There are many misconceptions about what a government who understands the capacity it has as the currency-issuer can do. As Modern Monetary Theory (MMT) becomes more visible in the public arena, it is evident that people still do not fully grasp the constraints facing such a government. At the more popularist end of the MMT blogosphere you will read statements such that if only the government understood that it can run fiscal deficits with impunity then all would be well in the world. In this blog I want to set a few of those misconceptions straight. The discussion follows is a continuation of my recent examination of external constraints on governments who seek to maintain full employment. It specifically focuses on less-developed countries and the options are currency issuing government might face in such a nation, where essentials like food and energy have to be imported. While there are some general statements that can be made with respect to MMT that apply to any nation where the government issues its own currency, floats its exchange rate, and does not incur foreign currency-denominated debt, we also have to acknowledge special cases that need special policy attention. In the latter case, the specific problems facing a nation cannot be easily overcome with the increasing fiscal deficits. That is not to say that these governments should fall prey to the IMF austerity line. In all likelihood they will still have to run fiscal deficits but that will not be enough to sustain the population. We are about to consider the bottom line here – the real resource constraint. I have written about this before but the message still seems to get lost.…Bill is on a roll.
Bill Mitchell – billy blog
Ultimately, real resource availability constrains prosperity
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
12 comments:
Voodoo economics.
Even S&P understands that resource endowment plays a limited role.
Oxygen plays a limited role in life support. That doesn't mean it isn't essential.
BMW assembly plant in South Africa:
http://www.bmwplant.co.za/
The house is on fire and Bill's reminding us that there's only so much water in the world. Helpful?
Neil's comment over there:
"“For example, the USD will often be in use in a LDC”
Unless I’m mistaken the acronym LDC pops up at this point without explanation of what it stands for. "
The correct acronym is 2RN (Second Rate Nation)
Or perhaps USDZN (USD Zombie Nation)
We should send the military in for regime change as soon as we see a nation do this...
"and tend to damage the middle and higher classes more than the poorer groups because luxury imported goods (ski holidays, BMW cars) become more expensive."
If it really worked that way how could this happen as the BMWs are manufactured IN the subject nation? the price of a BMW wouldnt change due to the exchange rate of a foreign currency as the BMWs are produced RIGHT THERE in the nation that has allegedly "experienced" a so-called "devaluation"...
that's like saying that Australian Iron Ore price/ton goes down to DOMESTIC mills IN AUSTRALIA and IN AUD because the AUD/USD "moved".. no way...
The key word is 'assembly', capital goods are not produced there. They need to import stuff to keep the economy functioning.
Well maybe they give the employees a discount on a new BMW every 24 months so a lot of the employees buy a new one every 2 years and sell the used one locally at a good deal for the buyer so you see a lot of BMWs over there... fyi over here it can mean "Black Man's Wheels" in some circles the brand might be popular with the black folks over there too....
"Voodoo economics. "
What is voodoo economics is running a currency and banking system for the protection of creditors - particularly foreign creditors.
The currency is there to serve the nation that holds the monopoly over it, and nothing else.
The point is that given the current state of knowledge and ability to use, the limitation on what can be done is available resources, human and natural.
The problem is organization. In a monetary economy, munnie (finance) is used as a key organizing principle and markets are supposed to determine how to allocate it most efficiently and effectively to optimize use of available resources in terms of capability including technology. This is an assumption and it doesn't seem to be a a good one since a huge amount of resources remain idle or underutilized across the cycle, which means permanently. This results in significant loss of opportunity, with important ramification for societal well-being.
Not using resources that could be used gainfully because of lack of a free good, which is what munnie is for a currency sovereign, is not only poor organization, but it is also dumb. It's confusing the scoreboard with the game.
… (finance) is used as a key organizing principle
For me, this is like saying a bullet is the organising principle of a gun!
A better world is only possible with better, kinder, more intelligent human beings. Mind changes afterwards, not before.
Being alive 101: - our world begins and ends with a human being. The human heart is the unevolved, undeveloped, inspirational, informative, inclusive and unlimited, evolutionary potential. When the heart is happy, anything is possible. Mind has to learn to understand; ‘see’ in a different light.
Such a candle needs to be lit in this world. That is our human need. The rest, is just events, and discussion …….
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