An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
I think it's not really about framing, and it's not about elevator pitches, and its not about catchy hooks for MMT as such.
The issue is that MMT is a kind of economic theory. And most voters do not care much about economic theories and never will care much about economic theories.
What the public wants is an agenda. They want an action plan that will paint a picture of the future and point them on the road to it. The agenda is the car; MMT is the engine. Better yet, MMT is the set of theoretical engineering principles that explain why the engine works. But most drivers don't know why their car's engine works and rarely even look at the engine. And they probably never will.
People who read economics blogs care about the financial system's engine; some bankers and financial professionals care about the engine; some academic economists care about the engine. That's about it.
If you want to sell the public an engine, build a car around it and sell them the car. Eventually, some of the people who are really attracted to the car will tinker around under the hood to figure out why the engine it works so well. That will build a constituency of MMT "engine buffs". But most won't go that far.
The Key section (at least for me) of Alice's article -
Quote: Still, we need to do a better job of getting the word out. I am working on putting together a MMT talk show. Send word to marshall@prestovivace.biz if you would like to know more.
We have to consider the model that sits in millions of people's head. There is private sector and foreign sector, government is the burden. If private sector is doing good then government is doing good. Government is only redistributing wealth. Reagan's statement that government can't give you nothing It hasn't taken from you before is very convincing and most left and right are convinced. If MMT doesn't produce very convincing philosophical statements like this, then I am afraid It will not prevail. I have tried explaining MMT ideas to my sister and mother and they will never get It. People will not follow sectoral balance statements. These are abstract things they are not familiar with. "money printing is not solution" just prevails. Look at Bob Roddis, even his ideas prevail more than MMT because It is very simple stuff and everyone understands. And Austrian school talks philosophically, people get that. Austrians know there is not going to be gold standard or gold money (some fools might not know but the leaders know) , they are just part of the neoliberal project. You have to explain to people everything in very simple terms. Even economists like Steve Keen and Paul Krugman make mistekes in accounting. I have explained sectoral balances to people in finance without formulas and even they don't understand rigt away. How do you expect Joe six pack to do so? Economics seems like a rocket sience to him.
I agree that about 90 to 95% of the population are not interested in how the engine works. But that leaves 5 to 10% who are worth persuading of the merits of MMT. To that end I think I can improve on Alice Marshall’s wording. My wording is thus (also plonked on Alice’s site):
1. Dollars are created when government (and their central banks) spend. Contrary to popular belief, governments DO NOT NEED to collect taxes or to borrow before they spend. They can simply create dollars from thin air.
2. Too much of the latter sort of “money creation” leads to excess inflation, and too little leads to households not having what they regard as enough money. So spending declines and unemployment rises.
3. It follows that attempting to balance the budget or avoid deficits or anything of that sort is a TOTAL AND COMPLETE waste of time. It’s pointless. If unemployment is excessive, government needs to create money and spend it (and/or cut taxes). Conversely, if inflation is excessive, government needs to do the opposite: that is, withdraw money from the private sector via a budget surplus, and “unprint” the relevant money.
The problem there is out of control libertarianism.
Bob R is an extreme example, but if someone cannot see that govt has absolute fiscal authority, for our purposes, that person might as well be Rothbard or Rand themselves.
Perhaps confront the person directly, ask them: "Do you believe that our govt of, by and for the people possesses absolute fiscal authority or not?".
If they say yes, then just say 'well then all I am trying to do is explain to you how that authority is operated within our monetary system'... Go from there...
If they say no, you are looking at having to go to war against them.... It has to turn into a fight that you must win and they must lose in order for their minds to be changed wrt this basic view towards authority.
A true libertarian will never understand MMT... A defeated one will though.
Libertarianism is running rampant thru the west these days and has been for over 150 years now ...
Wiki 'libertarianism', it's disturbing to even read... All kinds of crazy/wild stuff, it's dark, and whatever is behind it is the real enemy.
Matt, It is true that there are some extreme cases but most of these so called libertarians are young people who love nice ideas in their opinion and this constant propaganda has fooled them into thinking that this the way to go. They start talking enthusiastically "you don't understand what money is in a free society". I think if you explain to them that loans create deposits and we don't have to save money to invest, they understand. America is a little more conservative but where I am from a person who advocates gold as money is not taken seriously and even the most right wing free market advocates in media don't do that. Some gold dealer might talk in television once in while that kind of nonsence but that's It. I think the word money starts some sort of emotions in human brain and you lose your audience very fast. It is theoretical mambo bambo and people cannot relate to It their everyday experiences which definatly ties money and debt to morality like David Graeber writes. If you say print money then they think It is not moral because people work hard for money. It is this I think that stops the discussion going forward. Your oponent gets lost and leaves. He might think that you are crazy. you may show him many facts where "printing money" haven't caused runaway inflation and he might understand but next day he is back to his original ideas. Because existing power communicates that way in media and he doesn't think the rest of the world is crazy. Turns out It is. I have contacted many econ professors in universities and It is even worse there. They are in their mind teaching me and talk total nonsence. It is not a left or right thing, people don't understand. I don't consider myself lefty, I met Mosler on the internet and I was in disbelief, he is so imressive. First you start questioning is he really right. Turns out he is. But I guess you have to be familiar with the PK concept, other schools don't even care to look monetary matters. I find it impossible to explain MMT to certain people, It cannot be done.
I think for elevator speeches we need to give up on the idea of explaining economics. We need to avoid "taxes drive money" reasonings and "goods and services" terminology. People have too many internalized barriers, and frankly, mentioning "goods and services" is sure to gal over a few eyeballs.
For me, I've found the quickest shortests easiest introduction goes something like this…
'What's strange is all of our policians and news media talk about the U.S. government going broke, but if you think about, how could it? They create the U.S. Dollar. If I had the printing press for dollars I'd never run out of them. (now anticipating their INLFLATION mind-bock forming…). Really the only issue is inflation, not affordability. Will new money cause inflation? That's an interesting question. Most people think absolutely, yes, of course. But the truth is not necessarily.'
(If they bring up the independence of the Fed, I simply shut that down with: "Congress created the Fed and at any point can get rid of it or change it's mandates. That's not really independent.')
I think at that point I've either sparked their interest and they want to know more, or I haven't and it's over. If I have, my explanation moves on to the Budget Deficits and the National Debt sooner or later, and I almost always say something like "This all stems from a really bad analogy comparing the U.S. government to businesses and households…"
I share all that to again make the point: drop the economics from your pitch. Drop economic terminology as best you can. Those of us who spend time in the world take for granted economic terminology. It's normal and obvious to us. Well, it's not for most people. And most people aren't interested in learning a new language!
I guess I agree with Rodger Malcolm Mitchell to an extent… we need to couch it in politics.
You have (I'm sure) a very mathematical brain so you can "see" how the system operates and hence you can see the truth... Ive observed that those that do not possess mathematical cognitive abilities such as you possess, are left to resort to "appeal to authority" and if they are libertarian, they just fall right in line with the false libertarian dogmas.
Enjoy your non-gold-loving jurisdiction my friend.
This is what we have to put up with here constantly:
"Brookes began by stating that “conservatives need to understand that without basic monetary reform there is no way to balance the U.S. budget, with or without tax increases and budget cuts, and even with the most optimistic GNP growth projections.” He then offered a 3 part solution: (1) “the nation must return as quickly as possible to gold-based money and debt” (Heritage’s Policy Review published another piece endorsing a return to the gold standard as a key component of balancing the budget, in the next.... blah, blah, blah,..."
Notice the name of the website: "Freedom Outpost"... LOL!
I would point out that the political compass has an x-axis and a y-axis.
There is the left/right political x-axis and the libertarian/authoritarian y-axis.
This battle has to be fought along the y-axis.
Otherwise you can have libertarians of both the left and right agreeing that our civil govt has no fiscal authority and just arguing about which type of out of paradigm approach is better, etc...
this is what we are witnessing today... it's like a libertarian civil war between left and right libertarians; "Alex Jones (metals) vs David Graeber (gifting)" type of thing to try to coin a phrase...
Neither side in this intra-libertarian conflict can (at least easily) see the fiscal authority of our civil government, they are blind to it.
Lately I've been asking people to think of the economy as a big checking account...who makes the deposits and withdrawals? I point out that deposits fund their savings and taxes remove them, but when we run deficits the citizens get to keep some. I slip in that foreign trade is a withdrawal for us.
Then I tell them that the game that goes on within the economy is like a big poker game...winner take all...unless the government makes adjustments...progressive taxation.
This would also be a good place to talk about credit...if we loan money to the players and winners take all how are the loans repaid by the other players?
Maybe an over- simplification but that's about as far as the average person is willing to go in understanding.
Understanding requires curiosity more so than intelligence. If there is no curiosity no progress is made.
Here is a kind of good argumentation that someone posted in my (Estonian) blog. This guy explains hyperinflation to his friends like this. We all have some savings so we can take a vacation without work. No imagine everyone is taking this vacation and starts spending his/her money, No one is working and this creates hyperinflation. He says he connects money value with people's work like this.
Paul: "Understanding requires curiosity more so than intelligence. If there is no curiosity no progress is made."
