MMT portal page – updated library of articles, books, videos, posts and pages on
- 1/2021 De-facto MMT disequilibrating DSGE ?
- 9/202o German Economist Sees MMT MMT Across the Sea
- 9/2019 Apropos of MMT
- 2/2019 MMT and Millennial Socialism
- US/UK Monetary/Fiscal
- EURO Monetary/Fiscal
MMT/monetary fiscal articles (updated 4/2022)
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mauricehoefgen.substack.com 3-2022 Das sagt die MMT nicht – Über die MMT kursieren viele Mythen. Auch unter hochrangigen Funktionären wie der EZB-Direktorin Prof. Isabel Schnabel – von Maurice Höfgen
stephaniekelton.substack.com 1-4-2022 A Free Lunch for Me, but Not for Thee – An ill-reasoned take on MMT by Stephanie Kelton
“Last week, I stumbled across an episode of a podcast that was advertised as the “Voice of Reason on MMT.” The show’s host turned to David Kelly—the Chief Global Strategist and Head of the Global Market Insights Strategy Team for J.P. Morgan Asset Management—for insight into Modern Monetary Theory. Apparently, the conversation was inspired by something Kelly had written on MMT. I searched around for something recent but was only able to find this short note from September 2020.
In the note, Kelly says things like, “MMT exploits the trust that people have in fiat currency.” The problem, he says, is that “trust in money is like trust in marital fidelity.” You know, once you lose it, it’s probably gone forever. …”…
paecon.net.pdf 24-3-2022 RWEreview: MMT, post-Keynesians and currency hierarchy: notes towards a synthesis by Luiz Alberto Vieira
Abstract: The main objective of this article is to show that MMT, post-Keynesian and currency hierarchy theorists do not have irreconcilable divergences. In fact, MMT economists support much of the currency hierarchy’s advice and analysis for real historic events. The adoption of earlier post-Keynesian conception of money does not change the main conclusions of MMT that there is not restriction on the financing of public spending, but it provides a broad comprehension of many monetary matters, as Latin America
economic history evidence.
Keywords: Modern Monetary Theory, Currency Hierarchy, Developing Countries, Balance of Payments Constraint
politischeökonomie.de 3-2022 Interview mit Dirk Ehnts: „Man muss nicht erst Steuergelder einnehmen, bevor man Staatsausgaben tätigen kann.“ Dirk Ehnts ist einer der bekanntesten deutschen Vertreter der Modern Monetary Theory (MMT). Unser Herausgeber Otmar Tibes hat mit ihm über seine neue Einführung in die MMT sowie über Inflation, Gaspreise, die Sozial-Ökologische Transformation und weitere spannende Themen gesprochen.
amazon.de 3-2022 Modern Monetary Theory: Eine Einführung von Dirk Ehnts
stephaniekelton.substack.com 8-2021 MMT ≠ QE – MMT is not and has never been about getting central banks to “print money” for the government – Stephanie Kelton
theguardian.com/ 9/12/2021 Spending without taxing: now we’re all guinea pigs in an endless money experiment – No government has openly embraced modern monetary theory, but many of the radical doctrine’s core principles are informing today’s policy decisions – Satyajit Das
…”…The theory delegates management of MMT operations to politicians, rather than unelected economic mandarins. But financially challenged elected representatives may be poorly equipped for the task. Political considerations and cronyism may influence decisions.
Sixth, there are implications for financial stability. Lower rates, the result of central bank debt purchases, and inflation fears might drive a switch to real assets, increasing the price of property and shares representing claims on underlying cashflows. It may encourage hoarding of commodities. This exacerbates inequality and increases the cost of essentials such as food, fuel and shelter. Fear of debasement of the value of paper money, in part, is behind unproductive speculation in gold and cryptocurrencies.
Seventh, MMT might undermine trust in the currency. Instead of spending the payments, citizens may question a world where governments print money and throw it out of helicopters. Finally, Japan’s use of persistent deficits to boost short-term economic activity and incur government debt (currently more than 260% of GDP, compared with a global average of about 100%) does not prove the effectiveness of MMT. The country’s circumstances are unique and it has been mired in stagnation for three decades with its GDP largely unchanged.
MMT’s allure is the irresistible promise of freebies; full employment, unlimited higher education, healthcare and government services, state-of-the-art infrastructure, green energy and “the colonisation of Mars”. But monetary manipulation cannot change the supply of real goods and services or overcome resource constraints, otherwise prosperity and utopia would be guaranteed. While the current game can and will continue for a time, the bill will eventually arrive. The borrowings will have to be paid for out of disposable income, higher taxes or through inflation, which reduces purchasing power, especially of the most vulnerable, and destroys savings. Other than nature’s free bounty, everything has a cost.”
wsj.com 20/11/2021 Modern Monetary Theory Isn’t the Future. It’s Here Now. Important elements of MMT are accepted by much of the financial establishment, but markets aren’t pricing it in By James Mackintosh
“The infrastructure act signed into law last week marked a defeat for the faction of progressive economists in ascendancy in 2020. For these advocates of modern monetary theory, the insistence by both political parties that all the $550 billion of new spending be matched by offsetting revenue, known as “payfors,” goes against their belief that money is merely a tool for government. This is a temporary rhetorical setback. The reality is that MMT’s ideas have insinuated themselves deep into government, central banking and even Wall Street—and the infrastructure act is in fact deficit-financed anyway…”…
“Modern monetary theory has gained traction in recent years as American living standards have stagnated and inequality has grown. MMT’s critics are quick to dismiss it, but investors need to understand that the idea is likely to stick around. It is part of a debate that will outlive Trumpism and Brexit and may shape public policy and economic development for the next half century.
Modern monetary theory has gained traction in recent years as American living standards have stagnated and inequality has grown. MMT’s critics are quick to dismiss it, but investors need to understand that the idea is likely to stick around. It is part of a debate that will outlive Trumpism and Brexit and may shape public policy and economic development for the next half century.
MMT can be broadly defined as the government borrowing money from the central bank to finance public spending. Put differently, MMT is debt monetization. MMT’s challenge to orthodox approaches has gained adherents in an economic and political environment that is ripe for change. Extremely low interest rates (negative when adjusted for expected inflation) offer a once-in-centuries opportunity for governments to borrow and invest, particularly in goods that private markets do not furnish, or insufficiently offer, such as roads, bridges, schools, and public health. Skewed income distribution and concerns that orthodox economics only work for the few make many social critics search in new directions.
Central bankers, like most economists, prize their independence from political influence. Still, given large government budget deficits, sluggish growth and low inflation, central banks will remain reluctant to tighten. Hence, it’s possible to foresee a form of effective MMT where central banks monetize deficits because the economic fundamentals require monetary policies consistent with MMT objectives. Equally, if governments opt to pursue policies requiring large banks, insurance companies, and pension plans to hold vast amounts of government debt, low interest rates could persist for much longer, enabling governments to borrow and spend more.
There are at least three other reasons MMT will not likely go away. First, the global financial crisis, worsening income inequality, and other forms of economic insecurity have shattered public confidence in the orthodox economic foundations of unfettered markets, deregulation and globalization that dominated political and economic decision-making from the 1980s until the past decade. Second, the widespread and enduring use of quantitative easing (QE) by central banks without stoking inflation has nurtured the idea that central bank underwriting of public sector debts and deficits is a viable option. Third, a political backlash against the influence of money (plutocracy) and technocratic policymaking that has benefited the top 1% of wealth holders has unleashed powerful forces calling for the instruments of power to be used for the benefit of ordinary citizens, rather than for the privileged few.
