Modern Monetary Theory

[Elvis]

Here are some things I've been reading:


Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?
By Arjun Jayadev and J. W. Mason
Sep 6, 2018
https://www.ineteconomics.org/perspecti ... vides-them


The Deficit: Nine Myths We Can’t Afford
By Roosevelt Institute | 04.27.10
http://rooseveltinstitute.org/deficit-n ... nt-afford/


5 facts about the national debt
By Drew DeSilver - Pew Research Center
August 17, 2017
http://www.pewresearch.org/fact-tank/20 ... ould-know/


The Unheard-of Center: Critique after Modern Monetary Theory
by Scott Ferguson
https://arcade.stanford.edu/content/unh ... ary-theory


Money Growth Does Not Cause Inflation!
John T. Harvey
May 14, 2011
https://www.forbes.com/sites/johntharve ... 9da42442f5


Zimbabwe! Weimar Republic! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 1)
L. Randall Wray
August 24th, 2011
http://archive.economonitor.com/lrwray/ ... #idc-cover


“It’s Exactly The Opposite!”: MMT versus “Reality”
by Advocate
30 September 2013
https://gcadvocate.com/2013/09/30/its-e ... s-reality/


And this new 429-page textbook ...just checked the Contents so far and looks worth reading in all or part:
Free stuff!

THE FINANCIAL SYSTEM AND THE ECONOMY — PRINCIPLES OF MONEY AND BANKING
August 2018 by Eric Tymoigne, Lewis & Clark College, Portland, OR, USA
https://www.scribd.com/document/3857452 ... book-v-2-1

[JackRiddler]

This gets way from MMT perhaps, but: Ask a conservative why Denmark works so well, ranking tops in all the indices, Forbes' #1 country for doing business etc., and their talking point seems to be "Denmark is tiny compared to the U.S., so socialism can work there but the U.S. is too big."

Does that argument make any sense? (They never offer evidence.) It seems to me that welfare state efficiency would rise with scale.

NO! It's really the opposite.

1. Denmark as a trade-dependent, highly-specialized, super-small country positioned within the vast surrounding economy of Europe has fewer tools to secure "socialism." Of course, it's not socialism, it's a comprehensive social welfare state for Danish citizens, combined with a market economy well-embedded in the global capitalist economy. Denmark floats well, on an ocean of non-Denmark.

2. By comparison the United States has shown awesome power to create and deploy vast surpluses and direct these to politically chosen activities. This is demonstrated dramatically by the military budget and global war machine, which I would argue demonstrates it twice over because not only is it possible in the first place, but in my estimation does not only drain wealth to burn it but destroys future wealth-creation potentials, yet has been sustained for 80 years. Other examples include the last ten years of expansive Fed policy to secure the needs of the financial oligarchy; and the huge automatic skims built into the private-sector economy that go as excess revenues (more like feudal tributes) to the insurance and financial sectors. Even when the U.S. goes into crisis, the overall result in recent decades has been that capital flows INTO the dollar as the biggest single share of global loose money seeks the perceived safe havens of T-bills and U.S. real estate. (This may not always be the case, of course.)

3. Furthermore, the U.S. literally forces policies on dozens of other countries. It would take a fraction of that power, without force or covert operations, to lead the way in raising labor, health and environmental standards or regulations on capital globally, or to effect multilateral disarmament, all of which would create better conditions everywhere for "socialism" in the Denmarkian sense. But of course the USG does the opposite.

4. The main reasons "socialism" in the Danish sense would fail here, if it were tried, would be

a) political failure due to cowardly neoliberal design of "socialist" simulations (see: ACA)

or

b) the raging class war that would be waged by the ruling class and the right-wing against any hint of "socialism," even worse than the one that started already in the 1930s,

especially if

c) the "socialists" (New Dealers, in reality) were unwilling to fight back vigorously and ally with social movements in support of the "Denmark program."

It's all about politics, not "pragmatic realities."

PS. Everything also could fail due to the collapse of human ecological sustainability brought about inevitably by the workings of capitalism as presently constituted. Which is another reason for changing the system.

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[Elvis]

NO! It's really the opposite.

Thanks for the explanation, makes sense. It's difficult for me to resist citing Denmark as an example to which the U.S. can aspire. I suppose some aspects of the Danish model may apply. The main argument I get in response is that Danes' taxes are too high (for American tastes). As I understand it, MMT obviates such taxes.

[Elvis]

New questions: a tenet of MMT is that all money comes from the sovereign (USG in this case). But much money is created by private bank loans; I read that in Britain, bank loans account for 97% of money creation, with government spending accounting for only about 3 percent. While finding several references to the 97% UK figure, I can't find such a division for the U.S. except by comparing disparate charts which suggest that the percentage of the U.S. money supply generated by government spending is much higher than 3 percent.