Indeed. This post inspired me to write the following facebook post earlier this morning, and it's directly related to your comment:
WHAT FLOOR ARE YOU HEADED TO?
I reckon most people have no interest in “goods and services” and “aggregate demand” and “debt-to-GDP ratio,” so the tricky part for economic-activists, such as myself, is: how to attract your interest, and then explain something economics-related that not only maintains your interest, but hopefully sparks it further. How to not cause your eyes to glaze-over and your mind to move on to something else more interesting?
It’s a challenge. Any suggestions?
Maybe you might say: “How is it directly related to my life?”
But that’s not really the heart of the dilemma. We spend enormous amounts of time watching and discussing sports, and movies, but most of us never to ask: “How are sports and movies directly related to my life?”
Economics is very much related to your life = > how much money you have changes what you can and can’t do.
Is the problem psychological?
Are sports and movies merely a pressure-release valve for our stressful lives?... where nothing is required of you and nothing is expected of you. You can simply enjoy them and it requires nothing more.
But economics on the other hand, and politics, do they force into our conscience a sense of duty? Kind of like… if you see someone with a gun and a mask on run into a school, you immediately feel the duty to call the police.
Is economics and politics like that, but much more subtle and passive? Does their content make people feel, on some small level, like they have to do something? And do most of us then resist economics and politics because, frankly, “I don’t feel like doing anything, and besides, what can I even do that will matter?”
to a great extent we usually leave the "heavy lifting" in any area to the people who work in that subject area... it's like we dont have to know about structures to drive over a bridge...
So unless you are talking to someone who works in the subject area, their interest only goes so far...
usually what I do in situations where someone goes off on debt and deficits within earshot is I tell them they are mistaken and wrong about that and that the govt as a matter of logic has to provide us in the non-govt with all net money... I ask "Where do WE get money?" "How are WE supposed to provide money to the govt?"
I see a big whitewash going on... where I'll use Mike for instance they always have on Mike by himself... and the rest of the panel are morons... so it is hard to sound authoritative in a presentation where you are the only one agreeing with yourself basically... and the others are giggling morons... and can cut you off..
We have to start to get TWO people on who are in paradigm so they can be seen and heard as agreeing with each other and that is a more powerful view to an audience...
So this radio show this gal is trying to put together is interesting in this regard... she should often have TWO guests on completely agreeing with each other...
I was watched Maddow once this week which Ive never watched... to me it looked like the "let's make fun of Republicans Hour" (which is not hard to do these days btw) and this is interesting...
I could see a show where we could get several people on and take turns ridiculing the deficit morons... that type of show may garner an increasing audience... if this same approach is working for Maddow as she is one of the few where her ratings are increasing....
We will have to completely humiliate the morons eventually... sooner the better imo...
their everyday experiences which definatly ties money and debt to morality like David Graeber writes. If you say print money then they think It is not moral because people work hard for money. It is this I think that stops the discussion going forward.
This is the point of entry that MMT needs to use.
The point to be made is that when Government spends, it spends for a public purpose, and it asks for something in return - repair this bridge for society, build that road for society, put high speed internet in every dwelling (now that Germany has ruled that high speed internet is a necessity for survival in this modern society.) Take care of older people, take care of the sick, take care of the poor (all the virtues that are preached about by every religion in the world.)
In regards to the common objection, "If government just keeps printing dollars it will destroy the value and ruin the economy", I've found it is helpful to emphasize that dollars do not survive forever.
When government taxes it "unprints". When people save money is taken from circulation. When we buy foreign goods dollars exit the private sector. When we pay back loans the money supply shrinks.
Once this is made clear people begin to understand that government simply must create dollars on a continual basis or the private sector becomes financially bankrupt.
Agree and this is probably how 90% of us got here, but I would point out that this is a mathematical doorway...
many out there (and more than I think is generally appreciated) just dont have the maths to get thru that door easily if at all ...
hence i suggest that these non-math people have to be confronted ideologically along the libertarian/authoritarian spectrum in order to get them into a fight of sorts ...
if you get them to truly engage in a confrontation, and they do not flee, you may be able to spoon feed them the math in the process and some may be able to then see what is going on... but they indeed have to delve probably deeper than they care to in the math and lose the ideological fight in order to see what is going on...
money4nothingchicks4free said... "Reagan's statement that government can't give you nothing It hasn't taken from you before is very convincing and most left and right are convinced."
I think that is a good place to start the elevator speech, and go to, But the federal government is not just a big household or firm and therefore like everyone else. The analogy fails because the federal government issues it's own currency — the US dollar — which all currency users — households, firms, US states, and local governments — have to obtain since they cannot issue US dollars themselves. That's called counterfeiting.
So everyone but the federal government has to borrow from banks at interest if government doesn't issue enough USD in order to support the desired level of transactions and saving. It's excessive private borrowing that results in booms and busts, as well as demand side inflation. The problems arise from unsustainable indebtedness of the private sector since government hasn't contributed enough to support the desired level of activity or irrational exuberance leads to imprudent use of credit.
Then cut to the standard objection, "But that's inflationary," and show why it is wrong.
I think that both Yves and SR are correct. The popular presentation has to answer questions people have in logical progression, and for the policy to be implemented there has to be a business case made showing how it benefits TPTB, who are instrumental in either implementing it or blocking it.
you may show him many facts where "printing money" haven't caused runaway inflation and he might understand but next day he is back to his original ideas
That's been my experience with several people, too. Zombie ideas are hard to kill.
I don't disagree, but my experience is that the point has to be addressed in some way. Without question, "government has to stop/ must not print money" is the #1 objection I hear when I discuss the monetary system with someone. If we don't find an effective method to teach this I'm not sure how much headway can be made.
Taxes fund spending is another doozy; this little gem of brainwashing undermines every other point unless I can get the other guy to reject it.
"Reagan's statement that government can't give you nothing It hasn't taken from you before is very convincing and most left and right are convinced."
Of course that statement is convincing because it's absolutely true and it applies just as well to the Magic Money Tree. Whenever funny money is spent, issued or lent, the recipient is always robbing the holders of existing money of their purchasing power. The Magic Money Tree process simply hides the theft from the public. The MMT "theory" is then used in an attempt to deny that the theft actually occurred and/or to disguise or deny that such is the basis for the entire scam.
I do believe that in a recent interview, Ms. Kelton responded to a question by stating that AT PRESENT, no government just creates money by spending, only that governments could change their laws and then do that.
These are great. They really are. I just love them:
-- Since the economy needs the government's money to pay its taxes, the value of the currency depends on the prices govt. pays when it spends;
-- For a given size of government, unemployment is the evidence that the government is either overtaxing the economy, or spending too little to compensate for any residual desire to save;
-- Governments with fiat currencies create money at will when they spend, and destroy money when taxes are paid, further indicating that taxes function to regulate the economy, and not to collect revenue per se; -- The currency is a governmental tool that in a democracy is created and maintained to promote public purpose, and to provide for the general welfare.
I do believe that in a recent interview, Ms. Kelton responded to a question by stating that AT PRESENT, no government just creates money by spending, only that governments could change their laws and then do that.
It's the Treasury that creates new money ($NFA) either by direct issuance of coins and notes or by issuance of tsy securities. Under the present system in the US, $NFA are created chiefly through the issuance of tsys, with a bit of coin issuance, too, as result of political choice.
The Fed simply creates reserves whose only function is in the payments system. Reserves never get spent into the economy.
This conversation always one way another come around to "What IS money?
Are Tsys money? Is bank credit money? Are they money-like? Are we talking abotu degrees of moneyness? To what extent is a Tsy, a bank credit, and a dollar bill comparable in terms of moneyness? etc.
$NFA are created chiefly through the issuance of tsys, with a bit of coin issuance, too, as result of political choice.
But the government selling securities in exchange for dollars is not exactly what is commonly meant by "government spending". Thus, it really is true that the government AT PRESENT does not really create MONEY by SPENDING. You guys continuously claim that the government does, in fact, do this and that only morons don't know it. I just don't think that is a very good selling pitch for the Magic Money Tree. IMHO.
I think Tom is on the right track with the focus on net financial assets. In other words, government "debt" is essentially the same as money. "Debt" has negative connotations and implies borrowing from the future to live well today. But this is not what is going on when we create money to put people to work doing things that will be useful in the future -- things like educating youth, treating medical problems, protecting the environment, and regulating the financial industry.
But the government selling securities in exchange for dollars is not exactly what is commonly meant by "government spending". Thus, it really is true that the government AT PRESENT does not really create MONEY by SPENDING. You guys continuously claim that the government does, in fact, do this and that only morons don't know it. I just don't think that is a very good selling pitch for the Magic Money Tree. IMHO.
If the government just issued tsy and didn't spend the same amount into the economy by crediting bank accounts and thereby transferring rb from the TGA to banks, then there would be no increase in $NFA. The amount of rb remains the same after the issuance of the tsys in deficit offset, but $NFA has increased in the amount of the tsys. MMT says that spending increases &NFA in the amount of the deficit at the macro level, and it doesn't matter whether this is accomplished directly through the issuance of coin and notes or indirectly through tsys issuance. The outcome is the same regardless of the route taken.