Four decades ago, there was a popular line of thinking that “greed is good” and “government is the problem.” Today, economic insecurity and fairness are the bywords of our times. Government intervention to stem first the 2007-2008 financial crisis and now to confront the pandemic has revived interest for an era where public investment improves outcomes. Climate change threatens communities and exposes the flaws of the “invisible hand” in delivering the common welfare. There is no turning the clock back to the ideals of free markets and economic liberalism.
The evolution toward a new paradigm underpins a key component of MMT: the structural subordination of monetary policy to fiscal policy. QE initially began as a textbook monetary-policy response to surging money demand during the financial crisis. As Milton Friedman, American economist and statistician might have put it, when money velocity collapses (owing to a jump in money demand as the financial system totters on the abyss), the central bank must increase money supply to prevent a collapse in nominal gross domestic product (GDP). Friedman and former Federal Reserve Chair Ben Bernanke, economists not often aligned in their views, recognized that fact from their study of the failings of the Fed and other central banks during the Great Depression. …
While it may not be realized exactly as its proponents wish, MMT represents a growing awareness that investment in public goods, such as in education and transportation, as well as in programs to address climate change, are both very costly and deliver multi-generational benefits. Achieving those aims can be accomplished in part via the unique opportunity to borrow at negative real interest rates, but also requires a broader and more just tax base. “
mawer.com 6-2021 On modern monetary theory – by Paul Moroz
…”…One of the most counterintuitive ideas from MMT is the chartalist belief that currency didn’t evolve from barter, but rather that taxes exist to create demand for currency. Economist Warren Mosler explains by analogy in his book Soft Currency Economics II: What Everyone Thinks They Know About Monetary Policy is Wrong:
The concept of Fiat Money can be illuminated by a simple model: Imagine a world of a parent and several children. One day the parent announces the children may earn business cards by completing various household chores. At this point, the children won’t care a bit about accumulating the parent’s business cards, because the cards are virtually worthless. But when the parent also announces that any child who wants to eat and live in the house, must pay the parent, say, 200 business cards each month, the cards are given value and the chores instantly get done. Value has been given to the business cards by requiring them to be used to fulfill a tax obligation.” 5
Reconsidering the sequence of transactions suggests the Bretton Woods (or household) mental model of transactions—borrow first to spend later—should be turned on its head. Spending creates economic activity, funded by “business cards” or fiat debt. …”…
nytimes.com 9-2021 Modern Monetary Theory Has a New Friend in Congress – By Peter Coy – John Yarmuth is a big fiscal deal. He says we should be open to deficit spending.
gimms.org.uk/ 12/9/2021 The National Insurance increase shows that levelling up has been consigned to the Conservative bonfire of easy promises
THE PAST FEW YEARS have been good ones for Modern Monetary Theory (MMT). A decade ago, you would have been hard-pressed to find a mainstream economist who had even heard of this fringe school of left-Keynesian economics. But ever since Bernie Sanders made MMT proponent Stephanie Kelton a senior economic advisor for his 2016 presidential campaign, it has gradually trickled into the mainstream. In June, Kelton’s new book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, landed on the New York Times Best Sellers list, no small feat for a tome about monetary issues.
The meteoric rise of MMT may be surprising to its many detractors (Clintonite liberals hate MMT as much as Senate Republicans do), but it shouldn’t be. Its basic message — that the spending of currency-issuing governments is not constrained by tax income — is uniquely resonant in a moment when trillion-dollar stimulus packages and zero-percent interest rates are becoming the new normal. Most of us need money in our bank accounts right now. MMT tells us that the only thing keeping the federal government from providing the kind of fiscal support we need to weather this pandemic is that they don’t want to. There is no objective economic constraint, only a lack of political will.
americanaffairsjournal.org 11/2020 Savings Glut or Investment Dearth: Rethinking Monetary Policy – The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton – Review essay by Andrew Smithers
“The Gower Initiative is an independent, non-profit organisation which is part of a growing international movement which challenges the economic orthodoxy of the last four decades. We are supported by distinguished economists and many other experts who have played a vital role in offering advice and guidance in the development of this project.
The Initiative was founded by a group of five women with a keen interest in politics and economics, but from a lay perspective rather than an academic one. We came together from different directions but with a common understanding that the dominant economics of our day is deeply flawed. It fails to address questions of real resources and the impact of government policy on people’s lives.
We believe that a good economic system should consider the effects of policy as an integral part of the design, not as an afterthought.
Our personal studies have brought us together as proponents of Modern Monetary Theory (MMT). It is, fundamentally, a system which looks at the interrelationships between different sectors of the economy, which integrates money creation into the system and which considers government economic policy in relation to the world’s real resources: the planet and its people.”…
pileusmmt.libsyn.com/ 7/2021 PatriciaNPino and Christian talk to Modern Monetary Theory founder Warren Mosler (@wbmosler) about quantitative easing, interest rates, inflation, and all things MMT in the current context source: twitter.com/MMTpodcast
coindesk.com 6/2021 Modern Monetary Theory and a Basic Income for All – Universal basic income paired with post-extractive technologies like AI and crypto can alleviate human drudgery, says one entrepreneur. by Edward DeLeon
…”… Most proposed UBI systems require an extractive property, usually taxation, which is inefficient and often unfair. Taking money from one person to give it to another is not just unjust but unsustainable as you are only shifting around existing wealth, not creating new value. Read more: An Internet for Humans: Proof-of-Personhood Explained
investorschronicle.co.uk/ 2/2021 The pariah pioneer of Modern Monetary Theory – Building the Nazi war machine was a massive experiment in stimulus – Hitler’s finance minister Hjalmar Schacht’s ideas reflect MMT – German economic policies in the lead up to the Second World War could provide an interesting blueprint for stimulus today By James Norrington
wikipedia Hjalmar Schacht
In August 1934 Hitler appointed Schacht as Germany’s Reichsminister of Economics. Schacht supported public-works programs, most notably the construction of autobahnen (highways) to attempt to alleviate unemployment – policies which had been instituted in Germany by von Schleicher‘s government in late 1932, and had in turn influenced Roosevelt‘s policies. He also introduced the “New Plan”, Germany’s attempt to achieve economic “autarky“, in September 1934. Germany had accrued a massive foreign currency deficit during the Great Depression, which continued into the early years of Nazi rule. Schacht negotiated several trade agreements with countries in South America and southeastern Europe, under which Germany would continue to receive raw materials, but would pay in Reichsmarks. This ensured that the deficit would not get any worse, while allowing the German government to deal with the gap which had already developed. Schacht also found an innovative solution to the problem of the government deficit by using mefo bills.
wikipedia Die Mefo-Wechsel waren ein von Reichsbankpräsident Hjalmar Schacht 1933 eingeführtes Finanzierungsinstrument
des NS-Staats in Form eines Wechselkredits. Mit den Wechseln wurde praktisch eine Parallelwährung neben der Reichsmark geschaffen, da das Reich ihre Einlösung nach spätestens fünf Jahren garantierte. So konnten Rüstungsunternehmen, die mit ihnen bezahlt wurden, sie ihrerseits als Zahlungsmittel – etwa für Zulieferer – verwenden. Die Mefo-Wechsel ermöglichten also die Finanzierung von Staatsausgaben, ohne auf Bankkredite zurückgreifen zu müssen und dienten zugleich der staatlichen Arbeitsbeschaffung.
