Tuesday, November 5, 2013
It's the Savings, Stupid!
This is my answer to Bill's Mitchell's question: How to discuss Modern Monetary Theory?
Treasury bonds are savings accounts. Cash and bank reserves are checking accounts. Always turn the discussion from the national debt to the corresponding private savings.
The best bet for MMT is to prepare the ground for the public outcry as the shortage of middle class savings becomes a major issue. Americans have bought into an ownership society based on volatile private savings held in stock market funds which have lost 50% of their value twice in the last 12 years. If (when, in my opinion) that happens again, the middle class will be very receptive to the idea of the government helping them get back their savings…
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3 comments:
My solution is to stop using economic jargon and speak to lay voters in plain English. Here's a example:
“The government is the people's agent, and they have authorized it to issue money so they have a convenient way of buying things and paying their taxes. Taxes represent reimbursement for infrastructure, education, research, and defense projects government has undertaken on behalf of the people. If the economy is so weak that people cannot find employment or resources are being underutilized, the government either lowers taxes or issues more money. If the economy is so strong that production of goods and services cannot meet demand, the government increases taxes or stops issuing money. That's how the economy is stabilized.”
Implicit in the above description of the economy is the fact the government is the sole issuer of money, taxes are not collected and then used, but instead the government can spend for what has been legislated to be done and then collect taxes after the fact to reflect what goods and services the people have received. In times of a weak economy the government can reduce taxes and defer reimbursement, or in times of an overheating economy, the government can accumulate taxes it will need for future projects to take some steam out of the economy.
People don't want to hear about something new like MMT or the theory behind it. That's for the economic analysts. They just want to know how the government is supposed to work. If simple concepts are repeated over and over again enough, people will start to accept them.
The fact that deficits and debt are not mentioned reflects their lack of importance in the scheme of things. The "national debt" is not a debt to anyone. It is just an accounting of the net accumulation of money the government has issued over time. It may fluctuate up and down, but it is not something that needs to be paid off or compared to GDP. To think of it that way is to think that somehow football teams need to pay back the scores they have run up in a game. To the extent that the government issues money to further foreign interests or result in foreign claims could arguably become important.
elwoods-- That's what I was trying to get at. Clinton was successful, and rightly so, with his campaign theme -- "It's the economy, stupid".
When you're trying to get across a message to a mass audience, a really simple, clear message is the way to go. Of course, you want to speak to people at the level of their interest and knowledge, and MMT can certainly roll out the complex explanations as necessary. But the fundamental message for non-economists should be much simpler than even your plain English example.
It's the savings, stupid. The "stupid" part of that is a reminder to ourselves to keep our message simple and focused...
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