While it is true that $ bills are FR notes rather than Tsys notes, if Fed banks printed and sold the $ bills and pocketed the seigniorage they would be fabulously profitable for the district banks that own them, which they are not. Banks exchange rb for the FRN and they must obtain the rb either from $NFA created by tsy issuance and expenditure, or else borrow rb from the Fed to get them, which is tantamount to borrowing the notes.
Detroit Dan I think Tom is on the right track with the focus on net financial assets. In other words, government "debt" is essentially the same as money.
This is where the shell game comes in. Due to the current requirement for the Tsy to fund through tys issuance rather than notes, the funding, which is money, carries interest.
You can bet it was bankers that figured out this shell game to dupe the rubes and drive a truck into the Treasury. Look at the interest payments as a % of the budget.
That's direct issuance of money that goes into the pockets of savers instead of being used for public purpose.
"the federal government is not just a big household or firm and therefore like everyone else. The analogy fails because the federal government issues it's own currency" - Tom Hickey
We don't have to invoke "the power to issue its own currency" in order to prove that the "government is like a household" analogy is totally false.
The government is a big player in the economy - spends more than 30% of GDP in most countries - whereas the impact of a household (or even of a large firm) on the whole economy is negligible in comparison.
Say a household earns $1,000 and spends $1,200. It can reduce its spending to $900 while keeping its income at $1,000. The spending cut does not impact its receipts or "earnings". The household deficit can be and will be transformed into a surplus thanks to a simple decision to spend less.
But a government that "earns" $1 trillion in taxes and spends $1.2 trillion does not have the option to decide to spend $900 billion instead and then expect to have gone from a position of deficit to one of surplus.
The government spending cut represents such a large part of the economy that it will impact the whole system, causing a recession. And the recession will reduce the government's "earnings" (its tax receipts) - they automatically fall when the economy gets smaller.
I know I've just stated the obvious but IMO it's important to underline that a government is different from a household independently of whether it issues its own currency or not.
The governments of the eurozone are not like households. Ditto, for the state governments of the U.S. They don't issue their own currency - yet their receipts are not independent from their spending decisions.
The same was true under the gold standard - indeed, under any standard. I'd guess even hard headed Austrians and gold bugs should be able to understand and abide by the principle that no government can ever be compared to a household.
The only difference between government and a household is that government criminality is rarely punished. Governments generally can murder, rob, rape, bomb, pillage and commit genocide to their heart's content because they have granted themselves immunity.
However, the same economic laws apply them as apply to households. But in a pinch, the government can just kill some folks and/or steal their stuff. This explains why governments do not have to be particularly responsible with their finances. Or be responsible about anything else.
You might not care, but in the context of an elevator speech explaining what "Modern Monetary Theory" is, the concept of money is a good place to start since people will know what you're talking about. The essential equivalence of government debt to money advances the speech into perhaps the core MMT insight.
Perhaps even Austrians agree with the essential equivalence of government debt and money? At any rate, it's easy to demonstrate the point as y did or through the practical fact that government bonds are extremely liquid and extensively used as collateral in exchange for cash money.
The only difference between government and a household is that government criminality is rarely punished.
No doubt correct - but irrelevant for the specific point under discussion.
A government reduces spending by 1% of GDP - this will have consequences on its tax receipts, likely reducing them.
A household cuts its expenditures by 0.00000001% of GDP. This behavior will not produce any consequences on its income. The household has reduced its deficit by exactly the same amount of its spending cut.
This is simply the way things work - so, it should be accepted independently of one's ideological point of view.
The only way to make a government similar to a household would be by reducing it to the size of a household. I hope even Austrians will admit this is not likely to happen in the near future, or maybe ever. :)
Without government spending saving would kill the economy.
It's not spending per se that counts, but rather net deficit spending.
The government has to inject into the econmy more than it takes out of it via taxes in order to compensate for the saving desires of households and firms as well as the drag from net imports.
Without the govts unlimited balances being constantly injected, the system would lock up in short order and all intra-non-govt sector flows would probably soon stop... so much for horizontal "money"...
"It's not spending per se that counts, but rather net deficit spending."
I'm not so sure Jose...
Total spending adds a lot of aggregate demand...income taxes only affect the "winners"... overcoming the winner-take-all nature of profit and slowing the upward flow of funds. The "losers" have to remain in the game if the game is to go on.
Saving accumulates and does little re aggregate demand...the other spending is very stimulative and key IMO.
Progressive taxation is a very big deal...I believe that is what creates a middle class.
Apart from redistribution effects - which may or may not exist (the state can also intervene, perversely, to channel even more resources to the upper classes) - it's true that a higher level of government taxes and expenditure as a proportion of GDP contributes to stabilise the economy and dampen the consequences of changes in the spending desires of the private sector.
This can be best understood by looking at the Krugman cross model of the economy - later worked upon by Parenteau, Fullwiler and others.
In a small government economy - say, the U.S. in the 1930s - the (G-T) curve is quite flat and this implies any de-leveraging behavior of the private sector will translate into a small increase of the budget deficit and a huge reduction in GDP. That is, a great depression.
Whereas the "big government" economy of the 2000s had a much lower decrease of GDP per dollar of reduced private sector spending - and a much bigger increase in the public deficit.
Why? Because taxes are now higher as a proportion of National Income (and thus decrease a lot whenever aggregate spending falls) and automatic expenditures such as unemployment compensation are more significant than they were in the 1930s and thus immediately increase by an amount that is more adequate to compensate for the effects of the overall fall in demand.
Summing up: an economy with a small government budget as a proportion of GDP will likely be a very unstable economy with huge fluctuations in the level of activity as a result of the "normal" business cycle.
If all three sectors are in balanced, the govt's balanced budget still results in flow due to "redistribution." "Redistribution" is needed since imperfect markets, which is what we have, allocate resources imperfectly. There is no way to achieve perfect markets in a modern economy, if only due to endowments and institutional effects. It's a myth of the market. The myth of the market is that market is like an electrical grid with flows going where they are needed instantaneously. But even with grids, there is a lot of control needed to prevent failures.
Perhaps we need to concentrate more on what's already drilled in to people's minds and re-frame it. The National Debt, for instance. Why would we want to take every penny that the Gov't ever paid us, pull it out of your bank, your mattress, the can in the backyard, your offshore accounts, etc., and GIVE IT ALL BACK??? Do you REALLY think that's what we should do?
I also like Dan's idea of re-framing "Balancing the Budget" as a Marxist/Leninist confiscation by the Gov't.
Re: So it is remarkable that we were able to catapult the idea of the Platinum Coin into the mass media
Perhaps not so remarkable, because the idea seems at first glance to be simply crazy, hence it has sensationalist value, which the press loves.
What MMT people seem largely unaware of is the moral dimension behind the inability to grasp the ideas involved. The idea that money is created by computer strokes or by simply crediting private accounts seems, to the average mind, to be nothing less than a con game. Money in the public's mind is something you work to earn; it doesn't come free. To retort that it's different for governments, simply adds to the public's suspicion that government and politicians are crooked and parasitical.
Perhaps more profoundly, the ordinary man does not conceive of money properly, namely as an abstraction, as an "idea." Money is created by work, by productivity in the public's mind. If it is "backed" by gold, this satisfies the notion that money is something "real" and "concrete," so that paper money is simply a token for the "real" wealth, which is gold, and which is something comparatively rare and hard to extract, and hence gives "value" to the currency. It is these firmly entrenched reifications of money as wealth, coupled with the moral ideas concerning the "work" behind the creation of wealth, that the MMT people do not face squarely. They proselytize as if the public were intellectual, but the average man, is not an intellectual, he is an active and practical type, and the same applies to your average politician and government official.
I think the recent article by Stephanie Kelton comes closer to the way MMT must proceed: namely by focusing on what real wealth and prosperity are and what are the conditions for it, including what the currency must be viewed and adminsitered to promote prosperity. The confusion of money equals wealth; money equals something "solid" or "real" is what has to be reframed.
Another point is this. There is a certain distrust of government in the American psyche. MMT is seen as a very pro-government way to conceive financial reality. We've already seen a certain reaction to this even with MMT ranks as it created a Monetary Realism alternative to the theory. I think that MMT has to be clear that a fiat regime can be terribly abused, because it actually entails tremendous power; and this abuse is in fact the case today in the US, as the banking industry has effectively hijacked a power that properly should be a public monopoly with the overall public weal in view. This is manifestly not the case in a country in which Wall St. has effectively coalesced and "bought" the government and created a security state as well. MMT simply comes across as not having its feet on the ground.
Gold regimes were terribly abused as well, but I get your point.
I think MMT'ers are aware of the moral dimension, but think it should be countered mainly with technical education. When that runs up against the moral indoctrination/imperatives that have been drilled in along with the accepted body of economic schooling, you end up with a hell of a tough go. That's why I say use what already there, then when people become more interested, there's the technical info for them to dig into.
We face a combined problem of the "common sense" POV and the neoliberal propaganda that reinforces it. The "common sense" or "intuitive" POV believed for a very long time that the sun rises and sets, and that the earth is flat, as it appears. That's why we have rigorous thinking and developed the scientific method.
We are facing the same problems that Copernicus, Bruno, Galileo and others like them faced in their time. It took a long time for the ideas to take hold and supplant "common sense" views that were reinforced by the authorities of the time, namely, the Church back up by the Inquisition.
