Tag Archives: MMT

The People’s Money (Part 2)

An Explanation of the Federal Reserve Money system and what it means for the potential accomplishments of American Democracy

By J.D. ALT

Let’s begin by restating what I think was the main insight of PART 1: The overarching purpose of the Federal Reserve Act was to enable “money” to be created, as necessary, to support the scale of commerce that American Enterprise decides to undertake and accomplish. If the labor, materials, energy, technology, and ingenuity exist to do something—and it is desirable that it should be done—it is illogical to say it can’t be done because there isn’t enough “money” in the system to pay for the doing of it.

The only questions to be asked, then, are two: (1) Who will create the “money” when it’s needed, and (2) Who will decide when the creation of additional “money” is justified?

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MMT: REPORT FROM THE FRONT (PART 3)

By L. RANDALL WRAY

In this part, I’ll resume with comments on the critical contributions to the special issue of rwer. We finished Part 2 with a discussion of the shocking lack of citations to MMT literature in the critiques—especially the dearth of citations to the more academic contributions (as opposed to the summaries of MMT written for undergrads and the general public). Let me return to the oversight of contributions made by scholars such as Fullwiler and Tymoigne—who have mostly written academic pieces.

Sawyer does cite Fullwiler (although with the name misspelled! If he was my undergrad student, I would chew him out—at least get the damned names spelled correctly!). In his piece, which is largely an exposition that parallels MMT but is disguised as a critique, he wants to argue that MMT doesn’t properly distinguish between what circuitistes call initial versus final finance (Davidson has a similar distinction). But in reality, I have long used the circuit approach in my exposition—including in my own contribution to the rwer issue. The initial finance of government spending is created when the spending occurs, and today takes the form of two balance sheet credits: the deposit account of the recipient and the reserve account of the recipient’s bank. Sawyer seems to mostly agree with that. But according to Sawyer, MMT ignores the point that because bond sales and tax revenues logically follow government spending and can be seen as the funding stage. However, Eric Tymoigne made exactly this point in a 2014 article, arguing: “Put in terms of the circuit approach, taxes and bond offerings are part of final finance (funding).” So Sawyer is just wrong about this.

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The People’s Money (Part 1)

An Explanation of the Federal Reserve Money system and what it means for the potential accomplishments of American Democracy

By J.D. ALT

 

“Reserves”—that esoteric term in money-talk that postures to explain everything but explains nothing at all—have been much in the news of late. The Wall Street Journal even tried, recently, to explain what they are! They didn’t do such a great job. That’s unfortunate because, properly explained and understood, Reserves hold a big key to the political befuddlement—especially acute in the present election cycle—about what we can “afford” to accomplish as a collective society. This includes “paying for” real solutions to the five, money-intensive, life-defining dilemmas America now confronts: (1) climate change (2) healthcare (3) student debt (4) early child-hood care and development (5) affordable housing. It is therefore well worth the effort, I think, to attempt an explanation of “Reserves” that might actually be grasped by the collective consciousness of our political dialog.

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MMT: REPORT FROM THE FRONT (PART2)

By L. Randall Wray

PART 2

In Part 1 I discussed the third annual MMT conference that was recently held at Stony Brook, and you can find the program as well as videos of the conference here: (https://www.mmtconference.org/). In this Part 2 I discuss a special issue of real-world economics review devoted to MMT (http://www.paecon.net/PAEReview/issue89/whole89.pdf). As usual, my report stretched out to become too long for just 2 blogs so there will be a Part 3, coming later this week. And who knows, maybe I’ll need a Part 4.

First, the good news. The editors seem to have played the game reasonably fairly. They invited contributions by MMT proponents and opponents. Often editors will give the opponents an advantage—for example, letting them see the contributions by MMTers in advance, without letting the MMTers see the contributions by the opponents. When it comes to MMT, editors don’t like to play fairly. It looks to me like proponents and opponents were treated equally. That is highly unusual when it comes to MMT “debates” which are almost always stacked against its proponents.

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MMT: REPORT FROM THE FRONT

By L. Randall Wray

PART 1

As many readers know, the third annual MMT conference was recently held at Stonybrook, and you can find the program as well as videos of the conference at the link: (https://www.mmtconference.org/). In addition, real-world economics review has just issued a new volume devoted to MMT (http://www.paecon.net/PAEReview/issue89/whole89.pdf). I’ll briefly address both, in two parts. I’ll talk about the conference in this one, and about the RWER papers in the second part.

Part 1: The Third International MMT Conference

Unfortunately, I missed the first day of the conference as I was the plenary speaker at the annual ABFM (Association for Budget and Financial Management) conference in Washington DC. This invitation resulted from a chance meeting with a member of the group when I was teaching on a Fulbright to Estonia. At first he was shocked at the views I was propagating, but quickly became a convert, converted another member, and that led to the invitation. This group mostly researches state and local government finance—obviously those are currency users and need to balance budgets—but they tend to apply what they know to the federal budget. MMT of course explodes that because the finances of the sovereign currency issuer are nothing like those of the non-sovereign government entities. However, many of the attendees were open to MMT—or, at least, now they want to know more. It was a pleasant experience—and I learned more about a whole sector of the academy that I didn’t know much about. Many of those attending are in Masters of Public Administration schools. My own Professor Minsky’s first graduate degree was an MPA. I actually wrote a paper on the topic of the problems of state and local government finance, up here at Levy (http://www.levyinstitute.org/publications/fiscal-reform-to-benefit-state-and-local-governments-the-modern-money-theory-approach).

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Two-Cent Message

By J.D. ALT

Elizabeth Warren has succeeded, I think, in framing an argument as close as anyone is going to get (in the present election cycle) to the progressive position of MMT. Warren acknowledges that she’s proposing goals and undertakings that will “cost” a lot of money. She further acknowledges that everyone asks: “How are you going to pay for it?” And she gives a very specific and simple answer: an “ultra-millionaire tax”—which she details as “two-cents on every dollar of income over $50 million.” She then goes on to list what those “two-cents” will accomplish: The cancellation of college debt; free two-year college education; universal pre-school day-care…etc.

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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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