There's a lot of buzz going on now about the Fed's role in the economy, and the cry has gone up to end the Fed due to dissatisfaction with the Fed's policy and actions in the crisis.
What does MMT say about the Fed?
A patient in need by L. Randall Wray and Micah Hauptman
It's Time to Rein In the Fed by Scott Fullwiler and L. Randall Wray
Proposals that Happen to Be within the Mainstream Paradigm by Warren Mosler
Modern Monetary Theory - A Primer on the Operational Realities of theMonetary System by Scott T. Fullwiler
According to MMT economists, the ideal solution would not be reforming the Fed but formally consolidating it with the Treasury department, since they are already informally consolidated in the way they operate on a day to day basis.
Consolidation of the Fed under the Treasury Department would put monetary policy under the control of the executive branch, with fiscal policy in control of the legislative branch. In this way both monetary and fiscal policy would be in the hands of elected officials accountable to voters instead of monetary policy being in the hands of interested technocrats who are unelected and unaccountable.
(h/t to Michael Stevens at Multiplier Effect, Man Cannot Live by Fed Alone)
I've been defending this reformist approach of greater fiscal/monetary integration over at Matt Yglesias's blog today. Critics include the quasi-monetarists on the one hand and the Austrians/Paulists on the other.
ReplyDeletewhat exactly does MMT say about the operations that Bernanke do with the bonds - selling, buying back, etc etc
ReplyDeleteisn't Bernanke somewhat operating with MMT albeit constrained by Congress's anti-MMT and ignorance in general agendas ?
MMT says that to get to where he supposedly wants to go, i.e., control the yield curve he needs to target price and let quantity float instead of announcing a quantity and letting yields float. Moreover, the Fed's buying was backwards to lower rates since they were competing for the lowest price.
ReplyDeleteAs I just mentioned at David Cay Johnston's site, there's another way to approach fiscal/monetary integration.
ReplyDeleteJames Bowery has suggested a net asset tax with a floating rate tied to 3 month Treasuries rate, 0.02% currently. However as economy improves, the CBO expects 3 mo T-bill rate to rise to 5.0% by 2016 (and stay there). Let's see, 10% owns 2/3rds of $60T in household wealth. With a $40T tax base, a net asset tax of .02% raises $8 billion, less than is collect now by alcohol taxes, while a NAT rate of 5% would raise $2.0 trillion, slightly more than is presently raised by income tax and FICA combined. Now THAT'S a counter-cyclical fiscal policy! Here's the sneaky part of Bowery's idea, the tax rate would never get to 5.0% (Tsy would still get the money), since there'd be an awful lot of wealthy people with an incentive to step into the 3 month T-bill auction every Monday to "bid down" their own tax rate.
http://majorityrights.com/index.php/weblog/comments/doing_the_basic_math_for_net_asset_tax_as_proposed_by_bowery_in_1992/
The idea of Government Debt needs to be removed altogether, shouldn't that be at the forefront of MMT 'policy' ?? Did everyone forget the debt ceiling farce ?
ReplyDeletePeople then need to realize that upto five bodies responsible for the Money Supply are needed:
Size Manager. Responsible for deciding the net change in the Money Supply.
Size Change Delegator. Responsible for allocating units of Money Supply change to either the Vertical Sector, Horizontal Sector or Money Supply Teacher.
Vertical Sector Manager(Treasury). Responsible for implementing money supply policy on the Vertical Sector.
Horizontal Sector Manager(Central Bank). Responsible for implementing money supply policy on the Horizontal Sector.
Money Supply Teacher. If anything, this body is the most important. It is responsible for 'educating' the public about Money Supply policy. Making sure that citizens understand their financial system, and explain the justifications for recent Money Supply policy. This body must be protected and maintained at all costs. The Money Supply Teacher will be eligible to receive or send funding to/from either the Vertical & Horizontal Managers, and the Size Change Delegator. The Teacher would need to be closely monitored, as the Teacher could manipulate public general knowledge and consequently become a strong source of power. Addressing any power issues should be done by distributing power more within the Teacher organization using a competitive process, as opposed to changing the net amount of money given to the Teacher organization. For example, net funds given to the Teacher organization would be allocated by all individual citizens. Net funds to the Teacher organization would be split equally between individual citizens. Therefore a Teacher sector rather than a Teacher organization is created.
Importantly all of these bodies should be individually subject to popular vote. Implementing Horizontal Sector policy will be based around absorbing idle Vertical Money, or more precisely manipulating Credit Supply. A simple interest rate on deposits for idle funds would appear to be the foundation technique used to implement such policies. It is paramount that such deposits or any 'deposit receipt' can not be traded within the Private Sector, and if possible, then Horizontal Policy no longer becomes effective.
From the five bodies it is clear that Fiscal and Monetary policy do not work independently, one's decisions would be in response to the others. This is reduced to two principles; (1) How much should the money supply be changed? (2) How should such a change be implemented?
Government Debt is stupid, it should be removed from the MMT psyche.
shaun.hingston@hushmail.com
The idea of Government Debt needs to be removed altogether, shouldn't that be at the forefront of MMT 'policy' ?? Did everyone forget the debt ceiling farce ?
ReplyDeletePeople then need to realize that upto five bodies responsible for the Money Supply are needed:
Size Manager. Responsible for deciding the net change in the Money Supply.
Size Change Delegator. Responsible for allocating units of Money Supply change to either the Vertical Sector, Horizontal Sector or Money Supply Teacher.
Vertical Sector Manager(Treasury). Responsible for implementing money supply policy on the Vertical Sector.
Horizontal Sector Manager(Central Bank). Responsible for implementing money supply policy on the Horizontal Sector.
Money Supply Teacher. If anything, this body is the most important. It is responsible for 'educating' the public about Money Supply policy. Making sure that citizens understand their financial system, and explain the justifications for recent Money Supply policy. This body must be protected and maintained at all costs. The Money Supply Teacher will be eligible to receive or send funding to/from either the Vertical & Horizontal Managers, and the Size Change Delegator. The Teacher would need to be closely monitored, as the Teacher could manipulate public general knowledge and consequently become a strong source of power. Addressing any power issues should be done by distributing power more within the Teacher organization using a competitive process, as opposed to changing the net amount of money given to the Teacher organization. For example, net funds given to the Teacher organization would be allocated by all individual citizens. Net funds to the Teacher organization would be split equally between individual citizens. Therefore a Teacher sector rather than a Teacher organization is created.
cont.
ReplyDeleteImportantly all of these bodies should be individually subject to popular vote. Implementing Horizontal Sector policy will be based around absorbing idle Vertical Money, or more precisely manipulating Credit Supply. A simple interest rate on deposits for idle funds would appear to be the foundation technique used to implement such policies. It is paramount that such deposits or any 'deposit receipt' can not be traded within the Private Sector, and if possible, then Horizontal Policy no longer becomes effective.
From the five bodies it is clear that Fiscal and Monetary policy do not work independently, one's decisions would be in response to the others. This is reduced to two principles; (1) How much should the money supply be changed? (2) How should such a change be implemented?
Government Debt is stupid, it should be removed from the MMT psyche.
shaun.hingston@hushmail.com