Monday, August 22, 2016

Neil Wilson — "How The Government’s Super-Platinum Credit Card Works"

Excellent simple explanation of why the government as household or firm is wrong.

Modern Money Matters
"How The Government’s Super-Platinum Credit Card Works" in Modern Money Matters
Neil Wilson


Kaivey said...

Conservative economics and libertarianism should be dead in the water. The ruling class, the aristocracy, the One Percent, the elite, as the libertarians call them, don't want you to know about this. Despite what they say, the elite want us taxed so that we hate the government. Small government means the elite rule and so get to steal everything.

MMT means that essential services will always be run more cheaply by the government.

Any decent moderate government will work for the benefit of everybody, so it will leave a large private sector in place for people to do their art, running businesses, achieving things, finding fulfilment, living the good life.

It would be the opposite of austerity, or right wing economics. The money that the government injects into society by paying good wages to public sector workers would eventually feed through into the private sector, which is good for private business.

So, ordinary business people are mad to vote conservative, and they have always been duped by the aristocracy. Businesses work better when wages are good. Businesses like lots of people with spending money.

So why vote Conservative every again. 40 years of right wing economics, neoliberalism, and austerity has brought nothing but misery and poverty.

Matt Franko said...

"MMT means that essential services will always be run more cheaply by the government. "

No it doesn't MMT says if the govt runs too high a deficit then we could get "inflation!"... So MMT is still Monetarist in this regard... Don't get carried away...

Neil Wilson said...

'No it doesn't MMT says if the govt runs too high a deficit then we could get "inflation!""

It doesn't at all Matt.

That is simply incorrect.

Deficits are largely irrelevant since they are a residual, and the concept of inflation in MMT is fairly unique because it uses the theory of buffer stocks to manage the process. This is what gives us 'loose' full employment with price stability without having to revert to ineffective incomes policy mechanisms.

John said...

I dunno, Neil! Your argument's right, but I've heard and read Bill, Randy and Stephanie argue exactly what Matt's said: too big a deficit can create inflation. Presumably, Bill and co are saying that this is the case without a JG. With a JG to anchor inflation, the argument is very different, which it is.

Leaving aside the fact that it explains how economies work, MMT's best feature is the JG: it restructures the social economy and rids us of inflation. They should be clearer about that, and it isn't clear in the way they phrase things that Matt is wrong in what he says.

Tom Hickey said...

I would say that the MMT economists are ambivalent on this is popular writing versus academic. The big thing in the US has been "the deficit is too big and public debt is onerous." So they often write in terms of the deficit and debt, countering "the deficit is too big" with, "no, the deficit is too small."

MMT is easily summered using the sectoral balance approach and the palace of credit and debit across the sectors. But this is just a snapshot of policy. Fiscal policy is also targeted for efficiency and effectiveness wrt public purpose.

Some erroneously think that the MMT policy that recommends increasing the deficit is about draining spendable funds into government securities, but that is not the case. This is not the transmission mechanism according to MMT because government securities are highly liquid as well as being prime collateral for borrowing including repo.

The MMT economists are all well aware that it’s spending in excess of supply that may result in inflation. As the elasticity of supply, including labor, decreases as the economy approaches capacity, the price level and wage levels may begin to increase. This can be addressed by cutting government spending or increasing taxes in order to drain spendable funds from deposit accounts (M1), which results in increasing the deficit as a residual per functional finance.

Regarding the JG and inflation, the JG acts as a price anchor though the wage that the government sets as the base rate for an hour of unskilled labor, just as the cb sets the base rate by setting "the interest rate." As inflation picks up, wage pressure increases and firms cut back hiring and then begin laying off workers. The JG is available to them so the buffer stock of employed increases. But, most importantly, the government does not index the base rate to inflation but maintains the price anchor steady throughout the downturn, and providing a buffer stock of labor ready to be absorbed in the recovery.

But in the blogs and sound bites, these two are often not connected, and some fail to make the connection because it is not clear to them.

Matt Franko said...

They are trying to pound a deterministic peg into a stochastic hole... wont work...