We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own
Let me repeat and clarify my purpose in this series. I am attempting to initiate a discussion among progressives on how to frame discussions about money and related issues. My perspective is MMT. To be sure, on one level MMT is a description. It provides a correct description of the operation of a sovereign currency system. Some commentators have objected to my progressive framing; they assert that one can accept MMT without the progressive bias. Sure they can. One can understand how money “works” but prefer NOT to use money in the public interest.
Science is necessarily a progressive endeavor. Or, as Stephen Colbert puts it, reality has a well-known liberal bias. Of course it does. From global warming to the problems of unemployment, the liberal perspective is based in reality, while the conservative view necessarily denies science.
But one can accept the MMT description and still pursue a reactionary policy agenda. The conservative is willing to take the “technology” of a modern money system to use it against the public purpose. Technology can be used in highly anti-progressive ways. Tear gas to put down civil rights demonstrators. Nuclear weapons to vaporize humans. Concentration camps and gas chambers.
Science, however, is progressive.
Paul Samuelson said that we need the “old time religion”, the magic, the mysticism, the outright lies about the way money works in order to dupe the population. This is a fundamentally anti-progressive position. It is based on a fear that democracy might lead down the wrong road, and so our anointed “leaders” need to obfuscate the truth in order to confuse the population. As I discussed, the belief that payroll taxes “pay for” Social Security benefits, and that paying taxes justifies one’s receipt of benefits, is a good example of the fear of democracy to which Samuelson was referring.
Policy must go beyond description. It must deal with “ought”. As Lakoff says, that necessarily brings up morality. All policy and all politics involve morals. Progressives can take the moral high ground—they are on the right side of science. Unfortunately, they have (mostly) adopted the conservative framing—which is morally inferior, and is not consistent with the progressivepolicy agenda.
The purpose of this series is to develop a progressive meme for money. I have no desire to provide advice to conservatives. First, they’ve already got the meme—the dominant framing of money. As I said, they tie money to “free markets” and all the other hot-button conservative frames. Second, I’ve got no desire to help them. They are winning, without my help.
Progressives need a new meme for money. This series is addressed to them.
Alternative Spending Meme
At the level of the national government, taxes don’t pay for nothing. As discussed, they serve three purposes: they drive money, they prevent excess demand, and they influence choice. All of these are within the proper purview of public policy; all have substantial social benefits. We need to stress these, and discard the conservative tax meme that taxes pay for government.
Now, at the local and state (or provincial) level, government is a “user” of the currency, not an issuer. It needs an income, including tax revenue, bond sales, and federal government “transfers” (or “block grants”). That is true.
As discussed, promotion of the stakeholder view is a slippery slope, but for some government services it may not be too dangerous: police and fire services, garbage collection, toll highways, and so on, where benefits are fairly easy to see and are widely shared. But the conservatives brilliantly took advantage of the devolution of government in the area of social services. As the federal government underfunded social services in the face of growing inequality and an aging population, the burden on state and local government increased. The “welfare queen” framing of the social safety net pitted stake-holding taxpayers against undeserving loafers demanding “entitlements”. Hence, welfare was ended by Clinton—just as it took a Republican to initiate détente with China, it took a Democrat to end a half century of safety nets for the poor.
The biggest loser, however, was Social Security. It had long been sold as an insurance scheme: workers “pay in” to a fund that they draw down on retirement, with benefits linked (somewhat loosely) to earnings. That made it easy to produce “money’s worth” calculations and as well to estimate the program’s “solvency” over periods up to 75 years!
For the first half century of the program’s existence, money’s worth was good for most workers as the payroll tax rate was low due to the relatively young demographics of the American workforce. Over time, tax rates rose in part due to slower economic growth and in part due to changing demographics. At the same time, the program’s long-run “solvency” came into question—leading to the transformation mentioned earlier from “paygo” to “advanced funding”.
In truth, Social Security was never an insurance plan, but rather an “assurance”: you work today to support yourself as well as seniors, and when you retire the workers of the future will take care of you. Really, there is no other way, since as we discussed above there is no way to financially provision for the future at the aggregate level. Tomorrow’s consumption will come out of tomorrow’s production.
But here’s the problem: liberals and progressives bought the conservative meme. They believe that the conservative tax framing protects Social Security: “I paid into the Trust Fund through my taxes, so I deserve retirement benefits”. With that framing, Social Security is doomed. On narrow “money’s worth” calculations, Social Security is already a bad deal for many middle class workers, and it has always been a bad deal for high income workers (who don’t want the insurance, anyway).
And it means that those whose work lives and pay for work were substandard do not “deserve” decent lives in old age. They’ve got to dumpster dive and eat tins of dog food because they do not measure up, in terms of their own tax payments. They didn’t “pay in” so they do not deserve benefits. As long term unemployment rises, as labor force participation of men falls, as wages stagnate for most workers, as the wage share of national income continues to fall, the problems with this conservative meme are compounded. The elderly of the future will not “deserve” decent retirements. The program will go broke.
All the conservative scare tactics work and are at least grounded in some truth if one accepts the meme that taxes pay for benefits: tax rates will have to rise, benefits will have to be cut, and retirement ages increased to maintain program solvency; Social Security won’t be “there” for today’s young workers, who would be better off taking their money elsewhere.
The best that “progressives” can do is to say that the future tax revenue shortfall is “only” 25% of promised benefits—which only whips up fear in the listener who imagines a future retirement at three-quarters pay.
I watched in horror as some of the most prominent progressives fought tooth-and-nail against President Obama’s payroll tax holiday on the argument that payroll taxes protect Social Security’s future! As if what Americans love about the program is the tax they have to pay.
Bruce Springsteen knows something about framing.
We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own
Here’s the alternative meme on the social safety net. We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.
We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own.
Here’s the alternative meme about taxes and government spending. We pay taxes to keep our currency strong. A strong currency keeps our country strong. A strong currency and a strong country ensure that we can take care of our own.
We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own.
If government doesn’t spend tax revenue, how does it finance its spending? It spends its currency into existence. In modern economies this is accomplished through keystrokes that credit bank reserves, with banks crediting accounts of recipients. A government that issues its own currency can never run out of keystrokes.
Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.
Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will. We need the right meme to quicken the will.
Even the institutional home to Milton Friedman’s version of monetarism, the St. Louis Fed understands these points about sovereign “affordability”. Two of its economists wrote:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets.“ http://www.stlouisfed.org/publications/re/articles/?id=2157
Sovereign government spends the currency into existence. It cannot run out of money. It cannot be forced to default. It never needs to either tax or borrow its currency in order to spend. It is never subject to the whims of bond vigilantes. It can afford anything that is for sale in dollars.
That’s our state money meme: The currency-issuing sovereign can afford to buy anything for sale in its own currency. Duh!
Government can no more run out of money than can the scorekeeper at Fenway Park run out of runs to award the Boston Red Sox.
In our modern economy, government spends by “keystrokes” that mark-up the deposit accounts of sellers. In practice because banks handle the records of debits and credits for us, bank reserves are increased, and banks increase our deposits whenever we receive a payment from government.
Government cannot run out of keystrokes.
“We need a good government to help us take care of our own.”
A “good government” is just like a “good family.” It lives within its means. /s
But even if it doesn’t, it still takes care of its own. Also, with our government its financial means are unlimited so it makes no sense to say that we can’t provide the financial wherewithal to take care of our own. A little more negatively put; what kind of unpatriotic slimy slugs won’t take care of their own. What hole from hades did they crawl out of?
