Most of the world, and most notably the United States, is in the grip of fiscal myths fostered by the ideology of neoliberalism. There is virtual unanimity across the major political parties in the United States in accepting the viewpoint of neoliberalism, and the fiscal myths associated with it.
This book is about these myths, the arguments showing that they are, indeed, myths, and the truths that can counter them. It is about Campaign 2016, and some of its issues, because the fiscal myths will certainly be used in the Campaign; since, for the first time in a very long time, there is a major party candidate running, who, because he advocates for a very broad agenda and for fighting inequality, will, sooner or later, find that some, and perhaps a large number, of fiscal myths are being directed at him by his opponents and their supporters, who want to persuade voters that his agenda is “fiscally irresponsible.”
MMT has emphasized that there is a close relation between sovereign power to issue a currency and its power to impose tax liabilities. For shorthand, we say “Taxes Drive Money”. I’ve dealt with that topic in the previous instalments of this series on MMT’s view of taxes.
We’ve also demonstrated (as if it needed demonstration!) that sovereign governments do not “need” tax revenue in order to spend. As Beardsley Ruml put it, once we abandoned gold, federal taxes became “obsolete” for revenue purposes. I’ll have more to say about good old Beardsley in the next instalment.
In today’s instalment I want to step back a bit to ask a more fundamental question: does the issuer of a money-denominated liability need to obtain some of those liabilities before spending or lending them?
In Part One, of a critique of the most important of “Fix the Debt’s” reasons for “Why the National Debt Should Matter To You,” I asserted that high debt levels haven’t caused high unemployment in the United States, and that, if anything causation was in the other direction. I didn’t want to disturb the flow of the argument there with a relatively lengthy survey of some of the numbers in the historical record since the 1930s. But let’s test the idea that High debt causes fewer jobs and lower wages in the United States by looking at that record now.
Somehow a great confusion has arisen. It has divided our nation into feuding, bickering camps, caused many to view their own government as a ruthless competitor, and is now seriously threatening us with, among other things, a frightening deluge of collapsing bridges. The confusion is about money—what it is, where it comes from and, most important, whether there is enough of it to pay for all the things we need as a nation.
This is Chapter One of a three-part overview of a body of economic thought known popularly as “Modern Monetary Theory” or “MMT”. The aim of this chapter is to explain the basic dynamics of our present-day “fiat-money” economy through the dual lenses of government spending and taxation. We will also explore some contested history, and examine some of the ways we need to think about money differently, now that the United States, along with the rest of the world, has gone off any version of a gold standard. The intent is to be as non-technical as possible, but some parts of the subject are, unavoidably, a little complex. In these areas, keeping the logic as step-by-step as possible will be the goal. In Chapter Two we will look at the ways money systems sometimes go haywire, through either inflationary malfunctions or through the (thankfully) less-familiar phenomenon called deflation, including “debt deflation”. Chapter Three will be about Jobs, Jobs, Jobs. Continue reading →
NEP’s Stephanie Kelton appeared on Virtually Speaking with Jay Ackroyd February 7. You can listen with the player below or visit Virtually Speaking on Blogtalk Radio. The conversation begins with the platinum coin and the the nature of fiat currency.
While it may seem obvious and a tautology to treat money as a “liquidity source”, sometimes, especially in an area of life where there are many unexamined assumptions, it makes sense to rehearse the obvious. “High-powered” state-issued money is treated within accounting as an individual’s or a businesses “most liquid” asset but anything that functions as money confers “liquidity” on any individual who possesses that instrument or thing. Liquidity means that that object or instrument can be readily traded for wished-for goods and services. This liquidity can extend to “money-objects” other than state issued currency but the latter is in most contexts the most liquid money technology that we have.
When looking down at earth from space, you would be able to see the shapes of continents and even, if you are aware of geological history, the way, for instance that Africa and South America fit together as they were once part of the same mega-continent. When living on the surface of the earth, as we most often experience it, one gets an entirely different perspective in which the individual contours of the land, vegetation, buildings, and coastlines look much larger and have different proportions relative to the viewer. Both perspectives are real and equally valid but in each, different information is revealed or becomes salient to the viewer/participant.
The President appeared surprisingly upbeat and confident: He grasped the sides of the lectern—not as he often had in the recent past, as if to support and steady himself in moments of national turmoil—but rather as if he were about to lift it up and toss it aside. Adjusting his papers, he quickly made eye-contact with each reporter in the front rows, usually with a quick nod of greeting, but sometimes with a stern hesitation. Continue reading →