By J.D. ALT
My last essay, “A Perfect Example,” elicited six thoughtful and compelling questions from a reader with the moniker “MadcapMongoose.” They deserve an equally thoughtful response, which I’ve been trying to formulate, off and on, these past many weeks. Each formulation I come up with, however, seems to be missing a larger and deeper issue that I keep getting glimpses of. So, with apologizes to Mongoose, instead of answering him (or her) directly, I’m going to try to mine the topic obliquely to see if I can get at that deeper vein.
The essay in question dealt with a specific proposition for “direct sovereign spending,”—that is to say, spending by the federal government which is paid for by the issue of fiat dollars “out of thin air” rather than by the collection of “tax dollars.” Mongoose’s questions outlined a multitude of difficulties and issues that arise with the idea of doing that, and he (or she) wondered why MMT always seems to ignore or avoid them. I can only speak for myself here, but I believe the communicators of MMT, while they’re aware of these kinds of issues and difficulties, have been focused on a different task: trying to instill a larger awareness of the fact that “direct sovereign spending” is something that is practically and rationally even POSSIBLE.
Yes, of course, everyone realizes and acknowledges that sovereign nations which issue their own fiat currency can, technically, “print money” and spend it—but the vast majority of economic minds, especially in the western capitalist democracies, also view this possibility with something akin to a rational and moral horror, as they would view, say, the idea of burning down a house to get rid of the cockroaches. Part of the reason for this abhorrence is the myth that the practical result of “printing money” is, inevitably, the economic chaos of hyper-inflation. (This in spite of the fact that historical analysis demonstrates that the root causes of hyper-inflation—the infamous Weimar Republic or Zimbabwe, for example—have not been caused by “money printing” but, instead, by the collapse of the production capabilities creating things for the money to buy.)
Another—and substantial—part of the psychological-economic anathema to the idea of “direct sovereign spending” seems to be a residual brain-circuitry from the era of the gold-standard—when printed money had to stand for some fixed amount of actual gold and, if it didn’t, the “printed money” was a fake. This is a mind structure that requires there to be in the world, at any given moment, a fixed amount of “money” that everyone must compete to have a share of. The idea of creating actual, “real” money out of thin air is simply not a possible reality—just like the alchemist’s dream of making gold out of lead is an ephemeral fantasy.
So there are real cognitive disconnects involved here. But I think it goes deeper than that, and I believe if we are ever, as a society, going to take full advantage of the pure, sovereign, fiat money system we actually have been using for the past half century, we have to understand what that deeper issue is—and, most important, whether or not there is a way to overcome it. A possibility I’d like to explore here is that underlying our insistence that the federal government has to collect tax dollars (or borrow them) in order to have dollars to spend is an elaborate and elegant charade which has evolved to protect our bedrock values as individuals (private property and free-enterprise) against the coercive power of the state—a power we granted (with significant reluctance, no doubt) the day we signed our social contract.
This charade has evolved to become an intricate form of social cooperation, supported by a complex, institutionalized, set of operations, measurements, social norms, and code words specifically designed to accomplish one primary goal: to keep the federal government perpetually short of spending power and, therefore, perpetually constrained in what it can undertake to impose upon our individual freedoms. To acknowledge that the state, in fact, actually creates the money we use—and therefore has no need, for the purpose of spending, to collect it back from us as taxes—would potentially unleash a monster that we fear (with real, historical, justification) might put us in chains. Unfortunately, in a functioning democracy, that monster is ourselves, and what we lose in keeping it encumbered is our ability to undertake an enormous range of cooperative tasks—activities and projects which would not only provide us with huge collective and personal benefits, but would, by the acts of doing them, enable us to employ every able-bodied person (and many disabled persons, as well) in work that is useful, interesting and, most important, payable of a living wage.
