Odds and Sods: Some Good Reads For a Cold Winter Friday

By L. Randall Wray

If you, too, are living in one of the sub-zero climes right now, you want some stimulating reading for Friday.

  1. Here’s one of the best and fairest summaries of MMT that I’ve seen:

As Joe says: “Few matters of economic importance are as woefully misunderstood as modern money. It can seem a fiendishly complicated subject, even to economists. Schumpeter confessed to never having understood money to his own satisfaction, while Keynes claimed to know of only three people who really grasped it: ‘A Professor at another university; one of my students; and a rather junior clerk at the Bank of England’.”

Reminds me of the time Robert Heilbroner called me up after reading my draft 1998 book, Understanding Modern Money, apologizing because he could not write a blurb for the jacket. Money is, he said, the scariest topic there is, and your book is going to scare the hell out of everybody. And by Jove he was right.

Anyway, Joe goes on to argue that MMT seems to have the theory, description of real world operations, and policy right, but needs some better political economy. I agree. Geoff Ingham has done some pretty spectacular work on that, but we need more.

  1. As you probably know, something like 90% of Americans do not have passports. Presumably, few have been to any rich, developed country. I’m including the USA in that, since we long ago gave up any pretense at striving toward such.

Well, maybe a few have been to Canada, which almost qualifies.

As a result, Americans live in their own little hermetically sealed bubble. They have no idea how the others live. They probably believe that all of Europe—say—also has to contend with incomprehensible health insurance bills (and declaring bankruptcy because they cannot pay them), outrageously expensive colleges (and bankrupting student debt), crumbling infrastructure (and JFK airport, which would embarrass any developing nation), and heavily armed and unbalanced neighbors (that would scare the bejeebers out of most of Africa’s child armies).

Well, Ann Jones tells us what the rest of the developed world thinks of Americans. I’ve lived in Italy for extended periods, and I can confirm that this is no exaggeration. Yep, they think we are crazy loons.

  1. However, the real threat to our national prestige comes not from Europe (which, thanks to the Euro will rapidly bring most of Europe down to our level!) but from China. They are eating us for lunch:

To be sure this article is woefully confused on finance. It worries that the Chinese governments are undertaking infrastructure projects that will not generate enough revenue to pay for themselves! “’People should be concerned because very few of these big projects generate cash,’ said Victor Shih, a China specialist who teaches political economy at the University of California, San Diego.” Please, NYT, stay away from this guy. Promise to never quote him again.

Oh, woops. That’s political economy? Someone who does not understand money? Oh, yes, China will run out of RMB. Scarcity of keystrokes.

There are, however, two problems faced by China that have to be resolved. The article picks up on one of them (by far the most difficult): “Many experts say such projects also exact a heavy toll on local communities and the environment, as builders displace people, clear forests, reroute rivers and erect dams”. Agreed.

The other is that the national government does not supply enough funds to local governments, which need the development projects to generate their revenues. That leads to excessive development without regard to communities and the environment. You can see my co-authored solution to that problem here.

The NYT story about taking the tops off mountains is true; I saw it in another beautiful little city in a narrow river canyon—not quite the Grand Canyon, but a rival to the Grand Canyon of the Gunnison.

No room to expand. Solution? Level the surrounding mountains. Why? Because the developers pay good prices for the land (which goes to the local government), borrow lots of money to build, and then default on the loans. But don’t worry, the creditors get bailed-out. Only the community and the environment suffer.

I do not want to make too much of that because the solution is rather simple. Tricky Dick Nixon actually implemented it, calling it “revenue sharing”. That is a misnomer because all you need is national government keystrokes into local government budgets.

  1. The top one-thousandth of Americans now owns a fifth of everything. Isn’t that sweet?

See this article by Scott Bixby, January 03, 2015 “This Terrifying Chart Shows the Unstoppable Rise of the 0.1%”, News.Mic,.

Now, if you think they will be happy with that, you do not understand the way the truly filthy rich think. They want it all.

