Recently, proponents of MMT/ELR have attacked me personally for this. I think it’s time for them to take a chill pill.
Before we jump to endorsing theories and policies, we should be confident the theories are fully worked out and the policies will not have negative consequences that outweigh putative benefits.Whaat?
Read it at Thomas Palley
ELR Comes to the UK
Thomas I. Palley
(h/t Scott Fullwiler via email)
Read Bill Mitchell, "British solution to unemployment – make them work for free", to see how far the UK proposal is from the MMT JG. Tom Palley simply does not understand the MMT ELR proposal if he thinks that the UK conservative debacle has anything at all to do with it.
Read Bill Mitchell, "British solution to unemployment – make them work for free", to see how far the UK proposal is from the MMT JG. Tom Palley simply does not understand the MMT ELR proposal if he thinks that the UK conservative debacle has anything at all to do with it.
My point is about ELR and competition with public sector workers. Please explain how I do not get it.
ReplyDeleteBest,
Tom Palley
A JG job is well designed and at minimum wage. It is very different from the work for dole schemes. Politicians could change a JG scheme to work for dole but it would no longer be a JG scheme and inconsistent with MMT.
DeleteRegarding a JG scheme being used to undermine public sector jobs. The JG jobs should not be designed to replicate existing public sector jobs at lower pay. You could argue that politicians will abuse or corrupt the JG scheme, but that is a form of straw man argument against a JG.If politicians wanted to erode public sector salaries today they can replace existing jobs with minimum wage jobs. If they are not doing so now, why would they do so with a JG.
This comment has been removed by the author.
ReplyDeleteYour point is still the same one. Somebody must starve and be bored so that somebody else is kept in the position they are already in.
ReplyDeleteThat is unacceptable.
I hear this 'we must think it through more' argument all the time in my systems work. What is really is, is "don't change anything" - simple fear of change. It's a blocking mechanism to stop anything improving or altering.
The perfect system model is not achievable. You have to have a rough plan, deal with most of the obvious issues and then just try something, get feedback and adjust. It just needs to be 'good enough', and it needs to be malleable so it can be adjusted.
The way to implement ELR is to get the currency issuer to purchase the labour and make that labour available to executive. They then deploy that labour based on their political mandate *which can include throwing it away*.
So there are lots of implementation plans that follow from that, and the MMT economists have outlined lots and lots of options. Each implementation plan has to be tailored to the political landscape, the economic productivity and the general demeanour of the target population.
So there isn't one implementation plan. There are lots of them. And you will need to discuss the specifics of the implementation with all the stakeholders prior to deploying the labour. You'll try and get agreement, but ultimately you will probably need to upset some vested interests.
But the underlying aim is the same - try to make sure that everybody has an income and the opportunity to have something to do.
Tom,
ReplyDeleteThe MMT ELR/JG proposal is for a voluntary program that would exist in addition to any unemployment benefits or other social welfare programs.
Tom,
ReplyDeleteand how does that point--even if valid--have anything to do with misrepresenting the ELR proposal as being even remotely like the UK one?
Good comments, Neil and Dan.
ReplyDeleteNOte that Jefes in Argentina employed 5% of the popluation and someone can correct me if I'm wrong, but I haven't heard of problems with those jobs and competition with public sector workers.
And as Pavlina and I have been saying for some time, in the US the way to apply ELR is through the non-profit sector. It would be rather easy to enable non-profits to pay their volunteers while requiring them not to use the funds for non-voluntary positions at the firms.
At any rate, this gets us off the main topic here (how convenient), which isn't a debate about MMT but rather repeated (three times in one week) blatant misrepresentation of MMT's academic research.
Tom, thanks for visiting MNE and giving us the opportunity to explain the way we see it.
ReplyDeleteI am not saying that you "don't get it." I greatly appreciate your work. You are on the good guys and we are on the same side in the fight against bad economics that results in bad policy and all the consequence it brings. I agree that an ELR that is poorly thought out and badly constructed can do more harm than good. I would say that of the UK proposal, which is of a piece with their faux "expansionary fiscal austerity."
But that is not the issue. I don't think it is particularly relevant to compare the MMT JG proposal as a piece in a macro theory and a policy tool with other ELR proposals that resembles it in name only. If that was not your intention, OK. But your post reads like it.
Let's look at the the MMT JG in context. It plays a role as a piece in the MMT macro theory.In facit, it plays the dual role of buffer stock of employed (BSE) in contrast to the conventional buffer stock of unemployed and also price anchor.
The BSE operates generally through extension of a job offer to all workers able and willing to work that cannot find employment in the private sector. It is assumed that since underemployment deals with most everyone other than the lowest skilled workers in contractions with the unskilled unable to find work, the MMT JG constitutes a BSE chiefly of unskilled workers, e.g., youth entering the work force, which is now the case worldwide.
This universal job offer means no involuntary UE, where involuntary UE is defined as looking for work and unable to find it, i.e., being willing and able to work but not having a job offer, since everyone looking for work has a guaranteed offer automatically.
The MMT JG also serves as price anchor that defines the value of the currency in terms of floor wage that sets the price of a unit of unskilled labor.
Notice that at this point in the macro theory the specifics of the MMT JG are not set. The MMT is a tool that allows MMT as a macro theory to resolve the trifecta of productive growth, employment, and price stability when it is used along with the sectoral balance approach for determining the appropriate size of the govt fiscal balance relative to changes in non-govt saving desires and functional finance for approximating a full employment budget. The MMT JG mops up residual involuntary UE so that there are no idle resources, reducing waste and increasing efficiency.
(continued)
(continuation)
ReplyDeleteThis is the general theoretical analysis that provides the rationale for adopting the MMT JG as policy, along with the sectoral balance approach and functional finance, in addressing the macro trifecta of production, employment and price stability, which incidentally is the Fed's congressional mandate, at which it generally fails since it uses a buffer stock of unemployed as a tool for inflation control.
The specifics of any particular case as determined by the case. This is strategy and tactics rather than policy. The situation in different countries may be different but the principles are the same.