But no, we cannot do anything so rational. To protect ourselves against possible enslavement we must carefully perpetuate The Charade. Specifically, to maintain the goal of keeping the state in the position of having to collect our tax dollars in order to have dollars to spend, it is necessary to view the workings of money, itself, in a very specific (and peculiar) way: Dollars, we must believe, are created by the act of doing something that generates a profit—that is to say, the doing of something that is repaid, in return, with more dollars that were expended in the doing of it. Therefore, if you are to have a dollar to buy something with, you must earn that dollar by working for (or owning) some business venture that earns a profit. There is no other way a dollar can be created for you to earn. (“Non-profit” ventures are a confusing misnomer because they must, in fact, earn enough dollars to meet their expenses. In this sense they differ from a profit-oriented business only in the quantity of dollars they seek to earn.)
The consequence of this charade (in addition to making the collective government beholden to private business for its spending money) is that something which needs to be done, but which doesn’t earn enough profit to repay the dollar cost of doing it, cannot be undertaken—unless money which previously has been earned through a profitable effort is “given” to it (either in the form of taxes or charity). The idea of “direct sovereign spending” to undertake the task is a non-starter because, in order to protect our individual freedoms, it cannot be permitted that dollars are created anywhere but in the private sector through the profit-making actions of business ventures. (The fact that dollars “arise” in the private sector through the direct actions of the Federal Reserve—a collective institution appointed by the federal government—is ambiguously “hidden” by the institutional complexities of the money-creating transactions. In other words, ambiguity aside, it is the SOVEREIGN NATIONAL GOVERNMENT which creates the dollars, as they are needed, to make good the profits of private enterprise.)
The necessity of having to maintain—or at least not spoil—this charade is what prevented Bernie Sanders from actually launching his revolution. How could the federal government pay for all the things Bernie said he wanted to make happen? How could it collect enough taxes? How much would it have to borrow from the private sector economy to undertake his laudable projects for the collective good? More to the point, how could Bernie persuasively tell the American people that, in actual fact, the federal government could just CREATE the dollars as needed—WITHOUT collecting more taxes or borrowing a single penny? And how could he make the case that doing so would NOT have to endanger personal freedoms by unleashing a massive government take-over of society—but that , in fact, the very process could transfer federal power to local communities?
Last October, as Bernie’s presidential campaign was starting to catch on, to amuse myself, I wrote a speech that I thought he might find useful to give. Here are some excerpts:
WHAT IS A SOCIAL DEMOCRACY?
If I’m a “social democrat” then I have to be able to tell you what a “social democracy” is. Does “social democracy” mean having a huge federal bureaucracy that regulates, manages and controls everything we do? That promulgates reams of stipulations and rules about how we do our business? I believe not. I believe, in fact, that a true and effective social democracy means the exact opposite: a SMALL federal bureaucracy and a LARGE network of local communities that spend federal dollars to build the community services and infrastructure THEY decide they need. Anyone who claims or implies that Bernie Sanders is advocating that America become a socialist state that owns all the industries—and rules, regulates, and employs all the people—has it exactly backwards. I, Bernie Sanders, believe the primary purpose of the state, the strategic mission of the federal government, is to empower the basic units of our social fabric: our households, communities, and local economies. Big businesses and corporations can take care of themselves, and have much to offer and contribute—but it is only by nurturing the health and vigor of the basic units of our society that we can, in fact, create a more perfect union. And this is not a task that big business, pursuing corporate profits, is disposed or interested in undertaking.
Is this position anti-corporate? Am I anti-big business? Only a fool would think or say so. American corporations and businesses which are producing real goods and services—and more power to them—require for their success, above all else, customers with the means to buy those goods and services. And who are those customers? They cannot be any other than the basic units of the social fabric we’ve been talking about: our households, communities, and local economies. This is why we are fooling ourselves if we believe that we, as a sovereign nation, cannot or should not pay our households and communities to undertake the things they need to accomplish. And why should we severely limit that support because politicians and economic pundits tell us there isn’t “enough money”—when, in fact, our Federal Reserve system creates, out of thin air, trillions of dollars every year to make good the profits of our capitalist system? Yes! It’s true! Where do you think the dollars come from when, at the end of every business day, America’s bank accounts are bigger than the day before? Why should we not use that same ability to create money for the “social profits” that will come if we pay our local communities to create the services and infrastructures they need? If we create dollars, at the bat of an eye, to pay for the profits of the car industry, why shouldn’t we create dollars to pay towns and neighborhoods to provide their children with pre-school learning and day-care centers? If we create dollars to pay for the profits of a middle and upper-class house-building industry, why shouldn’t we create dollars to pay local communities to build the affordable housing needed by families still trying to climb the economic ladder? All of these payments—profit-making AND not profit-making— accomplish the same thing: they pay people wages to produce particular goods and services that other people need. Why, then, do we say that one is good and the other bad? One is possible and the other is not? Why do we limit ourselves, as a sovereign democracy, to creating money ONLY for those goods and services that generate a profit?
