My Unpublished Letter to the Editor of the NYT

By Stephanie Kelton

I submitted the following Letter to the Editor in response to Annie Lowrey’s July 4 article on Warren Mosler and MMT.  The Times chose not to run it.  So I will.

Thank you for alerting your readers to the growing impact of the anti-austerity branch of economics known as MMT. More than a decade ago, Warren Mosler challenged the economics profession, insisting that the U.S. would be a far more prosperous nation if we stopped basing our fiscal and monetary policies on macroeconomic theories that were designed for a country whose currency was still tied to gold. I was among the first wave of academic economists to reach agreement on this point. Now hundreds of articles, book chapters and conference presentations later, the ideas have spread well beyond the ivory towers. Tens of thousands of professionals in finance, business, government, etc., many of them formerly self-proclaimed deficit hawks, now champion Warren’s insight that our fears about debt and deficits are based on a failure to understand how modern money works–and that it’s holding all of us back.

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52 responses to “My Unpublished Letter to the Editor of the NYT

  1. “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” Schopenhauer

    Although, I’m not sure at what point are we right now, especially here in Europe.

    • Another great European thinker, Max Planck, assured us that old theories hold until their proponents die off. So I think Europe and the rest of the world is probably stuck in stage two for quite some time yet.

      • davidgmills

        My father, who was a PhD in biochemistry and taught graduate and medical school, used to say the same thing all of the time. I guess he was quoting Max Plank (my dad certainly knew who Plank was) but I don’t recall dad ever attributing the quote the quote to Plank. Maybe the quote was so commonly used in the scientific community that it just became a quote everyone used.

        But the quote sure does seem to be true to all fields. Once someone’s career is based on an idea, it sure is hard to admit that idea was wrong.

        • “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
          Upton Sinclair

          It sure does ring true.

      • It’s at the top of my list of Scientific Quotations:

        A new scientific truth does not triumph by convincing its opponents and making them see light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.
        Max Planck

        What was a bit surprising for me, the first time I read it, was that Planck was a Theoretical Physicist, a realm where you would think absolute logic rules, but Physicists are humans too.

        • That was it Steve! I couldn’t remember the quote verbatim.
          Interestingly, Planck was in a quandary at the time because he could not accept his own scientifically derived results, which to date seem to be correct. He spent the rest of his life trying to disprove his own findings in a Popperian sort of way. We don’t see this kind of humility among neoclassical economists; they seem to ‘know what they know’.

  2. What would be sound policy if taxation is simply a means to regulate inflation? Would it be a floating sales tax? Capital gains seems the most egalitarian means to tax since sales tax would unfairly burden lower incomes, but would taxing trades & the like hamper investment?

    • Brian Brain

      For consideration:

      No tax.

      Instead, a FEE system that reimburses society for use of THE COMMONS, whether (1) natural commons (e.g., the atmosphere), (2) socially created (e.g., increased land prices generated by collective investments in schools and such or made possible by the public–pharmaceutical research being one example), or (3) the inheritance of all (knowledge).

      Such a fee system wouldn’t penalize the factors of production for their individually attributable success and would be environmentally friendly.

      • I should add that the net result of a COMMONS FEE approach would be a highly progressive system. After all, big corporations are the major source of carbon emissions, and stock ownership is highly concentrated. The distribution of land is skewed toward the upper end of the bell curve. Big Pharma and information technology are but two huge recipients of publicly funded investment (like medical research and the creation of the internet). Etc.

        Of course, any system can be corrupted, and there’s always the expenditure side.

        But, one battle at a time.

    • In answer to your question ‘P’, about the most equitable tax system is the debit tax system on all financial transactions. In some countries which I have looked at, a tax of 0.05% would be sufficient to fund their current budgets while eliminating ALL other forms of taxation. Effectively, this system places the bulk of a persons income in their own hands, while taxing the larger corporations and big spenders according to their level of transactions. It is fair and equitable, but has one major weakness. Even small variations in the tax rate can have a very significant impact on the amount of revenue raised. Thus, it is imperative that the way that rate is set, and controlled, must be rigidly defined to prevent its manipulation.
      However, as MMT correctly postulates, taxing isn’t really necessary, in spite of their contention it is needed to enforce the use of the government created monetary system. It’s not even necessary for controlling inflation – inflation only occurs when the amount of money in the system exceeds the supply of goods and services available. If the money supply is linked to the productive capacity of a nation, and that in turn, is linked to the consumption capacity, imports and exports included, these two factors will effectively control inflation. The trick is to manage the purchasing power of the population in a way that allows the consumption levels to be coordinated with the production levels.