The MMT economists have done a lot of work on the specifics also. Bill Mitchell and Joan Muysken's Full employment abandoned (Elgar, 2008) is the definitive work and there are aslo many papers, as you may know.
What the UK "experiment" within the context of a conservative government committed to austerity (a euphemism for wage suppression) has in common with the MMT JG other than being an ELR program I don't know.
It doesn't seem that you are addressing this on the level of the way it has been put forward. The MMT economists' work has already anticipated most objections, for instance, and addressed them. YO seem to be saying that MMT needs to take into consideration what has already been addressed.
I think we need to begin taking some of the heat out these confrontations since Post Keynesians mostly agree on approach. It's distracting from the main opponent, which is the neoliberaI that is driving us over a cliff.
I would suggest contacting some MMT economist(s) and asking for an opinion before posting in haste about something that is just going to be perceived as inflammatory. After all, you all know each other well, and it is not seemly to be carrying on in public when these kinds of differences can be work on privately.
This is not to encourage suppressing differences. Not at all. Debate is good, but it needs to be constructive, rather than devolving taking pot shots at each other on the blogs. This seems to be risk of the Internet.
You said yesterday in your blog post that the blogs is not the place to carry out serious discussion of important issues that are nuanced. I agree. Why not work on a Post Keynesian approach together with others of like mind? The MMT economists believe that they have worked up something tight. Maybe they are overconfident about this. The way to determine this is through constructive criticism of ideas that have been advanced.
The pride of our nation is our armed forces, but in a way, are these not forms of ELR? The government employs nearly 2 million directly, plus engineering and contracting companies. I'm sure a great many of these people would find gainful employment and meaningful careers in the private sector, while some would end up unemployed (or displacing others into the unemployment ranks).
ReplyDeleteWhile the safety and stability provided by our Armed Forces is in no doubt, how does one measure the "productivity" it adds to our nation? We can all agree the best outcome for anyone entering the armed forces, after years of training with expensive specialized training and cutting edge expensive equipment, is for their finely honed skills to never be needed at all. The best scenario is for them to take the skills they've learned (perhaps management and leadership, electronics, logistics, heavy machinery, etc) and transition into the private sector.
If the government employing folks directly is such a bad thing, then the whole notion of our Armed Forces is called into question. In fact it works rather well as a way to provide income to millions while keeping job skills current. Could a version of this be put into practice without the expensive tanks, guns, and bombs? Maybe some laptops, paperclips, and shovels?
Broll,
ReplyDeleteThe military is a very selective employer. Congress and the courts allow it to discriminate on the basis of age, IQ testing, disabilities and gender (and until recently, sexual orientation) in a way that no private employer could ever get away with. Three-quarters of young adults are ineligible to serve for one reason or another.
http://usgovinfo.about.com/od/usmilitary/a/unabletoserve.htm
?The pride of our nation is our armed forces, but in a way, are these not forms of ELR??
ReplyDeleteSo is the prison system.
The US has ~ 1.5M active duty military personnel and about the same number of reserves. The US incarcerated population is approaching 2.5M.
beowulf: "The military is a very selective employer."
ReplyDeleteThis is of course true and the US military is highly professional. The US is getting a great deal for what it pays.
But the fact remains that it is the ELR of sorts for a lot people who would not be very employable otherwise. It is perceived more as a way out than a career opportunity by many.
@Tom
ReplyDelete- none of whom are counted in our "unemployment" statistics. Yet our nation has no problem producing all the real goods and services we require.
This might not be directly tied to Palley's point, but the NREGA in India is proving to contain many of the problems that the right would fear in a large public employment program. India's PM even says the plan is "not in good shape".
ReplyDeleteThough not a perfect comparison to the MMT ELR it contains many many similarities and many problems.
http://www.rediff.com/business/slide-show/slide-show-1-interview-sandip-sukhantar-strict-action-needed-to-stop-corruption-in-nrega/20120730.htm
http://www.dailypioneer.com/home/online-channel/360-todays-newspaper/80650-nrega-not-in-good-shape-admits-pm.html
Friend of mines son just got back from a civilian job hvac tech in Kandahar 100k + for one year ... rsp
ReplyDeleteNREGA,
ReplyDeleteYes, there is considerable corruption in the NREGA in places. But that's common in India, not an argument against the ELR. Obviously any policy's effectiveness is strongly influenced by how well/poorly it is implemented in the first place.
Palley's point here, though, is a non-starter for us. We would similarly be against any ELR policy that replaced traditional public sector workers with ELR workers. And we've written quite a bit on what ELR workers should do that would easily avoid that problem.
I think ELR supporters are kidding themselves if they think an ELR/JG as implemented would be "voluntary" and "in addition to any unemployment benefits or other social welfare programs."
ReplyDeleteIn reality it will always shake out to what the UK and Australia (both of which have a far broader safety net than we do) are doing--- after a set period of income security payments (3 years under the British plan, more likely 3 to 6 months in the US), the recipient must work for his benefits.
In fact, that was the design of the "employment assurance" ELR program that FDR's crew wanted in the original Social Security bill.
"We regard work as preferable to other forms of relief where possible. While we favor unemployment compensation in cash, we believe that it should be provided for limited periods on a contractual basis and without governmental subsidies. Public funds should be devoted to providing work rather than to introduce a relief element into what should be strictly an insurance system."
http://www.ssa.gov/history/reports/ces5.html
Beowulf,
ReplyDeleteThat amounts to throwing out, say, the idea of fiscal stimulus, because you're worried some will corrupt it or implement it in ways you don't prefer. Did "cash for clunkers" lead you to give up on fiscal stimulus? By your logic, it should have.
I am encouraged by this thread.
ReplyDeleteEven if the theory behind ELR and its financing were one hundred percent correct, there would be some very difficult political judgments to be made.
That is what distinguishes economic policy in the real world from the academic take on economic policy.
I don't think the political judgments are as clear cut as ELR proponents assert.
"…I don't think the political judgments are as clear cut as ELR proponents assert…"
ReplyDeleteI don't think politics is an economists concern, any more than it would be for an engineer or physicist.
If you want to be a politician, go for it.
Leave economics to those that are interested in finding the best ways to solve problems.
