Saturday, June 18, 2016

Tom Hickey on a comment by JWM at billy blog

JWM posted a good comment at Bill’s that I would like to comment on in some detail. (I had initially guessed that the author was JW Mason have since been informed that this is not the case.)

The comment is about a video of an MMT presentation. The comment is constructive criticism, and my comment in response is an attempt to move the conversation forward. I'll take it step by step.
I watched the above video, Steve’s presentation was excellent (particularly his comments on superannuation!) — but I’m not surprised there is a sense that the audience did not “get it”.It is all very well starting out big and bold with the statement that the central government is not constrained in its spending. MMTers do this all the time. In many cases you never properly get to the “…but”. The “but” is the important bit: that it is prudentially constrained elsewhere, by the unused productive capacity of the economy. So being freed of worries about tax as revenue and debt accumulation, we are now apparently confronted with the far trickier business of calculating (or agreeing on) output potential.…
First, I think we have to look at what is going on from (at least) two directions. Both are important.

The two directions are substance and procedure. The comment is about the substance of the argument. However, given the venue of the presentation, it must also be about procedure. The presenter is trying to persuade as will as inform. The information is being used as a tool of persuasion.

So the first question is about strategy. As Scott Fullwiler has emphasized, in such cases strategy has to be distinguished from the substance of the argument. Strategy depends on the audience and the objectives. Here the audience consists of political activists and probably few of them are well acquainted with economics and finance, let alone being professionals. So the presentation must be tailored to that audience, that is, “dumbed down” without losing the substance. This is tricky as anyone who presents sophisticated knowledge professionally well knows.

For example, a philosophy professor has to introduce the substance of intellectual history and critical thinking to eighteen years olds who will probably never take another course in it. That is a huge challenge. The substance of intellectual history and reasoning as the basis for critical thinking lie at the foundation of all life because “all life is problem solving” (Karl Popper), and reasoning is a primary tool humans use to solve problems if not the primary one.

Reason gives humans a tremendous advantage evolutionarily, and demonstration of reasoning ability very often separates the winners from the losers in life. All other disciplines can be viewed as subsets of philosophy in this sense of rigorous problem solving using reason and reason also requires appeal to evidence were relevant. Science is largely quantitative problem solving using the language of math rather that logic, of which math is a subset. But the use of reason extends beyond science, the limit of which is generally agreed to be determined by availability of quantifiable evidence that is amenable to testing through formulation of hypotheses.

You will find at the end why I am taking this broad tack now.

Anyway, a presenter has to develop a strategy suited for the purpose; The strategy in arguments involving critical thinking involves bringing in substance as needed to substantiate points. The use of substance must be judicious. The target audience may not be well acquainted with the field. In fact, the audience may also be ill-informed or even misinformed. This is often the case in arguments about policy, owing to ideological influences as well as special interest pleading.

In the case of many presentations involving MMT, the audience is not only ill-informed about economics, economic policy, money and banking, and finance, but also misinformed. An audience is likely influenced by myths that appear as “common sense.” When the president of the United States says, “Well, we are out of money now,” ordinary people connect that with their own situation of money scarcity and believe it. They accept as matter of common sense that either taxes need to be raised or funds borrowed from people’s existing savings if "we are to live within our means."

Thus, the primary strategic objective must be to disabuse the audience of this myth about government finance and lack of affordability. Since this is an audience of progressives, it is necessary to persuade them that not only is lack of affordability not the case, but also that progressive programs will not be adopted when they are most needed, in contractions, when it appears, that “there is no money” available. Even if they are adopted in good times, voice will be raised to cut them bank in bad times, when they are especially needed. So the alternative is either to forgo reforms or else cut elsewhere to be able to “afford” them, both of which are anti-progressive. Progressives need to be convinced that the lack of affordability argument is false and is being used against them.

Having established that a chief issue is affordability, it is necessary to use substance as a tool in persuasion to show how a government can always afford to use its own currency to move private real resources to public use and that government not only should do this when the private sector is either unwilling or unable to employ available resources but must do this to avoid the economic inefficiency of waste. It is not reasonable economically to do otherwise, unless there are other reasons not to do so. That is a matter for debate since all action involves trade offs.

The primary message of MMT politically is that so-called affordability is never the constraint on governments that are sovereign in the currency they alone issue as monopoly providers, that is, float their currency and and forgo borrowing in currencies that the government does not issue. The financial capacity of such a government is unlimited operationally. 


This is a trivial point, but the public by and large doesn’t realize it. They need to be told because they are under the illusion that the government is like a firm or person like themselves who are income-constrained and have to "live within their means" or go bankrupt. 

This is not all they need to be told, so the story doesn’t end there. That a sovereign currency issuer is not limited operationally by the amount of currency it can issue doesn't not imply that it can do so   without trade offs or consequences. 

But debunking the myth of lack of affordability is a sine qua non in persuading progressives that a progressive government can accomplish what progressives want to do. Presently many if not most progressives are being taken in by the myth of lack of affordability as the chief reason given they can’t do what they propose without raising taxes or robbing the grandchildren.

Debunking this myth, which seems to be a matter of common sense, must be the focal point because this is the major objection that the public is being inundated with by well-financed PR campaigns pick up and repeated ad nausea in the media echo chamber. 

Since it seems to be a matter of common sense, all alternatives seem to be counter intuitive. This presents a hurdle to persuasion. This is why debunking the government-as-big-firm-or-household analogy is crucial.

It is the lede. Never blow the lede.