      • Gerry Spaulding

        “However, as MMT correctly postulates, taxing isn’t really necessary, in spite of their contention it is needed to enforce the use of the government created monetary system.”
        Operative word, ‘really’?
        Did I miss from where the government gets the $4Trillion it spends annually?
        I’m sure I did.

    • Nathan Becker

      I think the most efficient tax we have is the real estate tax. It can be made progressive as
      much as desired and can be designed to do things like minimize energy usage as well. It
      is readily enforceable at low cost, and the infrastructure is already in place at the local
      level. In theory, a Federal real estate tax could entirely replace the Federal income tax
      and sales taxes as well

      – Warren Mosler

    • davidgmills

      A sovereign that prints its own money (actually a coupon for taxes) has no need to tax at all and should not tax at all unless necessary to take excess money out of circulation. But all governmental non-sovereigns (states and local municipalities for example) would need to tax. I think a sales tax would unfairly burden lower incomes as you suggest. So that leaves real estate and capital gains; i.e. tax on property and wealth, not income.

      • A monetarily sovereign government can fund any thing it wants as long as its currency is accepted. The Federal government could issue block grants to the states to eliminate their need to tax.

  3. Keep up the good work Stephanie. One day YOU will get the call the shots on what makes it into a major newspaper

  4. The NYT has their marching orders from the propaganda artists inside the Central Party Committee and those orders include spreading misinformation to the extent that the downtrodden will thank their oppressors for the opportunity to ask for more watered down gruel. I am unable to determine if the Central Party Committee actually believes their own lies but they appear to and the a majority of the nation’s adults who are of voting age seem to buy into the central lie that the government has to balance it’s budget or “we’ll run out of money.”

    • Hi Ray ~ What do you suppose Central Party Committee facilitator Rumsfeld did after that hour with Mosler at the Racquet Club steam room in Chicago? Did he simply send Mosler to supply-side guru Arthur Laffer and forget the conversation? No, he told Cheney, Wolfowitz, and many other Committee members about Mosler’s insight. The early discovery of MMT by Rumsfeld led to Cheney famously telling Treasury Secretary Paul O’Neill that “deficits don’t matter.” It also led to off-book financing of two major wars overseas, the TARP treasury raid, and the continuing QE for Wall Street. Folks like Paul Krugman keep pulling their hair over the current bipolar economic policy because they don’t recognize that the Committee (1%) is using MMT for themselves and using Austrian (austerian) economics for us (99%). The Committee’s faith in MMT is real and obvious, but they continue to lie about it because they don’t want to share it with the 99%. Sharing MMT would decrease the huge equity gap between the 1% and the 99%, resulting in us gaining a little in the political power game. Using it secretly to line their own pockets and consolidate power is their only objective. The ethics of the 1% are simple: If you are doing well you are doing good. The 1% is doing very well. Do you feel the good?

      • What do you suppose Central Party Committee facilitator Rumsfeld did after that hour with Mosler at the Racquet Club steam room in Chicago?

        Is that true?

        • Yes it is true, I heard Mosler say it somewhere, it may be in the longer version of the “7 deadly innocent frauds” too.

          • “It was then that I began conceiving the academic paper that would become Soft Currency Economics. I discussed it with my previous boss, Ned Janotta, at William Blair. He suggested I talk to Donald Rumsfeld (his college roommate, close friend and business associate), who personally knew many of the country’s leading economists, about getting it published. Shortly after, I got together with “Rummy” for an hour during his only opening that week. We met in the steam room of the Chicago Racquet Club and discussed fiscal and monetary policy. He sent me to Art Laffer who took on the project and assigned Mark McNary to co-author, research and edit the manuscript, which was completed in 1993”.

            p.98 7dif

            • Thanks. I’m embarrassed to say I read the book and didn’t remember this part.