16 responses to “Odds and Sods: Some Good Reads For a Cold Winter Friday

  1. “The top one-thousandth of Americans now owns a fifth of everything. Isn’t that sweet?”

    I’m not worried. Most “things” are crap. The rich own an illusion.

    • Among the things the rich own is “the best government money can buy.” Unfortunately, that ownership is no illusion and, most assuredly, not “crap.”

  2. Trying to puzzle through all the contradictory reporting on the Swiss revaluation. There are the usual claims that maintaining their peg was getting “too expensive”. That’s just inaccurate. The SNB can never run out of francs. But… maybe the SNB can decide it has too many euros? Or, that it is paying more for those euros than it needs to? And that negative interest rate? That just drains reserves, since the banks in the aggregate cannot avoid paying it no matter how hard they try. It’s almost like they’ve turned franc reserves into bonds whose coupon is paid to the SNB, forcing those who hold those bonds to sell other financial assets (like euros, which would then lead to further appreciation in the franc) to accumulate the francs needed to pay that coupon. All of these moves seem deflationary, but the revaluation also might make it possible to much more rapidly accumulate foreign assets. I’m curious about other’s thinking on it. There seems to be a wealth-concentrating scheme in there, but I’m not entirely clear on it.

    • Hmm, why bother with most taxes? A negative interest rate on reserves might be able to remove excessive liquidity during a boom.

    • entreposto,

      One of the things I like about MMT, other than it’s relative simplicity and insight in comparison to other economic theories, is it’s’ predictive ability. See the link below on Daniel Neilson’s article about Swexit posted in June, 2012 at Inet.


  3. Below is a copy of an e-mail I sent to our Minister of Finance:

    The Right Honourable Minister of Finance, Joe Oliver

    I felt some sympathy for your having to postpone your budget until April. You looked a little uncomfortable on TV yesterday having to explain it all to us. We know that the budget is not in balance; all you need to do is tell us the truth and we will believe you.

    Why do you want to balance a budget that does not need balancing? Is it purely to get re-elected later in the year? You are trying to fulfill a promise that will get your party re-elected. We do know that.

    However, you must realize (being an intelligent and curious person yourself) that when there is a surplus in the public sector (i.e, a “balanced” budget), then there needs to be a deficit in the private sector (businesses and households) or in the foreign sector. Why would you want to saddle the citizens of Canada with stagnating wages and carrying debt to our eyeballs? Furthermore, when the government carries a deficit, Canadians can again earn an increase in wages and pay off debts and even have some savings. Surely you know this information. If you don’t then Canada is being royally screwed with austerity and cuts in spending in order for your government to create a surplus and thus get re-elected!

    To prove my point, please read the following article which explains in detail why we don’t need austerity, why the government does not need to balance the budget and why Canadians need to have more income and less austerity in order to pay off their debts that so worry you.

    See: *www.renewal.org.uk/articles/modern-money-and-the-escape-from-austerity

    *”Take the notion of the balanced budget, currently deemed to yield economic benefits exceeded only by retirement of the national debt (Mosler, 2012, 12). Unlike real assets, financial assets must always net to zero, each asset being at the same time someone else’s financial liability. At the level of the economy as a whole, every financial surplus means, pound for pound, a corresponding deficit somewhere else in the system, not as a matter of abstruse economic theory but because they are inescapable accounting identities.

    “In a simple three-sector model of the economy – government sector, domestic private sector (households and businesses), and foreign sector (rest of the world, including foreign governments, households and businesses) – a surplus in one sector must always be offset by an equal-sized deficit across the others. It is immediately obvious that the neo-liberal policy ideal of running three concurrent surpluses (fiscal surplus, domestic private surplus, and external surplus) is a logical impossibility for the global economic system as a whole and is only achievable in a given national economy to the extent that the foreign sector is willing to run a deficit. Absent an external surplus, in other words,/the public and private sectors cannot both be in surplus at the same time/. If one has a surplus the other must be in deficit (Tymoigne and Wray, 2013, 42). (from the above linked article)

    • Excellent !

