Friday, July 27, 2018

Ellis Winningham — How to Draw Unique and Entertaining Comparisons to Express MMT Concepts

People always ask me how I come up with interesting and fun analogies to teach MMT. So, I thought it would be fun to address that question. Now then, when you ask that question, you’re basically asking me to describe how my mind works. That’s kind of hard to explain. I do think in very unusual ways, but I’ll give it a go....
Ellis Winningham — MMT and Modern Macroeconomics
How to Draw Unique and Entertaining Comparisons to Express MMT Concepts
Ellis Winningham

See also

On the Use of the Ubiquitous Term “Printing Money” by MMT Novices – Please Stop Using It

32 comments:

André said...

I was reading Ellis' "On the Use of the Ubiquitous Term “Printing Money” by MMT Novices – Please Stop Using It", and it really confused and annoyed me.

I was writing a comment, but then I realized that it was not possible to comment (which is a shame, some good debates could emerge, but that is his call).

I will post the comment here instead, in case anyone feel interested...

---

You know, when I say that I don't like Hillary, people automatically assume (in their ignorance) that I am a Trump supporter. People get it wrong because they are dumb. Should I then lie and pretend that I like Hillary just to avoid people assuming that I'm some pro-Trump guy? No! If they are dumb, it is not my problem. Lies would make things worse and reinforce ignorance, lack of dialogue, lack of opinions and so on. I don't like Hillary and I don't feel that hidding it is good in any way. I will not let people hijack my opinions or world facts just because they like to understand things wrong.

"The point is that when you use the term 'printing money' to describe government spending, you are perpetuating the above nonsensical view of currency with the general public"

There is something very wrong here.

The fact is that government DOES print money. Are you telling us to lie, just to avoid cofusing non-MMT people? That would quickly make things worse. How would you explain the existence of mints? Are they just a fantasy, a lie?

People who think that "printing money" is some kind of witchcraft are the ones getting it wrong. People who know that ineed the government prints money are the ones getting it right. We should not pretend that the reverse is true.

When someone call that a fact is a "ubiquitous term", a big alarm sounds in my mind...

"By using the term “printing money” you are telling the public that there are real dollars and fake government-printed dollars"

No, I am not telling such absurd. If people understand it, then they are understanding it wrong. However, I refuse to pretend that the reality is not the reality just because I am talking to someone dumb... The fact is that the government can and does print money. What should I say? Should I lie and claim that it doesn't? Is that the solution for the problem? It is not.

I would get annoyed if anyone inside the MMT community (exactly the ones who should know better) start saying that the government doesn't print money. That would not only be confusing, but outright wrong.

"This is why the word 'budget' when applied to a currency-issuing national government is misleading and should not be used"

Oh god, are you saying that we shouldn't apply the term "budget" for the government? That is the technical, legal and judicial term, so it puzzles me why you should pretend that it is something else. And a budget is nothing more than a limit on spending, usually my project, area or theme. When you say "I'm out of budget", you are NOT saying "I'm out of money", even in daily-life. Hence, budget is the perfect word. It just means a limit on spending and nothing more. And the fact that the budget is legally called "the budget" is the main reason why you should call it "budget" and avoid confusion.

André said...

… Part 2
"The fundamental insight of MMT is that the national government has flexible policy space because it does not have a hard financial constraint on its spending"

Hm, well... I may be wrong on that one, but I guess the fundamental insight is that currency is nothing more than a government tax credit or IOU (and that taxes drive money and so on). Isn't it? Everything else derives from that. I may be wrong on that one though.

"In short, you do not fund the US government, the US government funds you."

Well, yes, and Bill Mitchell insists on that a lot. However, sometimes I feel that when people say that "we fund the government" they are trying to say something like "we are the ones who provide the real resources for the government". I may be wrong on that too, but that is what I feel people are trying to communicate - and, if it is the case, they are not wrong, they are just communicating badly because they do not know better...

"The US dollar is not a piece of paper, or a coin. It is a unit of measurement just like kilometres is a unit of measurement"

"The important insight from this that the novice should obtain is that the US dollar, the Pound Sterling, the Australian dollar are units of measurement, just like “meters”, “feet”, ‘inches” that measures the size of obligations"

Well, some five or six years ago I read it from Scott Fullwiller or maybe from Warren Mosler, I don't know, and as a novice, it got me very confused.