Maybe it’s not too late for Bernie to make this kind of speech. People are still listening, and Hillary can’t seem to think of any way to get voters interested or excited. If Bernie did, and people started to listen seriously to the message (i.e. “direct sovereign spending” is not only possible, but is actually a rational thing to embrace and plan for) then the kinds of questions raised by MadcapMongoose, I’m certain, will eventually get worked out.
A good summary. Here are a few quotes or phrases to accompany “Bernie’s ” speech.
“Ronald Reagan proved that deficits don’t matter.” Dick Cheney (the only thing he ever said I agree with)
” There is nothing to prevent the federal government from creating as much money as it wants and paying it to someone.” Alan Greenspan before Paul Ryan’s House Budget Committee (ditto above)
“I am not a tax and spend Democrat, I am a spend and then tax Democrat” my contribution
As I read this, I thought of the Economist stating that Uber is “worth” $70,000,000,000.00. Right. I also thought of the following which illustrates the concept of money. http://money.visualcapitalist.com/all-of-the-worlds-money-and-markets-in-one-visualization/. Charade indeed.
I would have preferred a set of succinct answers to the six questions; I think I’ve had enough generalizing and philosophizing, important as that is. As an MMT believer I am ready to see MMT leave the “pure science” phase and roll up its metaphorical sleeves to begin to address the detailed engineering of an MMT-based economy. IE, I’m sold on the basic principal (thank you Randy) but not clear on the practical implementation and how technical and political questions and problems should be addressed.
Perhaps a first step would be to create an engineering manual purely for applying MMT itself, separate from any specific programs and policies that are derivative of or implied by it, such as employer of last resort. Focusing on specific policies and programs at this stage may have a polarizing effect which closes minds that might be otherwise receptive to comprehending MMT itself, even if one may be opposed to some of the policies implied by it.
As MMT is already counterintuitive to our innate household paradigm of the larger economy, it is important to ease the cognitive dissonance that accompanies letting go of an accepted paradigm in order to create a mental and emotional space where people feel safe to consider how MMT may be seen as true for them. Moralizing about and labeling people’s closely-held beliefs is a sure-fire way to get them to hang on to them more tightly, and concomitantly, to label one as a crank. Since understanding should be our goal, smoothing the path to that state should be our method.
That and repetition, endless repetition of the basic tenets. How have neoliberal ideas like efficient markets become accepted, even when no close inspection supports this idea? 50+ years of dogmatic repetition. My favorite teacher says “I’m only going to tell you this 1,000 times” — we should follow his method, and not expect instant acceptance of MMT.
And simplicity and consistency of messaging. I hope you will answer those six questions as if you were a structural engineer designing a bridge who was responding to questions raised by a client. I look forward to learning from your answers.
For anyone reading comments both here and at NC — Apologies for positing this same comment twice! (and fyi, the “primers” I mentioned in the NC post refer to the ones found here!).
