Friday, March 4, 2016

The quick and easy of why Trump's economic plan is MMT and why Bernie's plan fails

Trump's plan is really all about sectoral balances. He simply wants the foreign sector to run deficits so that the domestic and government sector here  in the U.S. runs surpluses. (Or, smaller deficits for the gov't.)

That's it. Really very easy to understand and really very do-able. And it's MMT consistent.

On the other hand, Bernie wants to "tax the rich," which I admit there's good reason to do (clawback, their spending has become destructive, harmful, speculative, etc.), but it's just shifting the deficit/surplus identity within the domestic sector and nothing more. It's really a very small minded plan and it won't work.

Trump's plan will work. Bernie's won't.



John said...

Mike: "...really very do-able."

Well, it's do-able in theory. But is it "very do-able" in practice? I think that's near impossible. I'd like to hear how it can be done in practice.

In any case, is running what amounts to permanent foreign sector surpluses a good thing for a reserve currency?

Michael Norman said...

So the dollar won't be the reserve currency anymore. Who cares? That's like losing our AAA credit rating. Big deal. BTW...we're going in that direction anyway, Trump or no Trump. Everyone here thinks we need to be an export superpower and be "competitive." Fucking ridiculous, I agree, but let's let it happen already. That's what I said about the credit downgrade and I am saying that now about the reserve currency nonsense.

Tom Hickey said...

Bernie and Trump are both attacking economic rent, but from different angles.

Trump uses the external sector to balance his domestic agenda, controlling the deficit while reducing taxes. Trump's plan would increase prices of imports but it would not stem the flow of US FDI and exporting US jobs. US firms manufacturing abroad and selling into the international market would not be affected.

Bernie uses the government sector, increasing taxes to control the fiscal balance while increasing domestic spending.

Bernie's approach is based on top line spending rather than increasing the deficit, which is where he differs from most MMT economists. He balances the increased domestic spending with increased taxes on the rich instead of increasing the deficit that is, increasing national saving, which is overwhelming held by the already well-off.

Michael Norman said...

But Trump also plans on taxing the rich. He is also for national infrastructure investment, single payer health care, etc. He may not eliminate the deficit, but the foreign sector will "pay" for most of his plan, whereas Bernie is relying solely on the rich paying.

Tom Hickey said...

Bernie Sanders also addresses trade.


Bernie would

1. nix new trade agreements.

2. tax away rents from existing "free trade" that costs US jobs.

3. use the rent that is taxed away to fund public investment without increasing the deficit.

Joe said...

", is running what amounts to permanent foreign sector surpluses"

It's not possible to run permanent foreign sector surpluses in US dollars, eventually foreigners run out of US dollars.

Actually, I think this whole premise is a bit of nonsense. It may be true that Trump's economic plan (if he actually means any of it) would be better than Bernie's, but Trump has no clue about the sectoral balances. Not even remotely a clue. He's constantly talking about how much "debt" the govt's in. I've seen zero indication that he understands that every surplus must be matched by a deficit somewhere else. Side note, Kasich obviously doesn't get it either. Kasich may be the most dangerous one there, thinking budget surpluses cause growth.

Neil Wilson said...

Where's the USA going to import demand from?

The problem with all these 'export led' growth schemes is that they miss the key issue. Once you start to export more than you import in local currency terms you actually stop exporting. At that point you are importing demand from somewhere else.

Since they are on export-led growth paths themselves (inevitably) they have to stop you doing that. And they have infinite capacity to do that by virtue of their banking systems discounting US dollars and figuratively chucking them in a drawer.

Trump has to start confiscating dollar savings from foreigners beyond import taxes to get anywhere. Import taxes are just a sure fire way to an even higher dollar.

Tom Hickey said...

Clarification: "tax away rents from existing "free trade" that costs US jobs."

Offshoring jobs involves not only economic rent but also negative externality — capitalizing the gains and socializing the losses, here US jobs — a negative externality of "free trade."

Or maybe they would argue the negative externality of job loss is offset by reduced negative externality of factory created pollution.

Ben Johannson said...

Would be a lot simpler that for every dollar purchased to devalue foreign currencies the Fed acquire an equivalent quantity of foreign reserves. No legislative mess.

Anonymous said...

​Interesting.​ It's the first time I've seen the MMT crowd weigh in on the economics of Trump and Sanders. Other factors in Sanders plan, like correcting inequality and health care, make it far superior to Trumps.

Bob said...

So protectionism is MMT consistent?

Malmo's Ghost said...

Bob, Another question would be, does MMT imply there is such an animal as free trade?