The situation is quite similar today but one simply faces exile to "Siberia" instead of burning at the stake.
So, yes, this is a big problem that we face in attempting to get these ideas across. There is no one ideal solution. We have to keep chipping away and go with what is working best based on feedback from experience. Actually, we have made huge strides in just the last year or too, and now the pace is picking up.
Brendan makes a great point about the moral idea that money should be the result of work. Nothing wrong with that simple, common sense notion.
I still think that the simple notion that government debt is essentially the same as money is a succinct way of getting our point across. Money/debt shouldn't be treated lightly and given out willy nilly. On the other hand, there is no shortage of money for worthwhile endeavors, and no concern for our grandchildren about paying back money spent now to create a better future for them...
What is work? It is the expending of energy. Virtually all energy we expend is solar energy, either direct or embedded. Earth is an open system that runs on solar energy. There is no "work" without it. And solar energy is free. Moreover, over humanity is now beginning to harness it, and it is virtually unlimited, free for the taking and fully sustainable.
There is a similarity between harvesting solar energy for our benefit and using money to put people to work for our collective benefit. But for the elevator speech, we're probably better off with "government debt is essentially money"...
In the typical "water cooler" when the subject turns to the deficit a good point of entry is to wait for a pause and say, "Actually, we need a bigger deficit." Wait for that to sink in and then say "all the things we want, from good jobs to being able to travel, save for retirement, educate our children,etc., all depend on the deficit. If we tell the politicians we want them to cut the deficit, we are cutting our own throats."
And then quote or paraphrase Bill Vickrey:
"Whatever interest charges on the debt are not financed out of this growth in the debt can more than be met out of savings in unemployment insurance payments, and the increased tax revenues derived from the larger national product at rates no greater than at present. A 10 trillion debt with a full employment economy will be far easier to deal with than a 5 trillion debt with an economy in the doldrums."
Basically it boils down to "yes we can too afford it and in fact we can't afford not to."
I wouldn't even mention MMT or try to explain the meaning of debt vs. money or even assert that government is not like a household. Just repeat: We can afford it, we can't afford not to. For those who show the curiosity to want to "poke aaround under the hood," have the reading list ready.
1. Government debt is essentially the same as money.
2. It makes no sense for a government to save its own money/debt, since it can create these at will.
3. Inflation is the constraint on creation of money/debt.
4. Spending now on things that will improve life for our grandchildren is a win-win: boost the present economy while addressing serious problems such as environmental protection, financial regulation, educating youth, and providing medical care to those who need it...
Quote: The point to be made is that when Government spends, it spends for a public purpose, and it asks for something in return - repair this bridge for society, build that road for society, put high speed internet in every dwelling (now that Germany has ruled that high speed internet is a necessity for survival in this modern society.) Take care of older people, take care of the sick, take care of the poor (all the virtues that are preached about by every religion in the world.)
No one wants to understands money. No one wants to understands banks.
But everyone probably thinks they understand the grocery store they shop in.
Grocery stores are very interesting. Contained on grocery store shelves and in backstock are (mostly)the yummable 'revenue of society.'
A depository of yummy stuff, as a matter of fact. Including Count Chocula.
Grocery stores are where all the fun is:shoppers! And likely as not, each and everyone of those shoppers can be quickly informed of the significance of their shopping, and of the fact that they had to get the money from somewhere in order to shop. And most shoppers, not being bankers, can be made to appreciate the fact that their employer doesn't "make money." They're employers pays them money.
I mention this fact, because perhaps what we ought to be doing is making a very very big suggestion, and then asking a very revealing question, a question that we need not even answer because the answer is so self-evident to anyone that shops for a living. Ready?
97 percent of our money supply is issued by banks.
Banks help us organize trade and commerce by lending the money they create.
When banks lend costs are generated. For example when you employ capital your employer pays you a wage or salary.
Bank are pyramids of credit built on a tiny base of regulatory capital.
When consumers like you spend our costs and that of of vendors are liquidated.
What if consumers like you and I organized trade by issuing our credit on a base of the productive capital that we employ in our daily work?
This would mean that we consumers are generating costs that we will liquidate later on at the cash register.
What if consumers shared that base of productive capital with the federal government?
Most consumers in this country are citizens, are they not?
"Bank are pyramids of credit built on a tiny base of regulatory capital.
When consumers like you spend our costs and that of of vendors are liquidated." - Alan Avans
Consumer credit is artificial demand - in excess it creates serious imbalances.
Consumer credit is spending money one hasn't earned yet, and hasn't been printed yet.
The 97% number you mentioned doesn't tell much of a story..who holds the asset side and who holds the liability side? What does it take to clear payments between the two?
Where do the funds come from to make payments in a system for which saving and leakages are an integral part?
Paul, I stand by my statements. You appear to believe that I advocate consumer borrowing. I advocate no such thing.
Banks are pyramids of credit built on a tiny base of regulatory capital.
When consumers spend costs of production are liquidated.
Spending of bank credit is spending money one hasn't earned yet, too. And yet that spending is exactly what forms consumer incomes.
When consumers issue credit to fulfill the demands they make upon producers, this can hardly be said to be 'artificial demand.'
Consumers issuing credit secured by productive capacity have the power to credit and debit their capital account according to their own policy in exactly the same way a bank determines what level of collateral it requires for its emissions of credit.
Consumers in this disintermediated scenario get their funds from exactly the same place banks get them.
Alan I think you missed the point of my comment. Not surprising, I'm not a great communicator.
My point was that credit is a dependent system...it must have an input in order for it to have an output function that is sustainable.
As an analogy think of an amplifier circuit...it has the ability to take a small input and create a much larger output. The amplifier will do nothing though without both a signal and a source.
In the case of credit the signal is government spending and the source net spending (creation) of dollars.
Credit can create its own signal...but not the source...so it is dependent. It cannot sustain itself.
I'm no great communicator either, so bear with me.
Your points thus far seem to assume consumer borrowing in an intermediated framework.
What I am assuming instead is a disintermediated emission* of credit that begins with consumers generating costs of production and ends with consumers liquidating these costs.
The ability to emit credit is dependent on the existence of developed productive capacity.
This productive capacity secures emissions of credit. There is another name for productive capacity offered up to banks for security:collateral.
My thought experiment involving consumers is meant to suggest how these consumers in their capacity as citizens might emit credit through their sovereign government.
The productive capacity that forms the tax base can be looked upon analytically as a capital account. The source you are looking for is that capital account. The way you account for the effect of 'savings and leakages' is simply to adjust that capital account up or down in terms of the demand for collateral:debit the capital account with capital depreciation and credit it with capital appreciation.
This will allow inventory remaining because of diversion of credit to savings and to the financial markets and the like to be liquidated by an emission of credit not directly tied to the pricing policies of firms.
*Is it not true that the emission of tax credit by the US Treasury via its fiscal agent, the Fed, is in fact a disintermediated emission of credit?
"Your points thus far seem to assume consumer borrowing in an intermediated framework."
Are you describing an alternative to the system we have in place? I don't get what you mean from your statement above.
Credit expansion by consumers is self-limiting...the burden placed on incomes from debt service increases faster than the contribution to incomes in the aggregate, thus there is a ceiling beyond which borrowers can no longer borrow. Game over.
"you don't understand the non-agression principle."
The question of the mice was who is going to bell the catbell the cat, i.e. the stronger in the law of jungle. Merely evincing a principle is insufficient. It must be applied effectively. And the devil is in the details.
One of the great advances of civilization was the rule of law to replace vigilantism, feuds, duel, and in a larger context, wars. Once there is the rule of law there needs to be an authority to enforce the law. Once there is an authority to enforce the law, there is the possibility of a cohort hijacking that authority and using the law coercively for group interests. That has indeed been the history.
72 comments:
I think it's not really about framing, and it's not about elevator pitches, and its not about catchy hooks for MMT as such.
The issue is that MMT is a kind of economic theory. And most voters do not care much about economic theories and never will care much about economic theories.
What the public wants is an agenda. They want an action plan that will paint a picture of the future and point them on the road to it. The agenda is the car; MMT is the engine. Better yet, MMT is the set of theoretical engineering principles that explain why the engine works. But most drivers don't know why their car's engine works and rarely even look at the engine. And they probably never will.
People who read economics blogs care about the financial system's engine; some bankers and financial professionals care about the engine; some academic economists care about the engine. That's about it.
If you want to sell the public an engine, build a car around it and sell them the car. Eventually, some of the people who are really attracted to the car will tinker around under the hood to figure out why the engine it works so well. That will build a constituency of MMT "engine buffs". But most won't go that far.
Dan,
The Key section (at least for me) of Alice's article -
Quote:
Still, we need to do a better job of getting the word out. I am working on putting together a MMT talk show. Send word to marshall@prestovivace.biz if you would like to know more.
Already emailed her.