Many thanks for this post. I can attest that even for those of us for whom MMT immediately makes sense (and validates years of head-scratching over the typical platitudes fed to us by conventional economists!), it still requires a good deal of effort to re-route the brain around these deeply entrenched “truisms.” So I can offer the following from my own struggling head: I understand (or think I understand) the way money is “created” now as a sort of direct sovereign spending by proxy (or planned obfuscation) — the Fed induces or incentivizes private banks to make a loan and new “money” appears in the private economy, instantly generating income for a bank that “generously” has loaned it out or used it to speculate. So, from there I can understand that there is no theoretical or logical difference between how things work now and creating money to pay directly for things like infrastructure, jobs, healthcare, education, or to pay directly to citizens, etc. In simple terms, money already isn’t created by “earnings” — or generated by some sort of natural “demand.” The Fed decides at its own discretion to funnel money to the private sphere via private banks. (Ironically, for all the worry that it would cause runaway inflation or economic chaos to hand out money directly to real people, or to pay for actual things — isn’t that what’s already happening by enabling banks to “create” and play with money with the implicit promise that MORE money will be generated to cover all the losses that were obvious (if not structurally inevitable) from the beginning?)
But the concept of “earning” is hard to shake loose. Perhaps attachment to the idea that money can only be “earned” is a conceptual replacement for the idea that money must be backed by gold or some other store of “real” value — in either case, there seems to be a strong need to view “real” money as money with an inherent store of value. Linking money to “earning” seems to preserve that idea — money-as-substitute-for-commodity (e.g., gold) becomes money-as-fruit-of-productive “real” economic activity. I think that a belief in the necessity of this causal relationship is why it is very difficult to shake the notion that the financial sector (however craven) must somehow have “earned” all its money — because, as the thinking goes, money only exists to the extent it has been earned. Relatedly, people seem to need to think that money comes into existence, derives value, and gets distributed according to natural laws or forces, e.g., the supply and demand of markets — or at least that it can and should be — and but for fallen humanity, would not need to be “manipulated” by the arbitrary whims or self-interest of the State (goes to the fear-of-state rationale suggested in the post). Wrapped up in the platonic ideal of an economy as a force or entity unto itself (and the corollary belief that the State functions only be taking from it or borrowing from elsewhere), at least I think, is the power of the concept of “earning” in individual psyches — a deep-seated American/Western equation of “earning” and one’s personal value or worth (Protestant Work Ethic and the Spirit of Capitalism is alive and well!) and from a moral perspective that “earning” is an appropriate distributional principle (e.g., the visceral aversion to the idea of the government “printing money” to pay for things for people instead of them having to “earn” it).
I have a question about the relevance/operation of supply and demand (and apologies if this is confused or obvious, but at least you’ll see what you’re dealing with!). It seems inherent to the concept of an economy (or at least our modern economy) that the level of money in circulation must be tied to some dynamic of supply and demand. So it seems one way to think of “earning” is that it functions as the “demand” for generating more money (increasing supply). As it is, it seems that if the financial sector were not permitted to transfer and defer its lending and investing risks ad infinitum (or until a bailout), the current system, in principle, could work according to a logic of supply and demand — demand for loans from the real economy would prompt banks to generate money, prompting new accounts to arise at the reserve (or no?). This may not be ideal policy — but it at least seems to follow a logic of how supply and demand operate. So I guess my question is — does this dynamic that my brain gravitates toward come into play, or is another instance of clinging to misguided economic “truisms”? Is there a necessary or desirable supply/demand circuit between money and activity in the real economy? How does this dynamic play in the type of direct sovereign spending described in the post? Would it be correct to think of direct spending on public goods (or to individual citizens) as money being created to spark activity in the real economy (i.e., supply [of money] spurring demand [for goods and services, i.e., economic activity]) — in other words, the supply/demand circuit I’m envisioning here between the real economy and the level of money in circulation can work either way, economic activity “earns” money, and on the flipside, an increase in money can drive economic activity/earnings, and it’s only a limitation in our thinking (perhaps ingrained prejudice about human nature) that prevents us from seeing the latter as valid or sustainable? Or, does this mischaracterize the dynamic? If this view is generally right — then it seems not even so much a need to convince us that “earning” doesn’t create money, but to convince us that the causal chain can be reversed without adverse consequences. Conceptually, it becomes easy to see (or not, if I’ve F–ed it up!): Direct sovereign spending to provide individual or collective benefits is both direct economic activity (through the goods and services provided) and generative of economic activity by liberating individual resources to be put to use elsewhere. At least logically, there would be no more risk factors of “economic chaos” associated with money-supply–generates-economic-activity than with economic-activity-generates-money-supply. Increased downsides from the former would seem to be a matter of a flawed model or execution and not theoretical necessity. So the resistance then is purely a matter of principle or psychology. Just speaking personally, I think the visceral force is the notion that we don’t “deserve” money that we haven’t earned and that is “given” to us, and that it is just not how the world works — and that therefore, there must be a design flaw.