- Kapitel: Die deutsche Hyperinflation von 1923 unter einer privaten Zentralbank Die Entstehung Deutschlands Der Versailler Vertrag Die monetäre Zerstörung Deutschlands Die Ursache der Inflation: erste »Erklärung« Die wahren Gründe für die Inflation Schachts Enthüllung Die Spekulanten versuchen wieder ihr Glück Hitler ist von Feders monetären Ansichten angetan Die Errichtung der Deutschen Bundesbank als einer staatlichen Zentralbank Die Europäische Währungsunion stellt Deutschland vor neue Herausforderungen
finews.ch/ 2019 Modern Monetary Theory: Wehret den Anfängen – Was die Laffer Curve in den 1980er-Jahren für die Rechten war, ist heute die Modern Monetary Theory für die Linken. Damals wie heute ging oder geht es um die nachträgliche Rechtfertigung des für die eigenen Zwecke politisch Dienlichen und die Festigung der eigenen politischen Machtposition. Von Adriano B. Lucatelli
economicsfromthetopdown.com 7/2020 Why Isn’t Modern Monetary Theory Common Knowledge? by Blair Fix – “I’ve always been baffled why ‘modern monetary theory’ is called a theory. I don’t mean this in a disparaging way. As far as theories of money go, I think modern monetary theory (MMT for short) is the correct one. But having a correct theory of money is a bit like having a correct theory of traffic lights. …”
eurekareport.com.au 2020 Modern Monetary Theory and mainstream economics converging by Stephen Grenville
Former deputy governor of the Reserve Bank of Australia and current non-resident fellow of the Lowy Institute, Stephen Grenville, takes us back to the catalyst of MMT’s push towards mainstream economics in the GFC and explains how the COVID-19 crisis has given this radical rethink of economics a huge boost in popularity.
phenomenalworld.org 2019 “The idea that money is best thought of as credit would prove influential.
Schumpeter lent substantial support to the credit-first view of money. Post-Keynesian economists from Nicholas Kaldor and Paul Davidson onward operated from a credit-money viewpoint. There is also some overlap between the credit and neo-chartalist approaches. MMT emerged largely from post-Keynesian circles, and neo-chartalists endorse some credit-money notions (Wray is largely responsible for resurrecting Innes). ….
The New York Fed publishes educational comics explaining the monetary system. One issue, titled “Once Upon A Dime,” is essentially Adam Smith’s parable but with cartoon aliens. By contrast, the BoE’s 2014 publication “Money Creation in the Modern Economy” takes a more modern view: “Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money,” the authors write. Money, the BoE says, is credit. As the sociologist of money Geoffrey Ingham writes, monetary systems require “naturalizing” narratives—stories that convince us that money is not just some flimsy social construct, but something solid and necessary. The commodity view has obvious intuitive appeal: paper money has value because it stands in for something weighty and real. It may be less intuitive to see the monetary system as a set of interlocking promises or a government construct. In some ways it doesn’t matter which parable holds sway, as long as it “works.” …
But eventually the wrong story can lead to error. Such was the case in the post-crisis years, when the Fed began its quantitative easing program, trading its own newly “printed” dollars for privately held financial assets in order to drive down interest rates on outstanding bonds. Those with a doctrinaire commodity-money view warned that such money creation could only lead to inflation. But as MMT proponents and credit-money theorists predicted—along with conventional economists less rigidly tied to the commodity-money view—quantitative easing did not spark runaway inflation. The recent predictive record of non-mainstream economists is in large part why Wall Street and financial media have given hearing to heterodox monetary ideas.
Experience and history show that the commodity view is insufficient to explain all the attributes of the institution of money. The dimensions of money that are downplayed in the textbook Smith-Menger barter narrative—credit and the state—are of central importance in understanding both how modern money likely arose and how it operates now. Economics education at every level ought to include and even privilege those narratives that foreground the role of debt and the state in money’s origins and operation.”
econlib.org 11/2020 That doesn’t mean what you think it means By Scott Sumner
Over the past month, I’ve been trying to pin down exactly what’s wrong with Modern Monetary Theory. Or perhaps a less presumptuous way of putting it is that I’ve been trying to figure out what mainstream economists believe is wrong with MMT. Here I’ll list 6 MMT ideas. I’ll first explain the kernel of truth in each claim. Then I’ll explain the mistaken way that MMTers interpret these claims. Finally, I’ll explain how and why these claims don’t mean what MMTers think they mean. I’ve taken this approach because I believe that MMT is based on a series of basic misunderstandings:
- 1. Banks don’t loan out reserves.
- 2. There is no money multiplier.
- 3. Money is endogenous.
- 4. Interest rates are an exogenous monetary policy instrument.
- 5. Investment is not very responsive to interest rates.
- 6. In a closed economy, net saving equals the budget deficit.
piie.com 3/2021 Does the new fiscal consensus in advanced economies travel to emerging markets? Olivier Blanchard , Josh Felman and Arvind Subramanian
A new consensus on fiscal policy has emerged in advanced economies, that stimulus is both needed and feasible. At first blush, the scope for stimulus seems even greater in emerging markets, since their primary deficits are smaller and interest-growth differentials more favorable, suggesting that they can sustain much higher levels of debt. But more careful analysis suggests that this is not the case.
developingeconomics.org 17/3/2021 Monetary policy is ultimately based on a theory of money: A Marxist critique of MMT By Costas Lapavitsas and Nicolás Aguila
During the last two decades, Modern Monetary Theory (henceforth MMT) has won wide academic recognition and public influence. Its most prominent achievements include shifting the public debate on the conduct of economic policy and reviving interest in the theory of money. The former tends to attract most of the attention of both advocates and critics of MMT, but this is unjustified. MMT policy conclusions result from its underlying understanding of money, as some of the more illuminating MMT thinkers make abundantly clear (Bell, 2001; Tcherneva, 2006; Wray, 2010, 2014). A far richer assessment of MMT economic policy proposals would result by first considering the foundations of its theory of money, that is, neo-Chartalism.
In a recent article, we contrasted MMT with the Marxist theory of money. We showed that there were four important points of disagreement between these two schools of thought, namely on: (i) the ontology of money, (ii) the state and money, (iii) state economic policy, and (iv) world money and monetary sovereignty. We supported our argument with historical examples that we omit here for reasons of space
primeeconomics.org 04/2020 The Use and Abuse of MMT By Michael Hudson, with Dirk Bezemer, Steve Keen and Sabri Öncü
“After being attacked by monetarists and others for many decades, MMT and the idea that running government budget deficits is stabilizing instead of destabilizing is suddenly gaining applause from the parts of the political spectrum that long opposed MMT: the banking and financial sector, especially the Republicans. But what is applauded is in many ways something quite different than the leading MMT advocates have long supported.
Modern Monetary Theory (MMT) was developed to explain the logic of running government budget deficits to increase demand in the economy’s consumption and capital investment sectors so as to maintain full employment. But the enormous U.S. federal budget deficits from the Obama bank bailout after the 2008 crash through the Trump tax cuts and Coronavirus financial bailout have not pumped money into the economy to finance new direct investment, employment, rising wages and living standards. Instead, government money creation and Quantitative Easing has been directed to the finance, insurance and real estate (FIRE) sectors. The result is a travesty of MMT, not its original aim.
By subsidizing the financial sector and its debt overhead, this policy is deflationary instead of supporting the “real” economy. The effect has been to empower the banking sector, whose product is credit and debt creation that has taken an unproductive and indeed extractive form.
