Category Archives: J. D. Alt

MMT Carbon Initiative—a modest proposal

By J.D. ALT

With great interest, I’ve been reading about the “Terraton Initiative”—a program designed to enlist farmers to sequester one trillion tons of carbon in their soil using innovative and “regenerative” planting techniques. The initiative was recently rolled out by Indigo AG—a young and rising Boston company recently named by CNBC as “the world’s most innovative company.” Indigo AG’s mark has been the establishment of a sophisticated platform enabling grain-farmers across the country (and around the world) to differentiate the quality-characteristics of their harvest (e.g. organic, non-GMO, heirloom varietal, etc.) and connect directly with buyers seeking those quality-characteristics. What got my attention was the fact that Indigo AG, with its recently announced “Terraton Initiative,” is now proposing to help farmers deploy strategies to maximize carbon sequestration in their fields—and then pay the farmers $15 for each ton of carbon they sequester. (Current agribusiness farming techniques, promoted by Archers Daniels Midland and Monsanto—now Bayer—add 4 billion tons of greenhouse gas to the earth’s atmosphere each year.)

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The Visible Hand we need today

By J.D. ALT

According to the “invisible hand” theory—long celebrated (in America) as the most effective mode of human economics—private commerce should now be busy directing our efforts and resources toward those things we truly need to prosper as a collective society. Instead, the “invisible hand” seems to be willfully guiding us in the opposite direction. How can that be? Has something fundamental shifted, causing the mechanism of the Great American Enterprise to steer not just blindly, but recklessly?

The answer appears to be YES. And what has shifted is that the secret formula of the “invisible hand”—the profit-motive—is no longer capable of ignoring, or hiding, the collateral damages (unpaid “costs”) that have floated from its wake for two centuries. Or, to put it more accurately, while the profit-motive and the “invisible hand” continue to both hide and ignore those damages (most dangerously exemplified by carbon pollution) human society (which supposedly is the beneficiary of the “invisible hand”) can no longer allow it to happen.

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Insights from a Diagram-Machine

By J.D. ALT

I’ve spent the last month or so tinkering with and observing a diagram-machine representing the workings of the U.S. monetary system. In the process, I can see that I’ve bored a lot of people beyond their capacity with the tedium of the tinkering. I apologize for that, and I’ll hereby discontinue the torture. Nevertheless, I’d like to share a few insights the tinkering revealed—at least to me—that made the exercise worthwhile.

1. Money-creation is a response to what the American people decide they want to produce and consume.

This, it seems to me, is a crucial insight because it reverses the way we habitually think about and visualize “money.” The habitual frame is that money exists first, then we decide what we want to spend it on—and then we determine if there is enough of it available for us to get what we want. While this is certainly true for the individual family or business, the diagram-machine revealed very clearly that, for society as a whole, this is a false framing. Actually, it works the other way around: We, as individuals, decide we need new shoes, and the private banks—through a process of accepting Promissory Notes in exchange for bank-dollars—create the “money” that will enable the shoes to be both manufactured and purchased. The Federal Reserve (FED) then issues the Reserves, as necessary, to back up those bank-dollars during the “clearing” process that happens at the Central Bank at the end of each business day. In other words, the amount of money in the system expands, as necessary, to meet the consumption decisions made by American society. (Of course, individuals, families, and businesses each have to strategize how they’ll earn or otherwise acquire some share of the money that’s created by this process—but that’s a separate issue from the question of whether there’s enough money available, or how it’s created.)

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ZEN and the Art of Modern Money—Part 3

MMT for People in a Hurry

By J.D. ALT

POST #3  (Post #1, Post #2)

OPERATION #2—The federal government buys something big for the collective good.

NOTE: A much appreciated comment at Naked Capitalism re: Post#1 suggested that the term “Combustion Chamber” was misleading since the “fuel” (money) put into the chamber is not burned as in a motorcycle engine but is redistributed to other accounts. I was planning to point this out further into the narrative but the comment showed that would be too late. So, beginning now, I’ve changed the name “Combustion Chamber” to “Production/Consumption (P/C) Chamber,” of which we have two: a Public P/C Chamber and a Private P/C Chamber.

OPERATION #1 looked at a transaction in private commerce—an exchange of money occurring in the Private P/C Chamber of our diagram-machine. OPERATION #2 will observe a transaction in the Public P/C Chamber. Before we start, this is a good time to address a question you may already have asked: Why does our diagram-machine have two Production/Combustion Chambers? Why can’t all the Production and Consumption that American citizens need take place in just one?

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ZEN and the Art of Modern Money (Part 2)

MMT for People in a Hurry

By J.D. ALT

POST #2  (See POST #1 here)

FIRST: Prime the fuel-pumps

As it stands, our diagram-machine has no fuel (“money”) in it, so it can’t operate. We could go through an exercise to imagine how it could prime itself in order to begin operations. But this would lead to other topics and considerations which would only distract us from our present goal—which is to simply understand HOW the diagram-machine operates—and how, and when, in the course of its operations, it creates money. To move things along, we’ll simply (and arbitrarily) populate the machine with some money to get it started.