Secondly is the “but.” JWM writes:
you never properly get to the “…but”. The “but” is the important bit: that it is prudentially constrained elsewhere, by the unused productive capacity of the economy. So being freed of worries about tax as revenue and debt accumulation, we are now apparently confronted with the far trickier business of calculating (or agreeing on) output potential….
It is of course true that there are other issues than “affordability.” Randy Wray sums them up in a nutshell. There is the real constraint of available resources and there are also the financial considerations of price stability (inflation rate) and currency stability (fx rate). There are also voluntarily imposed political restraints that can be changed or removed through political action. Availability of real resources is a hard constraint unless it can be removed by taking action. Price and currency stability are not and differ based on regions and conditions anyway.

Government can only use fiscal policy up to the limit where lack of available real resources, including human resources, begins to spur inflation or (inclusive) the fx rate begins to adjust to increased currency issuance. But exactly where such limits lie is controversial. Many of the present limits are arbitrary or arrived at based on questionable assumptions and theory that doesn't fit reality very closely. They also apply differently under different conditions.

This may be all an audience needs to know in a brief introductory MMT presentation to non-experts. However, if there are economically or financially astute people in the audience that will modify the situation. The presenter will need to know the MMT literature well enough to present the argument in greater detail and cite documentation.

For example, the affordability argument doesn’t hang on the capacity of the currency issuer to issue currency at will (by fiat), but rather the intertemporal government budget constraint. The simple answer is that the cb sets the interest rate and as long as r<g, no problem (where r is the interest rate and g is the growth rate). Questioners can be directed to Scott Fullwiler’s paper, Interest Rates and Fiscal Sustainability, for a detailed answer.

Similarly, the short answer to availability of real resources is to look at the employment figures. If workers are available, then real resources are being idled, which is wasteful when they could be put to use with a job guarantee. The depth answer here will require reference to MMT literature.

One problem is therefore that there are essentially two cohorts — expert and non-expert — and they must be addressed separately, even though both may be present in the same audience on any particular occasion. Then the challenge becomes addressing both as adequately as possible without losing either. This may be difficult only to scope limit and time constraint. It is a challenge in the scope of 500 word op-ed, for example.

JWM continues:
Life used to be so easy: tax revenue as a constraint needs nothing more than an adding machine. Politicians, policy makers, and citizens will still have to thrash out allocation of scarce resources. So “money” is not a scarce resource (of the state), but everything else is…which is measured in money also? Are we getting anywhere here, practically speaking?
The issue here is chiefly twofold in my view.

First, the prevailing view in economics and finance is that monetary policy is always or generally sufficient and fiscal policy is not only unimportant but must be disciplined or politicians will create instability that the cb will have to counteract through monetary policy. This view assumes that the fiscal authority and the monetary authority act inversely rather than in tandem.

Secondly, the prevailing view is that sound management is necessarily hierarchical and cannot responsibly be left to the consensus of democratic governance. Some measure of technocracy is required for sound economic policy and finance, and for responsibility in government.

Either a technocratic approach is adopted that is hierarchical and less than democratic, or else “politicians, policy makers, and citizens will still have to thrash out allocation of scarce resources.” Those are the choices. Technocrats will choose the former, democrats will choose the latter and trust the process.

Voters in a democracy need to be informed. The first step in this process is being disabused of myths like lack of affordability (Barack Obama, Paul Ryan in the US) and “there is no other way” than privatization and deregulation (Margaret Thatcher and Ronald Reagan).

Voters also need to realize that the type of monetary system establishes the available fiscal space and that economic policy is about using that space efficiently and effectively to meet common objectives.

There is a lot more to know, but if politicians, policy makers and citizens all realized this much, the debate would not only be different from what it is now, mired in myths, but it would also be based on potentially sound reasoning.

JWM continues:
I know MMTers believe that bad policy is coming off the back of bad (economic) theory. What I see as an alternative at this point is bad policy coming from good theory (see Paul Samuelson quote at 58:15).
This is a debate that economists will need to resolve and non-economists probably don’t have much to contribute to it, unless they have extensive background. I would simply say though that presently there seems to be somewhat of a dichotomy between economic and finance that needs to be overcome for an economic theory to be taken seriously. I will leave that argument to experts in both.

JWM continues:
So how do things look when we all talk MMT? Are we talking about a complete revolution in the way politics, allocation of resources, taxation policy, etc. are determined? Which probably sounds like hard work to that audience. Or is it simply adopting a different viewpoint as to where the constraints really lie? WHich at the moment, for practical minded people (that audience), would be no significant difference at all.
 If "we all talk MMT," then we all talk in terms of actual monetary operations and national accounting, and observe stock flow consistency. If all parties are doing this already, nothing would need to change n this regard. In addition, MMT follows Minsky in holding that finance and economics are closely connected, e.g., through the financial instability hypothesis. Are we all talking this way?

Again, back to strategy and the audience, in this case a progressive political party. MMT does imply “a revolution in the way that politics, allocation of resources, tax policy, etc. are determined.” This is pretty central to progressivism, or at least it appears that way to me. Bernie Sanders is now calling for just such a "revolution."

An introductory presentation doesn’t have to spell that out anymore than is necessary. For example, the audience in the video is the Australian Green Party. The purpose of the presentation would be to show how shifting viewpoint to MMT would affect the ability of the Green Party to accomplish its objectives and meet the objection of the opposition, e..g, affordability.