grateful, I am not advocating that “direct sovereign spending” be used as a way to “give” people money, but as a way to make it possible for people to “earn” money (as you suggest should be the case) while doing things that are useful for collective society. What I was attempting to point out is the irrationality of the fact that we seem to think it’s fine to create money that people can “earn” IF what they do to earn it is a profit-making enterprise (as in building an automobile, for example)―but we think it’s a moral crime to create money that people can “earn” by doing something that may be useful but isn’t profitable (as in providing child-care services, for example). In the first example, the Federal Reserve creates the dollars as necessary to make all the transactions clear, but in the second example the dollars must be provided by collecting taxes or charity. If we could just change our thinking on that, there’s lots useful things people could “earn” money doing.
Thanks — and understood. Really I just meant to pick up on the concept of “earning” as a reason that people’s sense of intuition seems to resist the idea that it could be practical or sustainable for a government to directly spend on public goods without “raising” the money by taxing or borrowing. My larger question goes to what a few other readers have alluded to or directly questioned — the idea that DSS seems to be introduced in isolation, that if only people could get past their limited thinking we as a society can have everything we need or want. Accepting that sovereign currency means that a government can spend at anytime however it so chooses — what are the dynamics, the tradeoffs, the consequences of this DSS policy decision? I don’t think the recognition of a government’s ability to spend without limitation equates to a belief that society always can do everything it wants and must never make choices or tradeoffs — but the presentation of the DSS proposition carries a bit of that implication. One way to think of it is to flip it on its head: what purposes are served by acting as though the money supply is limited when it really isn’t? There are many answers to this — but one thing that that myth seems to do is paper over the fact that distribution of resources (and power) is a choice — a policy decision — and not an automatic function or result of “the market” (i.e., the general myth is that even though money is issued by the government, it is issued at a level generally corresponding to the “market” (i.e., the production and sale of goods and services), and that money somehow just spontaneously enters into the flow of the market in the form of profit — when in reality, money is brought into being by and through a particular sector (financial sector), which can multiply it simply by lending or investing without “producing” anything, and therefore the sector exercises power not as a natural consequence of the market but by virtue of a policy choice). Maybe in the case of DSS the policy choice is obvious — in an economy with a labor slump and flagging demand, pump money into by creating jobs and goods and services that lift living standards. But still, the value of money in circulation, its purchasing power, must be tied to other factors. But here’s where I get fuzzy. I’m not being critical — just trying to understand. Maybe a follow on is that if at some point money starts to lose purchasing power (would it?), and the it becomes desirable to drain some out — so is taxation the answer to that? Under our current market fiction paradigm I could see this attacked as “redistribution” — “spending” to grow incomes at the bottom, then eventually “paying for it” (or at least “paying for” the consequences) through taxation, and where those taxes would hit then becomes the site of political and policy choice. Please don’t misunderstand — I do not believe or endorse the “redistribution” canard. I raise it in an attempt to get at what’s at stake in the simple proposition to spend money on stuff for people. The truth is the “redistribution” charge carries persuasive or moral power only to the extent we believe there is a natural or just “distribution” in the first place. That, to me, is a key insight of MMT — there is no originary or natural distribution, there are only choices. There may be “just” ones and ones that aren’t just (and our current approach would seem to be the latter). But “just” is a case that has to be made, and almost certainly would be contested, at least on the margins or on certain issues. I think it would be helpful in processing the DSS idea not just to be assured that it is practical and possible for the government to spend money without taxing or borrowing it — but for this idea to be put in the context of policy choices, priorities, tradeoffs, i.e., a bigger picture …. I like the idea to empower decentralized governance …. but this sounds utopian. Not because I don’t believe it’s possible, but because I don’t believe there is any social organization that is all good and consequence-free.