Instead we have politicians trying to be economists.
That clearly hasn't worked, because ignoring system dynamics is kind of like wishing away gravity.
I won't be one of the people splattered on the sidewalk because I thought I could fly without assistance.
@ Paul,
ReplyDeleteThis was all covered in the recent debates with the MMR faction. MMT claims to operate on scientific grounds and then calls the theory "inherently progressive". You contradict yourself regularly. MMT is inherently political. You can't have it both ways.
Also,
ReplyDeleteDesigning a system that sets "10 dogs after 8 bones" is NOT politics it is STUPID.
"…MMT is inherently political…"
ReplyDeleteSpecifically, which parts of the MMT framework are political?
"That amounts to throwing out, say, the idea of fiscal stimulus, because you're worried some will corrupt it or implement it in ways you don't prefer. Did "cash for clunkers" lead you to give up on fiscal stimulus? By your logic, it should have."
ReplyDeleteHa, I'm the guy who suggest the gov fund Medicare for All funded by whatever combination of coin seigniorage and bank transaction fees the Federal Reserve wishes to (counter-cyclically one trusts) to transfer to Tsy.
http://monetaryrealism.com/mmt-jg-medicare-mmt/
Somewhat more practically, I like James Meade's idea of floating the payroll tax rate inversely to unemployment rate. The point is, I'm a big fan of fiscal stimulus.
You raise a good point, a JG, which to a large extent, simply replaces existing income security payments would not be all that stimulative.
I'm not arguing that its sound policy to make JG and unemployment benefits an either/or proposition (I'll concede the point its not), my assertion is that if the Brits, Australians and, back in the day, the New Dealers are all on the side of conditioning benefits on working, I can't imagine any American politicians taking the other side.
Oh and what part of "inherently progressive" is political?
ReplyDeleteMany of history's greatest progressives have been conservatives.
"ELR and its financing"
ReplyDeleteWhat is meant by: "financing"?
rsp,
Tom Palley: "Even if the theory behind ELR and its financing were one hundred percent correct, there would be some very difficult political judgments to be made."
ReplyDeleteI agree. This is where the rubber hits the road, and there is bound to be strong disagreement in a politically polarized environment.
Tom Palley: "Even if the theory behind ELR and its financing were one hundred percent correct"
This is where we should be focusing. The theory and its substantiation provide a rationale for policy formation. Right now, the economic rationale is way off kilter and the result of policy based on it reveals this. We can do better, and we need to work together in a coordinated way to do it.
I with Milton Friedman that there is good economics and bad economics and the task of economists is distinguishing them.
I also think that economists need to look chiefly at theory and realize that while it's chief use is in policy formulation, it's not their job to exclude things from consideration or dismiss ideas because they may be politically unpopular at the time, or difficult to achieve politically. We know this. But that is not a good reason for failing to develop the best theory possible or for not drawing obvious conclusions from it.
Tom H. that phrase "it's financing" is perhaps a tip-off that Tom P. thinks "money" is purely exogenous... if that is true this is not going to get very far imo...
ReplyDeletersp,
Really? Another stupid JG debate. Why waste your time? You might as well debate having unicorns run Congress. It's about as likely to happen.
ReplyDeleteMMT just wastes time with this pie in the sky. How about MMT create a platform for world peace based on government intervention and global monetary unification? And throw unicorns in there as well?
I don't know why anyone waste's their time on this. MMTers are as bad with thei JG as the Austrians are with the gold standard.
Dare one take up the question about a
ReplyDeletelife after Wage-work and essennce of work as such???This is by French Economic Philosopher André Gorz.The most intelligent man in Europe old Jean Paul Sartre once claimed.It is from 1988 but still worth reading because rise some question that relate to MMT that at least Bill Mitchell told is fully compatible with MMT.
http://www.antenna.nl/~waterman/gorz.html
"…I don't know why anyone waste's their time on this…"
ReplyDeleteWhy are you such a concern troll? I don't care if you waste your time. That's your business.
MMT is an ideology based on the potential for people to use big government and the flexibility of fiat money. Austrian economics is an ideology based on the potential for people to reduce government by eliminating fiat money. One wants the ELR. The other wants a fixed exchange rate through the gold standard. Both are ideologies based on extreme and unrealistic policy changes which is why no one listens to the ideas of either school.
ReplyDelete"MMT is an ideology based on the potential for people to use big government…"
ReplyDeleteShow us in the literature where that is stated, explicitly or implicitly.
Last I checked MMT was based on an understanding of system dynamics re the sectoral balances identity and the principles of endogenous money and fiat monetary systems.
These are math/system frameworks. Are you saying that math is political or ideological?
Gravity is ideological?
Methinks you project too much.
Now MMT is a law like gravity? How's that left wing cool-aid taste? You've really bought into the whole MMT is a religion thing, huh?
ReplyDeleteMMT says taxes don't even fund spending (which, if you call the US Treasury, they will laugh in your face about) and now you're here saying it's a law like gravity? Are you a comedian?
@ Also-Paul
ReplyDeleteIt's the choice between a buffer stock of employed or unemployed. You seem to prefer a buffer stock of unemployed. Why?
Also P,
ReplyDeleteIt's "MMT Ideology" but "Austrian Economics"?... c'mon you dont mean that right?
To your credit at least it looks like you know the difference between a system of exogenous "money" and endogenous "money".... but imo most people DO NOT.
If the voters were better informed, they could choose between the two at the ballot box....
rsp,
@ Tom H,
ReplyDeleteI don't really have a preference because I haven't seen proof that one is better than the other. I have seen the link above to the NREGA and it raises some pretty reasonable questions about having a large buffer stock of employed people.
@ Matt,
I said "both are ideologies". And I think they both are ideologies. One being far right and the other being far left.
I think the UK government/ treasury may be contemplating money-financed deficit spending (deficit spending without bond issuance) as a way out of the double-dip recession!
ReplyDeleteCheck out this mysterious clip from BBC2's Newsnight. The relevant comments start at 11.08.