But let's be clear. Economic policy is about trade offs. There is no policy that is going to please all people or satisfy all interests. The end in view of policy in a liberal democracy is the goal of liberalism from the time of the ancient Greeks — living a good life as an individual in a good society. (See I told you that this would converge toward philosophy.)

Liberalism is a philosophical position that stems from ancient Greece. The thinkers of the time explored political philosophy in great detail and with extreme seriousness. This was not just an intellectual exercise for them. The Athenian forum (Gk: agora) what perhaps the scene of the only true democracy to be achieved on the level of an entire state (Gk: polis). It survives in the New England town meeting.

In ancient Greece, the great thinkers that launched the Western intellectual tradition focused on the question of what it means to live a good life in good society. This question was answered dogmatically in the years of Christendom, but it arose again that the time of the Reformation and Renaissance, when the imposition of dogma began to be overcome and freedom of thought and expression was reintroduced. This impetus was aided by the rise of science and the success of technology.

Cutting to the chase, the classic work of modern liberalism is J. S. Mill’s On Liberty. John Stuart Mill was the eldest son of James Mill, who was an economist. J. S. Mill is known now mostly as a philosopher and political theorist but he also wrote on political economy. Suffice it to say here that Mill’s major contribution was linking freedom with self-improvement. Freedom from constraint and freedom to choose provide freedom for self-actualization based on self-unfolding. Freedom from, freedom to, and freedom for are the foundation of liberalism.

Humans are social animals. Hence, a free society is required for the individual freedom necessary to develop and express full potential. For Mill a liberal society should be organized toward achieving the utilitarian ideals of the greatest good for the greatest number.

Based on liberal principle the goal of government is to maximize individual freedom and opportunity for self-determination to the highest degree consistent with security, order, welfare and prosperity necessary for the common good, recognizing the changing conditions will affect this distribution, as will interest groups if permitted to accumulate power.

With respect to relating living a good life in a good society as it relates to political economy, I have been recommending revisiting John Kenneth Galbraith’s The Good Society: the Humane Agenda, as well as Economics and the Public Purpose. JKG sets forth issues and ideas that need to be upgraded in terms of changed conditions but also in terms if greater understanding in economics and finance. But his work is a good template from which to start. There are many other notable works as well, many accessible to non-experts and some written for popular consumption. 

There are many counter-examples on the right, too. Hayek's The Road to Serfdom, Milton and Rose Friedman's Freedom to Choose, Murray Rothbard's For a New Liberty: The Libertarian Manifesto, and Henry Hazlitt's Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics have been enormously influential in shaping opinion.

JWM writes:
The tax revenue constraint may be a fallacy but it is easy to understand. Are you to deny the average citizen one of the great democratic cudgels: “You are spending MY tax dollars!” “Not with MY tax dollars you don’t!” etc. Ok so it’s “wrong”. What is the alternative that keeps us disciplined? An MMT lecture won’t do it, I think most people get theory by looking at the practice of it.
What is the alternative to inculcating a false belief that taxation is necessary to pay for present expenditure and pay down public debt as a means for stoking fear of the consequences of lack of fiscal discipline.

The alternative is being properly informed about the scope and use and of fiscal space as set forth above and as explained in detail in the MMT literature, including how to use the fiscal potential of government to achieve truly full employment as a job offer for all willing and able to work, thereby ending waste of human resources.

Ignorance is no replacement for knowledge. Perpetrating myths is paternalism. Randy Wray cites Paul Samuelson advising against telling the public the truth to protect them from themselves.

Well then, why are we going through the expensive farce that masquerades as democracy? Just to make people believe falsely that they are in charge of their own lives and enjoy political self-determination. Or for entertainment. A reality show?

Actually, most people are probably more afraid of inflation (Weimar, Zimbabwe) as a consequence of "printing money" than of rising taxes because of fiscal imprudence, with just as little reason if the reality be known. Of course, that did not affect monetary policy because the central bank is a technocracy and as such is politically independent.

JWM ends with:
I’d like to see MMT collaborate with other disciplines: political science, sociology, microeconomics. Out of that, develop a modern monetary practice. Something practical minded people can engage with.
Hear, hear.

That would require people in different disciplines agreeing to talk to each other and then reaching out to do so. This would need some unifying purpose. 

I doubt that developing a modern monetary practice would provide it other than in a limited way. Is Bill Black making a big difference in law, for instance. 

Btw, Mat Fortater has written on Adolph Lowe, for instance, and Randy Wray on Kenneth Boulding.

Another example is economist Kenneth Boulding's contribution to systems theory and psychologist Abraham Maslow's contribution to management through his study of motivation. Economist E. F. Schumacher wrote directly on on philosophy in A Guide for the Perplexedand the semi-philosophical Small Is Beautiful: Economics as if People Mattered.

I would suggest that this unifying purpose be developing a practical philosophy of living a good life in a good societies a basis for liberal policy. Philosophy is about using reason in the most generally way and so it underlies all intellectual fields and disciplines. 

This reason-based approach is traditionally not one the instruments but also the purpose of liberalism socially, political and economically. Liberalism is reason-based. It is basically secular and humanistic, although it is tolerant of other approaches, too, to the degree that they do not assert themselves over reason.

This means integration of social, political, and economic liberalism, addressing the paradoxes of liberalism, and unmaking the faux liberalism of elites that fear actual liberalism as an integrated social, political and economic paradigm.

Without beginning with philosophy the project is likely doomed owing to unexamined assumptions that will lead to incompatibilities down the road. As Aquinas stated at the outset of De ente et essentia, paraphrasing Aristotle, “A small mistake at the beginning becomes a great one by the end.

