By L. Randall Wray
This blog is based on the testimony I provided to the US
House of Representatives. My written statement will be published in the
Congressional Record (a version is also at the Levy Economics Institute: http://www.levyinstitute.org/publications/statement-of-senior-scholar-l-randall-wray-to-the-house-budget-committee.
The full statement was co-authored with Yeva Nersisyan.
I will argue that the Federal Government’s deficit and debt
are not so scary as we are led to believe.
Neither the deficit nor the debt ratio is on an
unsustainable path. In some sense, chronic deficits and a rising debt ratio are
They are not due to out of control spending—now or in the
future. They serve a useful public purpose. In any case they are largely
outside the control of Congress.
[ed. This was part Randy’s Talk at ICAPE.]
By L. Randall Wray
First I’ll clearly state what MMT is and then outline four
paths that lead to MMT’s conclusions: history, logic, theory and practice.
What is MMT? It provides an analysis of fiscal and monetary
policy that is applicable to national governments with sovereign currencies.
There are four requirements that identify a sovereign
currency: the national government
a) chooses a money of account;
b) imposes obligations (taxes, fees, fines, tribute, tithes) in the money of account;
c) issues a currency denominated in the money of account, and
accepts hat currency in payment; and
d) if the National government issues other obligations, these
are also payable in the national government’s own currency.
L. Randall Wray will be providing testimony for Congress on November 20 at 10 am. The topic is the government debt and deficits. His full statement will be available at 10:30AM at the Levy Institute. His goal is to explain a) why we needn’t fear sovereign government deficits and debt; b) why in some important sense, deficits and rising debt are “normal”; c) the deficit is in any case largely outside the control of Congress; d) deficits and rising debt ratios will not lead to government insolvency or bankruptcy; e) all government payments can be made on time, unless f) Congress forces a default (due to the debt ceiling it imposes). The statement will provide a lot of new data related to these topics.
The link to the webcast is: https://budget.house.gov/legislation/hearings/reexamining-economic-costs-debt
By L. RANDALL WRAY
In this part, I’ll resume with comments on the critical contributions to the special issue of rwer. We finished Part 2 with a discussion of the shocking lack of citations to MMT literature in the critiques—especially the dearth of citations to the more academic contributions (as opposed to the summaries of MMT written for undergrads and the general public). Let me return to the oversight of contributions made by scholars such as Fullwiler and Tymoigne—who have mostly written academic pieces.
Sawyer does cite Fullwiler (although with the name misspelled! If he was my undergrad student, I would chew him out—at least get the damned names spelled correctly!). In his piece, which is largely an exposition that parallels MMT but is disguised as a critique, he wants to argue that MMT doesn’t properly distinguish between what circuitistes call initial versus final finance (Davidson has a similar distinction). But in reality, I have long used the circuit approach in my exposition—including in my own contribution to the rwer issue. The initial finance of government spending is created when the spending occurs, and today takes the form of two balance sheet credits: the deposit account of the recipient and the reserve account of the recipient’s bank. Sawyer seems to mostly agree with that. But according to Sawyer, MMT ignores the point that because bond sales and tax revenues logically follow government spending and can be seen as the funding stage. However, Eric Tymoigne made exactly this point in a 2014 article, arguing: “Put in terms of the circuit approach, taxes and bond offerings are part of final finance (funding).” So Sawyer is just wrong about this.
By L. Randall Wray
In Part 1 I discussed the third annual MMT conference that was recently held at Stony Brook, and you can find the program as well as videos of the conference here: (https://www.mmtconference.org/). In this Part 2 I discuss a special issue of real-world economics review devoted to MMT (http://www.paecon.net/PAEReview/issue89/whole89.pdf). As usual, my report stretched out to become too long for just 2 blogs so there will be a Part 3, coming later this week. And who knows, maybe I’ll need a Part 4.
First, the good news. The editors seem to have played the game reasonably fairly. They invited contributions by MMT proponents and opponents. Often editors will give the opponents an advantage—for example, letting them see the contributions by MMTers in advance, without letting the MMTers see the contributions by the opponents. When it comes to MMT, editors don’t like to play fairly. It looks to me like proponents and opponents were treated equally. That is highly unusual when it comes to MMT “debates” which are almost always stacked against its proponents.