Really strange.
http://www.bbc.co.uk/iplayer/episode/b01l8nmx/Newsnight_25_07_2012/
ReplyDeleteIt is impossible to extract political considerations from discussions of economic policy. Enacting an economic policy is a political decision. Changing economic policy is a political decision. Publicly advocating an economic policy is a political decision. Publicly disparaging an economic policy is a political decision. Declining to advocate an economic policy is a political decision.
ReplyDeleteIt's all politics. That's why it used to be called "political economy".
atleast we have plenty of guns. no jobs for the people, asshole deep in debt, but gotta protect that right to arm yourself to the teeth with automatic weapons.
ReplyDeleteAlso P,
ReplyDeleteI fully support the macro approach of MMT and can assure you that no "leftist ideologue" am I.
For instance I perhaps would use more endogenous USD balances for an expansion of the GITMO facilities, federal vouchers for parochial school educations, perhaps federal assistance for pregnant women and/or for families that would adopt an otherwise aborted baby, locking up the fraudsters, etc...
Endogenous "money" is supportive of the authority of the state. As such it has great appeal to me politically. But this is the politics part, NOT economics in my view....
However, if we use endogenous "money" to empower the state, then MMT shows how our fellow human beings are immediately unemployed, TO BE FAIR then, the state should reciprocally implement a FULL employment policy which is why I like the MMT JG or better.... it's only FAIR in my view... rsp,
Ignore the trolls, people.
ReplyDeleteI think the corruption in all areas of Indian life simply demonstrates what can happen to a nation and to its people when it becomes overwhelmed by poverty.
The fight against poverty is a fight for the integrity of both society and of individual human morality.
sarcasm
ReplyDelete"Check out this mysterious clip from BBC2's Newsnight. The relevant comments start at 11.08."
ReplyDeleteNewsnight clip isn't viewable outside UK, please describe it for us.
You're lucky, I sent them an email to ask them what the F@CK they were on about, so I made a brief transcript:
ReplyDeleteAllegra Stratton: "It's so bad that it's 'pull out every draw' and get everything out that you can. And suddenly you're talking about... things that we'll discuss another day - but do you start doing massive investment, but do it in a way that is... lots of public money, but that doesn't actually affect the deficit, and doesn't actually affect the levels of public debt..."
Gavin Esler: "Not everybody including the Treasury likes that."
Allegra Stratton: "They hate it. And that's why it's not been forthcoming so far."
Gavin Esler: "ok, we'll save that for another day."
??????????????
Perhaps they're talking about govt hiking taxes or using pension funds or something... but the way the presenters were talking about it in this sort of "people are talking about this, but now's not the time to mention it to our viewers", was REALLY wierd. Never seen anything like it on Newsnight before
It has to be something "bad".
Plus Paul Mason was there nodding away, and he's recently been interviewing Steve Keen - and discussing his plan of 'quantitative easing for the people' (i.e. money financed deficit spending). That made me suspicious.
ReplyDeleteyou had to see it I guess. Doesn't come across so well in text. I'll keep you updated though!
ReplyDeleteY I dont think they cant get BBC i player mate you have to be in the UK.
ReplyDeleteoops see you and Beo already gone through that apologies ignore
ReplyDeleteY that is weird see what you mean was all very vague dunno what to make of it though... what with Jeremy Warner majorly backtracking the other day, something odd is in the offing.
ReplyDeleteAlso_Paul: "I don't really have a preference because I haven't seen proof that one is better than the other. I have seen the link above to the NREGA and it raises some pretty reasonable questions about having a large buffer stock of employed people."
ReplyDeleteWhen you think this thing though, get back and tell us which you think is more effective and efficient and why.
"I think ELR supporters are kidding themselves if they think an ELR/JG as implemented would be "voluntary" and "in addition to any unemployment benefits or other social welfare programs."
ReplyDeleteThe principle of a JG is to pay minimum wage for a full time properly designed job. If an unemployed person did not take a JG position, they would place themselves at the mercy of whatever other social safety net is in place. Disability schemes, poverty relief, mental healthcare, charity or whatever. That is the voluntary choice.
ELR could mean anything e.g. slave labour or work for dole. You have to be specific, otherwise it becomes a facile argument.
Ironically if the nutty right wing implements a slave labour/ work for dole scheme. A more humane government could easily scope this up to a JG scheme. If we have to have this argument you have to look at both sides.
"…Now MMT is a law like gravity?…"
ReplyDeleteI didn't say it was. MMT thinking is based partly on system laws (re sectoral balances), which are as intractable as the law of gravity.
"…MMT says taxes don't even fund spending…"
If taxes fund spending, how do we fund deficits, which are spending but don't come from taxes?
paul: "MMT thinking is based partly on system laws (re sectoral balances), which are as intractable as the law of gravity'
ReplyDeleteScientific laws are empirical generalizations so their probability may approach 1 but can never reach 1 (logical necessity, or certainty).
The probability of identities is always 1 because they are tautologies, i.e., logically necessary based on formation and transformation rules.
Tom:
ReplyDeleteSo the sectoral balances are even more intractable than gravity :-)
I know the difference but I don't think that getting into that kind of nuance is necessary or useful when responding to trolls. YMMV.
The point being that like gravity, the sectoral balances must be reckoned with when dealing with a problem that involves it.
@ Paul,
ReplyDeleteYou seem confused. The sector balances are an accounting tautology that MMT misrepresents. Godley created the SB approach and MMT hijacked it and distorted it.
The government funds deficits in the same way that Europe's countries do - by finding buyers of the debt. How do you think it happens?
MMT is the single most significant intellectual contribution to both economics and politics in my lifetime (60 years). All reasonable objections are mere quibbles (see JKH et al). Wray, Mosler, and Mitchell deserve the Nobel Prize...
ReplyDelete@ Anonymous
ReplyDeleteWho do you think bids for tsys at the Fed auctions. "The public"? Sorry, the PD's, and they are committed to buy or else give up their dealership. They can borrow at the FFR and ;pocket the spread between the FFR and the rate of the tsys. They are the market makers and their inventories act as a buffer stock that expands and contracts with the amount of tsys "the public" chooses to hold. The primary buyers from the PD's are banks and funds.