We have to consider the model that sits in millions of people's head. There is private sector and foreign sector, government is the burden. If private sector is doing good then government is doing good. Government is only redistributing wealth. Reagan's statement that government can't give you nothing It hasn't taken from you before is very convincing and most left and right are convinced. If MMT doesn't produce very convincing philosophical statements like this, then I am afraid It will not prevail. I have tried explaining MMT ideas to my sister and mother and they will never get It. People will not follow sectoral balance statements. These are abstract things they are not familiar with. "money printing is not solution" just prevails. Look at Bob Roddis, even his ideas prevail more than MMT because It is very simple stuff and everyone understands. And Austrian school talks philosophically, people get that. Austrians know there is not going to be gold standard or gold money (some fools might not know but the leaders know) , they are just part of the neoliberal project.
You have to explain to people everything in very simple terms. Even economists like Steve Keen and Paul Krugman make mistekes in accounting. I have explained sectoral balances to people in finance without formulas and even they don't understand rigt away. How do you expect Joe six pack to do so? Economics seems like a rocket sience to him.
Dan,
I agree that about 90 to 95% of the population are not interested in how the engine works. But that leaves 5 to 10% who are worth persuading of the merits of MMT. To that end I think I can improve on Alice Marshall’s wording. My wording is thus (also plonked on Alice’s site):
1. Dollars are created when government (and their central banks) spend. Contrary to popular belief, governments DO NOT NEED to collect taxes or to borrow before they spend. They can simply create dollars from thin air.
2. Too much of the latter sort of “money creation” leads to excess inflation, and too little leads to households not having what they regard as enough money. So spending declines and unemployment rises.
3. It follows that attempting to balance the budget or avoid deficits or anything of that sort is a TOTAL AND COMPLETE waste of time. It’s pointless. If unemployment is excessive, government needs to create money and spend it (and/or cut taxes). Conversely, if inflation is excessive, government needs to do the opposite: that is, withdraw money from the private sector via a budget surplus, and “unprint” the relevant money.
Money,
The problem there is out of control libertarianism.
Bob R is an extreme example, but if someone cannot see that govt has absolute fiscal authority, for our purposes, that person might as well be Rothbard or Rand themselves.
Perhaps confront the person directly, ask them: "Do you believe that our govt of, by and for the people possesses absolute fiscal authority or not?".
If they say yes, then just say 'well then all I am trying to do is explain to you how that authority is operated within our monetary system'... Go from there...
If they say no, you are looking at having to go to war against them.... It has to turn into a fight that you must win and they must lose in order for their minds to be changed wrt this basic view towards authority.
A true libertarian will never understand MMT... A defeated one will though.
Libertarianism is running rampant thru the west these days and has been for over 150 years now ...
Wiki 'libertarianism', it's disturbing to even read... All kinds of crazy/wild stuff, it's dark, and whatever is behind it is the real enemy.
RSP,
Matt, It is true that there are some extreme cases but most of these so called libertarians are young people who love nice ideas in their opinion and this constant propaganda has fooled them into thinking that this the way to go. They start talking enthusiastically "you don't understand what money is in a free society". I think if you explain to them that loans create deposits and we don't have to save money to invest, they understand. America is a little more conservative but where I am from a person who advocates gold as money is not taken seriously and even the most right wing free market advocates in media don't do that. Some gold dealer might talk in television once in while that kind of nonsence but that's It. I think the word money starts some sort of emotions in human brain and you lose your audience very fast. It is theoretical mambo bambo and people cannot relate to It their everyday experiences which definatly ties money and debt to morality like David Graeber writes. If you say print money then they think It is not moral because people work hard for money. It is this I think that stops the discussion going forward. Your oponent gets lost and leaves. He might think that you are crazy. you may show him many facts where "printing money" haven't caused runaway inflation and he might understand but next day he is back to his original ideas. Because existing power communicates that way in media and he doesn't think the rest of the world is crazy. Turns out It is. I have contacted many econ professors in universities and It is even worse there. They are in their mind teaching me and talk total nonsence. It is not a left or right thing, people don't understand. I don't consider myself lefty, I met Mosler on the internet and I was in disbelief, he is so imressive. First you start questioning is he really right. Turns out he is. But I guess you have to be familiar with the PK concept, other schools don't even care to look monetary matters. I find it impossible to explain MMT to certain people, It cannot be done.
On Spreading MMT…
I think for elevator speeches we need to give up on the idea of explaining economics. We need to avoid "taxes drive money" reasonings and "goods and services" terminology. People have too many internalized barriers, and frankly, mentioning "goods and services" is sure to gal over a few eyeballs.
For me, I've found the quickest shortests easiest introduction goes something like this…
'What's strange is all of our policians and news media talk about the U.S. government going broke, but if you think about, how could it? They create the U.S. Dollar. If I had the printing press for dollars I'd never run out of them. (now anticipating their INLFLATION mind-bock forming…). Really the only issue is inflation, not affordability. Will new money cause inflation? That's an interesting question. Most people think absolutely, yes, of course. But the truth is not necessarily.'
(If they bring up the independence of the Fed, I simply shut that down with: "Congress created the Fed and at any point can get rid of it or change it's mandates. That's not really independent.')
I think at that point I've either sparked their interest and they want to know more, or I haven't and it's over. If I have, my explanation moves on to the Budget Deficits and the National Debt sooner or later, and I almost always say something like "This all stems from a really bad analogy comparing the U.S. government to businesses and households…"
I share all that to again make the point: drop the economics from your pitch. Drop economic terminology as best you can. Those of us who spend time in the world take for granted economic terminology. It's normal and obvious to us. Well, it's not for most people. And most people aren't interested in learning a new language!
I guess I agree with Rodger Malcolm Mitchell to an extent… we need to couch it in politics.
Money,
You have (I'm sure) a very mathematical brain so you can "see" how the system operates and hence you can see the truth... Ive observed that those that do not possess mathematical cognitive abilities such as you possess, are left to resort to "appeal to authority" and if they are libertarian, they just fall right in line with the false libertarian dogmas.
Enjoy your non-gold-loving jurisdiction my friend.
This is what we have to put up with here constantly:
http://freedomoutpost.com/2013/02/federal-reserve-board-abolition-act-hits-congress/
"Brookes began by stating that “conservatives need to understand that without basic monetary reform there is no way to balance the U.S. budget, with or without tax increases and budget cuts, and even with the most optimistic GNP growth projections.” He then offered a 3 part solution:
(1) “the nation must return as quickly as possible to gold-based money and debt” (Heritage’s Policy Review published another piece endorsing a return to the gold standard as a key component of balancing the budget, in the next.... blah, blah, blah,..."
Notice the name of the website: "Freedom Outpost"... LOL!
Should be: "Moron Outpost"...
rsp,
JK,
I would point out that the political compass has an x-axis and a y-axis.
There is the left/right political x-axis and the libertarian/authoritarian y-axis.
This battle has to be fought along the y-axis.
Otherwise you can have libertarians of both the left and right agreeing that our civil govt has no fiscal authority and just arguing about which type of out of paradigm approach is better, etc...
this is what we are witnessing today... it's like a libertarian civil war between left and right libertarians; "Alex Jones (metals) vs David Graeber (gifting)" type of thing to try to coin a phrase...
Neither side in this intra-libertarian conflict can (at least easily) see the fiscal authority of our civil government, they are blind to it.
rsp,
Lately I've been asking people to think of the economy as a big checking account...who makes the deposits and withdrawals? I point out that deposits fund their savings and taxes remove them, but when we run deficits the citizens get to keep some. I slip in that foreign trade is a withdrawal for us.
Then I tell them that the game that goes on within the economy is like a big poker game...winner take all...unless the government makes adjustments...progressive taxation.
This would also be a good place to talk about credit...if we loan money to the players and winners take all how are the loans repaid by the other players?
Maybe an over- simplification but that's about as far as the average person is willing to go in understanding.
Understanding requires curiosity more so than intelligence. If there is no curiosity no progress is made.
Here is a kind of good argumentation that someone posted in my (Estonian) blog.
This guy explains hyperinflation to his friends like this. We all have some savings so we can take a vacation without work. No imagine everyone is taking this vacation and starts spending his/her money, No one is working and this creates hyperinflation. He says he connects money value with people's work like this.
Paul: "Understanding requires curiosity more so than intelligence. If there is no curiosity no progress is made."
Indeed. This post inspired me to write the following facebook post earlier this morning, and it's directly related to your comment:
WHAT FLOOR ARE YOU HEADED TO?
I reckon most people have no interest in “goods and services” and “aggregate demand” and “debt-to-GDP ratio,” so the tricky part for economic-activists, such as myself, is: how to attract your interest, and then explain something economics-related that not only maintains your interest, but hopefully sparks it further. How to not cause your eyes to glaze-over and your mind to move on to something else more interesting?
It’s a challenge. Any suggestions?
Maybe you might say: “How is it directly related to my life?”
But that’s not really the heart of the dilemma. We spend enormous amounts of time watching and discussing sports, and movies, but most of us never to ask: “How are sports and movies directly related to my life?”
Economics is very much related to your life = > how much money you have changes what you can and can’t do.
Is the problem psychological?
Are sports and movies merely a pressure-release valve for our stressful lives?... where nothing is required of you and nothing is expected of you. You can simply enjoy them and it requires nothing more.
But economics on the other hand, and politics, do they force into our conscience a sense of duty? Kind of like… if you see someone with a gun and a mask on run into a school, you immediately feel the duty to call the police.