              • Gerry Spaulding

                Maybe it was because, like me, the teamwork idea of the William Blair Agency head’s college Buddy, Rumsfeld, and Reagan supply-side-economics advisor Stockman then assigning Mark McNary to co-write and edit the manuscript was just so …………sickening.
                Seemed like just too much poison for a healthy beginning.
                I’ve tried hard to forget about the steam-room meeting in considering the validity of MMT as the progressive alternative.
                I keep telling myself that certainly this Neo-Con cum Peterson-Austrian connection is meaningless here, as long as we just focus on the good stuff.
                Like using deficits to put people to work.

                • Gerry,

                  these people exist… If they’re smart enough to understand basic logic then why not take the time to try and explain to them how money actually works?

              • I read it quite a long time ago. I definitely don’t remember all of it. However I’m quite good at speed reading, and that’s easy in this case because it’s quite short.

        • I heard this part as well. I think it may have been said during his intro in a recent video of a debate Warren participated in at Columbia U. That video was posted last week on Warrens web page. What Rumsfeld did with the info is anyones guess but but I have wondered if the power elite have not secretly been using MMT or it’s central concepts at least, for their own gain for some time now.

          • G.W. Bush did say to some south american leader, according to documentary south of our border, that US economy has only grown stronger trough war. They were talking about Irak war. That is quite clear reference to MMT, and US economy started to improve at those times.

            If republican answer to weak economy is to start new wars for just to get justification for deficit spending that leads to very conflict-ridden world. Once again proper understanding of MMT would be crucial.

      • charles fasola

        Exactly. The 0.01% aren’t ignorant about “how modern money works” and “that it’s holding all of us back”. When will Ms. Kelton and the majority of her colleagues realize that the 0.01% know exactly how it works? When will the MMT’ers just come out and state the facts? The 0.01% and their prostitutes who “represent we the people” are LYING; say it loud: LYING! They understand exactly “how modern money works”! They and the presstitutes in the corporate, mass media sector are BRIBED by the 0.01% to LIE to everyone else. Bribed to lie, Ms. Kelton. Stop being nice to those who despise you and all of the other serfs who allow them to maintain their criminal enterprises. State reality in a way that the average Joe understands. Or are the potential risks not worth speaking the truth. Finally, Mosler is a terrible person to have as a spokesman for your positions. His image is not one that most would find an appealing one. Mosler is an example of having one’s cake and eating it too.

        • have you read his book?

            • charles fasola

              I read it when it was first available. His prescriptions and insights are noteworthy and I agree with many of them. However, he is part of the capitalist financial system. He believes in it wholeheartedly. He is a member of the 1%. He is a participant in the shadow banking regime that will eventually cause the collapse of the current system. I reiterate, he is not one who should be the face of those attempting fix a broken system.

              • He has proposed some ways to reform the banking system:


                If all of the top dogs in finance were as open-minded as Mosler, I think we’d really be on to something. Unfortunately a lot of them have very regressive views, apparently based on nothing more than personal prejudice and ideology. Warren isn’t like that.

            • Gerry Spaulding

              So, (re: DIF No. 1) do you really believe that the IRS shreds your cash tax payment money because the government doesn’t need that money to pay its bills?
              Is that what we’re supposed to believe about how this system actually works?
              Without any proof?
              I hope not.
              More of a stylized allegory, maybe.

              • Gerry,

                if you return a $10 note to the government, all that does is cancel a $10 ‘debt’ the government owed you. That’s it.

                • Obviously they only shred old worn-out notes. What would be the point of shredding notes that are still in a good condition?

                  Nonetheless the fact still remains the same: returning a $10 to the government is the same as returning an $10 IOU to its issuer.

                  The IOU issuer can shred it if they want to, as the liability it embodies no longer exists. Or they can choose to keep the piece of paper for future use, to save themselves the bother and expense of printing a new one.

                  • The government doesn’t need those pieces of paper to pay it bills because it always pays its bills by simply marking up accounts.

