-motive and the “invisible hand” continue to both hide and ignore those damages (most dangerously exemplified by carbon pollution) human society (which supposedly is the beneficiary of the “invisible hand”) can no longer allow it to happen.

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JAPAN DOES MMT?

L. Randall Wray

In recent days the international policy-making elite has tried to distance itself from MMT, often going to hysterical extremes to dismiss the approach as crazy. No one does this better than the Japanese.

As MMT began to gather momentum, its developers began to receive a flood of calls from reporters around the world enquiring whether Japan serves as the premier example of a country that follows MMT policy recommendations.

My answer is always the same: No. Japan is the perfect case to demonstrate that all of mainstream theory and policy is wrong. And that it is the best example of a country that always chooses the anti-MMT policy response to every ill that ails the country.

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How to Pay for the Green New Deal – Levy Institute

L. Randall Wray

How to Pay for the Green New Deal
WORKING PAPER NO. 931 May 2019

This paper follows the methodology developed by J. M. Keynes in his How to Pay for the War pamphlet to estimate the “costs” of the Green New Deal (GND) in terms of resource requirements. Instead of simply adding up estimates of the government spending that would be required, we assess resource availability that can be devoted to implementing GND projects. This includes mobilizing unutilized and underutilized resources, as well as shifting resources from current destructive and inefficient uses to GND projects. We argue that financial affordability cannot be an issue for the sovereign US government. Rather, the problem will be inflation if sufficient resources cannot be diverted to the GND. And if inflation is likely, we need to put in place anti-inflationary measures, such as well-targeted taxes, wage and price controls, rationing, and voluntary saving. Following Keynes, we recommend deferred consumption as our first choice should inflation pressures arise. We conclude that it is likely that the GND can be phased in without inflation, but if price pressures do appear, deferring a small amount of consumption will be sufficient to attenuate them

Insights from a Diagram-Machine

By J.D. ALT

I’ve spent the last month or so tinkering with and observing a diagram-machine representing the workings of the U.S. monetary system. In the process, I can see that I’ve bored a lot of people beyond their capacity with the tedium of the tinkering. I apologize for that, and I’ll hereby discontinue the torture. Nevertheless, I’d like to share a few insights the tinkering revealed—at least to me—that made the exercise worthwhile.

1. Money-creation is a response to what the American people decide they want to produce and consume.

This, it seems to me, is a crucial insight because it reverses the way we habitually think about and visualize “money.” The habitual frame is that money exists first, then we decide what we want to spend it on—and then we determine if there is enough of it available for us to get what we want. While this is certainly true for the individual family or business, the diagram-machine revealed very clearly that, for society as a whole, this is a false framing. Actually, it works the other way around: We, as individuals, decide we need new shoes, and the private banks—through a process of accepting Promissory Notes in exchange for bank-dollars—create the “money” that will enable the shoes to be both manufactured and purchased. The Federal Reserve (FED) then issues the Reserves, as necessary, to back up those bank-dollars during the “clearing” process that happens at the Central Bank at the end of each business day. In other words, the amount of money in the system expands, as necessary, to meet the consumption decisions made by American society. (Of course, individuals, families, and businesses each have to strategize how they’ll earn or otherwise acquire some share of the money that’s created by this process—but that’s a separate issue from the question of whether there’s enough money available, or how it’s created.)

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HOW TO PAY FOR THE WAR

Remarks by L. Randall Wray at “The Treaty of Versailles at 100: The Consequences of the Peace”, a conference at the Levy Economics Institute, Bard College, May 3, 2019.

I’m going to talk about war, not peace, in relation to our work on the Green New Deal—which I argue is the big MEOW—moral equivalent of war—and how we are going to pay for it. So I’m going to focus on Keynes’s 1940 book— How To Pay for the War—the war that followed the Economic Consequences of the Peace.

Our analysis (and the MMT approach in general) is in line with JM Keynes’s approach. Keynes rightly believed that war planning is not a financial challenge, but a real resource problem.

The issue was not how the British would pay for the war, but rather whether the country could produce enough output for the war effort while leaving enough production to satisfy civilian consumption.

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ZEN and the Art of Modern Money—Part 3

MMT for People in a Hurry

By J.D. ALT

POST #3  (Post #1, Post #2)

OPERATION #2—The federal government buys something big for the collective good.

NOTE: A much appreciated comment at Naked Capitalism re: Post#1 suggested that the term “Combustion Chamber” was misleading since the “fuel” (money) put into the chamber is not burned as in a motorcycle engine but is redistributed to other accounts. I was planning to point this out further into the narrative but the comment showed that would be too late. So, beginning now, I’ve changed the name “Combustion Chamber” to “Production/Consumption (P/C) Chamber,” of which we have two: a Public P/C Chamber and a Private P/C Chamber.

OPERATION #1 looked at a transaction in private commerce—an exchange of money occurring in the Private P/C Chamber of our diagram-machine. OPERATION #2 will observe a transaction in the Public P/C Chamber. Before we start, this is a good time to address a question you may already have asked: Why does our diagram-machine have two Production/Combustion Chambers? Why can’t all the Production and Consumption that American citizens need take place in just one?

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