After a lot of time reading a lot of MMT work, I could understand what made me confused. The fact is that the word "dollar" stands both for the abstract measure of credit and other concepts.

For example, I participated in a promotional event and earned three BigMac coupons, a piece of paper that I could give to the local McDonalds and redeem it for a BigMac each. There are at least three objects in play here: the unit of account (three units), the physical coupon (a proof that I earned the right to have a free BigMac) and the BigMac itself (the food, a sandwich).

Unfortunately, the word dollar is employed to describe at least three district objects: a unit of measurement (of credit), the physical receipts that prove that you earned the right to extinguish tax liabilities, and the tax liabilities themselves.

When you focus on one concept only, things may get confusing, I don't know.

André said...

… Part 3
"the novice who uses the term “printing money” is saying that: 1.) The national government prints paper cash to spend 2.) The dollar is a precious, rare commodity and the national government has none of these dollars."

No, it is not. It is saying that the government prints money. And that is true. The government does print money. Let's not hide the truth, and pretend that the government does not print money.

Also, I would like to point out that "printing money" may refer to the literal process of printing currency notes, but it metaphorically may also refer to the mint of coins (who, obviously, are not literally printed, because you don't print coins, you mint it, but, it is similar) and the electronic creation of virtual currency (bank reserves).

I think the terms "issuing currency" or "creating currency" are more precise and preferable, but, you know, "printing money" is also acceptable.

"You can see this incorrect understanding manifesting itself in a meme circulated by MMT novices showing sheets of paper currency being printed by the Bureau of Engraving and Printing with a caption informing everyone that this is where the government gets its money to spend. That meme is utterly embarrassing"

Never seen this meme, but what is embarrassing about that? Are you claiming that the government doesn't print dollar notes? Now I got really confused.

"Hopefully as you can clearly see, the term “printing money” has no connection to the real world because currency is not a physical object, or even a digital one"

No? Dolar notes are not currency? Dollar coins? Bank reserves? What are they than? I guess you have a different dictionary from the rest of the world, but I cannot even know now, because I'm really confused.

"When you measure the length of a driveway, are you “printing meters”?"

Not, but when the government is distributing tax credits (IOUs) to people, it IS printing currency (printing dollar notes, minting dollar coins, electronically creating bank reserves).

"A paper $10 bill is just the physical representation of what is actually a mere idea"

Yes, and it is called "a dollar" also (actually, 10 dollars). When people ask "where does my one dollar comes from? does the government issue it?" they are referring to the bill that is in her wallet, not the measuring unit.

The word "dollar" doesn't refer just to the measurement unit as you claim. The same word is employed for other things also. That is how English language goes, what can we do? Pretend that English is not English?

Tom Hickey said...

IIRC, the fundamental insight of soft currency economics is that the a government that is sovereign in its currency has monopoly on the currency, with all that implies. MMT was developed from his soft currency economics. The MMT economists fleshed it out.

Tom Hickey said...

Should be "Warren Mosler's soft currency economics."

Matt Franko said...

“Printing money!” is an analogy (literary form) used by Art Degree people to try to explain an abstraction to the other Art Degree people ... both not trained adequately or developed an ability for abstraction...

Matt Franko said...

Just ask the MMT people “what is the equation for a banks leverage ratio?”

They will say “oh an equation? Oh I never took any math it’s too hard.... it’s a lot easier for me to just think of this meme of dollars coming off a printing press that I saw on tv one time ...”

Matt Franko said...

“What is the equation for lift on an air frame?”

“Oh i prefer to think it’s like a little birdie taking flight...”

Matt Franko said...

“Each year, the government persistently gives us shit we simply do not need. For example, instead of lupines, the government gives us military; more military than the previous year.“

This guy is probably biased anti-war....

André said...

"'Printing money!' is an analogy (literary form) used by Art Degree people to try to explain an abstraction to the other Art Degree people"

Well, then what the hell does the mint do?
How the hell does dollar notes and coins get to people's wallet? From some aether or something?

Tom Hickey said...

This is a good point, André.

"Printing money" is an obvious metaphor because people think of the mint and printing presses rolling off bills. Try to explain central banking and reserve accounting to them and you'll lose them.