79 comments:

Bob said...

A speaker could choose to limit their speech to demolishing myths. It need not go beyond the harm that those myths are perpetuating - harms which can be observed.

Engage the audience by addressing their misconceptions. Allow the audience to draw their own conclusions. The first objective is to challenge "common sense". The next is to link "common sense" to harms being inflicted on the public.

Cannot realistically expect to move forward until this baggage is dropped.

Next objective is to convey an understanding of MMT. This forms our perspective of "common sense". Then and only then can policy prescriptions be considered.

Ignacio said...

Right, is all about the framing. You win the argument by setting the framing. The mainstream still sets the frame, so they still are winning.

See how politicians pivot to the 'govt as household analogy' all the time, either because at core they don't understand it, or because public support forces them to when they make the mistake of implying MMT (like Trump a few weeks ago).

I haven't been particularly impressed with political and propaganda skills of anyone at the MMT blogosphere, coming usually from either academic or finance backgrounds I don't expect people to be. Being good at analysing things doesn't make you good at solving things, specially when the problem lies within an other domain than that you are analysing.

Ie. current economic problems (and by extension, many social ones) come from bad economic policy; economic domain. But to change that policy, it must be by indirection through the politics & propaganda domain.

Falling short on action and strategy in the political domain means progress is slow or absent, and the danger of reactionary forces always stopping and reverting any progress.

Andrew Anderson said...

First, the prevailing view in economics and finance is that monetary policy is always or generally sufficient Tom Hickey

How convenient for the rich and other most so-called creditworthy! Thieving but convenient that the central bank creates fiat to lower their borrowing costs.

and fiscal policy is not only unimportant but must be disciplined or politicians will create instability Tom Hickey

It's the banks that should be disciplined by making them 100% private with 100% voluntary depositors. Then the population could keep the usury cartel in check via convenient bank runs to their inherently risk-free individual citizen, business, State and local government, etc. accounts at the central bank - said accounts constituting an alternative payment system to the one that depends on banks.

that the cb will have to counteract through monetary policy. Tom Hickey

Such as IOR or other interest paying sovereign debt, ie. welfare proportional to wealth and not need?

Morally speaking, the usury cartel and supporters are thieving hypocrites. Economically speaking, the usury cartel is a paper tiger once it is properly understood?

Andrew Anderson said...

Speaking of instability, it's the government-privileged banking cartel that creates instability, ie. the boom-bust cycle.

Andrew Anderson said...

Thieving but convenient that the central bank creates fiat to lower their borrowing costs. aa

Via asset purchases (Open Market Purchases) and the Discount Window. But fiat should ONLY be created by or for the monetary sovereign (eg. US Treasury), not for asset owners or borrowers.

Not that the monetary sovereign should not equally distribute fiat to all citizens on occasion to, say, lower interest rates since that process cheats no one.

peterc said...

Good post/discussion.

In communicating with non-economists, I think the key point is to get across that for currency-issuing governments the hard policy constraints relate to real resources, not money. I agree with JWM that, yes, we should explain why money is not the constraint but in almost the same breath call for the focus to be on resources when pondering various policy options.

For instance, in the context of unemployment and underemployment, why restrict library opening hours if we have the librarians and the libraries? How does closing library doors early achieve anything useful? And ditto for many other activities.

I strongly disagree with suggestions that the average person would deem this change of focus from money to resources as practically insignificant.

When people think money is the constraint, they can be hoodwinked into thinking austerity makes sense.

For such people -- and they are legion -- a basic understanding of MMT is not just eye-opening but cause for a fundamental re-think on economic policy.

In terms of economic understanding, most people would probably be better off if they had never encountered a single idea of the (mainstream) economists but instead simply thought (or asked) about the real processes and real resources involved in pursuing a particular policy and considered its feasibility.

Matthew Franko said...

"government-privileged banking cartel that creates instability, ie. the boom-bust cycle"

Andrew that cycle is fomented thru fiscal policy not the banking institutions...

Andrew Anderson said...

but instead simply thought (or asked) about the real processes and real resources involved in pursuing a particular policy and considered its feasibility. peterc

Yes, but possession of purchasing power decides who gets to control those real processes and resources.

So the generation of purchasing power should be ethical to even hope for an ethical society.

Obviously, government subsidies for private credit creation are immoral unless we believe the rich should be allowed to steal from the poor.

Andrew Anderson said...

that cycle is fomented thru fiscal policy not the banking institutions... Franko

Baloney. Bank credit is lent into existence - hence the boom - and when repaid, goes out of existence (worse, it transfers interest to those with a lower propensity to spend or invest it) - hence the bust.

Fiscal policy does not require the destruction of fiat (via taxation by the monetary sovereign) so fiscal policy ALONE need not create a boom-bust cycle.

Andrew Anderson said...

Make that "Fiscal policy does not require the net destruction of fiat"

Matthew Franko said...

Bank credit is only increased when the borrower can identify increased income ... system income increases can only come from an increase in leading govt spending under a numismatic system... ie we cant go out and dig up gold and take it to the govt for additional USD balances..

Matthew Franko said...

