Tag Archives: Modern Monetary Theory

AOC# and MMT Spook the AEI

William K. Black
January 17, 2019     Bloomington, MN

AOC# drives Republicans berserk.  Booing her, and only her, at the ceremony admitting the members of Congress, raging at her for dancing – yes dancing – in a college video, and attacking her for having a nickname (“Sandy”) in high school demonstrate the degree of derangement and the pathetic ammunition they have found in their failing efforts to discredit her.  MMT has become an indirect beneficiary of this derangement.  AOC# has expressed support for MMT – so the right is now eager to reach the famous second stage of opposition to good ideas (‘first they ignore them, then they attack them’).  It is far better for the right to attack our good ideas, than ignore them.  As with the right’s attacks on AOC#, the nature of their attacks on MMT is laughably extreme and nonsensical.  When they attack MMT, they spread our views.

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MMT’s Opening

By J.D. ALT

I recently read in the WSJ that Modern Monetary Theory is defined as the proposition that the federal government can borrow as much money as it needs so long as the interest rate it pays is less than the growth rate of the GDP. The short article, by Desmond Lachman, went on to argue why this was a dangerously false premise. Thus, MMT got shot with two bullets in one paragraph: first by defining it in a way that negates its most fundamental principle (that the federal government doesn’t need to “borrow” fiat currency in order to spend fiat currency), and second, by declaring MMT to be not only false, but dangerous.

It’s remarkable how stubbornly tenacious mainstream economic thinking is about misunderstanding and fearing MMT. The fundamental belief that refuses to be shaken is that for a sovereign government to spend, it must first claim—either through taxation or borrowing—some portion of the profits of private commerce. This immediately sets in motion complex calculations about what percentage of those profits can be claimed for government spending before the profit-making capabilities of private commerce, itself, are harmed (because the capital that would otherwise be used for expansion, is being appropriated for government spending). When that point is reached, the calculations insistently predict, private commerce will cease to grow—perhaps even shrink—which perversely will then reduce the amount of currency available for the government to claim a portion of; if, under those circumstances, the government continues nevertheless to increase its spending (by insistently increasing its taxing or borrowing), private commerce will be driven to shrink even further, setting in motion a disastrous downward spiral. The calculations, in other words, are structured to demonstrate that government spending per se strangles the goose that lays the eggs—and, therefore, it is rational to argue that government spending should be limited, and specifically that it should not exceed some calculated percentage of GDP (which, of course, in most calculations of this sort, it already does)!

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Macroeconomic System for Climate Change

Macroeconomic System for Climate Change

A U.S. Patent Application

Inventor:  J.D. ALT (acknowledging all advocates of modern fiat money)

Assignment:  To all citizens of democratic free societies

Abstract:

A macroeconomic system including the issuing of a fiat currency by a sovereign government; the establishment of a tax regime on the government’s citizens wherein the taxes levied can only be paid with the sovereign government’s fiat currency; the sovereign government’s debiting of its tax collection account to purchase goods and services from its citizens and their commerce; the sovereign government’s issuing of future fiat currency certificates—to be redefined as “treasury bonds”—which it trades, at a discount, for existing fiat currency held in private financial markets; the sovereign government then spending the traded-for existing fiat currency to purchase goods and services from its citizens and their commerce over and above what it is able to purchase by debiting its tax collection account; the management of the value of the said fiat currency relative to goods and services by the general means of draining the currency from circulation through the sovereign tax regime—and by the specific means of controlling the discount and time-to-maturity of the issued future fiat currency certificates (treasury bonds); and wherein the sovereign government’s spending is thereby enabled to be orders-of-magnitude greater than what the government collects in taxes—without encumbering the government with debt, and without devaluing the fiat currency with respect to the citizens’ commerce; said macroeconomic system thus enabling a sovereign government to spend whatever fiat currency is necessary to enable and assist its collective society to mitigate and adapt to climate-change. Continue reading

An MMT View of the Twin Deficits Debate

Invited Presentation by L. Randall Wray at the UBS European Conference, London, Tuesday 13 November 2018

Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often referred to as MMT, which—at the risk of oversimplifying—says that we worry far too much about debt issuance. Can you help us understand where fears may be misplaced?

Wray: First let me say that I think the twin deficits argument is based on flawed logic.

It runs something like this: the government decides to spend too much, causing a budget deficit that competes with private borrowers, driving interest rates up. That appreciates the currency and causes a trade deficit.