- So, what portion of total dollars are created by private bank lending? (I can't spend another hour trying to find out!—seems elusive.)

- If the portion of total U.S. dollars created by bank lending is very large, how does MMT account for that when it says 'all money comes from the sovereign'?* Or is that irelevant?

* (Aside from gov't being the money 'licensor' of sorts, and providing banks with reserve loans.)

[Elvis]

This may partly explain some of my above --- from 2012:

How the U.S. Federal Reserve Creates and Destroys Money
Bonds Are Only Part of It
Saturday, February 25, 2012
By Harley Hahn

. . . Let’s say that, on a certain day, the Fed wants to increase the money supply. To do so, they buy, say, $4 billion dollars worth of Treasury bonds from a particular dealer. In effect, they take possession of the bonds (electronically) and put $4 billion into the dealer’s bank account. The dealer’s bank now has $4 billion more to loan out, which, in the way I have described above, ends up creating a lot of new money.

Now, let’s say that, a month later, the Fed wants to decrease the money supply, so it sells $4 billion worth of bonds to a particular dealer. To do so, it credits the dealer with possession of the bonds and take $4 billion out of the dealer’s bank account. The dealer’s bank now has $4 billion less to loan out, which decreases the money supply.

At this point, you are probably wondering, where does the Fed get all the money to buy and sell such large quantities of Treasury bonds? The answer is — and this is the coolest part of all — the Fed doesn’t really have the money; the Fed just makes it up.

Consider this following pleasant idea. If your bank were to credit your account with a million dollars, you would, all of a sudden, have an extra million dollars to spend. One reason why your bank doesn’t do this is that banks can’t just go around giving people money out of nothing. If your bank wants to credit your account with money, that money has to come from somewhere.

The Fed, however, is a different type of bank. It is allowed to credit accounts without having to come up with real money. Thus, when the Fed puts a $4 billion credit in the bank account of a bond dealer, the money doesn’t have to come from anywhere. The mere fact that the Fed puts it in a bank account is enough to create the money. Similarly, when the Fed takes $4 billion out of a bank account, the money doesn’t go anywhere. It just ceases to exist. And that is the key that makes the whole thing work.

Does this mean that, if the Federal Reserve wanted to, it could credit your bank account with a million dollars without causing a bookkeeping problem? Absolutely. The trick, of course, is to get them to want to do so.

If you’d like to try, their phone number is (202) 452-3000. Ask for Mr. Bernanke.

https://www.independent.com/news/2012/f ... oys-money/

The role of gov't bonds seems to vary depending on whom you ask. This stuff is not my forté but I'm intensely curious about it.

[Elvis]

If the portion of total U.S. dollars created by bank lending is very large, how does MMT account for that when it says 'all money comes from the sovereign'?

Okay, I reread the Wikipedia page on MMT and there's this:

Horizontal transactions
Further information: Monetary circuit theory

MMT economists describe any transactions within the private sector as "horizontal" transactions, including the expansion of the broad money supply through the extension of credit by banks.

MMT economists regard the concept of the money multiplier, where a bank is completely constrained in lending through the deposits it holds and its capital requirement, as misleading.[26] Rather than being a practical limitation on lending, the cost of borrowing funds from the interbank market (or the central bank) represents a profitability consideration when the private bank lends in excess of its reserve and/or capital requirements (see interaction between government and the banking sector).

According to MMT, bank credit should be regarded as a "leverage" of the monetary base and should not be regarded as increasing the net financial assets held by an economy: only the government or central bank is able to issue high-powered money with no corresponding liability.[26] Stephanie Kelton argues that bank money is generally accepted in settlement of debt and taxes because of state guarantees, but that state-issued high-powered money sits atop a "hierarchy of money".[27]

[JackRiddler]

.

Damn, Elvis, I hope you at least will read all this:

NO! It's really the opposite.

Thanks for the explanation, makes sense. It's difficult for me to resist citing Denmark as an example to which the U.S. can aspire. I suppose some aspects of the Danish model may apply. The main argument I get in response is that Danes' taxes are too high (for American tastes). As I understand it, MMT obviates such taxes.

Taxes are essential to MMT, however. MMT observes, empirically, that taxes establish a currency in the first place by requiring payment in the state currency and imposing dire sanctions on those who don't pay. So everyone has to work for the currency. In effect, money is established by the exercise or threat of force. MMT generally doesn't consider the morality of that. Nor do other macroeconomic approaches, other than fundamentalist libertarians who regard taxes as worse than slavery and anarchists who envision a patchwork of thousands of confederal-communalist units issuing their own currencies or engaging in some kind of planned potlatch.