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ZEN and the Art of Modern Money

MMT for People in a Hurry

By J.D. ALT

I’m expanding an earlier essay into a short, book-length piece I hope will be useful in the unfolding public debate about MMT. The piece will utilize the “operation” of a “diagram-machine” to illustrate how our modern money system actually works. My hope is that it will be accessible and easily understood by people who have a genuine interest in MMT, but little time or patience to delve into its operations and implications. I’m posting the narrative here at NEP for comments and suggestions. Efforts to keep things simple and focused on basics might lead to some errors, or important omission—which I’d like to avoid. The diagram-machine, itself, I’m still working on—but I think the narrative, for now, can be followed (and evaluated) without it.

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The Incoherence of a Serious Economist

By J.D. ALT

Lawrence Summers, according to Lawrence Summers, is a “serious economist.” He has just written an op-ed in the Washington Post in which he seriously explains why Modern Money Theory—as proposed by “fringe economists,” as he calls them—is a recipe for disaster. I am going to leave it to the “fringe economists” to rebut Mr. Summers; (I’m confident that professors Wray, Kelton, Tcherneva, Tymoigne, and Fullwiler can take care of that job quite easily). What I want to consider is something even more fundamental: How is it that someone who presents himself as a “serious economist” can get away with speaking incoherently while expecting us—the everyday citizens of America—to take what he is saying as true?

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New Wordology

By J.D. ALT

Whenever I get frustrated—which is quite often these days—I vent some steam (and feel somewhat better) simply by imagining a response that Bernie Sanders, Elizabeth Warren, or Alexandria Ocasio-Cortez might give to some conservative pundit when they say, “Yes, but that’s going to increase deficit spending beyond anything imaginable!”

REPLY: “Excuse me, Anderson, I don’t use the term ‘deficit spending’ because it suggests or implies something which is demonstrably not true. It implies that when the federal government spends more dollars than it collects in taxes it is creating a debt that it will have to repay in the future. This is factually not the case. If the government spends three dollars and collects one dollar in taxes, it creates a ‘net spending’ of two dollars. It’s as simple as that.

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ZEN and the Art of the Federal Reserve System

By J.D. ALT

I know nothing about motorcycles, and not much more about the U.S. Federal Reserve system—yet I feel compelled to dismantle, pick apart, and understand the latter for the simple reason that it seems to be a machine I’ve been riding on (and vaguely writing essays about) for some time now. So, it stands to reason I shouldn’t be ignorant of it. Not that I would get much help in this effort from American economists. Indeed, they seem intent on keeping the mechanism under wraps—as if it were a proprietary secret which they can only refer to in code. Or, perhaps, they are just the kind of bikers who leave it to their mechanic to know how the carburetor works. There are a few exceptions—one being Eric Tymoigne who saw fit to post a kind of on-line parts manual for anyone who wants to take the time, and make the mental effort, to figure the machine out. So, I have the parts spread out now on my workshop floor. Here’s my own interpretive consideration, thus far, of what I’m looking at:

Three Dollars

There are not just “U.S. dollars,” but three kinds of dollars—or, perhaps a better description: there are three “states of existence” a dollar jumps back and forth between. The most fundamental state of a U.S. dollar is as a “reserve” in the Federal Reserve banking system. “Reserves,” as they’re commonly referred to, are what you might think of as “real money”—the “actual thing” of which the other two states are what I’m perceiving to be “pre-reserve” and “post-reserve” variations.

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An American Budget

By J.D. ALT

Let’s imagine pulling together a group of enlightened economic planners to create an American budget for, say, the years 2020-2024. What might they come up with? To begin with, how might they even go about thinking about how to create an American budget?

It’s not so obvious as, for example, the way the Congressional Budget Office might go about it. The CBO would begin by tallying up how much money America’s government will have to spend in the years 2020-2024. Then they’d allocate those projected dollars to various pots of spending—with some calculation about what the spending needs will be for each pot. In the middle of this exercise, they’ll discover that the spending needs for the pots far exceed the number of dollars they’ve projected America’s government will have to spend. So, they’ll tweak the tax revenue numbers, projecting that economic growth in this or that sector will generate more tax collections for the government, and they’ll search for a bevy of cost-savings the government can garner by eliminating “wasteful” spending. Then they’ll repeat the allocation exercise and discover the projected available spending dollars are still far short of what they’ve calculated the pots will demand. Thus they will next have to calculate how many dollars the American government will have to borrow to make up the short-fall—and will have to further calculate how much that borrowing will add to the “national debt,” and how many years (projected into a distant future using imagined numbers for economic growth and future tax-rates) will it take for America to repay the debt. Then they’d publish all these numbers and Congress would blanche and fall into chaos and confusion. The political party out of power would declare the party in power to be “fiscally irresponsible,” driving the nation to bankruptcy, and the arguing would begin over which pots should be reduced or eliminated. Another day in the life of American politics courtesy of the Congressional Budget Office.

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