                  • Gerry Spaulding

                    In sum, as per DIF No 1, the first explanation does not relate thereto – it is not a tax payment being shredded.
                    In the second, the tax-payment note is only shredded BECAUSE its condition is not satisfactory for circulation. We all agree.
                    The question, of what would be the purpose of shredding perfectly good notes that are used to pay taxes has avoided Warren over all these years. His anecdote conveys that the shredding of the tax payments proves that government does not need the tax revenues to pay its bills, with which you seem to agree in reply No. 3.

                    Regards the IOU issuer of a currency in circulation – while not related to the tax and spend question of DIF No. 1 – it seems that the note IS in fact important to the issuer, as the Treasury prints and replaces the mutilated and destroyed note to whoever sends it to the Fed.

                    What is relevant is whether, in fact, the government MUST have a positive balance in its TGA account, whether received from taxation, public debt issuance proceeds, internal transfers or the equivalent of Platinum Coin type seigniorage, before it can pay its bills and mark up accounts, in a process that thereby debits the payment balance from Treasury’s TGA account.

                    I believe the MMT position is that it can make any payment at any time, regardless of its TGA balance. But this is definitely not the universal opinion of MMT economists, many of whom acknowledge that the self-imposed constraint of checkbook-(account) -balancing by the Treasury requires the receipt of revenues and positive account balances before a payment can be made.

                    Under such a scenario, taxation does indeed support government spending, which should bring into question Warren’s contention that the government does not need those cash tax payments to pay for anything, so they may as well be shredded.

                  • Yes, the Treasury spends from its account at the Fed. The Fed is part of the government.

                    Please remember: the Fed and the Treasury are both different parts of the government.

                    The Treasury is usually required by the government to have a positive balance in its account at the Fed before it spends.

                    However it’s meaningless to say that the government uses tax funds to spend. It’s fiat money. It’s just a liability of the government. A government IOU.

                    Write “IOU $10” on a piece of paper and then give it to someone. Now take the piece of paper back. Do you now have an additional $10 in funds which you can now use to spend? No, of course not, don’t be silly. Taking back your IOU simply cancels your liability. That’s it.

                    But yes, the Treasury is usually required to have a positive balance in its account at the Fed before it spends. The Fed credits the Treasury account, and debits the the Treasury account when it spends. This money is simply an accounting entry on the Fed’s books. It doesn’t come from anywhere, it’s created ex-nihilo, it’s fiat.

                    I have no idea what percentage of notes the government receives in payment actually get shredded, or whether some get re-used. I don’t think that’s particularly important.

                    The point is that some people have such an ingrained tendency to think of money as some sort of commodity which the government has to ‘get’ from us to be able to spend, they find it difficult to understand that the ‘money’ in a $10 note is not the piece of paper itself, but the $10 government liability it represents. The money is the government promise, not the paper on which that promise is printed.

        • Charles, I beg to differ with your opinion regarding Warren Mosler. His book “The seven deadly innocent frauds” is an easily understood text aimed at the layperson which directly addresses exactly the kind of mythology that MMT discredits on a more sophisticated level. The book whets the appetite for more learning since it clarifies what most of have felt on a gut level, ie these really are the frauds that have been used to eat away at our overall quality of life for the past quarter century.
          As with any theory there are as many differing views on how to apply it as there are people who understand it. It’s the job of the majority to ensure it’s used to benefit the common good.

      • The top 20% knew what monetary sovereignty meant for them well before Mosler. Take a look at effective marginal tax rate graphs between 1959-60 and 2010-12. The 20% knew their tax payments were superfluous to federal gov spending after Nixon defaulted on convertibility, 8/15/1971. They have continued to pay for, fight for, and receive friendly tax code treatment. Then take a look at the increase in payroll tax rates since 1960 and you’ll get the picture that neither Arthur Burns, Nixon’s Fed Chair or Obama’s will ever tell the Congress that monetarily sovereign nations are constrained only by inflation and self imposed rubrics. Budgets, debt ceilings, deficits are barnacles of the gold standard. Inflation can be managed with tax policy, self imposed constraints can be managed through, as usual, revolution.