Beyond this originating crime, generally long-forgotten but still disturbing, progressive MMT sees three legitimate functions for taxation, the first of which ultimately is a necessity for sustaining any fiat-money system:

1. Withdrawing currency from the economy as needed to prevent demand from exceeding capacity, labor, and resources.

2. Discouraging behaviors considered to be against the public good (with which we are familiar enough).

3. Assuring a distribution of wealth that we have agreed as a society is the most just one, including to the point of preventing the existence of the super-rich.

The proper term is not redistribution, because all modern political economies employing non-commodity currencies are already collective distribution systems with an inherent politics, definitionally, and also inherently require a state to function. Outside of genuine subsistence units, there is no natural distribution of accrued wealth. Distribution is always a political decision, whether this politics takes place within the state or under the authority of private capital owning the means of wealth production. We can hide that with naturalizing ideology (it's a market, right, just like in nature... not, or some form of natural meritocracy). Or we can acknowledge it and be explicit about the politics that are already inherent, whether we see it or not.

Now remember that as an empirical endeavor the understandings of MMT by whatever name can be used to make the rich richer; this is what has accelerated in recent decades and especially since 2008. In what I am calling progressive MMT, the concept of a limit to individual wealth is essential, because of necessity a certain level of wealth allows impunity from nearly all legal limits and the ability to personally determine politics (in the crudest example, by buying politicians). Extreme inequality produces other effects in markets that make the lives of most of the non-wealthy worse than if the super-wealthy were not present, even if everyone else didn't have more as a result. (For example, skewing housing markets.)

A presenter at the conference whom I found problematic for various reasons advocated for a net wealth cap of a billion. I figure 100 million or the equivalent in today value is awesome enough, and sufficient reward for any good that someone might have accomplished.

New questions: a tenet of MMT is that all money comes from the sovereign (USG in this case). But much money is created by private bank loans; I read that in Britain, bank loans account for 97% of money creation, with government spending accounting for only about 3 percent.

Ha, this was my problem with the presenter I mentioned above, but he was woefully ignorant on this point. (He said he was a recent student of the doctrine and given time during the lunch break to present an MMT primer.)

This is not a consensus tenet of MMT, at least as I have understood it how you are putting it.

All of a given currency is issued by the currency sovereign or licensed agents. In our private capitalist version of the real world, the latter means the (mostly) private banks integrated in the Federal Reserve or Bank of England systems which are required to keep a reserve and allowed to issue credit (thus creating currency and a simultaneous liability) at a multiple of the reserve. So new money is issued by the currency sovereign directly through appropriation (in the U.S. meaning federal spending), or by banks through lending. Of course, money is simultaneously being taken out of existence through taxation and payment of principal on debt. I believe the figure you cite is misleading in that it suggests the UK government created only the 3% net injection (the deficit) rather than the full amount of the budget, while treating the full amount of loans extended from banks as net creation without subtracting repayment of principal. If both sides of this are measured consistently, it would be more like 30/70.

In any case, all currency issuance is conducted under the legal system set up by the currency sovereign, even if many members of the sovereign body (in the U.S., the Congress) don't know that is the case. Most of the Democrats probably don't know, based on how they talk. The current GOP majority talk like they have no clue but act like they know full well (in their guts anyway) as they apply MMT empirical principles in the most regressive possible way.

.

[Elvis]

Taxes are essential to MMT

Yes, hence "such taxes"—those believed to pay for federal spending. (And man, getting some people to consider anything other than "government gets its spending money from taxes" is an interesting self-torture.) I'm pretty clear by now on the three roles of taxation as you outline. (And thanks again.)

what I am calling progressive MMT

"Progressive MMT" is a good distinction. As I was trying to explain MMT to my friend the Professor (a physical sciences man with broad knowledge), he interjected, "It sounds libertarian." He's keenly aware that the Libertarian Party was founded by the Koch Bros., and I had to agree that MMT could be applied to nefarious greedy purposes (hell, as it is today in some forms, e.g. "defense" spending). I told him that MMT should especially appeal to progressives. Despite my attempts to explain it, he still won't accept the assertion that taxes don't pay for federal spending.

[JackRiddler]

.