This can clearly be seen by dividing the private sector into two parts: The “real” economy of production and consumption is wrapped in a financial web of debt and rent extraction – real estate rent, monopoly rent and financial debt creation. Recognizing this breakdown is essential to distinguish between positive government deficit spending that helps maintain employment and rising living standards, as compared to “captured” government spending to subsidize the FIRE sector’s extraction and debt deflation leading to chronic austerity.” read whole article here or here
concertedaction.com 30/12/2020 Joan Robinson On Central Banking And Deficits by V. Ramanan Jo Michell reminded everyone in a tweet of a quote from Joan Robinson with the comment: “Joan Robinson covered pretty much all of MMT in half a page in 1937.”
ideas.repec.org/ 2020 Covid-19: Has the Time Come for Mainstream Macroeconomics to Rehabilitate Money Printing? by Axelle Arquié, Jérôme Héricourt, Fabien Tripier
Abstract : The scale of public expenditure to be incurred in the Covid-19 health crisis is raising heated debates about the appropriate funding. Long rejected by mainstream macroeconomics due to its possible inflationary consequences, monetization is currently undergoing a surprising rehabilitation. Defined as the financing of public expenditure by money issuance -without the government ever reimbursing the central bank, monetization appears as an attractive solution in a context where the burden of public debt could become particularly problematic due both to the persistent threat of secular stagnation and the massive Covid-19 shock. This policy brief offers some theoretical insights into this debate opposing monetization and issuance of additional public debt. We first clarify what is happening to current debt and how its sustainability can be assessed, before examining how current mainstream macroeconomics can be used to rehabilitate monetization of public spending. In conclusion, we draw attention to the particular democratic challenges implied by such a policy in the Euro area context, in terms of balance of powers between European institutions.
elpais.com 25 01 2021 nostalgia-in-economic Strict monetary and fiscal rules do not work at times of economic shock or drastic structural changes by ÁNGEL UBIDE
fxstreet.com 23 01 2021 ECB’s Olli Rehn-calls-yield-curve-control-nonsensical-for-euro-area “ECB is actively managing Eurozone bond yields, but doesn’t call it curve control” Dhwani Mehta
“This new series of OMFIF Insights explores the relationships between monetary and fiscal policy for the world’s major central banks, such as with interest on reserves and the central bank balance sheet. … Bank of England officials may have been surprised when they noticed their asset purchases almost matched state borrowing in 2020. …” read more
ft.com/Jan 2021 “Investors sceptical over Bank of England’s QE programme – FT survey finds big players in bond market think plan is attempt to finance government deficit – In particular, most said they thought the scale of BoE bond buying in the current crisis had been calibrated to absorb the flood of extra bonds sold this year, suggesting they believe the central bank is financing the government’s borrowing.”
yahoo finance 5/2/2021 Bank of England boss: ‘No merit’ to claims we’re financing government
positivemoney.org 2018 MMT+PositiveMoney Pt1
“How I Learned to Stop Worrying and Love the National Debt” A Conversation with former Deputy treasury secretary Frank Newman This event will explore common misconceptions regarding the nature of the national debt and its function in the broader context of contemporary U.S. macroeconomic policy. Questions to be addressed include:
What is the national debt comprised of? Why is the national debt different from a personal debt? How accurate are the assumptions behind popular fears over the sustainability of the national debt? How can an accurate understanding of the nature and operations of money inform current debates over the national debt?
Frank Newman works as the Vice-Chairman of Asia for Global Strategic Associates, and has published two books: Six Myths that Hold Back America: And What America Can Learn from the Growth of China’s Economy (2011), and Freedom from National Debt (2012).
mining.com Closing the gold window opened the door to Modern Monetary Theory (MMT) Frank Holmes
criticalfinance.org MMT: HISTORY, THEORY AND POLITICS by Jo Mitchel
“… Does MMT provide a good guide for policy? MMT proponents tend to deny that MMT provides policy proposals. Instead, it is claimed, MMT is a “lens” through which one comprehends the true nature of the monetary system. MMT is not a policy package, it is argued, because MMT is simply a description of how the system already works.
This claim stretches credibility. Putting the ELR proposal aside, MMT proponents do make policy proposals (such as those already noted). The common feature of such proposals is the use of deficit monetisation: issuing central bank money directly to pay for government programmes. For example, Warren Mosler proposes abolishing all payroll taxes, while Stephanie Kelton has argued that the Green New Deal, a massive public spending programme championed by the left of Democratic Party, can be implemented without needing to tax the wealthy.
Complaints by proponents that MMT is mischaracterised as “printing money” are therefore misplaced. The suggestion that MMT claims “deficits don’t matter” likewise causes protest: MMT proponents respond that deficits matter, but what matters is the so-called “real resource constraint”. As a result, as MMT proponents correctly note, deficits can be too small as well as too large – an obvious current example is Germany, where demand clearly falls short of real constraints, and there is substantial capacity for fiscal expansion. Despits this, MMT complaints are again misleading: MMT does argue that there is no financial constraint to government deficits. While it is almost certainly the case that the US and other advanced nations still have substantial fiscal space, despite running large deficits in some cases, the MMT claim is too extreme; at some point, fiscal limits will be reached even in rich nations. For countries further down the international currency hierarchy which face binding externally-imposed constraints related to foreign exchange needs, fiscal limits are very real.
Further, despite MMT proponents emphasising the “inflation barrier” as the true limit to deficit spending, little effort is devoted to the crucial questions of how real resources are to be mobilised: how to ensure that large government spending programmes such as the Green New Deal can be implemented without hitting supply side bottlenecks, capacity limits and political resistance. In framing everything in monetary terms, rather than real economic activity, MMT therefore obscures rather than illuminates important macroeconomic relationships.
Once the esoteric use of language and the more extreme claims are stripped away, there is arguably a rather conventional core to MMT. US economists JW Mason and Arun Jayadev argue that, in policy terms, MMT effectively amounts to a reversal of the “consensus assignment”. This refers to the idea that the two main tools of macroeconomic management, fiscal policy and monetary policy, should each be assigned a single target. The consensus assignment is that monetary policy (setting interest rates and, more recently, quantitative easing) should be used to manage aggregate demand, while fiscal policy is used to maintain sustainable debt-to-GDP ratios. In contrast, MMT proposes the use of fiscal policy to manage demand, and monetary policy (in the form of deficit monetisation and zero interest rates) to manage the public finances.
MMT is usually portrayed as a left-wing economic programme: Stephanie Kelton is an economic advisor to Bernie Sanders and Alexandria Ocasio-Cortez has said that MMT should be “part of the conversation”. But although much of the MMT activist base is on the left, the relationship between MMT and politics is more complex. The line that “money doesn’t grow on rich people” can potentially play well on the right, as much as the left. As already noted, Mosler, a self-described “Tea Party Democrat” proposes the abolition of payroll taxes. Bill Mitchell argues that MMT is politically neutral, and MMT insights can inform either left- or right-wing political programmes. Care therefore needs to be taken when associating government deficits with the political left: US Republicans use deficit scaremongering to constrain public spending by Democrat administrations, but Republican governments are often less fiscally cautious in office — Trump’s tax cuts provide a recent example. Similarly, in the UK, after nearly a decade of government cuts premised on the false threat of a run on bond markets, the Conservative government has decided to embrace deficits, cutting taxes and making eye-catching spending claims.