  5. Someday MMT may improve understanding of how US economy works but it will never be acknowledged for that by major economic communities or medias. Most major media outlets and economists like Paul Krugman react to MMT just like the ape scientists did in movie “Planet of the Apes” when Taylor explains how he landed on their planet.

    In 2008 US arrived at point in history where its economy went into major meltdown. US survived that meltdown because it had governmental institutions already setup to cope with such meltdown. Without Federal Reserve Bank providing backup assurance for Trillions of dollars in shaky investments, extended unemployment benefit, medi-cal assistance, food stamps and some stimulus from Federal Gov., the US economy would have spiraled into deep economic depression. But lot of people in US during period of recovery did not experience enough economic pain to realize how bad it could have been. To them this period was just another stage in typical economy downturn followed by prosperity. With housing prices falling to record levels below outstanding mortgage balance most people during the recovery began to retrench, pay down their debt and hold back on spending. It was easy for them to understand the message that Federal Government should reduce its debts and deficit spending will only burden our children’s future since that is what they had to do.

    I was able to really get what MMT was trying to say about how the economy works when I watched the video (Monetary Sovereignty) where Stephanie Kelton showed graph “Sector Financial Balances as % of GDP, 1952 q1 – 2010 q4” that reveal % of government, private and rest of world sectors.
    See video section 44:57.

  6. “the Committee (1%) is using MMT for themselves and using Austrian (austerian) economics for us (99%).”

    Yep. I recall in an interview (from Democracy Now! I believe) that the then president (or some higher up office holder) of Argentina remembered meeting W for the first time who told him that the war in Iraq would be good for his presidency because ‘it’ (presumably the spending) would be good for the economy. He did not leave with too high an impression of Bush.

    And Cheney’s comment was “Reagan taught us that deficits don’t matter”. I am pretty sure that is not what Mosler taught him. Yet he understands it better than Obama appears to.

    ” If you are doing well you are doing good.”
    I’m stealing this line.

  7. Yes, Reagan’s massive military buildup suckered Russia into an arms race their economy couldn’t handle and we “won” the cold war. Reagan increased military spending to 40% more than we spent at the peak of the Vietnam war, causing huge budget deficits. We will never know what conversations Rumsfeld and Cheney may have had regarding either Reagan’s big deficit or Mosler’s insights. But if I were Dick Cheney I would cite Reagan’s deficits as proof before the theories of an obscure hedge fund guy. “If you are doing well you are doing good” is a line from Lapham’s excellent film “The American Ruling Class.” James Baker III is interviewed in the film and he happily sums up the basic underlying assumption of the ruling class as “If you are doing well you are doing good.” So, you are also stealing from a card-carrying member of the Party!

  8. Yes I agree however what I don’t understand is why we have not gone back to the gold standard? Is this because we have very little gold reserves now Fort Knox is probably empty. Gold has fluctuated greatly in the past two years. 5/11/2012 it was at $55,000/kg of 24kt and the same price on 5/11/2013; however, today it will only be at about $42,000/kg. Korea is buying as much gold as they can get. What do the Korean know that we have apparently forgotten. Any comments on this you may call me at 901-201-7840 I can purchase gold for. $500/oz but of course this isn’t USA sourcing…

    • charles fasola

      If you must ask that question, you have no understanding of economics. Especially an economic system that requires perpetual growth in order to succeed. A growing economy, using the present type of economy we are saddled with, requires a growing supply of money. If money is tied to gold and gold is a finite resource, tell me how that will occur beyond a certain point? Also, just consider the simple fact that gold, which is nothing more than a piece of metal can be perceived to possess certain value, why can not a piece of paper be perceived to hold a certain value. What is really the difference? It’s heavier, well paper can fly, can gold? You gold bugs are a crazy bunch.

  9. Trying to get a letter in the WSJ or Financial Times is a long shot. As a second best, plonk some pro MMT comments after relevant articles, like I did five minutes ago here:

  10. Dale Pierce

    @Ray et. al.


    “The NYT has their marching orders from the propaganda artists inside the Central Party Committee and those orders include spreading misinformation…” etc.