Again, can't say it often enough. I have come to see MMT as the most accurate current empirical description of how money actually works. Money systems arose long before people even tried to understand how they work, and have always been taken as natural, even when they break down (said breakdowns often being perceived as other forms of crisis). (I mean think about it, Aristotle was trying to figure out what money was.) The empirical principles of MMT have applied to the dollar at least since 1971 and have been applied more consciously since the 2007-9 crisis. The machine that MMT describes has been used for the rich. Yet the tenets of MMT have not been self-evident, not even to most of the people actually involved in managing what I prefer to call money issuance and deletion. I think I said above I was in a room full of central bank and UN employees, and most were for the first time grappling with a terminology to describe what their institutions already did. Awakening to the validity of MMT as empiricism opens up possibilities for using the knowledge in a different way. MMT is not in itself a program to create a universal jobs guarantee. It describes why that is possible, and has given rise to a movement for a universal jobs guarantee. Thus there is an MMT movement, something new that uses MMT for a different purpose. Libertarians could and do use the same understandings to advance barbarism instead of socialism.

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[Elvis]

I hope people are reading this.

Just for discussion's sake: The title sounds anti-MMT but this blogger Rodger Malcolm Mitchell ("Rodger Malcolm Mitchell, MBA is a "turnaround specialist," who saves troubled companies. He looks at each company with fresh eyes. He ignores corporate common knowledge...") is actually a big proponent. See his "Nine Steps to Prosperity" below. He just doesn't think a JG could be effectively administered by the federal government—while ignoring the aspect of administration by local communities. Otherwise his stuff seems good he and explains MMT pretty well. Y'all check out his blog.

https://mythfighter.com/2018/09/06/mmts ... h-program/

MMT’s “Jobs Guarantee”: The final nail in the coffin of this naive, foolish program
Thursday, Sep 6 2018

Rodger Malcolm Mitchell

In previous posts (here, here, here, and others) I have given you many reasons why Modern Monetary Theory’s (MMT) “Jobs Guarantee” is naive foolishness.

For instance:

1. Jobs are not hard to find. Millions of jobs are available. It’s the right jobs that are hard to find. (Right skills, right pay, right location, right benefits, right working environment, right opportunities for advancement, right learning potential)
Image result for overburdened bureaucrat

2. The federal government bureaucrats are ill-prepared to:

a. Find or create jobs,
b. interview,
c. hire,
d. supervise,
e. promote and demote,
f. switch jobs, and
g. fire the millions of people who should be fired.
h. while determining pay scales

for every kind of job in every city, suburb, and hamlet all over America.

3. The federal government is ill-prepared to provide healthcare, maternity leave, vacation days, IRAs and myriad other benefits appropriate to different employees all over the nation.

4. If people are hired only because they need jobs, rather than because the jobs need people, nothing prevents those jobs from being make-work.

And now comes proof, if more proof is needed, of the federal government’s incompetence in the whole “jobs” area:

The $1.7 Billion Federal Job Training Program Is a Massive Failure
The program’s goals might be admirable, but the reality is a whole different story.
Joe Setyon, Aug. 28, 2018

The Department of Labor’s Job Corps program is supposed to teach disadvantaged young people the skills they need to get good jobs. But the program, which costs taxpayers about $1.7 billion per year, is apparently a failure.

O.K., it doesn’t cost taxpayers one cent.

A Monetarily Sovereign government has the unlimited ability to create its own sovereign currency, which it does by the simple act of paying creditors.

Federal taxes do not fund federal spending. (See link.)

But even that isn’t the most important point.

About 50,000 students enroll in the program each year, about two-thirds of whom are high school dropouts, according to The New York Times. Results aside, the program’s goals are admirable. As The Wall Street Journal reported in April:

Launched in 1964, Job Corps works with 16- to 24-year-olds who grew up homeless or poor, passed through foster care, or suffered other hardships.

The goal is to equip these young adults with skills for careers in advanced manufacturing, the building trades, health care, information technology, business and more.

Unfortunately, that’s not what’s happening. A March audit from the Labor Department’s Office of Inspector General sampled 324 Job Corps participants who were five years removed from graduation.

The median annual income of 231 of those participants (wage records weren’t available for the rest), was just $12,486 as of December 2016.

The audit acknowledged that “Job Corps could not demonstrate beneficial job training outcomes.”

And that is the point. The federal government bureaucrats were supposed to do what high school “Workplace Preparation” courses accomplish — and predictably, they failed.

(Workplace preparation courses prepare students to move directly into the workplace after high school or to be admitted into select apprenticeship programs or other training programs in the community.

Courses focus on employment skills and on practical workplace applications of the subject content.

Many workplace preparation courses involve cooperative education and work experience placements, which allow students to get practical experience in a workplace.)

That’s not all. Job Corps spends about $50 million a year on “transition services” to help graduates find jobs.

But in 94 percent of the cases sampled, “Job Corps contractors could not demonstrate they had assisted participants in finding jobs.”