There is a place for precision and that is in publications aimed at professionals.

If one wants to persuade voters, addressing them in the same terms won't work.

And one can be sure that the opposition will frame its message as persuasively as possible, accuracy be damned.

One can criticize them all day with analysis that goes over the head of most people, while they win the elections.

There science, then policy and then persuasion. They are different and must be approached differently depending on the task and objectives.

If one is aiming at voters, one must reach them and love them to action. In advertising this is called the hook. followed by the action step. What comes between links them.

Tom Hickey said...

Addendum: IN this process the public never gets to see the scientists. The politicians are the intermediary.

The problem is that the pols as policy makers are generally not qualified scientifically.

China fixed this by creating a technocracy where engineers have primacy of place. Xi is a chemical engineer, for example.

Ed Zimmer said...

I agree with André. I just finished reading Winningham's blog back through 2017. And I thought Bill Mitchell was pedantic! I don't know who he's trying to educate (in economic realities). It's certainly not the "General Public" (as claimed in his tagline). Probably just another group of economics students he can teach not to think for themselves.

Matt Franko said...

“Try to explain central banking and reserve accounting to them and you'll lose them.”

Boo hoo hoo for them then... F them... let them know they should not be allowed to have an opinion as they are not trained/qualified...

Matt Franko said...

Andre printing and engraving only produces a small fraction of USD balances... the majority rest are accounted for on information systems...

So if you come upon people who are not trained in Accounting and/or MIS we shouldn’t dumb it down and speak baby-talk goo goo da da “printing money!” to them so their pea brains can hope to avoid the hard work of abstraction...

Tom Hickey said...

Boo hoo hoo for them then... F them... let them know they should not be allowed to have an opinion as they are not trained/qualified...

Uh, that's the electorate, 99% of which are "artists" according to your metrics.

So only the small cohort that meets highly restrictive criteria should have the franchise?

Get real.

John said...

Tom: 'So only the small cohort that meets highly restrictive criteria should have the franchise?"

...and most importantly don't believe in evolutionary theory, possibly the most tested scientific theory in history, yet are supposedly STEM-advocates... oh, and thunder that whole countries should be destroyed if anyone says anything that offends their sensitive ears about the Unholy Empire of the United States (boo hoo hoo)...

Tom, the voting cohort should be on acceptance of evolutionary theory:)

PS. The deficit is TOO small. It should be about ten times bigger.

Andrew Anderson said...

So only the small cohort that meets highly restrictive criteria should have the franchise? Tom Hickey

Ethical fiat and credit creation systems would be much more straightforward and easy to understand than the current unprincipled, unstable, morally abhorrent ones.

The reason the public does not understand is that the current monetary system is monstrous.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford via https://www.brainyquote.com/quotes/henry_ford_136294

The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it. John Kenneth Galbraith via https://en.wikiquote.org/wiki/John_Kenneth_Galbraith


“The process by which money is created is so simple that the mind is repelled.” ibid

etc, etc. etc.

Andrew Anderson said...

Not to mention that it is the height of stupidity to mix what should be risk-free, always liquid deposits with at-risk, not-necessarily-liquid deposits in a single payment system and thereby allow the banks to hold the economy hostage.

Speaking of which, another Galbraith quote:

"A constant in the history of money is that every remedy is reliably a source of new abuse." John Kenneth Galbraith via https://en.wikiquote.org/wiki/John_Kenneth_Galbraith

So much then for unprincipled "solutions" such as the government insurance of private liabilities.

André said...

Matt

"Andre printing and engraving only produces a small fraction of USD balances... the majority rest are accounted for on information systems..."

1) I would argue that "printing money" is an informal way of saying "issuing currency". Although "issuing currency" is preferable, "printing money" is still a valid term, in my opinion, mainly because it is not ambiguous and everyone knows that is is an metaphor for "issuing currency". Such term does allow good communication. There is no point in being pedantic in this particular case. That is not the case of other words, that are very ambiguous and should be avoided (and we should be pedantic!). For example, the word "money" alone is extremely ambiguous, or the word "capital", and many others.
2) Your claim relates to what I call "the size fallacy". It is not because something is small that it is irrelevant or unimportant. Base currency (USD notes, coins and bank reserves) is what drives all other USD balances. There would be no bank deposit denominated in USD dollars if Base currency was not important or did not existed...

peterc said...