Those two Fed economists went on to say:
“Of course, as we have already seen with health care, the government does not have the ability to systematically increase spending without any regard for funding it. And government borrowing can be extremely costly. The cost of government borrowing is the “crowding out effect”: Investment funds mobilized by the government cannot be used in the private sector. It is in this framework, though, that classical economic theory argues the government should neither borrow nor lend, not because it has a moral obligation to run balanced budgets, but because it must consider the cost of diverting investment funds away from potentially more-productive uses”
Very much out of paradigm, I think is the phrase you would use. And, interestingly, a denial of a moral basis for their view.
“Paul Samuelson said that we need the “old time religion”, the magic, the mysticism, the outright lies about the way money works in order to dupe the population. This is a fundamentally anti-progressive position. It is based on a fear that democracy might lead down the wrong road, and so our anointed “leaders” need to obfuscate the truth in order to confuse the population. As I discussed, the belief that payroll taxes “pay for” Social Security benefits, and that paying taxes justifies one’s receipt of benefits, is a good example of the fear of democracy to which Samuelson was referring.”
No, it’s a good example of a person of good will who has fallen for the myth (or the lie, as you call it). Samuelson may have endorsed the lie because he feared the truth, but that does not mean that a fear of democracy can be attributed to anyone who believed him. (BTW, our Constitution is the way it is largely due to a fear of unfettered democracy. It protects the rights of the minority and the individual against the will of the majority.)
If it is only through the Progressive lens that people will see the truth of MMT, then MMT is doomed. There are not enough true believers. MMT must be framed so that liberals and conservatives alike can understand and adopt it.
Accepting the descriptive truths of MMT does not require a “progressive” lense. The use of MMT as a progressive tool does not require “conservative” acceptance. In fact, I would submit it is inconsistent with what is usually meant by “conservatism.”
Capitalism and markets do not automatically produce “good” results. They do so only under highly restrictive assumptions that are rarely met in real life. For capitalism and markets to produce “good” results, government intervention is required. I have found that the main difference between “conservatives” and “progressives” is the extent to which they support government intervention. It is not uncommon for “conservatives” to reject government intervention in nearly all cases.
Without significant government intervention, capitalism and markets are inconsistent with democracy. We were teaching this decades ago. And it has nothing to do with MMT. The claim that MMT must accept capitalism as good and argue that it can make it better is wrong IMHO.
The problem is capitalism as we practice it. The reason that so many “of our own” need to be “taken care of” is because the government interventions required to make capitalism work are blocked by those calling themselves “conservatives.”
“MMT must be framed so that liberals and conservatives alike can understand and adopt it.”
It already is. As Randy says at the beginning, on one level “it provides a correct description of the operation of a sovereign currency system”. If the description of reality is all you need, then the work is done! Take whatever you like from it and form your own conclusions. The “rights of the minority” are awfully well protected under our current government and political structure, if that is what your interested in preserving.
Some of us see a lot of work to be done for the public purpose though, something that the private sector either fails miserably at (healthcare, education, environmental sustainability, prisons, banking, etc.) or is not interested in pursuing because there is no profit involved. This is not socialist; I have no problem with capitalism, individual liberty or ingenuity. There are just some things that don’t work in a greedy, for-profit model. Capitalists don’t give a damn about old people starving, or young people who need a job, or a kid who can’t learn. It’s not an indictment against capitalism; that’s just the way the world works. If the private sector can do it better and more efficiently, all the power to them! But in many instances they have not, and simply form monopolized cartels that screw over the average person and the general well-being of our country, all with the full faith of our government behind them.
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets.“
This is the problem…the ‘DEBT” dollar. It is not created, debt free by the government as it should be, and has not been espscecially since 1913 with the passing of the horrendous federal reserve act. Ben Franklin and Abe Lincoln both used debt free money to create and then save the country during their times, and the scheme not only worked well enough to bring us to where we are today, bad as it is now…but we need to return to that form of money to save the country and set that example for the world and mankind for all time, precluding the use, ever again of “DEBT MONEY”, it being one of the biggest evils ever created upon man, resulting in total monetary enslavement, the developing results of which we are about to experience perhaps after January 1, with the so-called “fiscal cliff” effect, no doubt exascerbated by wallstreet tycoons who will pull out of the high speed trading allowed on the stock market to crash it to their satisfaction, thus ruining most middle class retirement and investment plans, as well as our basic way of life for most of America. I fear for most of us, badly, as over 3,000,000 of these “ex-patriots” (sic) now reside afar in world-wide “undisclosed locations” like Uruguay, etal., who should be made to help save the country, having made their fortunes on the backs of hard working Americans, by using retroactive, extraditive, even punitive legislation for taxation to whit. We MUST save America; it is the only shining example of a human world political model that has even come close to giving the common man a chance at “the pursuit of happiness”.
Doc – shucks, if they pull out of the stock market – good riddance, I say. Actually methinks we should ALL pull out and leave it as a boutique niche for those who have money they want to play with in the free market. If you say “Horrors! What about pension plans, etc. ?” Well if the stock market is considered “too big to fail” what do we do in such a case? If the stock market crashes, the gov’y can “bail out” the pension plans in the same way it bailed out the banks, with considerably more justification and, I suspect, considerably more public support …. The investment of our monies in IRAs and 401Ks and all that crap was, IMO, one of the biggest scams of all time, what an absurd idea to base one’s retirement on a casino – we should have simply invested in T-bills (as SS does) and set it up so the gov’t paid sufficient interest on them to, on paper, at least, “fund” the program – methinks that wasn’t done because that would have “unfairly competed with the private sector” and we can’t have that, now can we? I suspect that was one reason postal savings accounts were done away with ….
Ironically that multi-trillion dollar bailout was probably the best demonstration of all that the gov’t can print gobs of money without the world falling apart – that, in fact, “printing” gobs of money is an effective way to save a system – in this case the system was the banks, shucks, they are now better off than ever – if “printing” all that money can save institutions that aren’t worth saving – think of what it can do for those that are!
I think that the only thing we can truly create out of nothing are our own thoughts. Beyond that they become something when expressed somehow. We work with conceptual things. To build our fundamental concepts on the very “absence of a thing” being the conceptual building block used to build a conceptual structure is, well, just funny. Or pathetic. Things real or conceptual are not and should not be built that way, at least for most of us in the broadest of terms. At least at the present time but that is where we are at….and progressing.
We proclaim what “is” like a self evident right then build on it, not what exists by virtue of being absent. That is what the debt money concept is founded on. Absence creates presence. Then it comes into “real” existence by virtue of a binary creation from nothingness of a counterpart existence of something that “is”. The thing that “is” goes back to nothing (not is) when its job is done. That job is the work of its creator, the banking system. The logic base is absence theory.
A different way of creating is with a thing that exists simply because we say it exists, maybe in abundance, and in conceptual truth it always existed. Once brought into existence by revelation of a truth the strongest conceptual structures never go out of existence because they were founded on the existence of something like our rights and freedom not their absence nor born of an absence. The absence of freedom was the building block of a prior system until we proclaimed that the absence of something is not a good thing to build upon. A paradigm shift.
All we have to do is make a proclamation of what “is” to replace a concept built on non-existence. We are good at doing that and building on it. At least we used to have the courage to do that. It took courage and conviction to face those that built on the absence concept that created the dominant power structure. True then, true now.
Money is the nothing…..etc. That is the current money system foundation concept. Slavery was also an implementation of philosophy based on the absence of something. Freedom by proclamation replaced that idea. The second great application of an earlier proclamation. Is that a progress model? Might it work again? Is there some self evident answer? Some see more great proclamations coming.