A 94% failure rate: These are the same federal bureaucrats who are supposed to find jobs for millions of people all over the country — millions of people who don’t have the “benefit” of federal jobs training??

A terrible waste of time for the job-seekers.

One former North Texas teacher, who quit in 2015, says the entire program is failing. “Job Corps doesn’t work,” the teacher, Teresa Sanders, tells the Times. “The adults are making money, the politicians are getting photo ops.

But we are all failing the students.“

No surprise there. It’s what I’ve preached for years.

Labor Secretary Alexander Acosta admits the program “requires fundamental reform.”

“It is not enough to make changes at the margins,” he tells the Times. “We need large-scale changes.”

If a small program fails, the government’s approach is to make the program biggere, so that the failure can be bigger.

Despite its shortcomings, Jobs Corps is popular among both Republicans and Democrats in Congress (to Democrats, it’s a government program aimed at reducing poverty; to Republicans, it incentivizes hard work), so there’s only so much Acosta can do. “

Does that sound familiar, MMT? Reducing poverty and incentivizing work are two of MMT’s goals (i.e. excuses) for its Jobs Guarantee.

But why do we need to incentivize work? Why has sweat become a moral imperative?

You have a program with a rich and complicated history that’s one of the biggest leftovers from the war on poverty, and it is enormously complicated to make any significant changes,” Eric M. Seleznow, a former deputy assistant secretary for the Labor Department’s Employment and Training Administration during the Obama administration, tells the Times.

He notes that “competing interests from Congress, program operators, advocates, as well as complex legal requirements present a lot of challenges.”

If Job Corps is salvageable, then it can do some real good. But if real reforms aren’t going to happen, Congress should shut it down.

So let this be the final nail in the coffin of the “Jobs Guarantee, and instead, let us begin to focus on the Ten Steps to Prosperity (below).

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

Rodger Malcolm Mitchell

[JackRiddler]

What's the opposite of persuasive? Mitchell's implausible use of the Job Corps example. The WPA, or the TVA, these are examples of actual government jobs programs in the past. Presumably he's heard of those. Come to think of it, the U.S. government is already a jobs program, it must employ like 3 million people, and the efficiency record of its agencies falls along a pretty wide range, not so unlike the corporations. Anyway, the thing he argues is the evidentiary "final nail" is not even a jobs program. It's a training stopgap for inner city high school dropouts, almost none of whom are ever going to be offered steady jobs in the present private sector, pretty much as a systemic necessity. Also, does Job Corps pay them anything, like, you know, a job? It has nothing to do with MMT jobs program proposals, which he doesn't actually cover. So this is a completely disingenuous argument. It's like if you argued for a new vehicle design, and I pointed to a faulty refrigerator and said, machines don't work! His own policy prescriptions pay no regard to the possibility of real limits. It's almost like a classical economist's parody of MMT. I can't say I want to read any more of him, based on this sample.

I was too harsh, actually. I'm down with all of those except end corporate tax and cut income tax to zero (the implication of reducing it every year). I'd go him one better and end corporations above a certain size.

[Elvis]

the thing he argues is the evidentiary "final nail" is not even a jobs program. It's a training stopgap for inner city high school dropouts, almost none of whom are ever going to be offered steady jobs in the present private sector, pretty much as a systemic necessity. Also, does Job Corps pay them anything, like, you know, a job? It has nothing to do with MMT jobs program proposals, which he doesn't actually cover. So this is a completely disingenuous argument.

Agreed, and good critique. I posted it in full since it had a contrary note, re the "jobs guarantee." Though for me at first glance, it seems like an anomaly among his generally pro-MMT stance.

I read three or four of his entries and might have picked up some useful angles. But there's so much; Google gives me 137,000 returns on "modern monetary theory," I feel a bit overwhelmed in the time I can devote to this.

Any thoughts on Bill Mitchell? His name comes up a lot, here's something interesting he wrote the other day:

MMT and pluralism in economics
Posted on Thursday, October 11, 2018 by bill
http://bilbo.economicoutlook.net/blog/?p=40508



edit: deleted quoted passage

[JackRiddler]

Nope. Pretty soon you'll have outread me.

Arrgh, I revised my thing but you'd already quoted. Hate that quote function. Oh well.

[Elvis]

In my post above I deleted the quote that was "too harsh."

I try to minimize my use of the quote function, and there are times I wish people would use it, for clarity in a busy thread.

[JackRiddler]

No, of course it's the most useful function. Was just hating how often I revise something because I reconsidered, got it wrong, exaggerated, thought it was mean or whatever, but then see it was already quoted in that form.