The ideas of MMT could also be adopted by political groups that combine socially right-wing ideas with activist fiscal policy. In their recent book, “Reclaiming The State”, Bill Mitchell and his co-author Thomas Fazi note the successful use of deficit monetisation in Nazi Germany, while decrying the “tragedy” of the Left’s focus in recent decades on “identity politics”: opposition to racism, homophobia and other forms of bigotry. This, Mitchell argues, serves to radicalise the “ethnocentrism of the proletariat”. This framing of MMT in terms of national sovereignty will have obvious appeal to those wishing to implement nativist policies, such as restricting migration, while using deficit spending to ensure employment for those on the inside.
MMT has had remarkable success in opposing needless deficit hysteria and in popularising more enlightened ideas on macroeconomic management than those prevailing since the rise of monetarism in the 1970s. Recent events have demonstrated the ineffectiveness of monetary policy as a demand management tool: it is now widely accepted that fiscal policy must play a more active role. MMT activists should therefore be commended: they have succeeded where other heterodox economists have failed in popularising these important ideas. But the use of obscurantist language, oversimplification of complex issues and the tendency to make excessive claims ultimately undermines their case.
Time will tell if MMT is destined to become a passing phase or a more permanent “part of the conversation”. What seems more certain is that the days of reliance on monetary policy as the sole macroeconomic stabilisation tool are over: fiscal policy is back on the agenda.” read whole article here
THE BAR IS FINALLY OPEN by TYLER MORDY (excerpts)
“What exactly is … MMT and why is it getting so much attention? In the last few decades, monetary policy has been widely seen as the most effective tool for managing the economy. However, this assumption is now being called into question. Enter… MMT, a new way of thinking about government spending. Crucially, its swelling supporters argue that fiscal policy should be the primary tool for macroeconomic growth and stability. Whether investors agree with MMT or not is irrelevant. The world is steadily moving toward the adoption of its ideas. …
It always takes a trauma to shake up economic thinking. The Great Depression set policy on a far different path, ushering in a Keynesian era where governments used budgets to fine-tune growth and inflation. That orthodoxy came crashing down in the raging inflation of the 1970s.
From there, central bankers emerged as the leading macroeconomic managers. Of course, interest rates were their weapon of choice. Fed Chairman Paul Volcker, with his towering presence and cigar-smoking press conferences, oversaw a boost in borrowing costs to 20 percent in the 1980s. The cult of the central banker was born.
Alan Greenspan, who led the Fed from 1987 – 2006, took it to a whole new level. Dubbed the “maestro”, he developed an impenetrable linguistic style, clearly indulging — even enjoying — his oracular aloofness. At one point, Greenspan could have stuck a licked finger in the air to convince the public of the economy’s direction.
Monetary policymakers were more like modern-day rock stars. And for good reason. They had routed the inflation enemy. In the US, inflation averaged around 5 percent through the 1970s. Then, it steadily melted. In other developed nations, it has been broadly a similar story.
Central bankers were not shy about celebrating their victory. In the mid-2000s, they would boast of having achieved a “great moderation”: economic and inflation variability had been tamed. Few disagreed that monetary policy was the most effective tool for managing the economy.
Yet all that changed after 2008’s global financial crisis. To fight the downturn, central banks pursued unbridled monetary expansion. Over USD $16 trillion was added to their collective balance sheets. Plenty of voices warned that inflation would come roaring back. It didn’t. Today’s levels of inflation are still lower than a decade ago.
In fact, central bankers have consistently fell short of their inflation and growth targets. The President of the European Central Bank put it plainly in 2014: “deflation is the ogre that now must be fought decisively”.
All of which brings us to today. Globally, almost USD $12 trillion in monetary and fiscal support has been pumped into the economy to fight the impact of Covid-19, leading to soaring budget deficits and public sector debt in all major economies. Have governments done too much? Apparently not. The world has been stuck with inflation stubbornly below official targets and bond yields at new lows.
With this backdrop, it is no surprise that a global policy debate has been sparked. Why does recent experience seem to totally refute standard macroeconomic theory? And what, pray tell, is the right policy mix for the times?
Enter Modern Monetary Theory (MMT), a new way of thinking that has electrified the policy atmosphere …”
theconversation.com John Whittaker MMT the-rise-of-economists-who-say-huge-government-debt-is-not-a-problem
socialeurope.eu Germany bows to Keynes, again – Thorvaldur Gylfason
“History is repeating itself. With brute force, the pandemic has brought home a basic economic law: Ivan’s expenditure is Olga’s income. As incomes have collapsed, unemployment has risen (Table 1). In Germany, as well as in France and Italy, the increase in unemployment has been modest, while in the US the unemployment rate has more than doubled—doubling too in my native Iceland. … To finance the stimulus, the German government would borrow nearly €300 billion, equivalent to close to 10 per cent of German gross domestic product and €3,600 per capita. Keynes would have been impressed.”
In their article: “Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?” Arjun Jayadev and J. W. Mason conclude that the
“… feasibility of a functional finance rule for public budgets (is the) central question.”
“We have two concluding thoughts. In our view, it is a mistake for those on the mainstream side of the debate to dismiss MMT supporters as radicals or holders of outré beliefs. They should recognize that MMT is making unconventional policy arguments in a framework of conventional economic analysis. Moreover, the experience of the last decade during which higher levels of debt did not lead to runaway inflation or other obvious costs, and during which conventional monetary policy failed to quickly and reliably close output gaps, should make policy-oriented macroeconomists open to revising their views on the merits of the conventional instrument assignment.
For MMT by contrast, the challenge is to clarify the conditions that make it reasonable to expect a government unconcerned with financial constraints will consistently pursue a fiscal balance consistent with a zero output gap. In order to persuade people in the policy mainstream, MMT must address the real source of their objections, which is, we believe, found not in finance but in political economy. What reason do we have to believe that an elected government that is free to set the budget balance at whatever level is consistent with price stability and full employment would actually do so? This is where the real resistance lies.” Arjun Jayadev and J. W. Mason
Matt Bruenig of Peoples Policy Project seems to agree with Jayadev and Mason and concludes : “If the point of MMT is really about how it would be better to have the fiscal authority manage the price level and the monetary authority manage the debt level — as I thought it might be in 2013 and as Jayadev and Mason argue it is — then you would expect to see a lot more discussion about the competencies and flexibilities of each authority at those tasks. But there is surprisingly little written about such things in these circles.
The real point of MMT seems to be to deploy misleading rhetoric with the goal of deceiving people about the necessity of taxes in a social democratic system. If successful, these word games might loosen up fiscal and monetary policy a bit in the short term. But insofar as getting government spending permanently up to 50 percent of GDP really will require substantially more taxes in the medium and long term, I have to agree with Sawicky and Henwood in saying that MMT seems like a political dead end.” If successful, these word games might loosen up fiscal and monetary policy a bit in the short term. But insofar as getting government spending permanently up to 50 percent of GDP really will require substantially more taxes in the medium and long term, I have to agree with Sawicky and Henwood in saying that MMT seems like a political dead end.”
ineteconomics.org 30/4/2019 Macroeconomic Stimulus à la MMT By Lance Taylor Modern Monetary Theory is problematic. Launching large scale fiscal programs that rely on it would be skating on thin ice.