Matt Franko said...

Well that is what Ramanan has been going back and forth with the MMT top-enders about for a while...

Malmo's Ghost said...


Does MMT realize that ALL trade is "managed" trade?

Matt Franko said...

Well I think they do but they brush over those details and some others in a more basic effort to try to edify the morons that we're NOT "out of money!".... so they say things like "the deficit is too small!" which imo is not technically correct but they say it to be provocative... like a cold slap on the moron face.... trying to snap them out of their drunken moron stupor .... doesnt seem to be working imo... and we shouldnt let this hold us up from trying to add some more technically correct empiricism to the body of theory... we need to move on and try to add some more empiricism perhaps that is what is needed for full moron eradication ....

Jose Guilherme said...

"is running what amounts to permanent foreign sector surpluses a good thing for a reserve currency?"

The U.S. didn't start running significant current account deficits until the 1980s, and yet this didn't prevent the dollar being the world's reserve currency since 1945.

The rest of the world got the needed dollars via lending - by U.S. domiciled entities or by the eurodollar market.

Eurodollars are "dollars", but they're not officially part of the U.S. money supply. These dollars are created by banks not domiciled in the U.S. and that thus have no access to the Fed's discount window - their dollar "reserves" are deposits in U.S. financial institutions, not the Fed.

So the U.S. can run surpluses in the future without putting at jeopardy the dollar's status as a reserve currency. The dollar may well lose that status in the future, of course, but for other reasons not necessarily related to the U.S.'s foreign account position.

Matt Franko said...

Jose arent they not derivatives? ('eurodollars')

Jose Guilherme said...

Eurodollars are simply dollar deposits that banks domiciled outside the U.S. create by lending in dollars.

For instance, if a Korean importer wants to buy Mexican oil it will pay in dollars, not Wons. It can get a U.S. dollar loan from a bank domiciled in London - say, Lloyds bank, or the London branch of Société Générale. These dollars are created out of nothing, via lending.

Of course, said banks are at higher risk for (dollar) bank runs than U.S. domiciled banks that have access to the Fed's discount window. Their "reserves" are bank deposits, likely in New York - and this type of "reserves", contrary to the real thing, can be depleted soon in case there is a bank run. The Bank of England does not issue dollars, and thus isn't in a position to lend dollars to commercial banks domiciled in Britain - but perhaps it could ask the Fed to swap Pounds for dollars in case an emergency arises and thus temporarily address an hypothetical bank run.

John said...

Mike: "That's what I said about the credit downgrade and I am saying that now about the reserve currency nonsense."

We tiny band agree it's nonsense. Washington and those who own the country don't. I don't fancy my chances in this fight.

Trump isn't going to start a war with Wall Street and the most powerful industrialists in the world. Even if he wanted to do any of this, a bought and paid for Congress will stop him. All of this may be theoretically do-able but not do-able in practice.

MRW said...

and I am saying that now about the reserve currency nonsense.

We weren’t the reserve currency after WWII and throughout the 50s and sixties. We were richer than Britain, which did have the reserve currency, but Nixon changed all that and Kissinger cemented it with the oil deal with the Saudis in 1975.

John said...

Joe: "It's not possible to run permanent foreign sector surpluses in US dollars, eventually foreigners run out of US dollars."

Well, I may have overdone it with the "permanent". Well before the foreign sector starting to run out of dollars, Trump's door would be smashed in by angry elites, who'll then knock their kind of sense into Trump's head. But he probably doesn't mean a damn word of anything he says, even though he has the best words" "I went to an Ivy League school. I'm very highly educated. I know words. I have the best words." 51 seconds in:

"I know words. I have the best words." That's so funny it hurts.

John said...

MRW: "We were richer than Britain, which did have the reserve currency, but Nixon changed all that and Kissinger cemented it with the oil deal with the Saudis in 1975."

Almost everyone in the Western world was richer than we British! Food rationing didn't end until 1954.

Britain's hold on the reserve currency ended a long time before any deal with the Saudis. The death of the pound as the reserve currency was apparent in the fifties. That it held on for a decade or so after watching its empire and economic might disappear is probably a consequence of the dollar not being in a position to take its place.

MRW said...

@Jose Guilherme,

The Pound Sterling was still the reserve currency in the 50s and 60s, although it was the end of the 60s when the writing was on the wall.

