Category Archives: J. D. Alt

By J.D. ALT

Mitch McConnell is desperate to find investment funds and businesses that will create jobs for his Kentucky constituents. America, it seems, is mostly incapable of being a source for either. Such is the diminishment of our impoverished private enterprise system that only foreign companies seem interested in bringing U.S. dollars to America to build the factories that will employ us.

America, for example, has not built an aluminum rolling mill in over forty years. It must be easier (read “more profitable”) just to import the stuff. If you want to create jobs, though, in exchange for votes from your constituents, “profitability” takes on new dimensions. And while those additional dimensions don’t seem to appeal much to American enterprise, for some inexplicable reason they are appealing to foreign “investors”—especially ones from Russia. Russia, it seems, has discovered a new form of American “politico-capitalism.”

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By J.D. ALT

Since the Democrat’s presidential debates, the attacks on progressive candidates for their “unrealistic” proposals to address the biggest challenges we face as a collective society have intensified dramatically. The primary criticism is the enormous price-tag associated with each of the big-ticket issues they propose to undertake: universal healthcare, mitigating climate-change, eliminating college debt, free pre-school daycare, re-envisioning and rebuilding America’s infrastructure, a job guarantee and a universal basic income for every citizen. The attacks come from both conservative Republicans and centrist Democrats, each of whom are avowed believers in fiscal “responsibility” and balanced federal budgets.

Unfortunately, while there is growing sympathy with the progressive goals themselves, the advocates of those goals still don’t have a convincing explanation or formula for how the federal government will pay for it all. The best they can come up with is that we’ll increase taxes on the super-wealthy and the big corporations—or that it’s simply unacceptable, conceptually, that the world’s richest democracy cannot manage to achieve these goals for a healthy society. So long as these are the progressive narratives—even if they manage to win the upcoming elections—the goals will never be achieved. To create genuine, wide-spread support for undertaking the big-ticket issues we face, it will be necessary to explain to America how its monetary system actually works.

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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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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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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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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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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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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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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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