The whole thing is rigged to look like borrowing (no tsys overdrafts at the Fed) to fool rubes like you.
if you call the US Treasury, they will laugh in your face about
ReplyDeleteSimilarly, if you were to talk to anyone working the front office (and most in the back office) of a bank, they would tell you banks loan out their deposits.
@ Trixie
ReplyDeleteRight, I have had several conversations with low level Fed workers who assured me that the Fed is private corporation. They refuse to listen when I explain the structure of the Fed to them. "Oh no, it's a private corporation. I worked there. I know."
"…The government funds deficits in the same way that Europe's countries do - by finding buyers of the debt. How do you think it happens?"…
ReplyDeleteOK, so lets take a look at the process…
• To begin with there is some level of dollars and bonds in existence.
• The government "borrows" some of those dollars and exchanges them for bonds.
• The government then spends the "borrowed" dollars back into the economy.
At the end of this process we can say two things that shouldn't be in dispute…
• There are more bonds in the non-government then there were before the process occurred. Only the government can create bonds that will add financial assets to the non-government.
• The government was involved in every step. None of this could have taken place if the government hadn't initiated the process.
Some conclusions…
• The increase in bonds occurred because the government created them out of thin air, which means that the increase came from an external source, what we would expect in a closed system that can't create it's own dollars or bonds.
• The money that was used to buy the bonds also had to be created by the government otherwise there would have been no dollars to buy the bonds in the first place, so the Arrow of Time, and thus causation, is established.
• The government CAUSED the increase in bonds (financial assets).
• The government can create dollars without selling bonds to the public by allowing the Fed to buy the bonds from the Treasury (which it does when it wants to).
• The government has no meaningful constraints on expanding the supply of dollars or bonds.
• There is no feedback mechanism between the non-government and government that constrains the money creation process in the U.S. (or Japan, UK, Canada. Australia, China, etc.).
• In the EU there is.
• As soon as the EU turns the ECB loose there won't be.
"…The sector balances are an accounting tautology that MMT misrepresents…"
ReplyDeleteHow does MMT misrepresent the sectoral balances?
Great breakdown Paul,
ReplyDeleteSomething continues to bewitch the European people in the positions of authority.... "inflation" is somehow tied into this, which is based on some sort of metallic standard/exogenous paradigm. Dark.
rsp,
…Only the government can create bonds that will add NET financial assets to the non-government.
ReplyDeleteMatt: Inflation is the "boogie man".
ReplyDeleteOur fear is irrational IMO.
"You've really bought into the whole MMT is a religion thing, huh?"
ReplyDeleteThese sound like the words of a well known troll.
"Our fear is irrational IMO."
ReplyDeleteimo too.
This fear is WAAAAAAY overblown and along with the lack of ability to understand 'closed systems' (and the associated exogenous/endogenous characteristics) is another major impediment out there.
rsp,
Paul,
ReplyDeleteI don't know where you're learning all of this from, but it's not right. Any corporation can issue financial assets. You're right that when a bank creates new money it doesn't create NFA, but that's irrelevant. Corporations can and do create NFA every single day.
The government doesn't create most of the money in our system. The banks do that. The government just spends money the banks already created. The only money the government creates is notes, coins and reserves.
The money to buy bonds and pay taxes comes almost exclusively from banks so again I don't know where you're getting the notion that the government has to spend first.
The only thing unique about the government's financial assets (as opposed to GE's financial assets) is that the government can tax and therefore doesn't have a funding constraint. That is, their financial assets are always AAA. GE's aren't.
You don't even have the basics of monetary operations correct. And it seems some of your friends don't either.
Anon,
ReplyDelete"Corporations can and do create NFA every single day. "
If one Corp issues bonds, that is coded as a liability of that corporation, the balances that they receive as proceeds of the bond sale is an asset. This transaction NETS to zero.
The other party has just exchanged equivalent asset positions (USD balances for the securities)
Doesnt look like any NET assets have been created....
rsp,
@Anonymous
ReplyDeleteMaybe you could demonstrate the process whereby money is created by the non-government in the form of financial assets not offset by a liability.
If you can't I would have to conclude that your criticism rings hollow.
"…The money to buy bonds and pay taxes comes almost exclusively from banks…"
ReplyDeleteThis one always gets me.
Once people borrow money to buy bonds and/or pay taxes, where does the money come from to re-pay the loans?
Are you not aware that re-paying the loans removes those dollars from existence?
What happens when credit expansion slows? Credit expansion can only occur so long as income exceeds the requirements of debt service plus the average household's "nut".
This feels like I am having a discussion with FDO15…
I said:
ReplyDelete"Any corporation can issue financial assets. You're right that when a bank creates new money it doesn't create NFA"
Other sentence should read:
"Corporations can and do create NFA every single day."
That's irrelevant though. The point is, most of the money is created by the banks. No spending first by the government.
"Corporations can and do create FINANCIAL ASSETS every single day."
ReplyDelete"where does the money come from to re-pay the loans?"
ReplyDeletePaul,
I'll bite here. I think what may happen is the banks get real estate appraisers to increase the appraisal price of the house (even though the house has depreciated in real terms) and then the borrower can go in and do a "cash out refi" enabled by this higher appraisal.
Alexander Hamilton identified this process in Federalist 12.
http://constitution.org/fed/federa12.htm
"It has been found in various countries that, in proportion as commerce has flourished, land has risen in value. And how could it have happened otherwise? Could that which procures a freer vent for the products of the earth, which furnishes new incitements to the cultivation of land, which is the most powerful instrument in increasing the quantity of money in a state "
This may be how part of this is accomplished at least it may work for a while till the property is run down and uninhabitable... then the whole thing blows up and the govt has to do a bailout via fiscal transfer anyways....
rsp
money is created by the banks."
ReplyDeleteCREDIT is created by banks, which is money plus negative money.
This is an important distinction between net government spending and credit spending, one that you refuse to acknowledge.
Credit spending doesn't account for leakages.
Leakages are analogous to friction in a mechanical system, or resistance in an electrical system.
What happens when friction/resistance can't be overcome in either of these systems?
Why do you believe a money circuit would behave differently?