Is economics and politics like that, but much more subtle and passive? Does their content make people feel, on some small level, like they have to do something? And do most of us then resist economics and politics because, frankly, “I don’t feel like doing anything, and besides, what can I even do that will matter?”
@Paul
"Understanding requires curiosity more so than intelligence. If there is no curiosity no progress is made. "
Yep.
JK,
to a great extent we usually leave the "heavy lifting" in any area to the people who work in that subject area... it's like we dont have to know about structures to drive over a bridge...
So unless you are talking to someone who works in the subject area, their interest only goes so far...
usually what I do in situations where someone goes off on debt and deficits within earshot is I tell them they are mistaken and wrong about that and that the govt as a matter of logic has to provide us in the non-govt with all net money... I ask "Where do WE get money?" "How are WE supposed to provide money to the govt?"
I see a big whitewash going on... where I'll use Mike for instance they always have on Mike by himself... and the rest of the panel are morons... so it is hard to sound authoritative in a presentation where you are the only one agreeing with yourself basically... and the others are giggling morons... and can cut you off..
We have to start to get TWO people on who are in paradigm so they can be seen and heard as agreeing with each other and that is a more powerful view to an audience...
So this radio show this gal is trying to put together is interesting in this regard... she should often have TWO guests on completely agreeing with each other...
I was watched Maddow once this week which Ive never watched... to me it looked like the "let's make fun of Republicans Hour" (which is not hard to do these days btw) and this is interesting...
I could see a show where we could get several people on and take turns ridiculing the deficit morons... that type of show may garner an increasing audience... if this same approach is working for Maddow as she is one of the few where her ratings are increasing....
We will have to completely humiliate the morons eventually... sooner the better imo...
rsp,
Kristjan,
You wrote:
their everyday experiences which definatly ties money and debt to morality like David Graeber writes. If you say print money then they think It is not moral because people work hard for money. It is this I think that stops the discussion going forward.
This is the point of entry that MMT needs to use.
The point to be made is that when Government spends, it spends for a public purpose, and it asks for something in return - repair this bridge for society, build that road for society, put high speed internet in every dwelling (now that Germany has ruled that high speed internet is a necessity for survival in this modern society.) Take care of older people, take care of the sick, take care of the poor (all the virtues that are preached about by every religion in the world.)
In regards to the common objection, "If government just keeps printing dollars it will destroy the value and ruin the economy", I've found it is helpful to emphasize that dollars do not survive forever.
When government taxes it "unprints". When people save money is taken from circulation. When we buy foreign goods dollars exit the private sector. When we pay back loans the money supply shrinks.
Once this is made clear people begin to understand that government simply must create dollars on a continual basis or the private sector becomes financially bankrupt.
Ben,
"Once this is made clear..."
Agree and this is probably how 90% of us got here, but I would point out that this is a mathematical doorway...
many out there (and more than I think is generally appreciated) just dont have the maths to get thru that door easily if at all ...
hence i suggest that these non-math people have to be confronted ideologically along the libertarian/authoritarian spectrum in order to get them into a fight of sorts ...
if you get them to truly engage in a confrontation, and they do not flee, you may be able to spoon feed them the math in the process and some may be able to then see what is going on... but they indeed have to delve probably deeper than they care to in the math and lose the ideological fight in order to see what is going on...
rsp,
money4nothingchicks4free said... "Reagan's statement that government can't give you nothing It hasn't taken from you before is very convincing and most left and right are convinced."
I think that is a good place to start the elevator speech, and go to, But the federal government is not just a big household or firm and therefore like everyone else. The analogy fails because the federal government issues it's own currency — the US dollar — which all currency users — households, firms, US states, and local governments — have to obtain since they cannot issue US dollars themselves. That's called counterfeiting.
So everyone but the federal government has to borrow from banks at interest if government doesn't issue enough USD in order to support the desired level of transactions and saving. It's excessive private borrowing that results in booms and busts, as well as demand side inflation. The problems arise from unsustainable indebtedness of the private sector since government hasn't contributed enough to support the desired level of activity or irrational exuberance leads to imprudent use of credit.
Then cut to the standard objection, "But that's inflationary," and show why it is wrong.
I think that both Yves and SR are correct. The popular presentation has to answer questions people have in logical progression, and for the policy to be implemented there has to be a business case made showing how it benefits TPTB, who are instrumental in either implementing it or blocking it.
you may show him many facts where "printing money" haven't caused runaway inflation and he might understand but next day he is back to his original ideas
That's been my experience with several people, too. Zombie ideas are hard to kill.
JK said... On Spreading MMT…
Agree. KISS, and anticipate objections.
Tom-- Who is "SR"?
Schitt Report
Thanks Tom. First I've heard of them...
thanks tom
anybody raising their hands for this monumental task? :)
Matt Franko,
I don't disagree, but my experience is that the point has to be addressed in some way. Without question, "government has to stop/ must not print money" is the #1 objection I hear when I discuss the monetary system with someone. If we don't find an effective method to teach this I'm not sure how much headway can be made.
Taxes fund spending is another doozy; this little gem of brainwashing undermines every other point unless I can get the other guy to reject it.
SR: anybody raising their hands for this monumental task?
Yves Smith as the chops to do it.
"Reagan's statement that government can't give you nothing It hasn't taken from you before is very convincing and most left and right are convinced."
Of course that statement is convincing because it's absolutely true and it applies just as well to the Magic Money Tree. Whenever funny money is spent, issued or lent, the recipient is always robbing the holders of existing money of their purchasing power. The Magic Money Tree process simply hides the theft from the public. The MMT "theory" is then used in an attempt to deny that the theft actually occurred and/or to disguise or deny that such is the basis for the entire scam.
I do believe that in a recent interview, Ms. Kelton responded to a question by stating that AT PRESENT, no government just creates money by spending, only that governments could change their laws and then do that.
These are great. They really are. I just love them:
-- Since the economy needs the government's money to pay its taxes, the value of the currency depends on the prices govt. pays when it spends;
-- For a given size of government, unemployment is the evidence that the government is either overtaxing the economy, or spending too little to compensate for any residual desire to save;
-- Governments with fiat currencies create money at will when they spend, and destroy money when taxes are paid, further indicating that taxes function to regulate the economy, and not to collect revenue per se; -- The currency is a governmental tool that in a democracy is created and maintained to promote public purpose, and to provide for the general welfare.
I do believe that in a recent interview, Ms. Kelton responded to a question by stating that AT PRESENT, no government just creates money by spending, only that governments could change their laws and then do that.
It's the Treasury that creates new money ($NFA) either by direct issuance of coins and notes or by issuance of tsy securities. Under the present system in the US, $NFA are created chiefly through the issuance of tsys, with a bit of coin issuance, too, as result of political choice.
The Fed simply creates reserves whose only function is in the payments system. Reserves never get spent into the economy.
Tom,
Doesn't the Fed also create dollar bills?
This conversation always one way another come around to "What IS money?
Are Tsys money? Is bank credit money? Are they money-like? Are we talking abotu degrees of moneyness? To what extent is a Tsy, a bank credit, and a dollar bill comparable in terms of moneyness? etc.
Gosh! Money is so magical.
$NFA are created chiefly through the issuance of tsys, with a bit of coin issuance, too, as result of political choice.
But the government selling securities in exchange for dollars is not exactly what is commonly meant by "government spending". Thus, it really is true that the government AT PRESENT does not really create MONEY by SPENDING. You guys continuously claim that the government does, in fact, do this and that only morons don't know it. I just don't think that is a very good selling pitch for the Magic Money Tree. IMHO.
But you guys will do what you will.
I think Tom is on the right track with the focus on net financial assets. In other words, government "debt" is essentially the same as money. "Debt" has negative connotations and implies borrowing from the future to live well today. But this is not what is going on when we create money to put people to work doing things that will be useful in the future -- things like educating youth, treating medical problems, protecting the environment, and regulating the financial industry.
I dont care what "money" is.... rsp,
But the government selling securities in exchange for dollars is not exactly what is commonly meant by "government spending". Thus, it really is true that the government AT PRESENT does not really create MONEY by SPENDING. You guys continuously claim that the government does, in fact, do this and that only morons don't know it. I just don't think that is a very good selling pitch for the Magic Money Tree. IMHO.
If the government just issued tsy and didn't spend the same amount into the economy by crediting bank accounts and thereby transferring rb from the TGA to banks, then there would be no increase in $NFA. The amount of rb remains the same after the issuance of the tsys in deficit offset, but $NFA has increased in the amount of the tsys. MMT says that spending increases &NFA in the amount of the deficit at the macro level, and it doesn't matter whether this is accomplished directly through the issuance of coin and notes or indirectly through tsys issuance. The outcome is the same regardless of the route taken.
Doesn't the Fed also create dollar bills?
While it is true that $ bills are FR notes rather than Tsys notes, if Fed banks printed and sold the $ bills and pocketed the seigniorage they would be fabulously profitable for the district banks that own them, which they are not. Banks exchange rb for the FRN and they must obtain the rb either from $NFA created by tsy issuance and expenditure, or else borrow rb from the Fed to get them, which is tantamount to borrowing the notes.
Detroit Dan I think Tom is on the right track with the focus on net financial assets. In other words, government "debt" is essentially the same as money.