Bottom Line : The program in Table 1 is at the low end of alternatives being discussed. It might be economically, if not politically, feasible in the short run. But it would amount to skating on thin ice—in several directions.
jacobinmag.com/2019 Modern Monetary Theory Isn’t Helping By Doug Henwood MMT is billed by its advocates as a radical new way to understand money and debt. But it’ll take more than a few keystrokes to change the economy.
economicsfromthetopdown.com/2020 Why Isn’t Modern Monetary Theory Common Knowledge? “I’ve always been baffled why ‘modern monetary theory’ is called a theory. I don’t mean this in a disparaging way. As far as theories of money go, I think modern monetary theory (MMT for short) is the correct one. But having a correct theory of money is a bit like having a correct theory of traffic lights.”
critical finance – KELTON AND KRUGMAN ON IS-LM AND MMT by Jo Michell: “Can this discussion be rescued? Can MMT and IS-LM be reconciled? The answer, I think, turns out to be, “yes, sort of”. I wasn’t the only person pondering this question: several people on Twitter went back to this post by Nick Rowe where he tries to “reverse engineer” MMT using the IS-LM model, and comes up with the following diagram:
Does this help? I think it does. In fact, this is exactly the diagram used by Victoria Chick in 1973, in The Theory of Monetary Policy, to describe what she calls the “extreme Keynesian model” (bottom right):
So how do we use this diagram to resolve the Krugman-Kelton debate? Before answering, it should be noted that MMTers are correct to point out problems with the IS-LM framework. Some are listed in this article by Mario Seccareccia and Marc Lavoie who conclude that IS-LM should be rejected, but “if one were to hold one’s nose,” the “least worst” configuration is what Chick calls the “extreme Keynesian” version.” read the whole article by Jo Michell here
“Although the Hicksian IS-LM (investment saving–liquidity preference money supply) approach to understanding Keynes (Keynes 1936) (from Hick’s famous 1937 article Mr Keynes and the Classics (Hicks 1937)) has come under severe criticism, not least from Chick above and Hicks (the model’s inventor) himself in 1981 (Hicks 1980-1981). (Pasinetti 1974) lays the blame on the IS-LM for the divergence of orthodox “Keynesian” macroeconomics from the economics of the General Theory. For Joan Robinson IS-LM is was “bastard Keynesianism” for Chick it shows ‘Pseudo dynamics’.”
economicsnetwork.ac.uk Maurice Starkey Credit Creation Theory of Banking
“Bank deposits account for approximately 97% of the money supply in the United Kingdom economy. Bank deposits are sometimes referred to as ‘credit money’ …
Whilst most textbooks discuss the money multiplier theory of credit creation, there is limited consideration within academic textbooks of the credit creation theory of banking. However, the Bank of England recently issued a paper which recognises the credit creation theory of banking as a useful theory for understanding the process of money creation (McLeay, Radia, & Thomas, 2014).
Credit creation theory of banking proposes that individual banks can create money, and banks do not solely lend out deposits that have been provided to the bank. Instead, the bank creates bank deposits as a consequence of bank lending. Consequently, the amount of money that a bank can create is not constrained by their deposit taking activities, and the act of bank lending creates new purchasing power that did not previously exist. The repayment of existing debt destroys money, as a consequence of reducing bank loans (asset side of balance sheet) and customer deposits (liability side of the bank balance sheet).
A bank’s ability to create new money, which is referred to as ‘credit money’, is a consequence of a range of factors. Firstly, non-cash transactions account for more than 95% of all transactions conducted within the economy, with non-cash transactions being settled through non-cash transfers within the banking system. Banks’ ability to create credit money arises from combining lending and deposit taking activities. Banks act as the ‘accountant of record’ within the financial system, which enables banks to create the fiction that the borrower deposited money at the bank. Members of the public are unable to distinguish between money that a bank has created, and money saved at the bank by depositors.
Banks’ ability to create credit money is also a consequence of being exempt from the ‘client money rules’. Regulations in the form of the client money rules prevent non-bank organisations creating credit money, because non-bank organisations (for example, stockbrokers, solicitors and accountants) are required to keep clients’ money separate from the non-bank organisation’s assets and liabilities on their balance sheet. However, banks’ exemption from the client money rules enable banks to relabel liabilities on their balance sheet at different stages of the process when extending a loan, which enables banks to expand their balance sheets (Werner, 2014). Exemption from the client money rules enables banks to rename their account payable liability as a customer deposit, despite the money not being a consequence of a customer making a deposit. There is no law, statute or banking regulation that allows banks to reclassify their bank liabilities (accounts payable) as a fictitious customer deposit. Consequently, the legality of banks creating credit money is unclear. Banks’ exemption from the client money rules also means that when a customer deposits money at their bank, the customer no longer owns the money and becomes a general creditor of the bank.” read whole article here
springer.com Keynes’ theory of money and his attack on the classical model L. E. Johnson, Robert Ley & Thomas Cate
“This paper centers on Keynes’ theory of money and his attack on the classical model. Keynes criticized the self-correcting model of the British orthodoxy along two separate lines. In the first, in which Keynes’ theory of money was crucial, he took the institutional variables as given and examined the functional relationships. Keynes’ burden was to undermine what he termed the “classical dichotomy,” where money was a veil, playing no role in determining output and employment. Two key features of the orthodox model were loanable funds and quantity theories, and Keynes’ theory of money emerged from the rejection of these theories. The key to his attack on the classical dichotomy was the speculative demand for money, which he presented as an indirect, unstable function of the interest rate. Hence, Keynes linked money demand to the interest rate. The interest rate was thus determined by monetary variables rather than real factors, contrary to British orthodox opinion. Keynes then demonstrated that intended investment and saving need not be equal at a full employment equilibrium.” read paper here
taxresearch.org Richard Murphy 07/2020 Saturday morning MMT thoughts
Summit MMT – Michael Hudson: Finances vs Economy, Credit vs Money
“Orthodox or neo-classical economics failed to predict the global financial crisis (GFC) or even allow for the possibility of such an event occurring. For optimistic heterodox economists the aftermath of the GFC seemed to provide the opportunity to overthrow the hegemonic mainstream paradigm and replace it with a superior alternative; one which provided both better explanations of the operations of a monetary production economy in general and deep insights leading to an understanding of why the GFC might have arisen. However, from the perspective of heterodoxy, this hope proved to be a false dawn; after a brief period of apparent soulsearching, mainstream economists regained their confidence and the paradigm seemed to regain its ascendency, albeit in a slightly modified form. First, this paper examines the methodology employed by mainstream economists and their attitude to academic freedom in order to establish the reasons behind this outcome. Second, it considers the applicability of critical realism both to the study of economics and to the behaviour of the economics profession itself. Following on from this, the paper goes on to look at the possibility of constructing a heterodox paradigm, explicitly based upon critical realism, which might have the potential to replace current orthodoxy. The nature of such a paradigm and the potential role for Modern Monetary Theory as a key contributor are evaluated and followed by a consideration of the ways to enhance a new approach’s chances of acceptance.”
theconversation.com/ Australia “the-spending-splurge-matters-regardless-of-what-modern-monetary-theory-says”
“I am inclined to agree with the International Monetary Fund’s chief economist who said in relation to modern monetary theory before the COVID crisis that there was “no free lunch”. Martin Wolf of the Financial Times said during the crisis that modern monetary theory was both right and wrong. It was right, because there is no simple budget constraint. It was wrong, because it would prove impossible to manage the economy sensibly once politicians believed there was no simple budget constraint.”
cato.org Modern Monetary Theory: A Critique By Warren Coats
“MMT attempts, unsuccessfully in my opinion, to repackage and resurrect the empirically and theoretically discredited Keynesian policies of the 1960s and 70s. A 2019 survey of leading economists showed a unanimous rejection of MMT’s assertions that (1) “Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt,” and (2) “Countries that borrow in their own currency can finance as much real government spending as they want by creating money” (Chicago Booth 2019). MMT is an effort to justify more government spending on programs favored by AOC and her friends with claims of fiscal space that can be liberated by printing money. Its arguments do not add up (Palley 2019). Both the excitement and motivation for MMT seem to reflect the desire to promote a political agenda, without the hard analysis of its pros and cons — its costs and benefits.”