All US dollars, including USD held by foreign govts and banks can only exist in two places: a US bank or financial institution, or in a Fed account checking or savings account. By law. No USD can leave the US banking system. (There’s a limit of 10Gs leaving in physical cash, which is part of the 11-12% of physical currency). Foreign govts and banks holding USD use correspondent banks at the Fed. All transactions go on there, not overseas. The Korean importer buying Mexican oil in USD just has the USD removed from his Fed account, via his correspondent NY Fed bank account, and marked up in Mexico’s account at Mexico’s correspondent NY Fed bank account.

If a company in Britain wants to exchange USD for Pounds, it does what you or I would do before a trip: exchanges the $ on the open market for Pounds.

Foreign banks, through their correspondent US bank can go to the Discount Window and hav been able to do that since 1980.

Discount Window Lending

Federal Reserve Banks lend funds to depository institutions through discount window programs. All depository institutions that maintain transaction accounts or non-personal time deposits subject to reserve requirements are eligible for discount window programs. These include commercial banks, thrift institutions, and U.S. branches and agencies of foreign banks. Prior to the passage of the Depository Institutions Deregulation and Monetary Control Act of 1980, discount window borrowing generally had been restricted to commercial banks that were members of the Federal Reserve System.

MRW said...


Britain's hold on the reserve currency ended a long time before any deal with the Saudis.

Of course it did, but Kissinger promised the Saudis in 1975 (four years after we went off the gold standard internationally) that if they would buy treasury securities with their oil profits, we would help keep the price of oil high...because they were getting RICH. Voila. The petrodollar. It’s also when we banned any more US refineries and US exports of crude. This was all done under some department within the US Treasury so that Congress didn’t have to approve.

Jose Guilherme said...


The eurodollar market arose in the 1950s because it was convenient for U.S. corporations doing business in Europe.

Let's say Exxon wants to transfer $ 1 million that it holds in a bank account at Citi New York to another account it holds at Société Générale in London. What happens?

No reserves leave the U.S. The liabilities account at Citi changes from a deposit owed to Exxon to a deposit owed to Societé Générale (London branch).

And Société Générale? It has expanded its balance sheet. It now owns a new asset (a deposit at Citi NY, in dollars) and a new liability, a deposit owed to Exxon.

But of course, based on its new asset, Société Générale can now create 5 or 10 million dollars in new dollar deposits by engaging in lending operations denominated in dollars. Its "reserves" are the $ 1 million deposited at Citi New York.

Say Société Générale lends $ 5 million to the Korean importer: it has just created $ 5 million (euro)dollars out of thin air.

Today, dozens of banks domiciled outside the U.S. engage in lending operations creating many billions - likely hundreds of billions, precise estimates are hard to get - of eurodollar deposits per year.

Unknown said...

Sanders' economic plan was crafted by Stephanie Kelton - she pretty much admits it in this interview with Nicole Sandler

So definitely it is MMT. When you are going to transition from private healthcare to public healthcare - that has to be paid for by taxes - you cannot replace 30% of the GDP on deficits alone.

Matt Franko said...


So they are advocating tearing down all the current healthcare facilities and building all new ones????

Where are all of these current private healthcare facilities????

In my state, Maryland, you cannot get heart surgery anywhere else than University of Maryland Medical Center in Baltimore, are they saying that the University of Maryland is part of the private sector? It is a state owned/operated institution...

Or are they saying they will tear down the University Hospital and build a new public facility????

Unknown said...

It is Single Payer. So instead of private insurance premiums, the Federal Government picks the tab. You can't put the entire tab on deficit.

So the real way to think about the Sanders plan is.

1. Federal Government picks up the tab for Healthcare.
2. Federal Government picks up the tab for free education.
3. Federal Government picks up tab for upgrading national infrastructure
4. Federal Government picks up tab for spending on Climate change projects

5. Federal Government increases FICA taxes (to prevent SS and Single payer to be a political football as done by FDR for SS)
6. Federal Government raises top income tax brackets on top 5% (to reduce inequality)
7. Federal Government institutes Tobin Tax on stock market and other financial markets (to reduce market volatilty)

So there is the Federal spending part, and there is the taxation part - the two cannot be sold to the public without linking the two together in some way. That is what Stephanie did.

Sanders is on record as saying that he deficits will rise under his presidency, and not reduce. However he also on record as saying that he will reduce National debt. And of course we have debated ad nauseum as to how that is possible and doable under MMT.

MRW said...

jose, when you write Eurodollar, are you talking Euros or USD?

Jose Guilherme said...


I'm talking about deposits in USD created by commercial banks in Europe (London).

Those banks don't have access to the Fed's discount window and don't hold deposits at the Fed - their "reserve assets" are just dollar deposits they own at commercial banks that operate in the U.S.