Courage, conviction, better thinking? It is progressive! The non-presence conceptual based side is defensive. Defense to prevent the other side from scoring is a game strategy based on fear of losing something. Defending freedom is a good strategy. Defending the non-existence of something against the advance of progress is rather pointless unless it there is a very strong self interest on the side of the defenders that they can win by the illusion there is something there they are defending. Conservative core thinking and the foot soldiers that carry the meme has worked so far to defend the money system . Give the foot soldiers a new logic, a new meme and they will rally to the progressive side leaving few remaining. The concept of debt money built on a core concept of non-presence that they are defending has nothing ( or very little) in it for them. As a matter of fact, most believe in a meme frame of core, unquestioned and ultimately supreme existence concept not a non-existence based one.
Progress based on the presence of a fundamental concept is by definition a winning strategy in this game.
Thomas, I think I may know you from elsewhere. Amazon. It’s not the Fed, not per se, though you could argue about what was done with the Fed by Austrians and Marginalists.
First, ALL money is debt. ALL money is also an asset. That’s called bookkeeping. The English Pound (no longer sterling silver) is a Debt. The Queen “owes” the holder the face value of that note. In the US, the Treasury owes the holder of a $100 bill, the sum of $100.
Second, most of our money is “rented” from banks. When banks ISSUE aka create money, they create a loan obligation and create 0r a deposit. When Congress + Treasury ISSUES a payment, and the Fed sends it through the banking system, the recipient does not owe any monthly payment or interest. Some 97% of our currency in circulation is bank-created loans — endogenously (word!) meaning INSIDE the banking system and it’s processes, not from Fed Res infusions of “reserves”. Most bank loans are never “paid off” — esp real estate, also cars. Most is rolled over when homes change hands, or when dealers re-fi old car loans . Only 3% is “base” money from Govt spending.
Third, on the source of Govt “Debt”. Blame Congress, for sticking with archaic rules.
There IS no national debt. National debt is what Banks trade and how rich people people save their incomes.
National debt has nothing to do with Govt spending.
Bank bailouts by the Fed were $29 Trillion, when ALL the loans and recurring loans and “guarantees” were added up by Levy Institute, Wray’s students.
The Fed uses Treasury Securities to manage Monetary Policy like interest rates.
Treasury Securities are the same thing as “national debt”.
First, Big Banks get billion-dollar “loans” from the Federal Reserve at ultra-low interest rates. Then Banks use those loans from the Government in order to “loan” money to the Government, by purchasing Treasury Securities, aka “national debt”.
What’s wrong with that picture? How can banks that don’t HAVE money be able to LOAN money to Uncle Sam who has the power to create money?
Given the agenda of constant ongoing bailouts for cockroach-infested bankrupt Wall Street firms, whose continued existence is based on fraudulent accounting practices and government infusions and driving up prices that consumers pay for everything, and since these rotten TBTF banks specialize in trading Treasury Securities, is it any wonder that in this post-Crash era the US Government has been issuing more Treasury Securities so these criminal banks can (ahem) “EARN” a profit??
Congress MANDATES that what is normal in a capitalist market economy, esp at our stage of “mature” capitalism —- sufficient deficit spending money creation to counter what Mosler describes as “demand leakages” (see 800 lb gorilla article on demand leakages) —- that MUST include the process where the Treasury ISSUES securities at auction, for a few very special primary dealer banks to purchase, per current rules.
Then the PD banks can turn around and sell these to other banks, or sell these US securities to the Federal Reserve.
The Fed is FORBIDDEN from buying Securities directly from Treasury, in which case the Govt would “loan” money to itself. NOOOOOO that would be too easy. Congress says Treasury must get these “Loans” through all these middleman Big Banks that rely on the Government to survive. Them’s the rules!!
When Lincoln created “Greenbacks” these were called “US Notes”. He paid the soldiers. The Govt insisted this was NOT money. Why? Because the Constitution says the Treasury can issue two things: Coins and Debt. Not “money”. Greenbacks were therefore DEBT! But wikipedia says they came to be circulated AS money anyhow.
I am quite certain that all the various people who came up with the idea of a central bank — to institutionalize what John P. Morgan was already doing according to his whim and ability — one of the reasons was to avoid a Constitutional Amendment to allow the Treasury to issue “money” as such. Instead, the Fed as a bank can purchase or “invest” in infinite Treasury “debt”, or other kinds of securities, while the Treasury can create infinite Securities. So through this kind of “kludge”, the Govt can create money by “loaning” it to itself, via it’s own “government bank”.
This “government bank” is then mandated to return all it’s “profits” from investments in various Securities — including interest paid by the Treasury — back TO the Treasury. Even though the Tsy does not actually NEED those “profits”, because it’s not a company (and there’s no more “fixed exchange” with gold, so there’s no need for a “debt ceiling”).
If this “national debt” was a real problem, Congress could simply END this mandate. It’s not hard to change a law.
When Citigroup wanted to break the rules and get into more high risk speculation and insurance, with customer funds, they paid lawyers to figure out how to skirt the law, and hired lobbyists to convince Greenspan and Congress to change 1000s of years of sound financial rules going back to Greece and Babylon to suit their short term profits.
Congress can change rules, you betcha.
If Congress ended that MANDATE in issuing Govt “debt”, Treasury would still have all the sovereign power to write checks and pay for whatever it wants, without creating new Securities.
Very good. But we should not be in too big a hurry to let Democrats, nominal progressives and other liberals off the hook as if they are merely confused. Some are and some are not, and some – the most powerful and influential – really don’t care. My favorite example is the Clinton family. They started out radical enough, but were quickly seduced by money and power, and eventually went on to do some of the worst damage any two people could conceivably have done to the poorest and most vulnerable, all the while stroking their own and each others’ egos through book deal after book deal. Now Hillary is back at the top of the list of future presidents.
What will Hill and Bill do for an encore? They have already ended welfare as we knew it – and sent millions upon millions of kids and single moms out into the night, hoping for a bed at some overcrowded homeless shelter. They didn’t do this because there was some detail about the monetary system that they didn’t understand. They didn’t try to understand. They don’t want to understand, because they don’t even live in the same world we live in anymore. The ultra-rich inhabit a planet on which it’s perfectly O.K. to ruin every rice farmer in Haiti on behalf of one’s pals in the Arkansas rice-export trade, and all the corn farmers in Mexico to please the corn exporters on the Ag committee.
It’s been a while since America took care of its own. And it is not just ignorance – a lot of it is malice aforethought.
“We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own.”
So, what we need is an end to unemployment, a restoration and increased investment in health, education and public services. We need the wealth, which we create, to be invested in the nation’s future, that future being the capacity of workers to use their skill and ingenuity to provide a wholesome life for ourselves, our children and our childrens’ children. Is it conceivable that any of the corporate politicians, Democrat or Republican, can give us that? If it is, then why haven’t they done so?
The only way workers can protect their standard of living is through a successful revolutionary struggle to create a planned, growing, socialist industry. We need to understand how money works but we also need to understand we’re part of the problem – we haven’t developed working class consciousness to keep pace with a changing world. We have created a situation that we have not yet consciously acknowledged. We have created conditions whereby the capitalist classes are unable to rule in the old social democratic way. It is a political crisis because there is no class conscious response sufficient for a very dangerous situation, both nationally and globally.
Reforms that were to check the development of monopolies have led to the exact opposite. Only a naive utopian would argue we need more reforms. Doesn’t one have to conclude that it is no longer possible to overcome the barriers to growth in a monopoly capitalist society? Capitalism has failed the US and for all its’ claims of achieving freedom and prosperity, it has not and can not produce the goods.
I agree that we need a “good” government – a government that rules in the economic interests of the majority, not the narrow economic interests of a few banksters and weapons manufacturers. What workers need is employment and a future for our children. We need massive investment into the infrastructure – schools, roads, bridges, teachers, etc., etc. Neither party brought prosperity to US workers, only to the 1%. The only thing they deliver is war and more war.