Here is a summary from Amazon wrt JKG from the one reference:

"In this carefully reasoned manifesto, eminent economist Galbraith outlines his vision of the good society. To prevent recurrent stagnation and unemployment, he advises active intervention by the state. Arguing that the federal deficit is being used by conservatives as a pretext to attack social programs, he recommends a progressive income tax that eliminates tax concessions for the affluent, as well as ending government subsidies for business ("corporate welfare") and stopping the vast payments to the armaments industry. His version of the good society also encompasses a strong environmental movement, a more open immigration policy and a sturdier safety net for the poor and disadvantaged. "

WON'T WORK.

Great ideas as usual from the left but no technical competency required for implementation...

Matthew Franko said...

These two statements:

1. "banks lend against capital"

and

2. "banks lend to qualified borrowers"

are conflicted... one of them is wrong.... imo it is the first one...

Andrew Anderson said...

Bank credit is only increased when the borrower can identify increased income ... Franko

Ever hear of an asset boom? Or "reflexivity" (George Soros)? Or a positive feedback loop?

system income increases can only come from an increase in leading govt spending Franko

But we're talking about causes of the boom-bust cycle, not causes of potentially permanent income increases.

Andrew Anderson said...

2. "banks lend to qualified borrowers" Franko

Which automatically includes those with collateral, however acquired.

Btw, the perceived or real ability to repay legally stolen purchasing power (plus interest, of course) justifies exactly what, ethically or morally speaking?

ans: It justifies nothing at all.

Andrew Anderson said...

And certainly a government-subsidized usury cartel is condemned by Scripture, not commended as Franko seems to think.

Andrew Anderson said...

as well as ending government subsidies for business ("corporate welfare") via Franko about James K Galbraith's proposal

You should be scared Franko since "Jamie" at New Economic Perspectives said this about accounts for all citizens at the central bank:

" ... it’s an interesting idea. But having an account and having easy access to it are two different things. That is what neighborhood banks currently provide (imperfectly: impoverished communities are lamentably under served). Coupled with the notion of the Post Office Bank, though, this could provide a real solution to many ills, I think. In any event, some thought must go into how such accounts would be accessed (especially by people without computers and internet) and what infrastructure would be needed to be built out to make them widely useful. http://neweconomicperspectives.org/2016/01/money-banking-part-3.html#comment-1232620 [bold added]

MRW said...

Bob, good comment at June 18, 2016 at 7:27 PM. I agree with you.

Andrew Anderson said...

Btw, MRW, I've skimmed "Freedom from Debt" and it's a nice primer but so far no surprises to me.

Why you think I should need to read it is beyond me unless you think anyone who disagrees with you must be ignorant of MMT. I'm not so far as I can tell.

MRW said...

Tom, interesting post. I’m going to keep this one to ponder. However, in the first part, I would suggest that the better word for your use of strategy or strategic is tactics or tactical. [Try it.] Strategy is one thing and it’s hidden and should be kept secret. It’s the thing selected after significant work is done examining (1) what will happen if we extrapolate the present into the future with no change in our current way of doing things, (2) what would be ideal given the same scenarios used in #1--we need to know this--and then (3) what we want the future to be once the scenarios raised in (1) and (2) are fully understood. Then and only then can one strategy be determined from (3) to attain that future. The subsequent tactics and goals determined are how we accomplish that strategy, and hence, create that future. Tactics and goals can take a few months or a few years depending on the timeline of what you want to create. Only at that planning point do you look at resources and constraints, and if you can’t accomplish your tactics and goals with the available resources and constraints, you start the process over again because you missed something in your (1), (2), (3) that you didn’t see or understand.

I scoff when I hear people talk about a “strategy session,” which I would encounter all the time as a consultant. They thought it could be accomplished in an afternoon, or over a week at a retreat. You cannot develop a proper strategy for anything without understanding how what you’re working with works. At an operational level; which can be known given enough thought, and must be known to be effective. Especially large systems. And creating a future that reflects new values involves far more than the system being examined. It’s all the inputs that will affect it over time. Which, Tom, is what the overall thrust of your post is really addressing. And which is why I say that what you are saying is that the tactics don’t match the strategy because they dont have one.

MRW said...

Then it flew over your head, Andrew. Because it is far from a primer. The operational nuggets in there are wonderful.

Whatever.

MRW said...

Tom,

Correction. ...done examining (1) what will happen if we extrapolate the present into the future with no change in our current way of doing things, (2) what would be ideal given the same scenarios...

should read

...done examining (1) what the future would look like if we extrapolate the present into the future with no change in our current way of doing things, (2) what the ideal future would look like given the same scenarios...

Andrew Anderson said...

In that case, I'll read it more carefully.

But like I've said, the operational nuggets are irrelevant wrt an argument for equal protection under the law - a concept which you are oblivious to, if the typical pragmatist, which I suspect you are.

Btw, NOTHING in that primer has flown over my head, so far.

MRW said...

an argument for equal protection under the law - a concept which you are oblivious to

hunh? On what planet?

Andrew Anderson said...

Well then, prove me wrong, the cause could use an ally.

MRW said...

You should be scared Franko since "Jamie" at New Economic Perspectives said this about accounts for all citizens at the central bank

The central bank was created to prevent bank panics, which Canada, Great Britain, France, and Germany did not have in the 19th C. because they had a central bank. That’s what Robert Owen discovered when he travelled to those countries in 1898 and 1899 on his own dime before he ran for the Senate in 1900 to correct what the panic of 1893 had created in the US and globally. Owen was a country banker and wanted to end the devastation that the panics had created for Oklahomans and other Americans. All of this is in the Congressional Record of 1900 well before the Federal Reserve was anticipated.

