Daily Archives: June 8, 2011


By L. Randall Wray

We thank commentators for mentioning some of the many people who are helping to spread the word about MMT to the world, both through blogs and out there in the real world through their many contacts. We especially thank Cullen Roche (Pragcap.com), Selise at FDL, and Paolo Rossi Barnard (a reporter and documentary film maker in Italy) who were mentioned in comments this week. Paolo is right: we have to get beyond academics, beyond policymakers, and even beyond the blogosphere. Many of you out there are much better connected and more knowledgeable about these things than we are. We need your help. We need your advice. What we will do is to use NEP as a resource for networking–with other MMT blogs but also with communities. We ask for your thoughts: what is the best way (other than blogs and comments) to organize efforts to spread the word to the “real world”. We need You-tube videos and animated cartoons that can go viral; we need those of you with Twitter followers to ‘tweet’ about us; we need presentations before community groups; we need documentaries; and we need letters to the editor and op-eds in newspapers across the nation. Money also helps! (We’ll be adding a Donate button and seeking grant support soon.) Please send your thoughts.

Now on to some of the comments.

There were a couple of comments urging us to be sure to demonstrate that modern money “works” as we say it does. OK, we will do that over the coming year. But look at it this way. “Modern money” is 4000 years old, “at least”, according to Keynes. A 4000 year history shows that it “works”. Of course that depends on what you mean by “works”. But if you don’t want to define that too narrowly, I think you’d have to define modern money as a “success”–we’ve increased lifespans, improved quality of life, sent men to the moon, created literature and art–all while operating with modern money. That said, most people do not understand how the actual real world monetary system “works”. And that is why they think we are describing a new monetary regime. We are not. We are explaining how our monetary system actually works. No myths, no religion, no magic.

As I said in the Intro (Blog 1) this Primer WILL NOT present and critique the orthodox, mainstream approach. It is already in every economics textbook. It is the basis of all the conventional wisdom about the operation of the monetary system. It is wrong. But it is irrelevant to the purpose of this Primer—which is to explicate how things really work.

Now that is going to keep things largely at the theoretical level, at a general level that can be applied to specific circumstances. The USA is NOT Turkey. Both have modern money systems. But if the focus is too much on the operations in one nation, it will be hard to see how the points made apply to others. The regular pages of NEP (and Billy Blog, and many other MMT blogs) apply MMT to specific issues.

Here are some responses to more specific comments. Please remember that we will be covering such areas in detail over the next year.

(i) Where is the evidence that an economy will quantity expand rather than price expand when stimulated?

It’s always a risk, as with most any policy, that there could be a round of price increases after a fiscal stimulus, due to the institutional structure (i.e. bottlenecks) and level of aggregate demand (i.e. full employment of plant or labor). The key is to provide stimulus when it is needed, and to formulate and direct the stimulus in a manner that is least likely to cause price increases. As will be seen, we do not favor “pump priming”, old-style, Keynesian aggregate demand stimulus in most situations. We prefer targeted policy. A case in point is the job guarantee/employer of last resort program, which sets a fixed wage to COUNTER the fact that bottlenecks exist in many markets and as an alternative to traditional Keynesian pump priming precisely because of problems associated with bottlenecks.

(ii) Where is the evidence that the floating rate exchange mechanism gives you the degree of freedom required to allow MMT to work?

As discussed above, MMT explains how things really do “work” in the real world. Floating exchange rates offer more fiscal and monetary policy space. This will be explained in detail in coming months. Indeed, as discussed in the introduction, a major purpose of this Primer is to deal with the range of exchange rate regimes.

Finally, a (longish) note on comments and on this project more generally.

We hope that those who engage with us on this Primer are here because they want to learn and to help improve MMT through the creation of this Primer. We will not argue with those who want to reject it. Yes, there are alternative explanations of the operation of the monetary system. No one has to accept ours. As Paul Davidson always says, channeling Keynes, you cannot convict your opponent of error—you must convince her. People are convinced in different ways. At least one commentator says that she/he will not be convinced with theory. I have found that some people are convinced very quickly—when they are introduced to MMT they say it is like putting on a new pair of glasses. Suddenly the world becomes clear to them. Paolo Barnard (who commented) and I had many long telephone conversations. He grasped the implications immediately (and he discussed them in his comment)—he did not need the details, he was convinced by the conclusion. We then filled-in the details over the past year. Many others do not like the conclusions. They do not come on board until they’ve got all the details. Some are skeptical of “pure logic”—to them the “three balances” looks highly suspicious (why would deficits and surpluses have to balance? Why can’t we all run surpluses all the time?). Still others jump immediately to Zimbabwe hyperinflation—using their understanding of some real world event. They’ve got to be brought beyond their fears before they are open to understanding MMT. There is no “one size fits all”.

Civility. Education. That is what we are aiming for on the MMP. If you want to throw “flames” please post them to the main site.

The claim that none of the NEP people has explained MMT simply is perplexing to me. Read Stephanie’s posts, the model of clarity. In any case, that is the purpose of this MMP—to start with the basics and to build up gradually to MMT. Wait a year. If after the next 52 posts you are still convinced that the best MMT explanation can be found elsewhere, so be it.

