By Chris Mayer*
Warren Mosler tells a good story that shows how our economy works at its most basic level.
Imagine parents create coupons they use to pay their kids for doing chores around the house. They “tax” the kids 10 coupons per week. If the kids don’t have 10 coupons, the parents punish them. “This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties,” Mosler writes.
By J.D. Alt
5. TREASURY BONDS—Are they really what we think they are?
Recall that in the old diagram we started out with—the one Congress seems to be using as a guide for its budgeting process—Treasury Bonds appear to be the mechanism by which the Federal Government “borrows” Dollars from the PS pot. Since we now understand that a Dollar is actually the Federal Government’s I.O.U. for tax credits, we can also see that it is illogical for the Federal Government to “borrow” these I.O.U.s. Why would it “borrow” its own I.O.U.—something it can instantly create any time it wants by simply saying, “I Owe You”? If that is the case, why does the FG “sell” Treasury Bonds?
By J.D. Alt
1. The “unsolvable” riddle of our National Budget
Being an architect, I’m fascinated by diagrams visualizing things which otherwise are invisible. In designing a building we usually begin with diagrams to explore and understand the functional and spatial relationships—the flows and often unexpected interactions—the architecture needs to accommodate. Getting the diagrams right is important—if they’re wrong or incomplete, the building we design could turn out to be a dysfunctional disappointment for its owners and users.
Another year has come to pass, and we at NEP would like to offer our sincere appreciation to all of you, our readers. NEP was launched in the summer of 2009 when Stephanie Kelton, Randy Wray and Bill Black teamed up to offer commentary and policy advice about the most dreadful economic meltdown of our time. Many of you have been with us from the beginning – engaging us in the comments section, challenging us to do more, and spreading our ideas beyond NEP – and some of you have even joined us as contributors. A lot has happened since 2009, and we could not have achieved all that we have without your support. So thank you!
Before we turn the page on another year, we’d like to take a moment to look back on some of our proudest moments from 2013.
By J.D. Alt
This past month I have been diligently working to complete my entry in a design competition to envision the “Residential Tower of the 21st Century”. At first, I did not intend to enter the competition because I have believed, for many years, that the challenge of future architectural development was horizontal rather than vertical—how to organize and “enable” high density , “piecemeal development” into horizontal communities (using people-mover technologies as a “horizontal elevator” core.) I even named this development model “The Horizontal Skyscraper”.
By Scott Fullwiler and Stephanie Kelton
Paul Krugman has a new post that explains why the debate over money- vs. bond-financing of government deficits is really much ado about nothing. In it, he essentially echoes longstanding MMT-core principles, as we will show below. Indeed, MMT blogs have written as much many times previously (for example, see here, here, here, and here).
Krugman’s post looks at two alternative scenarios:
Case 1: The government runs a deficit, selling bonds to offset the shortfall, while the Federal Reserve does QE
Case 2: The government runs a deficit but does not sell bonds, instead financing all of its spending by “printing money” (i.e. with newly created base money)
Posted in Scott Fullwiler, Stephanie Kelton
Tagged consolidation, krugman, MMT, Modern Monetary Theory
Policy Aspects of MMT
By Eric Tymoigne and L. Randall Wray
[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]
From the theoretical framework discussed in the 5 previous installments, MMT draws specific policy conclusions about fiscal, monetary and financial policy. In this final post we address the policy implications.
In line with Keynes and Minsky, MMT recognizes that unemployment, arbitrary distribution of income, price instability and financial instability are central problems of market economies that require some government involvement for resolution.
Posted in Eric Tymoigne, L. Randall Wray
Tagged Critics, ELR, jobs guarantee, MMT, MMT101, Modern Monetary Theory
Adding the Foreign Sector
By Eric Tymoigne and L. Randall Wray
(Revised Figure 8 on 12/6/13)
[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]
Paul Davidson has recently written:
What is Bitcoin? According to Modern Money Theory, bitcoin can not be money since it is not accepted in payment of taxes by any government — nor is it issued by any government via the governed purchase of goods and/or services from the private sector. So what is bitcoin in terms of MMT? I do not know what MMT proponents would respond to this query?
Similarly, Tom Palley argues that government currency is demanded for reasons other than paying taxes and that foreigners who may want to hold the domestic (foreign to them) currency do not pay taxes to the domestic government. In addition, he says, in some countries the domestic private sector does not want to use the domestic government currency in many, or even most, economic transactions even though the government is imposing a tax; thus taxes do not drive currency.
Posted in Eric Tymoigne, L. Randall Wray
Tagged Critics, MMT, MMT101, Modern Monetary Theory
Adding the Central Bank
By Eric Tymoigne and L. Randall Wray
[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]
Beyond the inflationary aspect of MMT, Palley (2013) argues that MMT does not account for the flooding of reserves in the economic system that results from a monetary financing of government spending. In this case, a deficit leads to a decline in interest rates and potential financial instability.
Fiebiger (2012a, 2013) argues that Treasury operations do not lead to a change in the level of central bank liabilities and so there is no monetary creation, and that it is disingenuous to exclude the Treasury General Account at the Fed (TGA) from the money supply. He also wonders why the Treasury continues to issues bonds when the fed funds rate (FFR) is effectively zero today, if, following MMT, bond offerings are voluntary operations used to drain excess reserves.
Posted in Eric Tymoigne, L. Randall Wray
Tagged Critics, MMT, MMT101, Modern Monetary Theory
Adding the domestic private sector
By Eric Tymoigne and L. Randall Wray
[Part I] [Part II] [Part III] [Part IV] [Part V] [Part VI]
In the previous installment, we focused mostly on the government side of the circuit. In this piece, we study the interaction between the government and nongovernment sectors while retaining the consolidation hypothesis.
For the purposes of the analysis, we will think of the nongovernment sector as equivalent to the domestic private sector, however, the analysis could just as well include state and local (nonsovereign) levels of government as well as the foreign sector in the nongovernment sector.
Posted in Eric Tymoigne, L. Randall Wray
Tagged Critics, MMT, MMT 101, Modern Monetary Theory
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