The central bank would have to have depositories in every city and town in America to accommodate your idea. The reason why that idea never took hold--if you examine the historical record--is because Americans then were terrified of socialism, which arose in Russia after the global Panic of 1893, not the US Panic of 1907. Americans did not want the federal government nationalizing their local banks. This was amply expressed in over 3600+ pages of hearings that Owen, as the then Senate head of the banking committee, held in October 1913. Again, historical record. So the Federal Reserve managed the nation’s payment system through the local banks.

MRW said...

Addendum: So the Federal Reserve managed the nation’s payment system through the local banks which Owen made damn good and sure would be under government control, not NY banker control, which the Glass House bill did. People like G. Edward Griffin (The Creature from Jekyll Island have the history wrong.

Andrew Anderson said...

The central bank would have to have depositories in every city and town in America to accommodate your idea. MRW

Local Post Offices, ATMs and the Internet could accommodate the basic services a central bank may properly provide - either to banks or to the general population, to writ: fiat storage and transactions, certainly not loans or the payment of interest since those discriminate in favor of the rich.

Americans did not want the federal government nationalizing their local banks. MRW

The banks would still exist with accounts side-by-side with citizens, businesses, State and local governments but with no special privileges. There would be no nationalizing - just deprivileging - that equal protection under the law thingy.

Tom Hickey said...

I would suggest that the better word for your use of strategy or strategic is tactics or tactical.

I said "strategy" because that is the way Scott approaches it. Meters need to converge on a strategy that works and then adapt that strategy to particular conditions such as the audience involved using tactics. The tactics may change situationally. but the strategy doesn't.

This conforms to the way the terms "policy," "strategy" and "tactics" are used operationally.

Andrew Anderson said...

Addendum: So the Federal Reserve managed the nation’s payment system through the local banks which Owen made damn good and sure would be under government control, MRW

And now the banks control the government - via blackmail wrt to the payment system.

We need an ADDITIONAL payment system at the Fed that is independent of the banks. That's what individual citizen, business, etc accounts at the Fed would constitute.

Tom Hickey said...

Meters should read MMTers.

Automatic spelling checker again. I added it to the dictionary.

Tom Hickey said...

an argument for equal protection under the law

I suggested previously that equal protection is a legal concept that is highly contested. One would first need standing before a court and then successfully argue the case. No doubt it would go to SCOTUS in the US and probably the highest court elsewhere.

Just asserting this as obvious is irrelevant.

MRW said...

And now the banks control the government - via blackmail wrt to the payment system.

NO. The bankers control the government. And that is the fault of our elected officials--therefore, the voters for allowing it--and time, not the central bank.

Tom Hickey said...

The bankers control the government.

US Sen Dick Durbin: "The banks own the place" (Congress).

It's obvious they also own the WH.

Andrew Anderson said...

One would first need standing before a court Tom

Anyone who has made a forced loan (a deposit is legally a loan) to a depository institution should have standing before a court. That includes nearly all Social Security recipients since nearly all of them can only receive benefits via direct deposit and individual citizens may not have accounts at the Fed to receive those direct deposits.

So what should one call forced loans via government privileges if not unequal protection under the law?

Of course it would go to the Supreme Court. Perhaps a class action suit and a huge award for damages are possible too.

Andrew Anderson said...

NO. The bankers control the government. MRW

Bankers do what the system requires of them.

The solution is to fix the system.

Tom Hickey said...

Bankers do what the system requires of them.

The solution is to fix the system.


Yes, that is the MMT solution. But that is easier said than done in the US. The bankers own the system since they fund the political campaigns.

As I have been saying, until the money is out of politics, lobbying is shut down, and the revolving door locked, nothing much will change.

Tom Hickey said...

Anyone who has made a forced loan (a deposit is legally a loan) to a depository institution should have standing before a court…

I'll consider that hypothetical until I hear it from a qualified attorney.

Andrew Anderson said...

I'll consider that hypothetical until I hear it from a qualified attorney.
Tom Hickey

Well, you might mention it to any you know. Could make one famous and the case should be a relative slam-dunk given the obvious nature of it.

Tom Hickey said...

Well, you might mention it to any you know. Could make one famous and the case should be a relative slam-dunk given the obvious nature of it.

The problem is that the law is not obvious, which is why there are lawyers.

Andrew Anderson said...

Yes, that is the MMT solution. Tom Hickey

No it isn't, if Warren Mosler is an example. Warren wants "asset-side discipline", not de-privileging the banks, which would make their liabilities real indeed, not the largely virtual ones they are currently wrt to the general population.

Andrew Anderson said...

The problem is that the law is not obvious, which is why there are lawyers Tom Hickey

We're talking basic Constitutional rights, including the ones that ended chattel slavery and those trump whatever law a bank-owned Congress and President may have passed.

What we have now is debt and wage slavery via unequal protection under the law wrt banks. Where are privileges for the banks protected by the US Constitution? They aren't because that would make their thievery too obvious.

Tom Hickey said...

No it isn't, if Warren Mosler is an example. Warren wants "asset-side discipline", not de-privileging the banks, which would make their liabilities real indeed, not the largely virtual ones they are currently wrt to the general population.

In addition to asset-side discipline, Mosler recommends going back to plain vanilla banking. That would be a huge change in the US banking system.

Bill Mitchell recommends nationalizing the banking system.

Nothing will happen in the US without deep political reform first.

Andrew Anderson said...

In addition to asset-side discipline, Mosler recommends going back to plain vanilla banking. That would be a huge change in the US banking system. Tom Hickey

Neither are principled solutions since they leave bank privileges in place.