Although I agree with the sentiments Wray expresses here, I’m not so sure about “we take care of our own” …It’s very “us” and “them” sounding … to me, it’s a divisive phrase. If there are some that are “our own” then there seem to be others that are not… that are “their own”… I’d rather something that rings of universal inclusivity.
JK | December 10, 2012 at 8:26 am | Reply
“Although I agree with the sentiments Wray expresses here, I’m not so sure about “we take care of our own” …It’s very “us” and “them” sounding … to me, it’s a divisive phrase. If there are some that are “our own” then there seem to be others that are not… that are “their own”… I’d rather something that rings of universal inclusivity.”
Not really. Human societies are at too early a stage of development to ignore inclusivity. Human beings are one of those rare life forms ( at least for this planet ) that are “eusocial” ( truly social creatures ). They create “nests” for the purpose of evolutionary adaption to change. The nation state is a “nest” with many sub-nests incorporated within the whole. Trade agreements between nations can be a form of “nest” safeguarding for the nations participating. “Nesting” is an evolution of the primary “cooperative” force found in Nature right down to molecular level. Nature will ultimately fight back against predators or parasites who attempt to disperse the drive for “nesting.” MMT can be considered as part of that fight back since money is after all a social technology.
Either that, or “Wealth of Nations” was (in the common vernacular) “Socialism”.
Keystrokes are free.
Or we wouldn’t be here.
For which I am thankful.
Ultimately the ‘keystroke money’ meme is based on a couple of quotes from CB Chairs who explain how the CB creates reserves. Like that solves the problem.
But even in adopting this eloquent positing of what we want money to do for society in order to wrest us from the paralysis caused by deficit-hawk hysteria of every political stripe, there are many things that do not come to mind.
One is keystrokes.
Another is reserves.
In order for any monetary meme to hold water, it must be based on the workings of the system of money that go beyond computers and accounting. Like, suppose they changed the accounting, or suppose we didn’t have computers and keystrokes? Would MMT stand up? If not, then its not about money – its about technology.
MMT doesn’t recognize this deficit-hysteria-caused economic paralysis for what it REALLY is: a systemically-caused deflation spiral as outlined in Irving Fisher’s 1933 epic – “The Debt-Deflation Theory of Great Depressions”.
If they did recognize the real cause, we could be working on the real solution through the MMT-uncovered reality of the sovereign national money system – just as Fisher proposed. Rather, we select and shoe-horn.
“(T)axes don’t pay for nothing.”
A new plaque over Treasury ?
Only if you can do either of two things will we make headway.
First, get either the majority of policy-makers, or just get the tiny minority of folks who operate the system of government finance, be they progressive or libertarian, to unlearn a couple of hundred years of watching the flows of dollars into and out of the Treasury’s general account, and simply adopt this newfound meme.
Second, better yet, show them and all of us the proof that taxes don’t pay for nothing or, as connected with this part, that government (Treasury) creates keystroke-money when it spends.
We are all indebted to the MMT school for advancing the dialogue around the money system. Undoubtedly, whatever ultimately happens in the way of reform to the present system, in order to accomplish Randy’s litany of new economic rights, will be greatly informed by the heterodox MMT dialogue about money.
For the Money System Common.
There is a God meme in money being expressed clearly in the Platinum Coin idea as the Source and in this alternative meme analysis expressing the goodness of a source as spent that can never run out of goodness because it is Sovereign.
Think about it. The Shoe seems to fit. It is a well established Meme that quickens the meme. money is a tool for us to use to create goodness. Some say money is a false god but on the other hand it has all the temporal characteristics of being all powerful and everlasting goodness. How long is that Platinum Coin going to last? It is big enough to be divided and held by each and all of us to do good things without being expended, but in application it is spent. Kind of a mystery how that happens. It should only do good things but why do bad things happen? That is a mystery too.
Think about it and extend the comparison to the God meme. It seems to take me a along like writing on the wall. It permeates everything being said about the Platinum Coin as well as what we wish the implementation of the concept of the coin as money to do for a better world. What are we really talking about and there are a lot of good people talking about a powerful idea here and how to enlighten others.
Think about it. Maybe a good meme pattern that is the model for explanation as well as the answer to creating a better system. That is the power of creation.
To allow the creation of money to be hijacked for selfish private purpose has dogged nations for far too long. It results in asset speculation which distorts the true establishment of value in the marketplace because it artificially raises the prices of goods and services production in the real economy through unnecessarily higher costs of resources and debt repayment amounts related to those resources. Asset speculation consequently vies with real economy production imposing an unnecessary parasitical burden. The task before society is to find a means of money creation that is regulated in such a way that it avoids the agency problem issues of self-seeking associated with politicians and bankers.
Thanks for that.
Truism coming backatcha.
This is one of those unspoken truths, this “vying” in the competitive credit marketplace, where all of our money is created as a debt – hyperbole notwithstanding.
As to the use of money – it is the most “credit-worthy” who wins the ‘vying’.
The one who NEEDs it most, the American worker who have suffered nearly two generations of real wage decline and reduced well-being, get it last – and at the highest cost. (risk-management and all that).
Rather than give them real wage advances, give them the high-priced end of the debt stick.
The one who NEEDs it least – and who can accumulate the highest return to itself from its use, gets it first.
There is more than irony at play in the present economic time that sees unprecedented monetary wealth accumulation and concentration becoming the prevailing paradigm for a money system supported by these most heterodox of progressive economists.
I see this as a blind spot in the progressive money school that MMT represents.
I try to lay it out clearly, hoping for the scientific response of review and improvement.
But here it is.
The debt-based system of money is THE CAUSE for the wealth disparity that is troubling everyone from the Occupy-ers to true believers in the democratic economic concepts ably laid out by Dr. Wray.
Soon it is time to take off the blinders.
For the Money System Common.
The one who NEEDs it most, the American worker who have suffered nearly two generations of real wage decline and reduced well-being, get it last – and at the highest cost. (risk-management and all that). joebhed
The Bible is clear that the poor are to be charged NO interest yet in our society they are charged the highest interest! As for risk-management, credit creatiThe one who NEEDs it most, the American worker who have suffered nearly two generations of real wage decline and reduced well-being, get it last – and at the highest cost. (risk-management and all that).on itself is the root cause of the boom-bust cycle.
Not sure about the Biblical connection – I take your word on that.
But as to the obvious and absolutely essential injustice of the debt-based system of money, and the deepening debt-induced poverty that it manifests, well, there it is.
As I said elsewhere, the quote of Henry Ford states openly that if the working people of the country understood its system of money, there’d be a revolution in the morning.
It’s our money system.
We just take it back.
For the Money System Common
That is the problem with false creators of money! The only truth in their creation is that it serves them first and foremost and they are few. The truth of true creators of money is that their creation serves us all, just like the world as a resource does, as equally and justly as we can make what has been created for us do that through money. The ability to do that with money is progressive. It is from our hands that it was created and in our hands to do good stuff.
There is a famous painting symbolizing the passing of something from hand to hand as a medium of exchange that answers where things come from. It passes the power to create. That is the gift of life. To create concepts for ourselves applying to what was created for us out of eternity. Use our heads! That is progressive too. That’s the only way to get ahead in this world and the concept we created called the Grand Experiment.
Sovereignty is a self evident truth. You can bank on it!
Who are “we”? “We” is inclusive–all of us. “We” take care of our “own”. All current and future residents of our nation. But we aspire for more: all humans. And more than that: all sentient beings. And more than that: everything on this planet. And even more still. Progress. This is necessarily aspirational.