Andre, your "budget" comment made me laugh. Some of the MMTers' terminological choices seem to get updated on the fly. (This is inevitable to some extent of course.) One of the oldest posts on my blog, from 2010, for some reason still gets more hits than others. It happens to relate to budget deficits. After reading numerous posts by a leading academic MMTer on how it would be better to expunge the word "budget" from the MMT vocabulary when referring to the government's "fiscal balance", I studiously went through the post, eliminating any reference to the term, concerned that I would be setting readers and potential MMTers off on the entirely wrong terminological footing. Upon approaching the conclusion of the now heavily edited post -- 27 references to a government "budget" dutifully eliminated -- I discovered that a key link to a related article by one of THE leading academic MMTers had included none other than the words "The Federal Budget" prominently in its title! So there was apparently a time when "budget" was kosher. ;-)

More generally, the academic MMTers seem quite keen to distance themselves from the no doubt imperfect efforts of hapless bloggers such as yours truly, tweeters, facebookers, commenters and other activists silly enough to spend some of their free time proselytizing MMT, but sometimes -- just sometimes -- the origin of these imperfections is the horse's mouth! Maybe it would be better to leave the MMTing to the "worthy" heterodox economists -- at least one of which is employed by the state, incidentally, so fellow bigots might question the "worthiness" of his activities or the appropriateness of his salary -- rather than "unworthy" artists, bloggers, activists and other wannabe UBI recipients sullying the message? ;-)

Bob said...

The government can print money, issue cheques, or create the funds electronically. The last option is most commonly used today. "They're printing money!" should be replaced with "They're creating money electronically!" Good luck with that.

André said...

peterc

"Maybe it would be better to leave the MMTing to the "worthy" heterodox economists -- at least one of which is employed by the state, incidentally, so fellow bigots might question the "worthiness" of his activities or the appropriateness of his salary -- rather than "unworthy" artists, bloggers, activists and other wannabe UBI recipients sullying the message? ;-)"

I don't think I understand what you mean... who is this worthy heterodox economist employed by the state? I don't know if you are referring to someone specific or being ironic somehow...

I think all this discussion happening in the blogosphere is very healthy... Of course, it is all very informal, messy, non-scientific, not subjected to some reviews and processes that guarantee some level of quality, but it has its value too...

However, I don’t like when some craziness start to happen... like people claiming that the government doesn’t print money or that there isn’t a government budget (I don’t know what was your issue with the word “budget” or why you replaced it for something else... maybe in your context it made sense somehow, but I can't tell...)

Tom Hickey said...

André, the MMT economists have drawn a distinction between economics, political economy, policy and politics.

Of course, economics has to be the underlying factor, but if anything is going to happen politicians have to be converted or replaced, and voters must be educated. So strategy is a big concern right now, well into the last mile with MMT getting traction.

That means that the debate has to be framed carefully, and the messaging has to be persuasive. Moreover, activists and prospective candidates have to be trained to be able to explain the message and answer questions.

This is a formidable task, especially since the academic economists are already employed in positions that don't afford a lot of leisure time and those that have not attained there rank of full professor also have to consider their career track.

Tom Hickey said...

@ peterc

Would be interest to have your take on Sam Williams's posts in his series on MMT if you have time and inclination.

André said...

@Tom
"That means that the debate has to be framed carefully"

Yes, that is why MMTers shouldn't say something like "the government doesn't print money"... it is just confusing, because the government does! That is one of the main aspects of MMT! The gkvgovernm cas issue currency at will

peterc said...

Hi Andre. I was agreeing with you. However, I was also joking a little about some recent posts on billy blog. The passage you asked about was in relation to a recent billy blog post on the UBI and artists. Matt also made a couple of quips about artists in the discussion above. :)

peterc said...

Tom, I did actually start on a comment in relation to Sam's interesting post. It was becoming a bit long and unwieldy. I'll re-read what I've got and see if it's worth posting to the relevant thread. Cheers.

Tom Hickey said...

Thanks, Pete.

peterc said...

Actually, Andre, I think Matt's quips were in another thread, but I had them in my mind when posting the comment above.

jrbarch said...

Hi Bob (the bee) - long time no see ... :-)!

Bob said...

Greetings, jrbarch :)