Credit and credit alone is money. See Lerner on this. Mosler posts it on his must reads.
ReplyDeleteYou're distracting from the fact that this entire sentence:
"• The money that was used to buy the bonds also had to be created by the government otherwise there would have been no dollars to buy the bonds in the first place, so the Arrow of Time, and thus causation, is established."
is wrong. The dollars created to buy bonds exist as a result of loans that created deposits that needed to be held on deposit at Fed banks. Not government spending first. You get the whole emphasis wrong.
Not Lerner, Innes. Sorry. Long day.
ReplyDeletehttp://moslereconomics.com/mandatory-readings/what-is-money/
whatever, this territory has been gone over endlessly before. Some people just can't get over the fact that banks create loads of money, as if this somehow renders government unimportant. It's a pretty pointless and futile argument to try and make. The only really significant thing here is this:
ReplyDelete"the government can tax and therefore doesn't have a funding constraint."
Everything else follows from that. If you want an economy which functions well, which grows, if you want very low unemployment or full employment, if you want low inflation, if you want an economy which doesn't regularly blow up due to unsustainable private debts, if you want improving living standards, etc, you have to work out how to use that "no funding constraint" fact in the best way possible.
In some cases people will have different views on how best to do this, often depending on their politics. Warren Mosler has repeated this so many times it's almost tedious to have to say it again.
"Credit and credit alone is money"
ReplyDeleteSo what?
"…then the whole thing blows up and the govt has to do a bailout via fiscal transfer anyways...."
ReplyDeleteRight. This a description of a typical process that exists in the real world, that exhibits a decaying path until it reaches a bottleneck or comes to rest.
There are no perpetual-motion machines.
The simplest real-world process I can think of is an hourglass.
Most of the people we argue with over these things seem to think the sand in the top section never runs out.
"Some people just can't get over the fact that banks create loads of money, as if this somehow renders government unimportant."
ReplyDeleteI didn't say government was unimportant, but MMT's details are wrong. Some people might say "whatever" about the details here, but we're talking about accounting and finance. If you get the details wrong you're irrelevant or more likely in jail (which would be a great place for 95% of economic academia). This is why people have an issue with MMT. You all just distort reality to prove an ideology. Why?
…The dollars created to buy bonds exist as a result of loans…"
ReplyDeleteWhere did the dollars that created those loans come from?
Oh, and of course the other important thing, beyond the "no funding constraint", is the fact that at the end of the day government decides the rules.
ReplyDeleteThat's another power that has to be put to work properly if you want an optimal outcome. So special interest groups, for example, have to be prevented from hijacking and distorting the process.
It's all about making the government can do it's job properly so that society can get the maximum benefit. Again, there will be disagreements about what this means exactly. People always disagree about such things. They have different viewpoints, beliefs, biases, and political persuasions. Even if they're called Cullen Roche and pretend to themselves and to others that they don't.
"Where did the dollars that created those loans come from?"
ReplyDeleteThey come from banks who create deposits by making loans. Where do you think all the money in the monetary system came from? Where did your bank deposits come from? the same deposits the IRS debits every year? They came from private banks. You don't seem to understand this very basic point. The government creates very little money in reality.
Anonymous: " Corporations can and do create NFA every single day."
ReplyDeleteReally? Where did you learn accounting?
"Ponzi Finance".... seems like the big falsehood is that property that is depreciating in real terms is instead looked upon as increasing in price for the purposes of the banks.... at least for a while...
ReplyDeletersp,
"MMT's details are wrong."
ReplyDeleteI don't think they are. Give me an example of where they are wrong.
Anonymous: " Corporations can and do create NFA every single day."
ReplyDeleteMisspoke. You read the correction so please stop trolling your own website.
Anonymous, your understanding is so far removed from reality it is not worth responding to. Bonkers!
ReplyDelete@ Y,
ReplyDeleteHere's one, the same mistake Paul is making.
"The funds to pay taxes and buy government securities come from government spending." - Mosler
The funds to pay taxes and buy government bonds come from private banks creating loans, deposits and ultimately ending up as deposits at Fed banks. Government spending did not create these funds.
"…They come from banks who create deposits by making loans…"
ReplyDeleteThe point is that at point A in time those dollars don't exist. At point B in time they do.
It follows that they come from outside the system (outside, external to the economy).
This is enabled by the government, private banks do not, are not allowed to create dollars unless they belong to the Federal Reserve System.
Otherwise, banks would have to rely on deposits to make loans.
The FRBS group of banks is effectively one big bank that is capitalized by the Fed through a charter of the US Government.
Even in the Eurozone private banks don't create money - the ECB does it.
Do you know where the money comes from? Thin air. One moment it doesn't exist, the next moment it does.
If we individuals could print our own money this way our money problems would be solved.
We would however run into some other problems.
Matt: "Ponzi Finance"....
ReplyDeleteYeah, I think of this relationship in terms of leverage. The question is how far can leverage blow up a bubble before it bursts?
Who gets caught in the resulting contraction?
From where I sit credit bubbles are traps set to extract our hard-earned wealth (earnings) from us.
Banks are licensed to create money in the form of bank deposits. It's the only form of money that matters for practical everyday purposes. And they create these deposits without consulting government, without checking reserve balances, etc. You're very confused on this Paul.
ReplyDelete"Credit and credit alone is money"
ReplyDeleteCredit implies debt, which is recorded as asset vs. liability. Creditor's asset is debtor's liability and vice versa on the two sets of books.
Private credit nets to zero in the endogenous money circuit because each set of books in within "inside" the money circuit.
Publicly created credit is the tax receipts that govt inject into the endogenous monetary circuit from outside. The corresponding private debt is the tax liability that is imposed that can only be paid in the unit of account the govt accepts, ordinarily the tax ctedits it issues into non-govt. Unless the govt taxes equal to or more than it injects, the residual is non-govt NFA.
A government can choose to inject tax credits directly without intermediation (direct issuance, e.g., Lincoln greenbacks) or through issuance of debt instruments, as presently.