We have progressed and we will progress. Yes, we’ve been regressing on many fronts in recent years. Progressives lost the momentum. This series is about getting it back. “You cannot stop progress.” Sometimes you slow it, sometimes you can temporarily reverse it. But liberals live in reality; science is progressive. Conservatives want to roll back the clock–stop the progress, go back in time (in truth, usually to a past that never existed). Since they must deny reality and science, they cannot ultimately triumph.
Finally (again) this particular series is NOT about refining MMT but rather about how to reframe it through progressive memes that are necessarily moralistic. I’m not at all concerned (here) with selling MMT to conservatives.
LikeI said above, I agree with the sentiments. Just sayin’ I think the phrase could be better. You said: “We” is inclusive. I say it can be, but coupled with “our own” …it doesn’t sound inclusive to me. It sound exclusive..”we take care of us, not them”
Just offering some constructive criticism.
JK…I see your point and agree with it in part. But one thing I like about the “our own” element is that it can be tied back to the MMT-related role of “government” (and the “sovereign currency” it issues), as a key reference point for defining this particular “us”…i.e., the “us” that uses and pays taxes with the currency issued by the federal government.
While this isn’t the only useful definition of “us,” and certainly not the most universal one, I think it’s a useful one for setting the stage for explaining MMT and its significance, which I think is what Randy’s trying to do here.
Perhaps, “We” are mankind. And , “**** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of Buddhism
L R Wray, please,improve after due examination “justaluckyfool”
for it is written for the bettering of all mankind.
Where did I go wrong ?
Justaluckyfool comments are based on the following ideas :
A Monetary Sovereignty is any sovereign society that issues its own legal currency.
A. A Monetary Sovereignty can issue unlimited amounts of its own sovereign currency;however, it must safeguard against hyperinflation.
B. A Monetary Sovereignty must be the sole issuer of its sovereign currency.
With just these two truths, we can discover “Where we went wrong” and “How we can fix it”.
These truths hold firm regardless of the form of governance, whether good or evil.
We should be thankful that the US Constitution guides us toward the common bettering of man.
And” to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
So, being able as a Monetary Sovereign Nation to fund such an endeavor, we should ask ,
“Where did we go wrong-and fix it.” ?
Did we legislate ourselves away from being Mon. Sovereign by allowing “private for profit banks” to issue our currency and to make their issue as good as “the full faith and credit ” of our nation?
Surely all are aware that we have placed a self-imposed legislation upon a limit to the amount we may print for purposes of spending (Debt Ceiling). How we legislated an allowance for hyperinflation by allowing “private for profit banks”( PFPB),. They have proven they are a moral hazard, that could become too big to fail which is to say if they fail they will cause “systemic failure”.
Did we fail to heed the warnings of Keynes, Minsky, Desoto, and most of all Frederick Soddy (“The Role of Money” 1926,1933) and others calling for the separation , the taking away of government privileges of the PFPB.
Where did we go wrong?
Did Ben Bernanke let the cat out of the bag with QE 3 a/k/a QE Infinity?
Proving we can “print” (issue) unlimited amounts of money with control for its quality and quantity
over time. BUT this was done for the benefit of the TBTF, PFPB, not for the betterment of the people.
QE 3 purchases the MBSs , that which bailout the banks, helps the TBTF, PFPB, to profit.
As Churchill stated ,”Why do the Americans have to get it wrong first, and then correct it”
Why not purchase the mortgages, modify them, stabilize the housing sector, create millions of jobs
and at the same time RAISE TAXATION (REVENUE) for the people. If $100 trillion at 2% for 36 years, that would produce $5.5 trillion per year income ” to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…” while at the same time reduce federal income taxes to zero and FICA to zero.
As Einstein said, “Keep it simple” COLLECT INTEREST INSTEAD OF INCOME TAXES!
“Wherever this flag’s flown
We take care of our own”
Well i suppose that explains our foreign policy – we have been warring so long and so hard to make sure that “all sentient beings” qualify as “our own” ….
It is well and good that government freely spend new fiat to advance the common welfare BUT additional changes are needed too:
0) Borrowing that fiat into existence at interest is “corporate welfare” according to Professor Bill Mitchell and alarms the population about the “National Debt”.
1) All government priviledges for the banks should be removed since they consume most, if not all, of the ability of the government to create government money without price inflation except during the bust (when the net repayment of credit causes harmful deflation).
2) The abolition of government priviledges for the banks would cause massive deflation. Why not counter that deflation with a universal, equal, and metered bailout of the population with new, full legal tender fiat at least until all deposits are 100% backed by reserves? Who can object to a universal, equal bailout with little price inflation risk?
3) After the universal bailout, there is no real need that government money be de jure and de facto legal tender for private debts. Government money has the huge advantage of being the only means to extinguish tax liabilities and if created responsibily would be the voluntary choice of most people for private debts too. So after the universal bailout, what is the harm in allowing genuine private monies for private debts only? But if government did significantly overspend relative to taxation, the allowance of genuine private currencies would allow the private sector to escape the “stealth inflation tax” by moving to private monies for the payment of private debts only. The government would then have to raise taxes or spend more responsibility. What’s the harm in that?
Randall: Here’s is my proposal for framing “the belief that payroll taxes “pay for” Social Security benefits”.
Social Security is an investment in the United States of America.
The money I will receive from SS is more than the money I have paid into SS, much like other investments. If I had bought gold in 1970 for $200/oz, it is now worth $1713, many times more than what I paid.
I agree with you – there are many ways to “frame” SS to justify getting more out than is paid in – absolutely … Ironically MMT could be just the tool to enable doing just that ….
Except that I get the distinct impression this is not about “reframing” an idea that incorporates payroll taxes. This is about repudiating them completely and flushing them down the toilet as toxic substances that impede “progress” and must be eschewed, and that anyone who disagrees must be a “conservative” whose arguments are not only “morally inferior”, but expressions of “fear of democracy” (not to mention someone who is willing to “destroy the program”, in a previous post)
So with MMT, as outlined, not only does one not HAVE to “pay into” SS in order to get it, the very idea of paying into it for ANY reason, is baaad for “progress” and society, and will probably ruin Mom and apple pie, as well – Sorry for the sarc, MMTers – but this personal invective re the payroll tax and its defenders is way out of proportion, IMO, and raises the question, in my mind at least, as to what is really going on here …..
Wray – “promotion of the stakeholder view is a slippery slope, but for some government services it may not be too dangerous: police and fire services, garbage collection, toll highways, and so on, where benefits are fairly easy to see and are widely shared.”
Of course this is sooo unlike SS, where the benefits are NOT fairly easy to see, and are NOT widely shared …..
Why does Mr. Wray think that Clinton was able to whack welfare so easily? Oh, maybe because it was never a “3rd rail” in politics – and why was that, does one suppose? I suggest it is precisely BECAUSE of that “conservative tax framing”; that “conservative tax framing” is what saves, not “dooms” it – that “conservative tax framing” first utilized by FDR when he set it up …
Wray – “And it means that those whose work lives and pay for work were substandard do not ‘deserve’ decent lives in old age.”
Horse feathers ….. that doesn’t even deserve a reply ….
STM one of MMT’s biggest barriers in gaining wide acceptance is this obvious ideologic purity and rigidity – a) if a “conservative” says something it must be false, b) anyone who might say the same thing is, ergo, “conservative” c) ergo that one is “afraid of democracy” and uses “framing” that is “morally inferior” …
So now is this the new qualification for being a card carrying progressive – allegiance to MMT and all it’s pronouncements? Reminds me of an ardent “pro lifer” telling me that if I am pro choice I can’t be a RC …
I defended an MMTer the other day on NC against ad hominem attacks, but frankly i am beginning to understand why folks get so pissed off at ’em …..