    I know this is said tongue-in-cheek, but the serious question it raises about who-really-believes-what is important and real. If we add paranoia and stir, we get as far as “Aha! Warren tipped off Rummy! So *that’s* how Cheney found out he didn’t have to pay for his wars!” Pretty soon, everyone is “BRIBED”! Everyone is “LYING!”

    I think we all know that the world is more complicated than that. There is no contradiction, really, between saying that the elites are economic predators and saying they are often deeply confused about economic theory and policy. They don’t have to understand monetary economics in order to make money – any more than one need grasp the details of Newtonian physics in order to walk or ride a bicycle. The principal psychological characteristic of a Wall Street predator is sociopathy. What they understand or fail to understand (about anything) is quite secondary. Bill Black’s “The Best Way to Rob a Bank is to Own One” contains a very complete profile of this psychological type.

    The elites aren’t secretly keeping MMT to themselves. MMT describes the way the monetary system already works every day. All of it.

    I don’t know how much it helps to speculate about motives or personalities. It comes off a bit conspiratorial. We can be energetic about wanting to end the regime of predation via some thorough-going reforms to present-day Capitalism. We can connect the use of “deficit-hawk” propaganda and ideology to some forms of predation and would-be predation. And we can denounce, in as detailed and forceful a way as possible, the shallow, sorry, and sometimes even venal quality of the media “debate” that tracks these issues.

    It doesn’t particularly help to SHOUT (except at demonstrations, of course). See you out there!


    • I don’t mean to imply there is some secret conspiracy of the ruling elite to apply MMT to themselves and austerity to the rest of us. The notion of a conspiracy arises from the bipolar economics that we all see, without an understanding of why it exists. It need not be a conspiracy. It may be simple causation. Think motives. Mosler went to Rumsfeld with the motive of getting his ideas out there. Rumsfeld sent him to supply-side guru Laffer because Mosler’s ideas had big implications and he wanted Laffer’s opinion of Mosler. Mosler impressed Laffer, who assigned Mark McNary to work with Mosler. Laffer’s motive was not to make Mosler famous, it was to understand MMT. In the eighties, Reaganomics was a dream come true for the Austrian School. (Republicans still have absolute faith in Reaganomics on the fiscal side.) After Reagan’s arms buildup and tax cuts created big deficits without inflation, the ruling class saw the obvious truth that a federal government deficit was a private sector surplus. This surplus is a benefit to ruling class coffers. Using MMT understanding on the monetary side allows the 1% to continue to profit from federal government outlays. Using Reaganomics on the fiscal side allows the 1% to shrink those government services which are of no use to them. (When you send your children to private schools, have your own fire department in your gated community, your own security – you don’t need a lot of government services. Especially if you are taxed to pay for them.) No conspiracy here, just powerful people doing something that appears contradictory. When your objective is a government rich enough to fill your personal coffers and poor enough to be powerless against you – you need a bipolar approach. So you use the politicians to shrink or stop government on the fiscal side and use the Central Bank to fill your coffers on the monetary side. Bipolar. The 1% get more money (manic!) and the 99% get less (depressive!). BTW, I agree with Charles Fasola that the ruling class is far less than 1%. That is because only maybe 10% of the top 1% are politically involved. And there are two camps of politically involved elites – the “we should help the habitat and the poor” camp and the “Ayn Rand got it right” camp. Mosler, Soros, Gates, etc. are obviously in the first camp. Rumsfeld, Cheney, Rove, Paul Ryan, etc., are in the second camp. Both camps are for capitalists only. Folks who understand that you are doing good if you are doing well.

    • @Dale:
      Who knew what and when is a subject for further investigation and debate. What’s clear is that a certain type of knowledge resembling what is described by MMT has guided policy development for quite some time and used to the benefit of a single class. The question is why is that?

  11. Well, a tax to control inflation needs the capacity to respond quickly, not annually. Sales tax is good for that because it is payed to governments mo thou or quarterly. Taxes could be raised or lowered via algorithm/formula dependent on first and second order estimates of inflation each month.

    However such an adaptive sales tax isn’t progressive. However It can easily be made progressive though with monthly rebate checks issued from the treasury as a function of income and the current tax rate.