By L. Randall Wray
As many readers know, the third annual MMT conference was recently held at Stonybrook, and you can find the program as well as videos of the conference at the link: (https://www.mmtconference.org/). In addition, real-world economics review has just issued a new volume devoted to MMT (http://www.paecon.net/PAEReview/issue89/whole89.pdf). I’ll briefly address both, in two parts. I’ll talk about the conference in this one, and about the RWER papers in the second part.
Part 1: The Third International MMT Conference
Unfortunately, I missed the first day of the conference as I was the plenary speaker at the annual ABFM (Association for Budget and Financial Management) conference in Washington DC. This invitation resulted from a chance meeting with a member of the group when I was teaching on a Fulbright to Estonia. At first he was shocked at the views I was propagating, but quickly became a convert, converted another member, and that led to the invitation. This group mostly researches state and local government finance—obviously those are currency users and need to balance budgets—but they tend to apply what they know to the federal budget. MMT of course explodes that because the finances of the sovereign currency issuer are nothing like those of the non-sovereign government entities. However, many of the attendees were open to MMT—or, at least, now they want to know more. It was a pleasant experience—and I learned more about a whole sector of the academy that I didn’t know much about. Many of those attending are in Masters of Public Administration schools. My own Professor Minsky’s first graduate degree was an MPA. I actually wrote a paper on the topic of the problems of state and local government finance, up here at Levy (http://www.levyinstitute.org/publications/fiscal-reform-to-benefit-state-and-local-governments-the-modern-money-theory-approach).
L. Randall Wray
In recent days the international policy-making elite has tried to distance itself from MMT, often going to hysterical extremes to dismiss the approach as crazy. No one does this better than the Japanese.
As MMT began to gather momentum, its developers began to receive a flood of calls from reporters around the world enquiring whether Japan serves as the premier example of a country that follows MMT policy recommendations.
My answer is always the same: No. Japan is the perfect case to demonstrate that all of mainstream theory and policy is wrong. And that it is the best example of a country that always chooses the anti-MMT policy response to every ill that ails the country.
L. Randall Wray
How to Pay for the Green New Deal
WORKING PAPER NO. 931 | May 2019
This paper follows the methodology developed by J. M. Keynes in his How to Pay for the War pamphlet to estimate the “costs” of the Green New Deal (GND) in terms of resource requirements. Instead of simply adding up estimates of the government spending that would be required, we assess resource availability that can be devoted to implementing GND projects. This includes mobilizing unutilized and underutilized resources, as well as shifting resources from current destructive and inefficient uses to GND projects. We argue that financial affordability cannot be an issue for the sovereign US government. Rather, the problem will be inflation if sufficient resources cannot be diverted to the GND. And if inflation is likely, we need to put in place anti-inflationary measures, such as well-targeted taxes, wage and price controls, rationing, and voluntary saving. Following Keynes, we recommend deferred consumption as our first choice should inflation pressures arise. We conclude that it is likely that the GND can be phased in without inflation, but if price pressures do appear, deferring a small amount of consumption will be sufficient to attenuate them
Remarks by L. Randall Wray at “The Treaty of Versailles at 100: The Consequences of the Peace”, a conference at the Levy Economics Institute, Bard College, May 3, 2019.
I’m going to talk about war, not peace, in relation to our work on the Green New Deal—which I argue is the big MEOW—moral equivalent of war—and how we are going to pay for it. So I’m going to focus on Keynes’s 1940 book— How To Pay for the War—the war that followed the Economic Consequences of the Peace.
Our analysis (and the MMT approach in general) is in line with JM Keynes’s approach. Keynes rightly believed that war planning is not a financial challenge, but a real resource problem.
The issue was not how the British would pay for the war, but rather whether the country could produce enough output for the war effort while leaving enough production to satisfy civilian consumption.
By L.Randall Wray
The attacks on MMT continue full steam ahead. Janet Yellen (former Fed chair, but clueless on money and banking)—a centrist–has joined the fray. Jerry Epstein—on the official left–has ramped up his ridiculous claims, now associating MMT with “America First” and fascism (you knew that was coming—it has always been the refuge of critics who couldn’t come up with valid critiques).