By Scott Fullwiler
As Randy’s recent post on consolidating vs. not explained, a number of critics argue that consolidation doesn’t “really” happen. Of course, that’s not the point MMT is making, as we’ve noted numerous times, including Randy’s post. Regardless, though, there are real-world governments that do publish consolidated reports.
The UK posted its report here.
Neil Wilson has reviewed it for those that don’t want to read through the whole thing here.
Hat tips both to Neil Wilson and Economonitor commenter acornus
By L. Randall Wray
This is another short post on MMT, a sort of follow-up to my post from a couple of days ago. There was an interesting response to various comments on my piece, which was posted up on Mike Norman’s website.
We got the typical: “oh you MMTers always want to consolidate the Fed and Treasury, but really the Fed is a private institution that is not a part of government”, and “in reality the Treasury cannot spend unless the Fed will allow it to spend, otherwise it must get tax revenue before it can spend”, and hence “really government spending is constrained by its revenue, just like a household or firm”.
By Raúl Carrillo
“Where does money come from?” That’s our question. That’s the trump card Deficit Owls play to explain why the case for austerity is shallow and sadomasochistic, now and forever. When one spreads the true answer—that the Federal Reserve creates dollars with keystrokes, that the U.S. government, unlike like a state or a household, can’t possibly “go broke”, that Uncle Sam has to worry about inflation but doesn’t need to tax or borrow to spend—policy creativity explodes. The false choices of public finance are illuminated. We can decrease taxes AND increase expenditures. We can achieve full employment AND price stability at the same time. Once we align conversation with operational reality, and recognize that we can’t collectively run out of money, we can have an honest—if always antagonistic—conversation about what institutions should do to create, administer, and regulate stocks and flows of resources.
By L. Randall Wray
*I’ll return to my series on the role of taxes in MMT later this week. Meanwhile, here’s a short post on MMT.
Modern Money Theory (MMT) seems to confuse two groups of otherwise sympathetic economists. First there are those like Paul Krugman who are generally of the Keynesian persuasion and who like MMT’s “deficit owl” approach. I think Krugman would really like to stop worrying about the deficit so that he could advocate an “as much as it takes” approach to government spending. The problem is that he just cannot quite get a handle on the monetary operations that are required. Won’t government run out? What, is government going to create money “out of thin air”? Where will all the money come from?
He really doesn’t understand that “money” is key stroke records of debits and credits. He still thinks banks take in deposits and then lend them out. He starts to tear his hair out whenever someone tries to correct him on this. He’s wedded to the deposit multiplier idea he got from his Econ 101 textbook.
By L. Randall Wray
This is another instalment in the series on the MMT view of taxes. I’m back from China, participating in the annual Hyman P. Minsky Summer Seminar at the Levy Economics Institute. Yesterday my colleague, Mat Forstater, gave a talk on the job guarantee and “green jobs”. Along the way he made two particularly insightful comments on MMT and taxes that I’ll use to introduce this instalment.
First, he discussed the MMT view of “modern money”—that is to say, the money that has existed “for the past 4000 years, at least, as Keynes put it in his Treatise on Money. The money of account is chosen by the sovereign and used to denominate debts, prices, and other nominal values. It is the Dollar in the US.
By J.D. Alt
How would Thomas Piketty propose to save the city of Norfolk, Virginia? He teaches us, ad-nauseum, that what the U.S. collective state has to spend on such things as sea walls, flood gates, elevating infrastructure and roadways, buying-out property owners so they can relocate to higher ground, etc., etc., is limited to the number of tax dollars that can be collected from U.S. citizens—as if the collective state itself were like a club, and if the clubhouse needs repairing, the club members must first pay a special assessment of dues—or, alternatively, the club can borrow dollars from the supply of Capital owned by the wealthiest 1% of its membership, or (as a creative alternative) the rebuilding effort could be structured in such a way that the newly elevated Norfolk would pay rent to the one percent in perpetuity for the privilege of living above sea-level.
By L. Randall Wray
In previous instalments we have established that “taxes drive money”. What we mean by that is that sovereign government chooses a money of account (Dollar in the USA), imposes obligations in that unit (taxes, fees, fines, tithes, tolls, or tribute), and issues the currency that can be used to “redeem” oneself in payments to the government. Currency is like the “Get Out of Jail Free” card in the game of Monopoly.
Taxes create a demand for “that which is necessary to pay taxes” (and other obligations to the state), which allows the government to purchase resources to pursue the public purpose by spending the currency.
By Stephanie Kelton
Scott Fullwiler spent part of the afternoon reading (and reacting to) a paper that John Cochrane just gave at a conference on central banking in Stanford, CA. I haven’t read the paper yet, but judging by Scott’s reaction on Twitter, there’s lots to like about it. (Mostly because it appears to draw heavily from a broad swath of at least a decade of published work from MMTers.)
We’ll have to wait for Scott’s forthcoming post to see just how close the parallels are (and how much Cochrane 2014 departs from Cochrane 2009). It will be interesting, particularly because several years ago Cochrane wasn’t interested in garnering insight from outside the mainstream. “Every now and then,” he confessed, “there’s an excluded subgroup that turns out to be right.” But he readily admitted — nay, disparaged — “I haven’t read their specific work. I’m busy, and I try to read what is considered interesting and valid.” Being right matters, and I think that’s why MMT has begun to seep into the mainstream. The risk (though this is not how Noah sees it) is that “all the interesting heterodox ideas [will] quickly get incorporated into the mainstream in some slightly bastardized form,” leaving the discipline as a whole only marginally better off, while those who did the heavy lifting remain at the margins.
By L. Randall Wray
I’ve been blogging a series on the role of taxes. In the first piece, I argued that “taxes drive money”, in response to a silly claim that MMT argues we do not need taxes. In the second instalment I examined other uses for taxes—including to reduce excessive aggregate demand and to discourage “sin”. Most importantly, I argued that we do not need taxes to “pay for” sovereign government spending. In the third piece, I argued against the “Robin Hood” view that we need taxes to “take from the rich to give to the poor”. That should be obvious—we can spend on the poor without any tax increase, and indeed could spend on the poor while reducing everyone’s taxes.
Pavlina R. Tcherneva presents her proposal for a Youth Employment Safety-net (YES!) at the Interdisciplinary Conference on Youth Unemployment in Times of Crisis “¡No Mas! Strategies and Alternatives”. Middlebury College, VT (starts at 38min 45secs)