The debt instruments are liabilities of govt and assets of non-govt. These non-govt assets are exactly equal to the difference between the tax credits that the govt injects into non-govt and what it withdraws from non-govt, so that the NFA assets created exist in non-govt as the holding of Tsy securities. Tsy securities are liabilities of the Tsy and FRN are liabilities of the Fed. They are fungible. There is no corresponding non-govt liability corresponding to the NFA that non-govt holds that exists on the books within non-govt, that is, in the endogenous monetary circuit.
The funds that govt injects into non-govt through deficit spending, which are saved as Tsy securities, are "outside" money. There is no corresponding liability in non-govt, so they constitute non-govt. NFA.
Just do the accounting and you will see it clearly.
In the 7DIF it's "The funds to pay taxes and buy government securities come from government spending, or from government lending", or something like that.
ReplyDeleteOn the front page if his website he doesn't include the 'lending' bit.
You said:
"The funds to pay taxes and buy government bonds come from private banks creating loans, deposits and ultimately ending up as deposits at Fed banks."
Let's say for example that a bank and its customers owe, in total, $100 in taxes, and that the government owes $0 to the bank or to its customers. When the bank pays the taxes on behalf of itself and its customers, it will transfer $100 in reserves to the treasury. The reserves are obviously created by the government in some way.
Now if the government owed the bank's customers $100, for example, then there would be no transfer in either direction when they come to settle (because the both owe each other the same amount).
…You're very confused on this Paul…
ReplyDeleteI will admit I am confused…about how a brain could be wired like yours to see logic in reverse.
I'm going to go with the neural pathways explanation on this one.
"The funds that govt injects into non-govt through deficit spending, which are saved as Tsy securities, are "outside" money. There is no corresponding liability in non-govt, so they constitute non-govt. NFA."
ReplyDeleteThe government does not "inject" "funds". They inject a government bond. That's it. The "funds" already existed before the government spending. The funds were given to the government because their account requires a credit before it can be debited. Accounting 101 and how it actually works. Why do you keep trying to distort reality to protect a myth?
I'd say Mosler's statements tend to leave out the nitty gritty in favour of clear pronouncements which expose the underlying logic or reality. If you want more info on the details you can dive further into the literature where you can learn about the intricacies of TT&L accounts, for example.
ReplyDeleteThe funds to pay taxes and buy government bonds come from private banks creating loans, deposits and ultimately ending up as deposits at Fed banks. Government spending did not create these funds.
ReplyDeleteLaughably wrong for someone who supposedly understands the basics of accounting.
See my July 31, 2012 11:59 AM above.
Reserves are just deposits held at the central bank account. The CB always ensures ample supply to settle payments. Some systems don't even require reserves to be held on deposit. I don't know why MMT insists on distorting the role and importance of bank reserves.
ReplyDeletePaul,
ReplyDeleteLeverage has some info on human brain function in this area... Lev thinks it is a complete shutdown of the neocortex and the limbic system does a complete takeover... this looks like the biological "ex post" condition though... what actually causes it remains elusive....
rsp,
…Reserves are just deposits …"
ReplyDeleteDeposits by whom?
Anon, leaving aside TT&L for a moment, commercial bank credit doesn't actually go into the Treasury's account at the Fed when people pay taxes, does it?
ReplyDeleteThe only money which actually ends up in the treasury's account at the Fed is in the form of reserves, or cash (i.e. Fed liabilities).. or coins.
Are coins actually treasury liabilities or Fed liabilities? I'm asking because I'm not sure.
paul "Yeah, I think of this relationship in terms of leverage. The question is how far can leverage blow up a bubble before it bursts?"
ReplyDeleteIt's in terms of the sectoral balances. Look at the relationship of changes in creation of private debt through credit extension and public debt through deficit spending, and the change in private debt in relation to income in terms of departure from the mean.
When an economy is expanding credit excessively in historica terms and the means of payment are not keeping up, That sends a warning signal that the process is becoming unsustainable, and what can't go on forever, won't.
Matt:
ReplyDelete"…this looks like the biological "ex post" condition though…"
This could be a factor in why we don't live longer…nature's way of getting rid of the dead wood and moving forward.
@ Y,
ReplyDeleteReserves are always supplied to settle payments at the Fed's overnight rate. There's nothing unique there or insightful about that fact with regards to how the government debits private bank accounts and uses the proceeds to spend.
What I don't really understand about critics like you, anon, is why you don't just have these discussions directly with Mosler, for example.
ReplyDeleteHe's quite easy to contact at his website. You can ask him questions and criticise his arguments there, without being aggressive, dismissive, rude or accusatory, of course...
I'm not a spokesperson for MMT. Tom's good though. Paul has his own way of describing it which Mosler has disagreed with on one occasion that I know of, hey Paul :-)
Tom:
ReplyDelete"…That sends a warning signal that the process is becoming unsustainable, and what can't go on forever, won't…"
This is analagous to youe home electrical service, it's capacity is some multiple of the rated capacity.
Push it too far and breakers begin to pop…
Someday this circuit will be modelled accurately and we will be able to maintain stability (wishful thinking I know).
The free market will maintain a stability that may not be healthy for the human inhabitants.
Management of such a system by a body like our congress also seems unworkable.
We need a system of automatic stabilizers for it to be workable in my view.
Like any other circuit using feedback techniques to stabilize it.
"Reserves are always supplied to settle payments at the Fed's overnight rate"
ReplyDeleteYeah, either they are loaned by the Fed (which might also take the form of an overdraft), or the Fed buys Treasuries through OMOs. When the Fed buys or sells Treasuries it's swapping one government liability for another.
Fed liabilities and Treasury liabilities are both liabilities of the US government, don't forget.
I don't quite understand what you mean by this:
"There's nothing unique there or insightful about that fact with regards to how the government debits private bank accounts and uses the proceeds to spend."
@ Y,
ReplyDeleteI've contacted Mosler. He still claims that spending comes first and tries to attribute this special role to bank reserves. I've spoken to the reserve accountants at our bank about all of this. They don't even know what MMT says. Oh, and regarding the ridiculous comment above about how bankers don't understand that loans create deposits. That's just stupid. Our loan department doesn't check reserve balances before making loans so whether they admit it or not, they know this every day they walk into the bank.