scmp.com Tom Holland Even in China, there’s no magic money tree. Modern monetary theory is an illusion Can governments really just print money to fund public spending? Only if you want to end up like Venezuela or the Soviet Union
bloomberg 2020 Coronavirus Markets: Is it Time for Modern Monetary Theory?
wsj.com What Modern Monetary Theory Gets Right and Wrong James Mackintosh
bloomberg 2019 Economists Worry That MMT Is Winning the Argument in Washington
mises.org/ Not-So-Modern Monetary Theory
bilbo.economicoutlook.net Bill Mitchel The divide between mainstream macro and MMT is irreconcilable – Part 1
croakingcassandra.com/2019/ Modern monetary theory, old-school fiscal practice by Michael Reddell
“In substance, MMT isn’t primarily about monetary policy at all. …
(Mitchell) is a proponent of something calling itself Modern Monetary Theory, but which is perhaps better thought of as old-school fiscal practice, with rhetoric and work schemes thrown into the mix. One can mount a case for a more active use of macro policy to counter unemployment running above inevitable frictional/structural minima …, one can also mount a case for a more joined-up approach to fiscal and monetary policy … and any politicians who doesn’t have a burning passion about minimising involuntary unemployment isn’t really worthy of the office. At present, in much of the world, that should be driving officials and politicians to (at very least) be better preparing to handle the next serious recession, in particular by doing something (there are various options) about the binding nature of the effective lower bound on nominal interest rates. It might not be a cause that resonates in Democratic primary debates, but it could make a real difference to the prospects of many ordinary people caught up through no fault of their own when the next serious downturn happens. Whatever one believes about the possibilities of fiscal policy – and I tend towards the sceptical end in most circumstances – you’d want to have as much help from monetary policy as one could get.”
sputniknews.com/2020 MMT ‘Won’t Work’ to Make Market Economy Better for People, City Economist by Mohamed Elmaazi
econlib.org Interpreting Modern Monetary Theory By Jeffrey Rogers Hummel
“There you have the topsy-turvy world of MMT. With accounting games, advocates of MMT attempt to reverse the roles of the government treasury and the central bank. They believe that the Treasury should control inflation and the Fed should finance government expenses. One of the most emphatic assertions of MMT, to quote Wray, is “taxes are not needed to ‘pay for’ government spending.”17 Taxes are needed only to make sure people accept fiat money and, if necessary, to keep inflation in check. And because both the treasury and central bank are government institutions, there is some truth to the idea that both institutions have dual roles. But as many others have pointed out, MMT theorists have yet to address or even consider the enormous public-choice problems that could hinder how their desired role reversal might function in practice.
Equally important, critical parts of MMT’s edifice are built on Post-Keynesian foundations. As Kelton and Wray, along with Scott Fullwiler proclaim: “We have never tried to separate our ‘MMT’ approach from the heterodox tradition we share with Post Keynesians, Institutionalists and others. We have tried to extend that tradition.”19 A comprehensive and extensive critique of the Post-Keynesian paradigm is beyond the scope of this article. But if you strip away Post-Keynesian precepts, much of MMT’s edifice collapses, taking down many of its policy proposals with it.”
businessinsider.com MMT: Here’s a plain-English guide to ‘Modern Monetary Theory’ and why it’s interesting “In traditional economics, the notion of printing money to solve a country’s problems is almost universally regarded as a bad idea. Yet MMT proposes that money creation ought to be a useful economic tool, and that it does not automatically devalue the currency, lead to inflation, or economic chaos.”
“Even sceptics admit that the crisis proved to some extent that MMT might work. The independent Australian economist Saul Eslake says that the key tenet of the central bank effectively writing cheques for the government has to an extent already happened in Japan after years of quantitative easing, the money creation scheme seen in many countries after the GFC.”
politischeökonomie.de 10-3-2022 Interview mit Dirk Ehnts: „Man muss nicht erst Steuergelder einnehmen, bevor man Staatsausgaben tätigen kann.“ Dirk Ehnts ist einer der bekanntesten deutschen Vertreter der Modern Monetary Theory (MMT). Unser Herausgeber Otmar Tibes hat mit ihm über seine neue Einführung in die MMT sowie über Inflation, Gaspreise, die Sozial-Ökologische Transformation und weitere spannende Themen gesprochen.
amazon.de 3-2022 Modern Monetary Theory: Eine Einführung von Dirk Ehnts
www.pufendorf-gesellschaft.org 28/01/2021 “Herzlichen Glückwunsch zum 25. Geburtstag, Modern Monetary Theory!” by Dirk Ehnts
www.dw.com mmt-government-spending-debt-and-inflation “Modern Monetary Theory: Cash-strapped governments a thing of the past? States with a currency of their own can never run out of money. That’s a core thesis of the Modern Monetary Theory which spilled over to Europe from the US. German economist Dirk Ehnts elaborates on what it’s all about.
socialeurope.eu MMT: a simple macroeconomic model – Why has modern monetary theory come out of the academy? Because it helps model the current economic predicament and how to get out of it.
https://www.nytimes.com/2020/03/21/opinion/-coronavirus-stimulus-trillion.html Stephanie Kelton: Just Use ‘the Computer’ to Give People More Money
MMT —it’s just neo-Keynesian macroeconomics By Alasdair Macleod
Conclusion – By taking little more than a few moments to consider MMT we find there is little in it that is new. It adds nothing to neo-Keynesian macroeconomics except its extremism. On Tuesday (9 June) Professor Paul Krugman tweeted; “I agree with Kelton about deficits not being a problem. But I get that from perfectly conventional macroeconomics, not MMT. What does MMT contribute here?”
Just so. Kelton makes naïve claims about controlling inflation, which she believes is an increase in the general level of prices. Unwarranted faith is placed in the state’s management of the economy, and in her belief it can use money responsibly as its primary management tool. This is despite all the empirical evidence to the contrary, and it flies in the face of properly reasoned economic theory.
There can only be one conclusion: MMT is an ephemeral macroeconomic cult which tells us much about the psychological condition of a wider belief system running out of road. It is perhaps symptomatic of peak macroeconomics, about to slide down the other side of diminishing influence into catastrophic failure, then ultimately, it’s rejection. The evidence of a final catastrophe for macroeconomics is mounting. Decades of increasing state intervention, driven by neo-Keynesian economic policies from which macroeconomics owes its origins, have led us to the edge of the greatest economic chasm since the 1930s, and possibly much worse than that. And the MMT-ers favourite tool of economic management, fiat currency, will almost certainly be with us for not very much longer.
wsws.org/ Modern Monetary Theory and the crisis of capitalism: Part one
The Deficit Myth by Stephanie Kelton Nick Beams
“All of these theories, from MMT going back to those of Proudhon, as well as those of Keynes, have a very definite political perspective. Emerging in periods of economic and social crisis, they are grounded on the position that these crises do not arise from the inherent contradictions of capitalism, rooted in commodity production and the transformation of labour power into a commodity and its exploitation, but can be overcome through a change in government policies and the development of a new monetary and credit system.”
Oooops! Reviewed in the United States on 15 June 2020
Miss Kelton is obviously highly intelligent, and an excellent writer, which makes this book an easy read. Thus, the 3 star rating.