MRW said...

But Jose, those overseas banks can’t have USD accounts of any sort unless those banks have a correspondent bank at the Fed, otherwise known as "agencies of foreign banks.”

Also, so they would keep in excess of $250,000 (FDIC limit) in a US commercial bank account? Why? if they’re dealing in millions?

Tom Hickey said...


Joe said...

John - "'I know words. I have the best words.' That's so funny it hurts."

Agreed! That's my favorite Trump quote of all time!

Tom Hickey said...


Bob said...


Neil Wilson said...

"So definitely it is MMT. When you are going to transition from private healthcare to public healthcare - that has to be paid for by taxes - you cannot replace 30% of the GDP on deficits alone."

It doesn't have to be paid for by taxes. That is completely the wrong way of looking at things.

What you are doing is getting the state to pay for things. So you eliminate the insurance industry completely and free up a load of real resources that way. And you start centralising contracts for drugs and what have you - including removing patent protection if need be to get the prices down.

At that point you then have to look at the money that was being spent on insurance and the multiplier through the insurance system and see whether the system can handle that much aggregate demand increase.

If it can't then you need to look at what you can ban (financial speculation), what you can restrict banks lending money for (reducing money creation) and then if those don't get you far enough you can use taxation.

Primarily though taxation is used to help reduce inequality by redistribution rather than just demand control. It's generally better to think of tax as 'demand control of last resort'.

John said...

Word? No! Best word!

Trump's the best at everything. So he doesn't just have words; he has the best words! He may appear monosyllabic, but that's because he wants to keep the best words mysteriously hidden lest they destroy us mere mortals on being pronounced.

Make Donald Drump Again!

And I've changed my mind about Trump. Other than Bernie, who has no chance of winning the presidency, Trump is probably the least bad out of the current crop. Cruz, Rubio and Hilary are absolutely frightening warmongers.

ciaran said...

I think you might be over dignifying things to call it a plan. Like what steps would he take? Maybe I missed the specifics.

Bob said...

Trump's plan is protectionism. If you want specifics, you'll need to ask someone else.

Matt Franko said...


" the Federal Government picks the tab. You can't put the entire tab on deficit."

So they think that once the providers are paid then it is going straight into savings and they wont spend that? Providers dont have to eat and buy gas to drive to work? Pay for housing?


Matt Franko said...


So with TANF, if we increase that... they think the needy families are going to SAVE that?

Are they insane????

When they eat, and then later they have to have a bowel movement, do they realize that the contents of their bowel movement are the undigested remnants of the previous meal?

John said...

MRW: "Of course it did, but Kissinger promised the Saudis in 1975 (four years after we went off the gold standard internationally) that if they would buy treasury securities with their oil profits, we would help keep the price of oil high...because they were getting RICH. Voila. The petrodollar."

I think this is a wrong reading of the deal. This wasn't a deal to ensure somebody buys US treasuries. The treasuries are going to get bought no matter what: it's an interest rate management account, although they may not have known it at the time and believed that the Saudis and the other Gulf client states would buy them.

The deal has many aspects but it can be described as international political economy. The oil will be priced in dollars and so everyone has to get the dollars to buy oil. This now puts you within the grips of the US financial system and hence the Fed, who will freeze accounts and all the rest of it. It gives the US a strong negotiating position. It is not a good place to be politically. The oil price itself can be managed by the client states as we have seen over the past few years. The client states are price setters, and they get their orders from Washington. The client states have their hand on the spigot and they can turn the oil off the big man in the Oval Office tells them to. The US will ensure that the Saudis and the rest of the client despots in the region stay in power by arming them to the teeth with the very best military. This keeps the clients in power, the Soviets and everyone else, including the pesky British, out. The client states have now recycled a good deal of the petrodollars back through the big aerospace and military contractors; a good deal of money goes through Wall Street as the client families need someone to manage "their" money; the rest is blown on expensive homes in New York and other nice places, yachts, cars, Las Vegas casinos, etc.

It's total genius. Whether Kissinger understood the full reach of what he was putting together is another matter. It's the financial and geopolitical equivalent of the Louisiana Purchase!

MRW said...

@Jose, Tom

I didn’t even know what a Eurodollar was until Tom sent the wiki entry. Call me stupid and uninformed. I don’t want what the fuck I thought it was. Now something else to look into. I came to MMT from the ‘we borrow from China’ crowd, and have had my entire education uprooted in the last five years. So I’m the motorhead who now has email buddies in the various agencies because I do verify everything I’m told. Nice thing is they send me the relevant law when I ask or call. (They all prefer email because they have a fear of being recorded surreptitiously.)