    • Thanks for trying to educate Joe Oliver!

      Letter in Toronto Star:

      Financial literacy for politicians

      Published on Fri Dec 05 2014

      Re: Quebec austerity could hurt Trudeau at the polls, Nov. 28

      November is Financial Literacy Month — the time when overpaid bankers of highly leveraged institutions that market credit cards bearing exorbitant interest rates educate the lesser-informed public about personal responsibility.

      More beneficial would be a Financial Literacy Month for politicians. The curriculum should explain that a province or country is not a household, nor is it a profit centre. Rather, democratic governments are agents whose mandate is to manage the economy in accordance with public purpose.

      In order to avoid inflation when the economy is hot, the government must tamp down activity by increasing taxes and/or spending less. And when the economy is cool, the government must decrease taxes and spend more to preserve jobs and support the private sector. It’s that simple — Financial Literacy for Politicians 101.

      Implementing fiscal austerity at a time when 1.3 million Canadians cannot find work is totally inappropriate and damaging. Stephen Harper and Quebec Premier Philippe Couillard need professional help — their enrolment in this course should be mandatory.


      1. Seven years after: why this recovery is still a turkey http://rwer.wordpress.com/2014/11/27/seven-years-after-why-this-recovery-is-still-a-turkey/
      > Firms don’t go on investment splurges in a weak economy. Nor is it plausible that consumers will spend at the same pace as in the bubble years now that the bubble wealth has disappeared. This means that we have to find another source of demand if we want to get back to full employment. We can do it with government spending. We can spend more on infrastructure, on education, on retrofitting buildings to make them more energy efficient and reduce greenhouse gas emissions.
      Modern Monetary Theory in Canada

  4. Thanks for the link to the piece by Joe Guinan, a great read even at 15 F, which it is at the moment. There are numerous useful bibliographic citations to follow up on many of his points. But one comment he makes in closing does not ring any bells from my prior readings in MMT and moreover gives no reference. It is this: “there are valid criticisms of modern monetary theory, including […] the strange things it does to the progressive tax code,” What are these strange things?

  5. Fellow Canucklehead

    JEHR: nice letter, but you have to send it to the opposition critics too!!! You know their line — “THIS GOVERNMENT has so mismanaged the economy and undertaxed that it has driven us into deficit in recession. Elect (insert neo-liberal centrist opposition party of your choice), as it alone is able to do austerity the kindly way, and implement expansionary austerity.” (Marc Garneau, a sweet and brave man — not to mention former astronaut! — often takes this line.) I’m depressing myself. Well, at least the Liberal Party is not a monolith, and the Dauphin appears to be willing to run deficits if it is for green investment (let us see if guys like Garneau let him).

    • Mr. Canuck, I did send a copy of the letter to each of the leaders of the opposition parties; however, I received only one acknowledgement and no responses. I must say that when Mr. Flaherty was Minister of Finance he answered every letter I sent him. Other than my MP, he is the only guy in government to do so. (I also received a reply from Mark Carney to one of my questions. Neither Flaherty nor Carney answered the question, however, merely repeating the ideology of the party.)

  6. Steven Greenberg

    If you really want to promote the ideas of MMT, you really need to come up with better headlines. With the headline as it is, I don’t even know why I finally decided to read the article. In fact, in reading the summary, I immediately jumped to Modern money and the escape from austerity. As Wray says, “Here’s one of the best and fairest summaries of MMT that I’ve seen”

    From the headline here, I never would have guessed how important an article this was. It wasn’t until I came back from reading that article that I noticed there were things of value in the Wray article besides just the link to the Renewal article.

    If we are going to help Stephanie Kelton sell these ideas in her new role as chief minority economist in the Senate Budget Committee, we need to pay more attention to drawing readers in than this haphazard title for this article accomplished.

  7. Thanks for recommending Joe Guiran’s piece Randy. I haven’t gotten through it all yet, but one thing that strikes me as very positive is that he’s director of the Democracy Collaborative’s “Next System Project.” This suggests to me that the truth and economic and political significance of MMT is being embraced by key members of the “economic democracy” movement.