Genesis 3:19 could have something to do with the resistance to these concepts:
King James Version
“In the sweat of thy face shalt thou eat bread, till thou return unto the ground; for out of it wast thou taken: for dust thou art, and unto dust shalt thou return.”
Bronze Age BS still rules. Maybe after the Rapture or next “end of the world.”
I must apologize for the “like you” in my last post, for I have no idea what you are like.
I greatly appreciate the article and comments, especially Blue Pilgrim’s last post which suggests a way forward.
Making these ideas concrete; Ingredients: 1) a critical mass of people dissatisfied with the current economic system, and 2) large-scale support for a new economic narrative (or narratives) capable of replacing the old one.
Don’t worry, without massive public spending to prevent extreme global warming, all of us will have plenty of sweaty bread to eat before the next end of the world, which shouldn’t be long in coming.
To Dave Chekouras
In the original Hebrew it is more accurate to translate it as “by the sweat of your nose” and not brow. If you have ever worked here in Israel on Kibbutz and really perspired, in 30 degrees centigrade heat , then you will know what I mean! I don’t recommend it but for people to be able to get a living without working and producing something of value is morally wrong. Such people are those who speculate in land values and in the shares of commercial public companies. By taxing land values, the first category can be eliminated and when this system becomes stable and economic growth is slowed but constant, the speculation in shares will cease and money can be invested without fear.
To me that Bible quote says less about “earning a living” and more about our reality and the need for closing the nutrient/materials loops, eliminating the “metabolic rift” Marx spoke of. Try reading the quote this way, “In the sweat of thy face shalt thou eat bread, till thou return unto the Earth; for out of Earth wast thou taken: (as was the bread) for Earth thou art, and unto Earth shalt thou return.”
I like the letter to Bernie, will suggest same to Jill Stein. I think I agree with you but as usual MMT writers confuse the issue. Saying the sovereign national government creates all our money ignores the fractional reserve banking system creating dollars at every instance of a loan, doesn’t it? Are you saying the Government “creates” those dollars through some convoluted process to hide the fact? Our government may create the money but it does not own it. or control its supply. And besides, “we” don’t have a government, those who control the money do. If we want a government we the people have some serious political work to do. The idea that taxes are a source of revenue is hilarious, taxes don’t create money, they are money that was created by our privatized money system and represents debt. Don’t we want to point out that we are ruled by an oligarchy that controls the money, not just in the US but world around? Any problem people have with the government should be laid at the feet of the biggest banks. I am all for government creating money (ex nihilo) and spending and gifting it into the economy at the bottom where it will be spent rather than the top where it will be horded or used for speculation. We don’t need a trickle, we need a generous flow. Screw the oligarchy and all their sycophants.
Banks do not put money into the economy. They suck it out. Every loan cycle results in zero money added to the economy and a fraction of the loan being acquired by the bank. That happens because money is rented at a price denominated in its own units. The money taken out by banks must be replaced in some way to maintain a stable money supply. One way is for banks to lend back what they took in which is an exponential process. Check out bank loans vs time. They do increase exponentially. The Fed can also replace the money taken out by banks and they do by buying national debt from the economy. The third way is by govt spending coins, silver certificates and US notes into the economy but the banks got most of that stopped; no more US Notes nor silver certificates and no dollar coins in circulation nor are half dollar coins minted any more.
I disagree with the following : “Every loan cycle results in zero money added to the economy and a fraction of the loan being acquired by the bank”. The residual interest could come from a source supplied by ‘direct sovereign spending’. Thus, the implication of your contention, being that the growth of the money supply must all be cycled back through the banks would not be entirely accurate?
Yes, they gobble up the direct sovereign money spent directly into the economy too which explains why bank assets exceed the national debt by about 6%. The money supply is maintained at a near constant level by an exponential rise in loans and the FOMC buying debt from the economy. When the exponential reaches skyward, as it was doing in 09, they must stop lending which means not enough money will be in the economy to pay all loans and hence we get a rash of foreclosures.