Bill Mitchell recommends nationalizing the banking system.
Tom Hickey

I like Bill but that solution won't stand for long since it's unprincipled too.

Nothing will happen in the US without deep political reform first. Tom Hickey

Such as?

In any case, reformers should know what is true reform and what isn't.

Tom Hickey said...

Such as?

I already said above.

Get the $ out of politics, shut down lobbying, and lock the revolving door.

Tom Hickey said...

We're talking basic Constitutional rights, including the ones that ended chattel slavery and those trump whatever law a bank-owned Congress and President may have passed.

What we have now is debt and wage slavery via unequal protection under the law wrt banks. Where are privileges for the banks protected by the US Constitution? They aren't because that would make their thievery too obvious.


You have a vivid imagination about US law.

Andrew Anderson said...

What do you find vivid? The debt and wage slavery part? I'm not exactly plowing new ground with those concepts, am I?

Andrew Anderson said...

What are depository institutions anyway that removing their privileges is so unthinkable?

Do bank defenders belong to a secret society or sump'n? :)

MRW said...

Andrew,

Anyone who has made a forced loan (a deposit is legally a loan) to a depository institution should have standing before a court. That includes nearly all Social Security recipients since nearly all of them can only receive benefits via direct deposit and individual citizens may not have accounts at the Fed to receive those direct deposits.

You keep calling it a “forced loan,” as if a bank is free to use that money, as if it were a loan to the bank.

How many times do you have to be told that banks are not allowed to use their customer’s demand deposits other than to collect interest on it? Demand meaning that a customer is free to withdraw the moolah at any time, or transfer it via their iPhone to another bank in the middle of the night when the bank is closed.

If you had read Newman’s book carefully you would have read that it is against the law. He states it emphatically, yet you persist in these fantasies.

Tom Hickey said...

What do you find vivid?

You seem to think that Anglo-American law is based on justice and a code. It is not. It is based on precedent in the US and UK. Argument is intricate and historical. This is why it is never clear to non-lawyers what is going on without professional counsel. Moreover, the outcome is not clear until after the final appeal.

This matter is far from the cut and dry case you assume it to be.

MRW said...

US Sen Dick Durbin: "The banks own the place" (Congress).

FROM BILL BLACK’S MAY 1, 2011 INTERVIEW WITH HARRY SHEARER: (He was talking about mortgage bankers here, who are only regulated by the Federal Reserve.)

"BILL BLACK: [...] And these loan brokers literally frequently had been flipping burgers in
their prior jobs.

HARRY SHEARER: Well, you know, I– I remember in the golden age of all this that you’d turn on the
news station on the radio and hear these guys who sounded like they’d just graduated from college, if that,
offering these mortgage deals from companies you’d never heard of before, and more than one of them would
say at the end of the commercial, “Come on! This is a no-brainer!” And I thought, yeah, right. But why is it
in the interest of the banks to let these people be making their loans for them?

BILL BLACK: Oh, it’s completely contrary to the interest of the banks, but banks aren’t animate. Officers
run banks
, and the officers – in jargon, they’re called “unfaithful agents,” and that pretty much captures it,
although it’s not very strong, right? The CEO acts in his benefit. That’s – again, the whole idea of looting –
that’s the looting, the CEO loots the corporation, but it’s bankruptcy for profit. The corporation fails. The
CEO walks away wealthy.

And you are correct, if I add securitization to this mix, I can keep it going longer, and so instead of making
five or six million dollars, I can keep this going and make $120 million if I grow really rapidly. And so, yes,
the securitization adds to the mix, but it’s not a necessary condition to get these frauds going."

Matthew Franko said...

"Meters should read MMTers. "

Maybe not Tom... could actually be considered revealing.... ;)

Matthew Franko said...

"NO. The bankers control the government."

Morons controlling morons...

"Leave them; they are blind guides. If the blind lead the blind, both will fall into a pit." Mat 15:14

Translation: 'Fuck all of these people...'

Bob said...

MMT Meter Maid

Andrew Anderson said...

How many times do you have to be told that banks are not allowed to use their customer’s demand deposits other than to collect interest on it? MRW

I was talking RESERVES (aka fiat account balances at the central bank in the case of non-banks), not bank deposits.

The fact that SS recipients are not allowed individual accounts at the Fed means they are FORCED to deposit THE FIAT they would otherwise receive by default with a bank or other depository institution which DOES have an account at the Fed.

Nor do you appear to understand "loans create deposits" (especially with our present system of government-privileged banks since the liabilities are largely virtual wrt the general population) or even that a deposit, demand or otherwise, is legally a loan, not a bailment.

Andrew Anderson said...

Translation: 'Fuck all of these people...' Franko

As if the God of the Bible can't speak for Himself, Franko?

He says what He says and you'd be wise to listen (Proverbs 8, etc., etc., etc. ...).

STF said...

Great post, Tom! BTW, I discussed some of this last year here FWIW http://neweconomicperspectives.org/2015/01/replacing-budget-constraint-inflation-constraint.html

MRW said...

Andrew, reserves can’t be borrowed. Reserves travel with the deposit. (Bank a moves the deposit and the reserves to Bank B.)

I was talking RESERVES (aka fiat account balances at the central bank in the case of non-banks), not bank deposits.

What “non-banks?” Non-banks can’t have accounts at the Fed. Even if the Fed is buying mortgage or corporate bonds, as it did during the crisis, some bank in the United States must ultimately hold the reserves.

