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.
"Money, Finance and National Income Determination:An Integrated ApproachWynne Godley"Keyword here manifests again "DETERMINATION" so Godley is a Determinist in his thinking...But then as Ram points out here a Stochastic nature is dominating in the academe:"There is a reason for all this. It is that mainstream macroeconomics postulates in its basic model that macroeconomic outcomes are all determined by relative prices established in Walrasian markets. Individual agents are held to engage in a market process of which the outcome is to find prices for product, labour"I would leave out Godley's use of the word "determined" in the second sentence (he cant help but use it...) ... like:"mainstream postulates.... that macroeconomic outcomes are a result of the stochastic process of establishing prices in Walrasian markets..." Or something like that to draw the distinction between his (Godley's) Deterministic approach vs. the mainstream's Stochastic approach...
I tried reading the links from the levy institute by Goodley as they really interest me.Unfortunately, the way Goodley had mastered and danced around the sectoral balances with ease lost me.I need to study this more so that I can fully understand it. Only pronlem is I'm learning that much already my heed is busting and I'll need a 40 hour day just to fit everything in.
I would really like to learn more about the following arguement.Spending flows v size of deficit there does not seem to much out there to read up on it.Isn't the problem the same for both and that is net savings ?How would MMT make the 1% and joe bloggs spend their savings ?
Foot,Bill has described savings as "a hedge against uncertainty over time.." which io is pretty good....If we had a robust JG, robust guaranteed public education thru University, and a robust public retirement pension, and public funded healthcare.... imo NOBODY (in the US at least might still have second rate nations out there who would remain USD zombies...) would save USDs hardly at all....But of course that is not the case we in the US have $18T in assets in ERISA accounts.... which some people around here in sophomoric fashion refuse to acknowledge and take into account...
@ FootsoldierMoney is created by government spending and bank credit extension. it is saved by some party to ensuing transactions until it is destroyed by subsequent payments to government, in practice mostly taxes, or as bank loans are paid down.For example, when someone receives a transfer payment like SS, their deposit account is credited and M1 increases. Same with a bank loan. The bank debits a loan account (adds to an asset account) and credits a customer deposit account (adds to a liability account). When the customer draws on the deposit account (saving) to spend, that amount is then credited to the vendor's deposit account. So the amount of saving (M1) remains the same. And so on, until the unit of account is destroyed by withdrawal from M1, either by paying taxes or loan repayment. Paying taxes also destroyed the bank reserves that were created by government spending.If a deposit withdrawal is in cash, then bills must migrate from wallet to wallet until redeposited. Bank deposits are exchanged for currency in circulation, which the banks have to obtain from government as the issuer. They keep bills and coin on hand for the purpose as vault cash, which counts toward bank reserves along with settlement balances held at the cb.Thus the deficit is the amount of saving that the government creates net taxes in a period. The form of saving is negotiable government securities that pay interest that adds to money creation.These are the only ways that the unit of account gets created as M1. External transactions don't create the unit of account but use existing units for settement. The sectoral balance are the flows of units of account (saving) among different accounts. There is a corresponding exchange of goods and financial instruments that correspond to this. Thus the flow of units of account can be used to calculate the amount of these transactions.This is basically what happens in accounting as an ex post record of financial and economic activity.Potentially it is possible to connect these two at the level of the journal, from which accounting reports are derived through posting to the general ledger. In fact, most aggregates are reported and that is how the numbers show up in national accounts and the sectoral balances.This is a lot simpler to understand by grasping the accounting and the actual transactions as a system that makes up an economy. The accounting goes proxy for the actual transactions, that is, mirrors them. The beauty of the system is simplifying everything in terms of one category, the unit of account, which can then be used to track the myriad types of interaction in terms of one unit.The problem is that the financial can become disconnected from the non-financial. This is a problem for conventional economics, which doesn't operate on the basis of accounting (stock-flow consistency) but simply assumes "munnie." This is the notion of munnie as a neutral veil, that is, money doesn't influence transactions, but only veils barter. Most of the problems of conventional economics arise from this confusion, along with adopting restrictive assumptions like optimization and equilibrium wrt to barter.It's actually a pretty simple system that could work quite well in principle if it were understood and operated for public purpose based on the fact that the unit of account is a public utility and a public monopoly. But it is complicated enough for TPTB to use chiefly in their own interests.
Thanks Matt,Yes, I was kinda coming to that understanding.In that the Job Guarentee would help to create extra spending on all parts from the extra aggregate demand it would create. The rest I've never thought about yet.Isn't a large part of the savings in the pension funds anyways ? Isn't the number of treasuries close to what's in the US pension funds?
Cheers Tom,Yes, I know most of the basics in that description.I do struggle with translating our sectoral balances to make any sense of it when projecting what might happen. In the way Goodley did in that paper. I would love to become so comfotable in it that I could do that.He was using other measures like growth rates to determine what the balances might look like in the future.Bills weekend quizz helps as he does tend to throw a few in there and I have read his 3 part series on Sectoral balances.I'll get there. It is just so frustrating.I have to keep on reminding myself how far I've come in 18 months. Where I am now compared to where I was at when I started is like 2 completely different people.
Pension funds are in the ERISA accounts...ERISA is Employee Retirement Income Security Act... it just celebrated its 40th Anniversary...The law encourages saving for retirement via tax deferred accounts... for both defined benefit and defined contribution systems...So for instance, the retired teachers have their pension funds in an ERISA account...So MMT top enders dont want retired teachers to have any money for their retirements and prefers these older folks among us to live in squalor because they want permanent ZIRP....So usually the MMT top end people have a more goodwill approach but not in this case they basically want retirees to suffer and eat dog food in order to prevent some interest flow to some people they term "the rich" as part of it....http://www.dol.gov/ebsa/faqs/faq_consumer_pension.htmlPretty bad bad policy and ignorant of the law already in place known as ERISA with 18T in US pensions funds held on behalf of retired senior citizens... MMT top-enders would let them eat shit and die.... hard to understand this hypocrisy....
I thought the MMT stance was if you run ZIRP then you transfer the pensions to the old fashioned national savings - income bonds.http://www.3spoken.co.uk/2015/09/gilt-issues-considered-harmful.html
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