I was not going to get into this again – this is MMT and it’s inventors, or purveyors, or however they wish to characterize themselves, can do with it whatever the heck they want – but when they use it to malign, condemn or question the “credentials” or bona fides of those who disagree with ANY of their catechism entries, i cannot remain silent – them’s fightin’ words …..
Sorry, Robert – my whole rant is not a “reply” to your post, though it started out that way … But one thing just kept leading to another ….
All politics is personal ….
I am relatively new to MMT, but have watched/read several Mosler, Wray, and Kelton works but I still can’t figure out the answer to the simple question: “What would happen if the U.S. Government decided to pay off all of its debt today?” What would be the ramifications?
Not a whole lot.. a bunch of banks would essentially shift money from a savings account that earns a little interest (treasuries) to a checking account with dollars in it.
Only direct ramification is different interest rate that is paid for Treasuries then cash that sits at FED, whether domestic bank reserves or foreign dollar reserves that sit at the FED. Cash reservers pay out 0.25% while 10YT pays out 0.43% or something like that. These dollars are requiered to sit in reserves or foreign accounts at FED.
Another thing is, what would other funds that held Tsys do with the cash that they do not need once they are cashed? What would they invest in and inflate with it, now that there is no Tsys to invest in? Gold, stocks, silver, derivatives, real estate??? All of it, all of paper assets would go in price.
It depends what you mean by “pay off”… for example,
1) If we were taxed the $16 trillion, I imagine this would cause an economic depression as bad or worse than the Great Depression.
2) If we ‘made it go away’ …by transferring all the national debt from interesting bearing bank accounts into non-interest bearing bank accounts, then nothing would happen immediately to the Real economy. There might be problems for the Fed though if it was targetting a Federal Funds Rates above zero. This can be easily resolved though by just setting the de-facto FFR as some rate of interest on Reserves.
3) If we gave all holders of U.S. Treasuries cash, I imagine most would just put that money back into a bank account or some sort of savings vehicle. After all, the national debt is basically just a bunch of savings accounts.
So, what do you mean by “pay off” ?
Thanks for the responses. To clarify, assume you have been invited to be the third person in the room with Obama and Boehner at the next debt ceiling showdown.
You say “stop arguing about the debt.” Its just an accounting artifact. If it bothers you based upon repeated warnings from your parents that you should never be in debt, you can just payback all outstanding debt.”
They say “But in the coming year, we are going to spend more than we receive in tax. Won’t we be in the same debt situation next year? And BTW, won’t paying back all the debt cause us to print $16 trillion we don’t have, which will cause massive inflation?”
THE QUESTIONS: What do you say next to get them to understand what they have to do viz a viz MMT principles to run the country on an ongoing basis? And if expenditures and taxes and debt aren’t the metrics they should be using, what metrics should they be using?
IN THE BIG PICTURE, what would you tell Obama and Boehner our MMP (Modern Monetary Practice) should be? Theory is important, but how does the rubber meet the road in our current situation? (I don’t ask this cynically, I really want to know, and am not versed enough in MMT to figure it out).
Well think about who the major holders of US debt are – the Fed, SS trust fund, China, Japan, other exporting nations. They hold this debt because they have accumulated dollars that they want to earn interest on. Buying back our own debt in the case of the Fed / SS fund doesn’t accomplish much, it’s just money owed to ourselves to begin with. With other countries, if they had some use for the dollars and wanted to buy something, they would have done so already or they wouldn’t have the treasuries in the first place. So, you switch their treasuries for dollars, and it just “sits” in their bank accounts. You’re not going to get inflation until someone starts spending the money – this exercise doesn’t change anyones’ likelihood of doing so.
As far as what to tell Obama/Boehner, I would read Warren’s 7 Deadly Innocent Frauds. The gist of it is to use taxes similar to how the Fed might use interest rates – controlling aggregate demand. If the economy is getting too hot, you need to raise taxes to cool it down. If it is getting too cold – as it remains right now – you should lower taxes. The size of the government (automatic fiscal stabilizers excluded) should remain fairly constant based on what we all want it to provide, i.e. we shouldn’t cut spending in response to some invented debt crisis. Instead of taxes and debt, some metrics they might want to look at are UNEMPLOYMENT (revolutionary concept I know) or private sector debt levels.
Read more at Mosler’s web site. There are a set of policy recommendations there, as well as theoretical stuff.
Before Obama and Boehner get to policy, they have to understand that the US is monetarily sovereign. The implication of that is that the US government can never run out of money, and can never be unable to pay any debt or interest on debt, and can always buy whatever it needs that is for sale in $US. Therefore, we are not Greece. Default and insolvency is not possible, unless it is by our own choosing.
Next, they must understand where dollars come from. Dollars are not made in China and borrowed by us. Dollars are created by the US government, exclusively. They are created when the government spends them, and destroyed when the government taxes them away. Net new money is created by government spending more than it taxes. “It’s not a deficit, it’s new money creation”. They already must know intuitively that a large economy needs more money than a small one, and from that it is obvious that a growing economy needs more money each year in order to keep growing. Thus, proposing to balance the budget is to propose that economic growth should cease.
Next, a small amount of mathematics: the sectoral balance equation. If we have a trade deficit, as we do, because other countries’ central banks are accumulating dollars; and if we wish for the financial assets of our domestic private sector to grow; then the surpluses in the foreign and domestic private sector must be exactly offset by a deficit in the government sector. The “right” size of the government’s fiscal position is enough to satisfy the savings desires of the other two sectors. If you try to make the deficit smaller than that, you will succeed only in shrinking the economy, and causing a larger deficit. That is what has been going on in Europe lately.
Then I would point out that they know, because every economist will say, that raising taxes slows economic growth, and that cutting government spending slows economic growth. The fact that they both want to avoid the fiscal cliff shows that they recognize this. And then I would ask them why they think that the elements of their proposed “grand bargain”, tax increases and spending cuts, would be good for economic growth? The economy is running well below capacity, unemployment is too high, and we need more growth, not less. Proper policy right now is to cut taxes and raise spending, not the opposite. And we know from the first hour of the conversation that the amount of debt is not a problem, and that deficits are necessary and good, and not to be feared.
It is not necessary to mint platinum coins and reduce the debt if we understand that government debt is private sector assets.
Then the inflation thing will come up. It is easy now to see that it is not a danger, with unemployment so high. Additional demand today will cause unemployed people to be employed, and unused resources to be used, not price increases. When full employment is reached, you can worry about inflation. You can reach a grand bargain today of tax cuts and spending increases with a future “fiscal lift-off” provision for tax increases when inflation exceeds 4% and unemployment is under 4%. I don’t think we can reach that situation with our current tax structure and automatic stabilizers in spending policy. If we could have done so, it would have happened in and 2006. Instead, taxes automatically rose enough to stifle demand and stop the growth.
Than wait 6 months, and when the economy is looking really promising, talk to them again. Remind them that you were right, and talk to them about JG.
Thanks GJ, Jerry, et al. Really help see how this could play out. Obama and Boehner say “you know we’re both half right and both half wrong, so lets try it this new way. From now on are just going to talk about inflation and unemployment targets, and raise taxes when those targets pass their thresholds.”
So in my quest to understand MMP (Modern Monetary PRACTICE), how will politicians pass a bill where taxes go up automatically by some unknown number to achieve equilibrium?” Who would be taxed? Everyone? Just the top brackets? I don’t understand how citizens woulda understand this, and I don’t understand how most politicians, reelection-oriented as they are, would vote for future automatic tax increases (I know there would also be future tax decreases, but trust me, primary challengers are only going to mention the increases in their ads;-)
I’m really trying to understand the endgame, not just in theory, but in practice. if the top MMTers were given a full day with Obama, Bernanke, Boehner, Geithner, Reid, McConnell, Pelosi, Biden, etc, etc, what would they propose as the political way to get Congress to pass this and the citizens to not take up their pitchforks? What kind of bill would one construct? What kind of messaging would comfort the citizenry?