Nor do you appear to understand "loans create deposits” . . . . or even that a deposit, demand or otherwise, is legally a loan, not a bailment.

The deposit is a LOAN TO the customer and the asset it represents is an asset to the bank.

You’re confused.

MRW said...

Correction: and the asset it represents is an asset to the bank.

should read

and the asset it represents is ‘owned' the bank until the loan is paid off.

Andrew Anderson said...

What “non-banks?” Non-banks can’t have accounts at the Fed. MRW

And that's the point, supposed defender of equal protection under the law.

The deposit is a LOAN TO the customer and the asset it represents is an asset to the bank. MRW

It can be a loan FROM a bank but it's always a loan TO a bank.

Andrew Anderson said...

What “non-banks?” Non-banks can’t have accounts at the Fed. MRW

The US Treasury does, of course. And other central banks. And a few specialized institutions such as the IMF and World Bank but not citizens, even though fiat is as much their money supply as the banks' or at least should be.

MRW said...

Whatever my quibble about strategy and tactics, Tom, I thought your post was thoughtful.

MRW said...

The US Treasury does, of course.

Name one.

MRW said...

The Federal Reserve has four types of clients;

1. US government
2. US banks
3. Foreign governments
4. Foreign banks

Andrew Anderson said...

Name one MRW

I just did:

The Federal Reserve is the fiscal agent of the U.S. Treasury. Major outlays of the Treasury are paid from the Treasury's general account at the Federal Reserve. from https://www.federalreserve.gov/monetarypolicy/bst_frliabilities.htm

Matthew Franko said...

Andrew I cannot be more plainer: I am not a Jew.

Matthew Franko said...

Andrew I can honestly say that I have NEVER learned ANYTHING from "Proverbs".... A-N-Y-T-H-I-N-G.

Matthew Franko said...

Andrew,

Do you also wear a yarmulke and celebrate the Passover?

Where do you draw the line?

Stoning homosexuals? Stoning adulterers?

Tom Hickey said...

Thanks, Scott.

Andrew Anderson said...

I draw the line based on all Scripture (2 Timothy 3:16).

There's such a thing as "rightly dividing the word of truth" (2 Timothy 2:15) too but that requires respect, not contempt, for Scripture.

Tom Hickey said...

Whatever my quibble about strategy and tactics, Tom, I thought your post was thoughtful.

Thanks, MRW.

Andrew Anderson said...

Andrew, reserves can’t be borrowed. MRW

Yes they can be but one must have an account at the central bank in order to borrow them (or be the cb itself). We should all have accounts at the central bank so we can all borrow and lend fiat itself, aka "reserves" in the case of banks

Reserves travel with the deposit. (Bank a moves the deposit and the reserves to Bank B.) MRW

No. Reserves are used to settle account DIFFERENCES between banks, generally overnight so reserves don't necessarily move 1-for-1 with deposits. If Bank A owes Bank B what Bank B owes Bank A then no reserves move between them.

MRW said...

No. Reserves are used to settle account DIFFERENCES between banks, generally overnight so reserves don't necessarily move 1-for-1 with deposits.

=======================
An individual bank may want to increase its market share of deposits, in order to improve its liquidity, because if some of its deposits are moved to another bank, then the first bank must provide cash (reserves) to cover that amount in its Fed account, as the Fed moves reserves from the account of the first bank to the account of the second bank.

Newman, Frank N. (2013-04-22). Freedom from National Debt (p. 16). Two Harbors Press. Kindle Edition.
=======================

You are pulling shit out of your ass.

Andrew Anderson said...

Whether reserves are transferred at the same time as deposits or overnight is irrelevant*; reserves are used to settle DIFFERENCES between what banks owe each other.

Thus banks are arranged in a government privileged cartel to minimize their need for fiat. Moreover, since only they (banks, etc.) in the private sector may have accounts at the Federal Reserve, those who would naturally receive fiat itself (SS recipients, the military, etc.) must instead deposit that fiat into a bank, etc. or be limited to unsafe, inconvenient physical fiat, assuming the government will even pay them with a paper check and that they can cash it for a reasonable fee.

*except individual banks could easily be overdrawn at the Fed by say, 11:00AM, when they would have been OK by the end of the day when what was owed them was paid.

Andrew Anderson said...

Besides, where's the harm in allowing inherently risk-free accounts for all at the central bank? Too much for their Commodore 64 to handle?

Of course the real reason is that government-provided deposit insurance and other privileges for the banks could then no longer be justified and then the whole scheme whereby the poor are forced to lend to banks to lower the borrowing costs of the rich would start to unravel.

Can't have that, huh?

Matt Franko said...

Andrew if you think the Greek Scriptures are some sort of fleshly behavior modification guide for mankind you are sadly mistaken.... I'm sorry brother....

MRW said...

Whether reserves are transferred at the same time as deposits or overnight is irrelevant*; reserves are used to settle DIFFERENCES between what banks owe each other.

Reserves are required by the Fed whether or not one bank owes another bank when deposits change banks. Reserves are required on all new deposits created by the bank. The Fed sets this reserve rate from 2% to 10%. Currently, it’s around 2%. (See Newman)

Andrew Anderson said...

So what? My point is that the disallowance of individual citizen, business, etc. accounts at the central bank and government-provided deposit insurance instead mean the banks have far less need for reserves and moreover they benefit from forced loans from SS recipients, the military, etc., to provide what little reserves they do need.

MRW said...

You’re a waste of time, Andrew.