This is where the shell game comes in. Due to the current requirement for the Tsy to fund through tys issuance rather than notes, the funding, which is money, carries interest.
You can bet it was bankers that figured out this shell game to dupe the rubes and drive a truck into the Treasury. Look at the interest payments as a % of the budget.
That's direct issuance of money that goes into the pockets of savers instead of being used for public purpose.
"Thus, it really is true that the government AT PRESENT does not really create MONEY by SPENDING." - Bob
The government SPENDS the exact amount of each deficit into the economy in dollars (and issues treasuries in an equal amount at the same time).
This should be unambiguous.
Issuing treasuries does not remove money or spending from the economy.
"I dont care what "money" is.... rsp," - Matt
Exactly Matt...I only care about what I can use in exchange for goods and services on demand without borrowing.
Currency is a govt liability. The liability is created when the govt spends or lends. The liability is cancelled when it is returned to the govt.
"the federal government is not just a big household or firm and therefore like everyone else. The analogy fails because the federal government issues it's own currency" - Tom Hickey
We don't have to invoke "the power to issue its own currency" in order to prove that the "government is like a household" analogy is totally false.
The government is a big player in the economy - spends more than 30% of GDP in most countries - whereas the impact of a household (or even of a large firm) on the whole economy is negligible in comparison.
Say a household earns $1,000 and spends $1,200. It can reduce its spending to $900 while keeping its income at $1,000. The spending cut does not impact its receipts or "earnings". The household deficit can be and will be transformed into a surplus thanks to a simple decision to spend less.
But a government that "earns" $1 trillion in taxes and spends $1.2 trillion does not have the option to decide to spend $900 billion instead and then expect to have gone from a position of deficit to one of surplus.
The government spending cut represents such a large part of the economy that it will impact the whole system, causing a recession. And the recession will reduce the government's "earnings" (its tax receipts) - they automatically fall when the economy gets smaller.
I know I've just stated the obvious but IMO it's important to underline that a government is different from a household independently of whether it issues its own currency or not.
The governments of the eurozone are not like households. Ditto, for the state governments of the U.S. They don't issue their own currency - yet their receipts are not independent from their spending decisions.
The same was true under the gold standard - indeed, under any standard. I'd guess even hard headed Austrians and gold bugs should be able to understand and abide by the principle that no government can ever be compared to a household.
The only difference between government and a household is that government criminality is rarely punished. Governments generally can murder, rob, rape, bomb, pillage and commit genocide to their heart's content because they have granted themselves immunity.
However, the same economic laws apply them as apply to households. But in a pinch, the government can just kill some folks and/or steal their stuff. This explains why governments do not have to be particularly responsible with their finances. Or be responsible about anything else.
I don't care what "money" is [Matt]
You might not care, but in the context of an elevator speech explaining what "Modern Monetary Theory" is, the concept of money is a good place to start since people will know what you're talking about. The essential equivalence of government debt to money advances the speech into perhaps the core MMT insight.
Perhaps even Austrians agree with the essential equivalence of government debt and money? At any rate, it's easy to demonstrate the point as y did or through the practical fact that government bonds are extremely liquid and extensively used as collateral in exchange for cash money.
The only difference between government and a household is that government criminality is rarely punished.
No doubt correct - but irrelevant for the specific point under discussion.
A government reduces spending by 1% of GDP - this will have consequences on its tax receipts, likely reducing them.
A household cuts its expenditures by 0.00000001% of GDP. This behavior will not produce any consequences on its income. The household has reduced its deficit by exactly the same amount of its spending cut.
This is simply the way things work - so, it should be accepted independently of one's ideological point of view.
The only way to make a government similar to a household would be by reducing it to the size of a household. I hope even Austrians will admit this is not likely to happen in the near future, or maybe ever. :)
"The government is a big player in the economy - spends more than 30% of GDP in most countries" - Jose
Which rolls over several times ()while subtracting saving each time) before it dissipates…
I think it's safe to say GDP would be a small fraction of what it is currently without government spending.
Without government spending saving would kill the economy. This should be unambiguous.
Without government spending saving would kill the economy.
It's not spending per se that counts, but rather net deficit spending.
The government has to inject into the econmy more than it takes out of it via taxes in order to compensate for the saving desires of households and firms as well as the drag from net imports.
right Paul,
Without the govts unlimited balances being constantly injected, the system would lock up in short order and all intra-non-govt sector flows would probably soon stop... so much for horizontal "money"...
rsp,
btw here are the injection numbers the last 5 months in the US:
Sept: -59B
Oct: +120B
Nov: +180B
Dec: -20B
Jan: +33B
Tot: +254
Average +51 per month
Compare this to just some non-govt sector system liabilities:
Trade deficit: 45B/mo
Interest on $7T bank credit at 5%: 30B/mo
Social security taxes: 50B/mo
Corporate retained cash earnings: ???
Household savings: ????
Interesting...
"It's not spending per se that counts, but rather net deficit spending."
I'm not so sure Jose...
Total spending adds a lot of aggregate demand...income taxes only affect the "winners"... overcoming the winner-take-all nature of profit and slowing the upward flow of funds. The "losers" have to remain in the game if the game is to go on.
Saving accumulates and does little re aggregate demand...the other spending is very stimulative and key IMO.
Progressive taxation is a very big deal...I believe that is what creates a middle class.
Apart from redistribution effects - which may or may not exist (the state can also intervene, perversely, to channel even more resources to the upper classes) - it's true that a higher level of government taxes and expenditure as a proportion of GDP contributes to stabilise the economy and dampen the consequences of changes in the spending desires of the private sector.
This can be best understood by looking at the Krugman cross model of the economy - later worked upon by Parenteau, Fullwiler and others.
In a small government economy - say, the U.S. in the 1930s - the (G-T) curve is quite flat and this implies any de-leveraging behavior of the private sector will translate into a small increase of the budget deficit and a huge reduction in GDP. That is, a great depression.
Whereas the "big government" economy of the 2000s had a much lower decrease of GDP per dollar of reduced private sector spending - and a much bigger increase in the public deficit.
Why? Because taxes are now higher as a proportion of National Income (and thus decrease a lot whenever aggregate spending falls) and automatic expenditures such as unemployment compensation are more significant than they were in the 1930s and thus immediately increase by an amount that is more adequate to compensate for the effects of the overall fall in demand.
Summing up: an economy with a small government budget as a proportion of GDP will likely be a very unstable economy with huge fluctuations in the level of activity as a result of the "normal" business cycle.
If all three sectors are in balanced, the govt's balanced budget still results in flow due to "redistribution." "Redistribution" is needed since imperfect markets, which is what we have, allocate resources imperfectly. There is no way to achieve perfect markets in a modern economy, if only due to endowments and institutional effects. It's a myth of the market. The myth of the market is that market is like an electrical grid with flows going where they are needed instantaneously. But even with grids, there is a lot of control needed to prevent failures.
Perhaps we need to concentrate more on what's already drilled in to people's minds and re-frame it. The National Debt, for instance. Why would we want to take every penny that the Gov't ever paid us, pull it out of your bank, your mattress, the can in the backyard, your offshore accounts, etc., and GIVE IT ALL BACK??? Do you REALLY think that's what we should do?
I also like Dan's idea of re-framing "Balancing the Budget" as a Marxist/Leninist confiscation by the Gov't.
"But even with grids, there is a lot of control needed to prevent failures."
Failures as in the Koch Bro's, which would represent a short caused by criminal theft of service...
Re: So it is remarkable that we were able to catapult the idea of the Platinum Coin into the mass media
Perhaps not so remarkable, because the idea seems at first glance to be simply crazy, hence it has sensationalist value, which the press loves.
What MMT people seem largely unaware of is the moral dimension behind the inability to grasp the ideas involved. The idea that money is created by computer strokes or by simply crediting private accounts seems, to the average mind, to be nothing less than a con game. Money in the public's mind is something you work to earn; it doesn't come free. To retort that it's different for governments, simply adds to the public's suspicion that government and politicians are crooked and parasitical.
Perhaps more profoundly, the ordinary man does not conceive of money properly, namely as an abstraction, as an "idea." Money is created by work, by productivity in the public's mind. If it is "backed" by gold, this satisfies the notion that money is something "real" and "concrete," so that paper money is simply a token for the "real" wealth, which is gold, and which is something comparatively rare and hard to extract, and hence gives "value" to the currency. It is these firmly entrenched reifications of money as wealth, coupled with the moral ideas concerning the "work" behind the creation of wealth, that the MMT people do not face squarely. They proselytize as if the public were intellectual, but the average man, is not an intellectual, he is an active and practical type, and the same applies to your average politician and government official.
I think the recent article by Stephanie Kelton comes closer to the way MMT must proceed: namely by focusing on what real wealth and prosperity are and what are the conditions for it, including what the currency must be viewed and adminsitered to promote prosperity. The confusion of money equals wealth; money equals something "solid" or "real" is what has to be reframed.
Another point is this. There is a certain distrust of government in the American psyche. MMT is seen as a very pro-government way to conceive financial reality. We've already seen a certain reaction to this even with MMT ranks as it created a Monetary Realism alternative to the theory.