I see no one responded to your latest questions. There are no wrong and right answers. There is no MMT solution to what you are asking. Each MMTers might have different opinions on which taxes should or shouldn’t be raised and lowered, how it should be done, etc. That all politics. Again, there is no definitive MMT answer to those questions.
With that said, I think Congress could enact a law with automatic triggers, e.g. if XYZ inflation metric hit C% then Taxes A, B and C would incrementally move up by a few percentage, and vice versa for unemployment. I’m sure some sort of fairly reliable algorithm could be devised. That’s on the tax side.
On the government spending side, I think our elected representatives need to be flexible. The economy is dynamic, and the will of the people changes. Maybe renewable energy is a high priority today? Maybe a worldwide water shortage leads to immense support for U.S. government subsidized desalination facilities? etc.
Now you’re getting from economics into the practice of politics. Many MMTers have made policy suggestions for various tax cuts, spending, and no-strings revenue sharing to states. The problem of what to do if demand-pull inflation does occur is far down the road, and they mostly put off any discussion of solutions for when and IF it occurs. Some think that interest rates (monetary policy) can completely control inflation.
I have my preferences for a tax system that would more automatically adjust, and be more easily adjustable, but at best it is an idealistic sort of wish, and I don’t expect it to be adopted. Probably others have similar thoughts, similar in that they would involve a wholesale restructure of our taxes.
If TPTB were to become MMT converts, perhaps they would appoint a board that would periodically examine the economy and make recommendations for small, fine-tuning tax rate changes, and Congress could override them if it wished. It seems fashionable for Congress lately to put in place things that they do really want but don’t want to have to vote for on the record. Like their own pay raises, for instance. Or delegating their monetary policy authority to the Federal Reserve Board. I would prefer something more rule-based and automated, but still with the ability for Congress to override. There could be unforseen conditions that make the rules inappropriate.
For the first day in a room with those guys, I think you have enough to do without getting to this issue. It can wait.
Perhaps the ‘framing’ should move away from MMT which clearly has baggage and be shifted back to explaining ‘money’. I’ve learned more about ‘money’ from Randy than anyone else.
To me, the key might be in the double-entry, the Accounting. I realise that this is not going to cause any kerfuffle in living rooms but there are millions of smart numbercrunchers out there who would get this.
Maybe we should use them to spead the word.
-Government cannot run out of keystrokes-
As one of my colleagues at a Saudi Bank used to say that ‘spend more to earn more’.
Commenting from a European perspective: This is a brilliant debate, and very pertinent, indeed. The beauty of MMT is that it is not only the economically correct paradigm but that it has a constitutional dimension as well: MMT provides for a fundamental expansion of the public policy space (technically, of course, it doesn’t ‘provide’ the policy space, it merely recognises it).
After years of neoliberal ‘reform’, in which European governments have relinquished a substantial part of their powers to shape policy (e.g. through the dismantling of the welfare state, removing some of the protection hitherto provided by labour law, extensive privatisation, enacting balanced budget legislation, and – not least – introduction of the Euro), MMT is the only approach to economic policy that offers the perspective of restoring the ability to define policy in the broader public interest. Hence, MMT is the key to rejuvenating democracy itself (when you consider how much has been removed from true public decisionmaking, it is little wonder political participation rates in Europe are approaching those in the USofA).
MMT implies that the people should decide policy based on real economic choices rather than perfectly absurd financial benchmarks that the average citizen (and for that matter average poiticians) cannot understand, let alone justify. The constitutional dimension of MMT is that we have the means to return to the ‘res publica’ in the strict sense and thus restore the legitimacy with which policy decisions are actually made.
Adopting the MMT paradigm is in itself in the constitutional sense progressive before we even review individual policy implications. The moral obligation to do the right thing arises from the potential to do so. Politicians will no longer be able to hide behind TINA. Therefore, once the power of the modern money paradigm has been understood, progressive policies will almost surely find their way into the political debate, because omitting to do what is affordable and what the public wants, will be punished at the polls.
Where I am going with this is that it is probably irrelevant whether policy proposals themselves are conservative or social-democratic (in the old sense). As long as the policy space is recognised that MMT justifies, the citizens (‘the 99%’) will recover a policy sphere which has been quasi embezzled away from them by ‘experts’ and technocrats through the employment of the GBC myth. This is the revolutionary aspect of MMT.
In terms of framing MMT one has to assume that people will respond enthusiastically to a concept along the lines of “MMT: Towards a meaningful democracy, towards prosperity for all”.
I was just thinking about that, robots.
Sometimes i use hipotheticals in order to explain to people what money is, what retirement saving is and so on.
Best one is;
Imagine a great generation that saved a decent amount of money for retirement. Now imagine it is the last generation on the earth, no newborn for 65 years.
Can they all take retirement once they turn 65 and enjoy it with their savings?
No they can not, since someone has to make products and services they need for retirement.
But what if in those 65 years they developed robots that will make all the stuff they need, do the surgeries, fix other robots and so on. Now they can take their well earned retirement and they have enough savings to buy stuff.
Now, what if they have spent all the savings to develop robots and none have any retirement savings but all the robots and resources to produce products and services they would need for retirement? Could government decide and nationalize all resources but provide retirees with retirement money equally to all enough to buy all stuff they need to survive?
Sure, everything will go smothly, and all can retire now.
Now if they want more stuff to buy and enjoy, could they make a parallel curency for their own enjoyment, if someone wants to buy a bigger boat, have more Cribean cruises, do whatever they want with new parallel currency? Parallel currency with banks and capitalist system for whoever wants to join it. Work more while retired to get more currency and buy more then subsistence level.
I think this is a powerfull way, step by step to explain MMT and its logic. I use pause to see if people get all the implications before procedeng to another possibility.
I tend to be succesfull if i am patient enough.
Like NKM, I have been reading MMT for quite a while, but recently I had a question that I can’t figure out. Ok, the U.S. Federal Government is not revenue constrained, they can spend by keystrokes. And the “need” to borrow is a self-imposed requirement. But if there were no borrowing what happens when -let’s say, Boeing gets paid $1 billion for a weapons system. That appears as a credit with its bank. That bank will seek to settle up with a Federal Reserve Bank-if there were no borrowing how would that transaction occur?
I don’t see the problem. Boeing’s bank has $1B in additional reserves in its account at the Fed. What needs to be “settled up”?
Hi Randy, I think this is a great framing. I’m ready to use it. “We take care of our own” fits perfectly with the economic bill of rights.
OK, here’s another meme that’s holding us back – the private ownership meme. MMT threatens the legitimacy of private ownership. How? Not practically, of course, but emotionally. Another “moral” point of resistance to accepting the logical consequences of fiat money and the preeminence of fiscal policy over the faux constraints of monetary policy.
If money is just something seen as “made up”, then it’s disconnected from our ideas about substance and merit. And the only legitimacy in private ownership lies in a sense of merit; of having somehow “earned” the right to possess or occupy the property to the exclusion of others. If the federal government has limitless amounts of money, then why not jist give equal amounts to every citizen? Why not “spend” to create and maintain absolute equality of situation? That wouldn’t be seen as “fair” because it doesn’t satisfy people’s illusions about comparative worth and merit. This outcome would be strongly objected to under the existing morality of private ownership.
Understand I’m not making this argument, rather attempting to point it out as a significant “moral” objection to the implications of MMT. Hence the need for a new private ownership story (meme) to go along with the new money memes.