MRW said...


uWhen you are going to transition from private healthcare to public healthcare - that has to be paid for by taxes - you cannot replace 30% of the GDP on deficits alone.

A public (universal, single-payer) healthcare system would act like Social Security. It could only become a federal government benefit like Social Security if Congress appropriated it, ruled on it, and the terms defined: one-time purchase, in perpetuity, etc. The term would be in perpetuity for healthcare, just like Social Security. Once it is appropriated, it is law, just like Social Security. Once it is law, the benefits, premiums, costs, whatever, are mandated, just like Social Security.

Social Security does not require taxes. Under no circumstances does Social Security show up as part of the deficit. Neither would ongoing universal, single-payer mandated healthcare.

Congress has been appropriating for 225 years. Everything from the duty to pay federal salaries, buy and build out property, maintain federal buildings, buy supplies, everything to provision itself from office supplies to the military to the nation’s infrastructure to the White House Thanksgiving turkey.

Congress does NOT re-up those necessary expenses every year. It doesn’t have to. The original mandates are law, unless struck down. The US Treasury only has to create the moolah every year to pay for them, which it does in the modern era by “printing it up out of thin air,” or keystroking.

In 2015, the US Treasury spent $60.4 trillion to do just that. It has nothing to do with taxes or deficits. (Total taxes collected in 2015 were $2.8 trillion.)

Tom Hickey said...

As I believe Neil has observed, when government injects tax credits, about 90% of them get removed by tax policy that is already on the books. New taxes would not have to be levied directly. Pay as you go is just a misunderstanding of how government finances work. Government spending pays for itself by increasing tax receipts depending on the multiplier based on the targeted spending.

With healthcare, the injection of government funds would reduce private debt and increase financial stability, since most personal bankruptcies in the US are healthcare related. It would increase both production of facilities, equipment, and consumables. It would also increase productivity through technological innovation, as well as increase human resources with training of additional personnel. More infrastructure would be needed, too, and likely more would be allocated to R& D to increase efficiency and effectiveness of treatment, for example, molecular medicine. Hopefully the program would also extend to mental illness, which vastly under-treated in the US. This would create at least a boomlet if not a boom in the industry, which is already a national leader and promises to be for the rest of the century.

It would free business of contributions to healthcare benefits, putting US business on the same level as the rest of the developed world. It would also create a healthier workforce and enhance productivity.

It's a no-brainer.

But taxpayers have been brainwashed into thinking that government finance is exactly the same as household and firm finance even though the reality is the inverse of that.

I assume that Bernie has concluded that overcoming this cognitive-affective bias is too big a leap for a single candidate to take.

See also

An Introduction to the Health Care Crisis in America: How Did We Get Here? by Stephanie Kelton, September 2007

Tom Hickey said...

OH, and for the people bitching about how much the country is spending on healthcare and education, ask them if they are concerned about how much the country is spending on cars, houses and entertainment. These are just different economic sectors that contribute to GDP. It should be obvious that spending on healthcare and education is far more socially and economically positive than spending on either a bloated military that can't beat rag-tag guerrillas or frivolous entertainment that dumbs the place down.

isawaturtle said...

Trump wont break up the big banks ... so its business as usual. Grab your popcorn and wait for GFC mark II.
Is Trump looking at a national job guarantee scheme ??? nope
Private debt is more of a concern then national debt ever will be.
Trump will just make sure his failing companies get the rub of the green. If you cant see that he is an embarrassment to the USA then you have absolutely no standards

Bob said...

Trump is another Obama. He appeals to a different demographic, but his message falls into the same category of hope and change, smoke and mirrors.

John said...

Tom: "..far more socially and economically positive than spending on either a bloated military that can't beat rag-tag guerrillas or frivolous entertainment that dumbs the place down."

Suppose the US military could beat rag-tag guerrillas? It's a wonderful thing that this gigantic imperial military can't beat rag-tag guerrillas! We wouldn't want them to beat the sandal-wearing peasants.

As for entertainment, the same country that has given the world wrestling, monster trucks, John Wayne and Two and a Half Men also gave the world Mark Twain, Joseph Heller, Woody Allen, Stanley Kubrick, Larry David, Jazz, the Marx Brothers, The Wire and nearly everything else from HBO, etc, etc. I think the good outweighs the bad by a colossal margin. Nevertheless, wrestling is a fucking cancer in the land of Buster Keaton, Nina Simone and Kurt Vonnegut.