    Thinking about this reminds me of a blog post by Bill Mitchell a few years back, and my own post discussing it:

    As I said back then, I see a political alliance that combines MMT with the principles of economic democracy as potentially very powerful. And, as I also said, I see the addition of an effective political/electoral reform agenda to this alliance as important (and perhaps essential), since even the most compelling and popular policies may not prevail if our political system remains as deeply corrupt as it is today.

    To update the political reform recommendation of my earlier post, I’d expand my endorsement of Larry Lessig’s proposals to also include the Interactive Voter Choice System (IVCS), which Joe Firestone has written about here at NEP.

    I believe that if we can closely link these three components of policy reform–MMT at the macroeconomic level, increased economic democracy at the community and enterprise level, and fundamental reform of our political democracy, we can develop a political movement potent enough to shift the direction of this country in a truly progressive direction.

    Somewhat tangentially, but not unrelated, I’d add to your recommended cold-weather media list this presentation by Rania Antonopoulos, Senior Scholar at the Levy Economics Institute:

  8. Thanks for a great comment!

  9. J Christensen

    JEHR and Fellow Canucklehead; Everytime Joe speaks on the economy he oozes so much neo- liberal rhetoric that it’s almost impossible to believe it isn’t simply the adopted and rehearsed communication strategy for his party. To me, taken in combination with their monetary and fiscal actions this means it’s likely they know the truth about modern money, and more probably use it to it’s full potential as the most powerful political tool to advance the interests of their supporters.
    Canadian provinces and municipalities are struggling to cope with debts and deficits they cannot sustain in the climate of ongoing federal surplus given the global economic downturn and low oil prices; placing public healthcare, public education, public infrastructure, welfare and gainful employment in peril.
    In response to this it appears that there is all party agreement on the need for more private-public partnerships which could be just a prelude to later full privatization. There would in future either be a few private sector recipients of massive amounts of more or less direct federal spending or the end of the progressive successes of the past.
    Those recipients woudn’t neccessarily be Canadian either, should the secretively (thanks to the privilege a majority government has with respect to “foreign relations”) negotiated trade agreements be ratified.

    Rest assured the other parties are aware of modern money, and yet they all continue to use the neo-liberal talking points in pre election posturing. The alternative would be to accept full responsibility for failures that occur as the result of politically driven monetary and fiscal choices.

  10. Thank you for the excellent references.
    The Guigan article is especially good.
    Since I cannot comment on the Guigan article directly I want to add a comment here.
    Mr. Guigan states that 100% reserve banking would eliminate bank-created credit money. I believe that this is not true but is frequently stated.
    The idea that 100% reserve banking, as opposed to fractional reserve (any number less than 100%) would limit lending to the amount of actual deposits on hand by banks is false. It would not change in any way the ability of banks to create credit money through the act of creating loans. It would only mean that the amount of reserves that the banks must obtain would be 100% of the loan portfolio rather than a fraction of that amount (currently 10%). Since lending is not reserve constrained it is irrelevant what the quantity of reserves is that must be held by banks. The central bank must provide the required reserves (after the fact) in order to maintain its target interest rate.
    If the money multiplier theory is false, then it follows that the amount of reserves banks are required to hold is irrelevant.
    Dr. William Mitchell discussed this very point in a recent blog, http://bilbo.economicoutlook.net/blog/?p=29878.
    See the answer to Question 2.
    He states “ In the current system, the the central bank ensures there are enough reserves to meet the needs generated by commercial bank deposit growth (that is, lending). As noted above, the required reserve ratio has no direct influence on credit growth. So it wouldn’t matter if the required reserves were 10 per cent, 0 per cent or 100 per cent.”
    Dr. Mitchell explains that different banking systems than the current one may have mechanisms to limit lending to the amount of deposits on-hand, but merely changing the reserve requirement in the current system will not have that effect.