Acquifer: Evolve. You doth protesteth too much. In the 1930s to avoid the accusation of Pinko Socialist, Roosevelt proposed to set up SocSec as if it were some sort of insurance scheme. Skip forward 4 generations. Only the truly deranged see SocSec today as socialist. Time to progress. The insurance meme doesn’t fit. And who, today, likes insurance? Wall St made that a dirty word. The pension funds are going bust. We need to transform SocSec toward the 21st century: an Assurance that the working generation will take care of both young and old. Bruce gets it: We Take Care of Our Own. We’ll need new thinking going forward.
Every day the government takes care of the banks by soaking up their excess reserves, allowing them to trade for short-term treasuries so they don’t lose interest earnings. Now, with reserves piling up they’ve taken to paying 25bp for what they can’t soak up.
My understanding of MMT’s descriptive anatomy of the system is that the current $16T in treasury debt would be accumulated reserves if the bonds were not offered. As reserves, that $16T would currently earn $40 Billion in annual interest – paid by new money creation. Instead, we paid bondholders $359,796,008,919.49 in debt service during fiscal year 2012. Seems to me that’s a $320 Billion gift of new money creation going largely into the non-productive economy.
Since the Federal Reserve Act requires the FRB and FMOC “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates,” why shouldn’t the people be demanding a Federal Reserve Job Bank? How about the government taking care of the people, too. How about soaking up those excess human reserves – people wanting work – with a guaranteed jobs program? Turn that $320 billion into jobs. At a gross wage/benefit package of $12.50 per hr ($25K annual), we could offer jobs to 12.8 million involuntarily unemployed workers with no net increase in deficit spending.
Totally excellent point.
Just another that is for some reason lost on those who claim that the government does not need the revenues from bond issuance; that bond issuance manages short term rates , etc.
I was hoping that we might hear from some Thanksgiving dinner table discussions on the explanation that we the people – I know the argument – owe $16 Trillion to somebody in order to meet the FFR target. Like, ain’t there a better way?
I will qualify my full agreement based only on your premise of an understanding of the MMT construct – which brings in the ‘new money creation’ wrinkle.
Are you familiar with the book by the Doctor-brothers Charles and Russell Norburn: “A New Monetary System – Mankind’s Greatest Step” ?(Omni Publications 1971)
Belated miscellaneous musings:
A prior proposal repeated, seize the language, seize the day (argument). It is necessary to define words being used, failing that, meaning devolves into percepts colored by individual experience or beliefs. Don’t believe? Look carefully at the commentary following NEP posts, seldom are the opinions being stated using congruous meaning of the post’s author.
In relation to the above, it benefits to have developed a basic Econ. 101 specific to MMT to house the definitions required in a consistent economic model. Both Karl Marx and John Maynard Keynes built their arguments upon the language of Adam Smith. Not so Milton Friedman’s Chicago School nor Frederich Hayek’s Austrian resurrection of mercantilism disguised as monetarism, the antithesis of Adam Smith’s observations and his antipathy towards the mercantilism of his day. It is by default that the language of these economic parvenus has become the economic lingua franca of public discourse. The fallacy inherent in common economic terms needs to be exposed, understood and lain to rest.
Again, a flow-chart of value through an economic system is required much like a flow-chart of energy through a forest ecosystem with all its attendant cycles (e.g. water, carbon, nutrient, and etc.). This facility would illustrate the complexity that economics has developed. It would also show illogical economic structures as distortions to economic dynamics. A parallel to such an economic flow-chart to facilitate understanding would be an economic spread sheet illustrating the flow of values between economic factors. Such a spread-sheet may prevent possible misrepresentations being promoted inadvertently, e.g. whilst true the sovereign government creates money by the keystroke and destroys that value through taxation, again a matter of keystrokes, it is more than likely the later moderates the former at the end of the business year although this is out of the public’s experience. The only story of a taxpayer surrendering cash I recall was at the end of the 50’s someone paid their taxes in pennies, a law was quickly passed that dis-enabled such nuisance acts to meet their obligations. It would be reasonable to suppose all cash arriving at IRS would be sharply accounted for; no reports of IRS ‘take-home’ millionaires have ever been noted (and only one Cadillac driving welfare queen IIRC).
I don’t think an MMT post ever depressed me as much as this one did. But I wanted to take a day to think about why that was before replying. I’m as progressive as they come. I was out marching to end the war in Viet Nam. I’m a scientist by training, but also a corporate exec before retirement. At least some of my corporate success was due to being a consensus builder who could sort out why people were at each others throats and get them each to see the other’s point of view. I strongly believe that almost all people (with notable exceptions) are well-intentioned and amenable to reasonable argument. But often people resort to sloganeering and end up talking past each other.
I see things in fairly simple terms. There are only two fundamental problems for societies (and ultimately the world as a whole) to solve: 1) how to produce enough wealth (I’m talking real wealth here, not financial wealth) to support a reasonable lifestyle for an ever-growing population, and 2) how to distribute that wealth in an equitable way. I’ll assert that for the most part conservatives worry more about #1 and liberals worry more about #2. Fairness is a big concern of both: fairness of process for conservatives and fairness of outcomes for liberals. This directly reflects their relative level of concern for each problem. Some form of capitalism seems to be the best way to solve #1 and some form of socialism seems to be the best way to solve #2. That doesn’t mean that conservatives are not worried at all about problem #2, any more than it means that liberals are totally unconcerned with problem #1. Both problems need to be addressed. Russian communism emphasized problem #2 and fell apart for lack of a good solution to #1 (not that they didn’t try). The Chinese form of communism is more balanced in its approach to the problems, but doesn’t seem to be especially successful in solving either one. Our current form of capitalism has arguably done pretty well with problem #1, but is falling behind with regard to problem #2 and I think the jury is still out on whether it will survive that challenge.
I suspect that most readers here would agree with me that capitalism in the Western world has gotten very good at solving the first problem although the MMT perspective gives us some important insights on how much wealth production we are foregoing by high levels of unemployment. That is an insight that could be especially significant to those who worry most about problem #1 (i.e. conservatives). Quite obviously we’ve become progressively worse at solving #2 over the last 40 years or so. Again, MMT provides important insights about how to solve this problem. It seems to me that this is what motivates Randy and others and why the “We take care of our own” slogan resonates so strongly with them.
I suppose it’s the consensus-builder in me who wants to see MMT presented in a way that appeals to everyone. Core truths are often like that; people across a whole spectrum of beliefs can find value in them. So when I talk to conservatives about MMT, I emphasize how it can promote even greater wealth creation as well as solve the distribution problem in an equitable way. When I talk to liberals about MMT, I emphasize how it can promote more equitable wealth distribution as well as maintaining a robust wealth-creation system. I want to see our current system evolve into one where it deals with both problems well.
Some are ready to declare our current system a lost cause and start over with something better. Others want to see our current system stay exactly the way it is with no changes whatsoever. Both paths lead to revolution, not evolution. If the current system becomes so intrenched that it cannot be improved, then the inequality of wealth distribution will grow to the point where revolts are inevitable. If the OECD is correct about the GINI index where that might become a problem, then we’re already arguably at that level. On the other hand, if the current system has to be swept aside to make way for something completely new and better (something currently ill-defined), then we’re all in for tough times because that will not be a quick or easy change. When you abandon attempts to find common ground with others in your society then I think you’re beginning down that revolutionary path. Both conservatives and liberals seem all too eager to embrace that fate. That’s especially troubling to me in this context because I think MMT provides a really good starting point for establishing common ground. And I suppose that’s why this post depressed me.
Two thumbs up, Paul.
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