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FUTURE DOLLARS

By J.D. ALT

In recent essays I’ve made reference to a new framing of what is actually happening when the U.S. treasury issues a bond. It seems to me, this new framing goes to the heart of MMT and might well hold the key to a practical implementation of MMT principles in real world applications. The framing is this:

A U.S. treasury bond is a certificate of issuance of future dollars.

I will expand on this in a moment, but first it is important to say what this framing says a treasury bond is NOT:

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MODERN MONEY THEORY: How I came to MMT and what I include in MMT

My remarks for the 2018 MMT Conference September 28-30, NYC

L. RANDALL WRAY

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I’d also like to quickly respond to some comments that were made at the very last session of the conference—having to do with “approachability” of the “original” creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of “rockstars” or “heroes”. I find this quite embarrassing. As Bill said, we’re just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I’m happy (even if uncomfortable) to sign books and to answer questions at such events. I don’t mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill’s blog and Warren’s blogs) will reveal answers to most questions. So please do some homework first. I receive a lot of “questions” that are really just a thinly disguised pretense to argue with MMT—I don’t have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer’s original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention—as we have done for MMT—and then I’ll pay attention. That said, here you go: [email protected].

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Paying for Hurricanes

By J.D. ALT

What you believe America can build—or rebuild—as a collective society hinges on how you answer one fundamental question: When the U.S. government issues a treasury bond, is it “borrowing” money that must be repaid with future tax-dollars—or is it “creating” money that can be spent to accomplish big and important collective goals?

Getting the right answer to this question could be existentially important. As I’m writing, for example, Hurricane Florence is unleashing historical damage to the U.S. Atlantic coast and inland areas. Over the next weeks and months, the inevitable debate will unfold over how much America can afford to “pay” to make the lives of tens of thousands of families and thousands of local communities whole and functional again. This time, perhaps, the debate will go even further: it might begin to earnestly ask the bigger questions about the future of our coastal cities and infrastructures in an unfolding era of climate change. These bigger questions will not involve billion-dollar budgets, but trillions of dollars of federal expenditures.

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Miscalculating Medicare-for-all

By J.D. ALT

A report from the Mercatus Center at George Mason University calculating the “cost” of Medicare-for-all has received much attention recently—first, because Bernie Sanders claimed the report concluded that Medicare-for-all would save the American people $2 trillion over a 10-year period. That claim was still warm when the report’s author, Charles Blahous, told the Washington Post that Bernie’s interpretation of the report’s conclusions were blatantly false. In fact, Blahous told the Post, he posited that savings scenario based on a set of assumptions which he subsequently proved were so highly unlikely as to be impossible.

The real conclusion of his report, Blahous said, was that Medicare-for-all will “raise government expenditures by $32.6 trillion” in the first decade—or, about $3.3 trillion per year. Blahous went on to say this: “For perspective on these figures, consider that doubling all currently projected federal individual and corporate income tax collections would be insufficient to finance the added federal costs of the plan.”

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How big does the fire need to be?

By J.D. ALT

I have written about this before, but it bears repeating now—and perhaps it bears repeating every week until somebody with more leverage than me picks the message up and carries it a step further: America (and the rest of the world, for that matter) has the resources needed to limit and mitigate the enormous damage and dislocations that climate-change is now beginning to impose. The “resources” I’m referring to are not dollars. They are materiel, labor, and human ingenuity. The only question is how and when we’ll stop simply raising warning flags and marshal those resources to take real action against the growing challenges.

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The Explicable Mystery of the National Debt

By J.D. ALT

America’s current “national debt” is tallied to be $21.5 trillion. When politicians and economic pundits talk (worry, fret, wring their hands, gnash their teeth) about this “debt” they implicitly assume—along with their listeners, readers, and potential voters—that this fantastic sum will eventually have to be paid back. That’s what happens with debts, right? Someone calls them due! Everyone also assumes the American tax-payer will have to do the paying. (Quick calculation to save you the trouble: Each one of us is in hock for $65,950!)

Depending on which political football is being tossed around, this “national debt” is either a crisis that must be addressed first (before anything else can be paid for!) or it’s something we can simply ignore for the time being—until the promised “economic growth” comes along that will somehow enable the federal government to collect that extra $65K from each of us. So long as we promise that Yes! someday we’ll pay it off, we can feel okay about going one more day, or month, or year without even starting to do so. In the meantime, of course, the “national debt” somehow keeps growing! At least that must stop, we declare! Our government must stop borrowing even more!

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