Unfortunately, like all MMT economists, Miss Kelton makes the mistake of equating currency issuance with the creation of money. In advanced modern-day economies, they are not one and the same. MMT economists further suggest that the governments of advanced modern-day economies create all the money that flows throughout an economy. They most definitely do not.
Equating currency issuance with the creation of money describes a system that is over 2,000 years old, has not existed in developed markets for decades, and currently only exists in lesser developed emerging markets and frontier markets. Contrary to popular belief, Modern Monetary Theory is archaic.
It’s true that any government can print as much of its own currency as it wants in order to satisfy the obligations that are in its own currency. Contrary to what MMT economists seem to believe, I don’t think there are many economists of any kind who would disagree with this—it’s not some brilliant, new discovery. However, developed market governments today, including those with stable sovereign currencies, like the US, the UK, Canada, etc. don’t do it because it’s been tried over and over again for centuries and has always ended in financial and economic calamity.
that’s just out of date repetition of the dominant spin and misses the point Kelton is only being read because of post 2008 reality not fitting the dominant spin.
Put simply, the money that flows through the US economy is created in the private banking system. Not by the Treasury, not by the Fed, and not through some secretive process developed by the Treasury and the Fed that occurs out of the public’s view. In fact, it’s almost certainly happened right before your very eyes. Specifically, when a bank makes a loan it simultaneously creates a deposit, and, voila, money has been created.
So, why can’t US banks just create as much money as they want into perpetuity? There are a number of reasons, including: 1.) banks have capital and liquidity restrictions imposed by the Federal Reserve that limit the amount of assets, including loans, that they can hold relative to their regulatory capital and 2.) markets impose natural restrictions during periods of relative calm because even though the bank creates the money, when someone defaults on their loan the bank still incurs a loss—a few too many losses eating into the bank’s capital and the bank will fail.
left out one more reason : because the go bankrupt, or should do but…
All of this said, what the Federal Reserve CAN do is lend money to the country’s private banks. HOWEVER, this only creates what are called “reserves” that are reflected on both the Fed’s and the private banks’ balance sheets. Importantly, these reserves cannot be loaned out by the private bank. So, while these newly created reserves are technically newly created money, they do not serve as money that will ever flow into the US economy. This is the same process by which the Fed purchases USTs or other fixed income securities. The Fed pays for the securities that they buy from the selling bank by creating an off setting balance on the Fed’s balance sheet that pays a fixed rate of interest to the seller.
In attempt to prove to the reader that the Federal Reserve and Treasury DO create money out of thin air that eventually flows into the economy, Kelton points to an interview where Ben Bernanke says, in reference to the Fed’s assistance to private banks during the 2008/09 financial crisis, “It’s not taxpayer money. We simply use the computer to mark up the size of the account”. What Kelton doesn’t point out, or perhaps doesn’t realize, is that Bernanke was referring to the type of loan I just described above. She also quotes Alan Greenspan without noting that in the same statement he was warning that simply printing money out of thin air to fulfill obligations is risky and potentially inflationary.
The point to take from all this jibber jabber I’ve just written is that one should be very careful in drawing any conclusions from MMT economists’ explanations. Many, if not most, of their policy recommendations are based on theories and explanations that are entirely detached from economic, financial, political, and social realities. Keep in mind that one of their foundational premises, that all the money that flows throughout an advanced modern-day economy is created by the government, is simply untrue. The fact that they believe that MMT is an accurate description of how a modern-day monetary system works is troublesome. The fact that the policies prescribed by MMT economists have been tried time and again over a period of centuries and failed time and again over this period is a bit disturbing.
This is not to say that Miss Kelton’s book isn’t worth reading. Indeed, she certainly offers some interesting insights into financial and economic theory, it’s just that one has to tread very carefully lest they fall into the same trap of falsehoods that MMT economists have.
‘Poor’ economics – A radical new theory redefines money and offers ways to address economic issues
By Navin J Antony December 27, 2020 20:12 IST
” … Together, Keynes and Lloyd George had provided an economic springboard for the British currency to take a giant leap over a deep financial chasm. They had legally weakened the gold-exchange standard.
The idea of money would be never be the same again.
The race-car economist
Warren Mosler was born in 1949, three years after Keynes died. An American economist, Mosler is the father of modern monetary theory, or MMT, a macroeconomic framework that upends the notion of how money works in a modern economy. As an economic theory, MMT is considered post-Keynesian—deriving its ideas from, and expanding on, Keynes’s work.
Mosler is a renaissance man like Keynes was. Keynes was a connoisseur of arts, culture and philosophy, and counted among his friends personalities as varied as the Austrian philosopher Ludwig Wittgenstein and the English writer Virginia Woolf. Mosler, 71, is as knowledgeable about politics, business and race-car manufacturing as he is with complex economic concepts. He made his wealth in the 1980s running a hedge fund, founded an automotive company in 1985 that changed the definition of the modern race car, transitioned back to academia and policymaking in the 1990s, and later ran for US president and the US senate.
Intellectually, his most famous children are MMT and a groundbreaking race-car called the Consulier GTP. The GTP had an eggshell-like lightweight chassis and a carbon-Kevlar body that made it 50 per cent lighter than the average American sports car. The car’s feathery body, aerodynamic design, and the 2.2-litre turbocharged four-cylinder engine made it a peerless beast. Its build philosophy: The lighter the machine, the more efficient and agile it is.
Warren Mosler, MMT economist | APWarren Mosler, MMT economist | AP
MMT reflects the same attitude. It is a heterodox economic theory that has a simple, powerful idea at its core. The idea: Currency is a public monopoly that can serve to attain full employment.
MMT economists, however, do not recommend long-term cash transfers or income-guarantee schemes. “Such measures, without ensuring productive work, would lead to inflation,” said Rajender. And inflation leads to currency devaluation. “With [income-guarantee schemes], the government imposes tax liabilities and then gives people the funds to pay the tax,” said Mosler.
Such handouts can have adverse effects. For instance, Brazil spent billions of dollars on monthly stipends to the unemployed during the Covid lockdown. While it reduced economic inequality, the handouts also led to a spike in inflation and food prices.
A middle path could be what the economist Jean Drèze has proposed: An urban counterpart of the NREGA, in which the government does not guarantee employment, but instead issues ‘job stamps’ and distributes them to approved public institutions—schools, colleges, jails, municipalities, government departments, health centres and neighbourhood associations. The institutions would be free to convert each job stamp to employ people in a specified period. Drèze calls it DUET, or decentralised urban employment and training.
“I don’t have any view on MMT,” Drèze told THE WEEK. “Since DUET is not an employment guarantee but an employment scheme, the level of expenditure is flexible. My sense is that, initially at least, the use of job stamps by public institutions may not be very intensive. Therefore, job stamps could be distributed quite liberally to public institutions, and the cost will not be very large.”
Mosler said the programme could work. “It pays people to work and become more employable for other employers,” he said. “And if the wage is stable, it is not inflationary.”
Too radical a plan? Perhaps not.
At the Festschrift in Columbia, Krugman had revealed the most important lessons Bhagwati had taught him—“open-mindedness, a willingness to see things differently, and not to be bound by an orthodoxy”. “I think one of the things you discover as the years go by is that what seems to be a completely radical break actually starts to fit into the grand tradition—and you see where it actually relates to what came before,” he said. “Then [the break] no longer seems as revolutionary as it did, but that’s fine.”
Such a break, from monetary tradition, happened in 1914. And it could happen again. Surely, India could well use one break.
Mitchell Wray Watts crit