One result of this charade is that governments frequently do not engage in enough deficit spending to counter recessions and depressions. For example, the inadequate response of Germany to the Great Depression and the resultant desperation of the German people led to Hitler. The sad cruel irony is that it is often fear of “big government” that enables despots to take power.
…and deficit spending increases the wealth of banks but does move idle money into active money in the economy.
I recently discovered a very relevant fact about “sovereign spending.” We all know that a tax>spend cycle is impossible (even if Ronnie said it was true) because before spending there is nothing to tax. Given that fact there is a very simple narrative that goes as follows: Govt spends then redeems/takes back a portion of the money spent as taxes then, with “space” in the economy, the govt spends more and takes back a portion again. In this process it is obvious that the money left in the economy is equal to the national debt. This simple narrative does not include the complexities of a central bank and the covey of commercial banks providing an endogenous money supply. But the simple narrative is true. An amount equal to the national debt does go somewhere and I discovered where it goes. From 1934 to 2016 the assets of commercial banks have tracked the national debt with a small average difference. The average relationship is ND = 0.94BA, ND = national debt, BA = bank assets. With a little critical thinking you can understand why BA is larger than ND. The process whereby the national debt is transferred to banks is also understandable. This fact is the very real difference between our CB system and sovereign spending. I made a program that plots and displays all of this info if anyone is interested. All of the data came from online govt sources.
The first thing to understand is the thinking processes of the people and how they are used by the ruling class.
She’s a witch!
Monty Python and the Holy Grail.
No, I’m not joking. Notice the clever use of facts and logic — much akin to neoclassical, Chicago School, economics, to meet the emotional desires of the crowd and the financial desires of the wealthy. (We can figure out who the modern economic Knights of the Round table are. )
The fist step then, is what is now called framing — not relying on mere facts and explanations. Build a narrative which satisfies the peasants and fools the rulers (enough so it can be told), and then insert the facts to support the narrative — but this can be done honestly, unlike ‘intelligence and facts being fixed around the policy’ as for starting the Iraq war.
The answer to ‘how will we pay for it’ is ‘with the present wealth of the country and the new wealth generated from increased production and efficiency instead of wasting resources’ — the answer carefully crafted to mesh with the narrative, and put simply as ‘the money is worth the same as a duck’ (more or less). But such a narrative must have surface appeal, and also hold together in the deeper aspects (such as Alan Watts’ comparison of money to inches used by carpenters, since both are abstract measurements).
Yes, we could get hyperinflation if we created $1,000 trillion with no commensurate real wealth — but we don’t have to do that, of course. We can create the proper amount of money for the realistically expected gains in real wealth that the money will facilitate producing through wise investment in infrastructure, increased and better quality employment of labor, and shifting current activities from wastefulness to real production (such as not making wars other countries and using that labor to produce things that are useful).
This is not as difficult as it seems if the lies and nonsense goes away, and it’s explained well for all the levels of understanding of the population. If one wants to explain how a car engine works one can talk simply about the energy from burning fuel as well as the intricacies of the chemical and mechanical engineering, to different audiences — simple for the grade school kids and complicated for those working on the masters degrees (telling the truth to all of them, and reassuring them all that cars are more practical than broomsticks and there is nothing to fear).
Oh, what tangled webs we weave when first we practice to deceive (or believe). The basis of the charade is grabbing wealth from the workers and making the rich richer and more powerful, as always. The task is always to counter the greed, and the fear, of those in power. If the ruling class thinks (or knows) they will be destroyed by system collapse then many of them can be dealt with — as FDR did. The psychopaths and ideologues, rich and poor, will be a nuisance — but that has always been the case.
I often think of an Ezra Pound quote…the exact words I do not remember but he opined that when people generally understand monetary systems it will transform the world as much as when people generally became literate. I think he was correct.
Could be. I’ve been thinking (uh,oh!) about the roots of this, and, briefly, have concluded money canbe thught of in several terms, one being a ‘metaphor’ (relating to Lakoff’s ‘thinking in metaphors), but also as a container.