Ditto the claim that no MMT people at NEP care anything about fraud and criminal activity. My goodness. Ask our colleague Bill Black who has spent the most time studying and exposing bankster foreclosure fraud and the role played by MERS (Hint 1: it ain’t Bill. Hint 2: surf HuffPost). Look, Michael Hudson and Bill Black are fellow travelers, working in a parallel world to our MMT world. To be sure, it is a non-Euclidean world in which parallel lines intersect. Yet, they cover some issues that are different from MMT concerns. We are thrilled, literally, that some readers find their ideas important, maybe even more important than MMT. That is why they are frequent contributors to NEP on other topics including control fraud and super imperialism. Inequality? Unemployment? Job guarantee? Poverty? Incarceration? Banker fraud? We’ve been writing about these issues, too, for decades—long before NEP, before blogs, before widespread use of the internet.

The argument that NEP folks are just academics that never pay any attention to “real folks”? Look, Stephanie, Bill and I speak to hundreds of groups per year. I cannot recall ever turning down an invitation to speak unless it conflicted with another talk—in which case I worked out an alternative date. I speak at local Perkins coffee shops. I go to old folk’s homes. I teach MMT to atheists. For heaven’s sake, Stephanie ran for public office—as a Democrat—against all odds, in Kansas! She knocked on thousands of doors. She kissed thousands of babies, and hugged hundreds of thousands of flag waving dads. Warren ran for Senate as a TeaParty Democrat, before crowds of well-armed nuts who hoped to get a glimpse of Sara Palin. (Try pushing MMT and ELR before that crowd!) We speak ALL THE TIME to nonacademic groups. The idea that we chose an easy academic path to Nobel prizes and global academic acclaim cannot be farther from the truth. Only those outside academics could possibly be fooled. You really need to see our day planners before you criticize us for lack of involvement.

Admittedly, our success could be criticized as spotty. Both Stephanie and Warren lost their elections. But all of you, every single one of you reading this blog (as well as Billy Blog) is here because we—a half dozen of us—created Modern Money Theory from the beginning. Us Pointy-Headed Academics (with a somewhat less-pointy-headed hedge fund manager). We welcome, with open arms, all the new MMT-ers. We admit our failures. No, we are not the best writers. We are not the best performers. We are not the best framers of the message. In many ways we are technically, socially, and politically inept. For the past 2 decades we used to meet once a year to count how many MMT-ers there were in the world. It took a dozen years to get beyond the fingers on one hand. We celebrated when we had to bring in the second hand and some toes to do the count. I suppose that is a measure of our incompetence. Maybe some of you could have developed and spread the ideas much more quickly than we did. We wish you would have joined up a lot earlier! We’ve had our years wandering around the wilderness.

But we learned to be thick-skinned. We’ve been called every name in the book, from Nazi to Pinko Commie. We could not be deterred. And now you are here. We won. At least, we interested somewhere around 3000 of you enough to bring you to this site (on day one of the MMP). We are glad you are with us. We want you to help us to continue to develop the theory, the message, and the strategy to get these ideas out. We are glad to pass the torch. Indeed, we must pass the torch.

So to conclude: This is a joint project. We are trying to create a primer of MMT. The project will take a year. You are a contributor, not a critic. On Mondays there will be a blog to explain a piece of the theory (to be precise, it is at most 1/52nd of the Primer). You tell us where it is unclear or just plain wrong. If you can explain it better than we can, go for it. We’ll do our best to correct the mistakes and clarify the message in the Thursday response. Of course, until we near the end, there will be a lot that still needs to be covered. Indeed, even at the end of our journey—June 2012—we might find that the Primer still has a long way to go, in which case we will continue. Maybe the journey will never end. That will depend, to a large degree, on you and your commitment to the process.

Tim Pawlenty Blurs the Distinction Between an Entrepreneur and a Rentier

By Marshall Auerback

In a private email exchange, Michael Lind of the
New America Foundation drew my attention to a recent speech by Republican Presidential candidate Tim Pawlenty. Like those of us who blog on this site, Pawlenty thinks we need to cut taxes.  But, as Jon Ward at HuffPost argued, Pawlenty’s justification for tax relief “took him into unusual — and scatological — rhetorical territory.” 

Pawlenty said that about five percent of the population belongs to the entrepreneurial class and that “if that five percent become six, seven percent, we’ve got a very bright future. And if that five percent becomes four, three, two or one percent, we’re in deep doo doo. We are in deep crap.”

He’s given away the Rentier mindset.  He talks about “entrepreneurs” but he’s really talking about rentiers.

About 10 percent of the US population is self-employed, the majority of them lawn mowers and such.  Clearly Pawlenty’s tax cuts aren’t aimed at expanding the group of self-employed lawn mowers by one or two percent of the population. He’s talking about expanding the richest few percent.

He’s talking about capitalists, not entrepreneurs.  There’s a certain overlap, but most capitalists are not entrepreneurs and vice versa.  Most capitalists are passive investors in businesses they know nothing about and most entrepreneurs are unable to fund their businesses without borrowing. 

The rentier right wants to blur this distinction, so 2-year-old Junior Moneybags, whose trust fund is earning money while he barfs on the family maid, is an “entrepreneur.”