I think that MMT has to be clear that a fiat regime can be terribly abused, because it actually entails tremendous power; and this abuse is in fact the case today in the US, as the banking industry has effectively hijacked a power that properly should be a public monopoly with the overall public weal in view. This is manifestly not the case in a country in which Wall St. has effectively coalesced and "bought" the government and created a security state as well. MMT simply comes across as not having its feet on the ground.
Gold regimes were terribly abused as well, but I get your point.
I think MMT'ers are aware of the moral dimension, but think it should be countered mainly with technical education. When that runs up against the moral indoctrination/imperatives that have been drilled in along with the accepted body of economic schooling, you end up with a hell of a tough go. That's why I say use what already there, then when people become more interested, there's the technical info for them to dig into.
We face a combined problem of the "common sense" POV and the neoliberal propaganda that reinforces it. The "common sense" or "intuitive" POV believed for a very long time that the sun rises and sets, and that the earth is flat, as it appears. That's why we have rigorous thinking and developed the scientific method.
We are facing the same problems that Copernicus, Bruno, Galileo and others like them faced in their time. It took a long time for the ideas to take hold and supplant "common sense" views that were reinforced by the authorities of the time, namely, the Church back up by the Inquisition.
The situation is quite similar today but one simply faces exile to "Siberia" instead of burning at the stake.
So, yes, this is a big problem that we face in attempting to get these ideas across. There is no one ideal solution. We have to keep chipping away and go with what is working best based on feedback from experience. Actually, we have made huge strides in just the last year or too, and now the pace is picking up.
Brendan makes a great point about the moral idea that money should be the result of work. Nothing wrong with that simple, common sense notion.
I still think that the simple notion that government debt is essentially the same as money is a succinct way of getting our point across. Money/debt shouldn't be treated lightly and given out willy nilly. On the other hand, there is no shortage of money for worthwhile endeavors, and no concern for our grandchildren about paying back money spent now to create a better future for them...
What is work? It is the expending of energy. Virtually all energy we expend is solar energy, either direct or embedded. Earth is an open system that runs on solar energy. There is no "work" without it. And solar energy is free. Moreover, over humanity is now beginning to harness it, and it is virtually unlimited, free for the taking and fully sustainable.
Do I sense an analogy here?
Furthermore, everything that is genuinely worthwhile is either free or freely given.
Failure to realize this makes life a struggle and results in unnecessary suffering.
There is a similarity between harvesting solar energy for our benefit and using money to put people to work for our collective benefit. But for the elevator speech, we're probably better off with "government debt is essentially money"...
Brenda,
Excellent post. Very insightful.
In the typical "water cooler" when the subject turns to the deficit a good point of entry is to wait for a pause and say, "Actually, we need a bigger deficit." Wait for that to sink in and then say "all the things we want, from good jobs to being able to travel, save for retirement, educate our children,etc., all depend on the deficit. If we tell the politicians we want them to cut the deficit, we are cutting our own throats."
And then quote or paraphrase Bill Vickrey:
"Whatever interest charges on the debt are not financed out of this growth in the debt can more than be met out of savings in unemployment insurance payments, and the increased tax revenues derived from the larger national product at rates no greater than at present. A 10 trillion debt with a full employment economy will be far easier to deal with than a 5 trillion debt with an economy in the doldrums."
Basically it boils down to "yes we can too afford it and in fact we can't afford not to."
I wouldn't even mention MMT or try to explain the meaning of debt vs. money or even assert that government is not like a household. Just repeat: We can afford it, we can't afford not to. For those who show the curiosity to want to "poke aaround under the hood," have the reading list ready.
I'm leaning toward the following:
1. Government debt is essentially the same as money.
2. It makes no sense for a government to save its own money/debt, since it can create these at will.
3. Inflation is the constraint on creation of money/debt.
4. Spending now on things that will improve life for our grandchildren is a win-win: boost the present economy while addressing serious problems such as environmental protection, financial regulation, educating youth, and providing medical care to those who need it...
Detroit Dan,
I am restating what I stated earlier
Quote:
The point to be made is that when Government spends, it spends for a public purpose, and it asks for something in return - repair this bridge for society, build that road for society, put high speed internet in every dwelling (now that Germany has ruled that high speed internet is a necessity for survival in this modern society.) Take care of older people, take care of the sick, take care of the poor (all the virtues that are preached about by every religion in the world.)
No one wants to understands money. No one wants to understands banks.
But everyone probably thinks they understand the grocery store they shop in.
Grocery stores are very interesting. Contained on grocery store shelves and in backstock are (mostly)the yummable 'revenue of society.'
A depository of yummy stuff, as a matter of fact. Including Count Chocula.
Grocery stores are where all the fun is:shoppers! And likely as not, each and everyone of those shoppers can be quickly informed of the significance of their shopping, and of the fact that they had to get the money from somewhere in order to shop. And most shoppers, not being bankers, can be made to appreciate the fact that their employer doesn't "make money." They're employers pays them money.
I mention this fact, because perhaps what we ought to be doing is making a very very big suggestion, and then asking a very revealing question, a question that we need not even answer because the answer is so self-evident to anyone that shops for a living. Ready?
97 percent of our money supply is issued by banks.
Banks help us organize trade and commerce by lending the money they create.
When banks lend costs are generated. For example when you employ capital your employer pays you a wage or salary.
Bank are pyramids of credit built on a tiny base of regulatory capital.
When consumers like you spend our costs and that of of vendors are liquidated.
What if consumers like you and I organized trade by issuing our credit on a base of the productive capital that we employ in our daily work?
This would mean that we consumers are generating costs that we will liquidate later on at the cash register.
What if consumers shared that base of productive capital with the federal government?
Most consumers in this country are citizens, are they not?
"Bank are pyramids of credit built on a tiny base of regulatory capital.
When consumers like you spend our costs and that of of vendors are liquidated." - Alan Avans
Consumer credit is artificial demand - in excess it creates serious imbalances.
Consumer credit is spending money one hasn't earned yet, and hasn't been printed yet.
The 97% number you mentioned doesn't tell much of a story..who holds the asset side and who holds the liability side? What does it take to clear payments between the two?
Where do the funds come from to make payments in a system for which saving and leakages are an integral part?
Paul, I stand by my statements. You appear to believe that I advocate consumer borrowing. I advocate no such thing.
Banks are pyramids of credit built on a tiny base of regulatory capital.
When consumers spend costs of production are liquidated.
Spending of bank credit is spending money one hasn't earned yet, too.
And yet that spending is exactly what forms consumer incomes.
When consumers issue credit to fulfill the demands they make upon producers, this can hardly be said to be 'artificial demand.'
Consumers issuing credit secured by productive capacity have the power to credit and debit their capital account according to their own policy in exactly the same way a bank determines what level of collateral it requires for its emissions of credit.
Consumers in this disintermediated scenario get their funds from exactly the same place banks get them.
Alan I think you missed the point of my comment. Not surprising, I'm not a great communicator.
My point was that credit is a dependent system...it must have an input in order for it to have an output function that is sustainable.
As an analogy think of an amplifier circuit...it has the ability to take a small input and create a much larger output. The amplifier will do nothing though without both a signal and a source.
In the case of credit the signal is government spending and the source net spending (creation) of dollars.
Credit can create its own signal...but not the source...so it is dependent. It cannot sustain itself.
I'm no great communicator either, so bear with me.
Your points thus far seem to assume consumer borrowing in an intermediated framework.
What I am assuming instead is a disintermediated emission* of credit that begins with consumers generating costs of production and ends with consumers liquidating these costs.
The ability to emit credit is dependent on the existence of developed productive capacity.
This productive capacity secures emissions of credit. There is another name for productive capacity offered up to banks for security:collateral.
My thought experiment involving consumers is meant to suggest how these consumers in their capacity as citizens might emit credit through their sovereign government.
The productive capacity that forms the tax base can be looked upon analytically as a capital account. The source you are looking for is that capital account. The way you account for the effect of 'savings and leakages' is simply to adjust that capital account up or down in terms of the demand for collateral:debit the capital account with capital depreciation and credit it with capital appreciation.
This will allow inventory remaining because of diversion of credit to savings and to the financial markets and the like to be liquidated by an emission of credit not directly tied to the pricing policies of firms.
*Is it not true that the emission of tax credit by the US Treasury via its fiscal agent, the Fed, is in fact a disintermediated emission of credit?
"Your points thus far seem to assume consumer borrowing in an intermediated framework."
Are you describing an alternative to the system we have in place? I don't get what you mean from your statement above.
Credit expansion by consumers is self-limiting...the burden placed on incomes from debt service increases faster than the contribution to incomes in the aggregate, thus there is a ceiling beyond which borrowers can no longer borrow. Game over.
"you don't understand the non-agression principle."
The question of the mice was who is going to bell the catbell the cat, i.e. the stronger in the law of jungle. Merely evincing a principle is insufficient. It must be applied effectively. And the devil is in the details.
One of the great advances of civilization was the rule of law to replace vigilantism, feuds, duel, and in a larger context, wars. Once there is the rule of law there needs to be an authority to enforce the law. Once there is an authority to enforce the law, there is the possibility of a cohort hijacking that authority and using the law coercively for group interests. That has indeed been the history.
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