We have all these concepts thought of and expressed linguistically (semiotically?), symbolically, or abstractly. We have a concept of value — with various ways about thinking about that abstraction, and it might be in terms self-esteem, social standing, utility of things which can be purchased, or security (as in old age or tought times). Money can be used to contain (store), transfer, or quantify these values.
If you are a chicken rancher and produce eggs you need containers (egg cartons) for them so they are useful, you can count them, ship them, store them, etc. If you do information stuff you use computer memory as a container (a more abstract level: you need cardboard for cartons), if you write you need paper — maybe lined paper, or to run a warehouse you need shelving.
Area, volume, length, time, education — all things requiring ‘containers’ of some sort to use and quantify in a social setting (acres, quarts, inches, hours, grades and degrees). So money, an abstraction, is a container for value, another abstraction. A monetary system is a way to standardize how money is used for measuring, storing or transferring value — and this preceding specifics such as gold standards, fiat, interest, currency vs units, exogenous vs endogenous, etc., as more fundamental concepts and linguistics.
Even in primitive tribal cultures or informal groups, we have the concepts of doing favors, owing people favors, social standing, responsibility to community, and other ways of designating values of different sorts without formal quantification or accounting, or even definable government. It’s part of a cultural (institutional?) context. When Rick Wolff tells his story about a child trying to charge money for clearing the dishes at Thanksgiving dinner he points to a social structure where money is not applicable, and looking at the Native American culture where ‘ownership of land doesn’t make sense is another example where monetary quantification doesn’t fit because the abstract concept of value is not the same. Money as a container there would be like trying to store friendship in a jar (or sexual appeal in a tube of lipstick?).
To explain MMT, first you have to make clear what the abstractions are, what they refer to, and how they used.
If you are saying a barter economy will work then I am sure we all agree. It just doesn’t work very well.
I would like to suggest a sovereign money system may be positive psychological consequences for society to reduce the social deformities mentioned. This is based simply on the research that has been done on the psychological effects of money on our psyche and our society. The behavioral effects were largely negative. I think that is becasue it is a system based on usury, defined as the abuse of monetary authority for personal gain, and once widely considered a sin. Thus it is only an assumption of mine that a money system where money is created to spend or gift money into the economy for the general welfare etc., per the Constitution, would create an economics of care, thus positive psychological consequences for society.
The charade is that corporate production of tons of useless designed-for-obsolescence junk is a good. Anyone that doesn’t realize we have to localize food production isn’t in touch with reality. We need a public money system to fund the transition this economy needs to make before collapse gets going so fast we can’t. The 6th great extinction is underway, 200 species per day and accelerating, if you think that is insignificant you must have your head where the sun doesn’t shine. Now I hear the big conservationists are calling what used to be called nature, “natural capital.” This money system has made the world insane becasue the values it is based on, usury, a sin that Dante pointed out was “doing the most damage with the least amount of effort” for which the lowest part of hell was reserved. Today people like you apparently don’t even recognize it as being wrong much less really really bad.
It seems that ‘direct sovereign spending’ could be used to offset the Triffin Dilemma. This being thin air cash provided to poor nations to aid in the development of industries with subsidized wages. Viet Nam for example, could be bound by treaty to improve wages, working conditions, and environmental protections, and etc.
Thus, with less restraint from the Triffin Dilemma the USA could increase exports and of course create jobs. This would probably not be terribly popular on Wall St., them having to share QE proceeds with the world’s lowest paid workers. But this seems like a perfect solution to a wide range of serious problems. And alas, US workers do benefit but without being given anything directly, this via more consumers/jobs, and the ROW gets a boost while the USA does some much needed damage control to its reputation.
A word of caution here. The planet is already headed for an environmental collapse of mega proportions due to frenzied human activity. We must recognize that earth cannot support seven plus billion inhabitants consuming resources at first world living standards. It is laudable to want to improve the lives of second and third world inhabitants, but it is absolutely imperative that we also reduce the population through attrition and control to a sustainable level, whatever that number works out to be. Efficiency and conservation can help in the short run, but ultimately the planet’s carrying capacity must not be exceeded to avoid extinction.