MMT acts like they're the only ones in the world who understand banking when the reality is that there are 200 guys on my floor who understand banking better than every single MMTer in the world. And we use our understanding to generate billions of dollars in profits while you all sit around blogging/pretending to have it all figured it all out.
WM "The funds to pay taxes and buy government securities come from government spending, or from government lending",
ReplyDeleteWhat this means is that temporally households and firms pay their taxes with deposit accounts, some of which money is from govt spending, but most from govt lending, which the banking system draws on when "deposits create reserves" due to an individual bank's not having sufficient rb to cover.
No one on the MMT denies that in fact, bank deposits are used in payment of taxes and govt accepts all deposit money as its unit of account, whether it comes from a govt deposit, or someone's bank loan.
What MMT holds is that at the macro level of aggregates, the funds that govt injects through deficit spending are saved as Tsy securities if govt chooses to issue them in the exact amount of the deficit, as the US presently does.
When govt runs a surplus, then govt has not injected enough into non-govt to pay taxes in that period and obviously people use bank created money instead of cashing in tsys. However, at the macro level, what this does is decrease NFA held by non-govt because the funds withdrawn are rb, which is a liability of the cb, i.e., govt. That is to say, excess reserves are drawn down.
y:
ReplyDelete"…which Mosler has disagreed with on one occasion that I know of…"
Yeah and I can't remember what the gist of his disagreement was…seems like I was ranting about pension funds or something.
If I recall my takeaway was that nearly every case of a leakage, be it profits, savings, whatever complex argument we can make, it all comes down to simple demand leakages that must be accounted for.
I don't quite understand what you mean by this:
ReplyDelete"There's nothing unique there or insightful about that fact with regards to how the government debits private bank accounts and uses the proceeds to spend."
The CB will always supply reserves at its target rate to settle payments. There's nothing unique about the accounting relationship between raising funds through bond auctions/tax receipts and settlement at the overnight rate. The Canadian banking system only maintains a very small amount of reserves. That doesn't mean the government doesn't obtain hundreds times more in funding from tax and bond receipts. MMT distorts this relationship to create a money multiplier like relationship where there isn't one.
"The government does not "inject" "funds". They inject a government bond. That's it. The "funds" already existed before the government spending. The funds were given to the government because their account requires a credit before it can be debited. Accounting 101 and how it actually works. Why do you keep trying to distort reality to protect a myth?"
ReplyDeleteThis is where you mistake lies. NFA increases after the injection, and withdrawal, and drainage process. If govt were extracting the funds it uses from the endogenous system, then NFA would not increase due to deficits, which it does.
Anonymous: "I don't know why MMT insists on distorting the role and importance of bank reserves."
ReplyDeleteYo don't seem to understand the basics of the role of "currency" in money money.
" the funds that govt injects through deficit spending are saved as Tsy securities"
ReplyDeleteThe government doesn't "inject" "funds". It raises funds from the private sector, spends them and also issues a NFA as a bond (a security, not "funds"). You have it all wrong Tom.
Matt: "Leverage has some info on human brain function in this area... Lev thinks it is a complete shutdown of the neocortex and the limbic system does a complete takeover... this looks like the biological "ex post" condition though... what actually causes it remains elusive...."
ReplyDeletePrevious thinking was that lower level brain functioning serves higher brain functioning. Research is showing the opposite. Primary evolutionary drives come first and then the nuance. In fight or flight, humans revert to lower functioning as primary, since they don't have time to engage the higher functioning, which emotions (chemistry) shut down temporarily.
This is why militaries put so which emphasis on constant drilling of basic procedure. In extremis people don't think, they just act instinctively, reverting to animal behavior. Without constant drilling, a military loses its cohesion.
y, my understanding is that rb and FRN are Fed liabilities and coin is a Tsy liability. The Fed distributes coin for the Tsy. But I don't know precisely how they account for this on their books.
ReplyDelete""…issues a NFA as a bond…"
ReplyDeleteA bond (Treasury) is a highly liquid asset, nearly as liquid as cash and listed as a cash-equivalent on balance sheets.
Apple Computer is said to be holding a cash position of $117 Billion (re it's latest quarterly report) of which about $100 Billion is marketable securities.
These cash assets are backed by the full faith and credit of the US Government and will always be worth their face value, which can't be said of any other form of wealth storage that I know of.
"Reserves are always supplied to settle payments at the Fed's overnight rate"
ReplyDeleteAs a loan from the FEd at the penalty rate. The bank can obtain funds at the FFR through repo or in the overnight market at the target rate. If it needs rb at the end of period, the Fed loans them automatically but at the discount rate.
"He tries to attribute this special role to bank reserves."
ReplyDeleteThey're only "special" because they are government 'currency', whereas bank credit is technically an IOU for government currency, even though it's generally not redeemed for currency on the whole.
"Our loan department doesn't check reserve balances before making loans"
MMTers always say that this is how banks operate, so no difference there.
"we use our understanding to generate billions of dollars in profits while you all sit around blogging/pretending to have it all figured it all out."
I'm not making billions personally but I am interested in understanding how the system works AND trying to find ways to make the world better. You seem to have no interest in improving things at all. You seem to want everything to carry on as it does at present, as if there's nothing at all wrong with any of it. Isn't that the case FDO15?
As I said, people have different political views about these things. Your views appear to be somewhat biased by the fact that you are apparently benefitting quite alot from the current situation. Perhaps you should also consider looking outside of your own narrow self-interest, or perhaps try to look at the world from a different perspective, just as a useful thought experiment?
You seem to think that your understanding of the system is somehow fundamentally different to that of MMT. It really isn't. The only real difference I can see is one of emphasis.
"Mosler claims that spending comes first"
Well there would have to be some form of government spending or lending for government currency to enter into the economy, wouldn't there?
Paul, a 10/30 year bond (a T-bond) is not a "cash equivalent". The cash equivalents you're referring to are t-bills, money markets, commercial paper, things like that. Or are we playing reality distortion games again?
ReplyDeletePaul, a problem with modeling the circuit lies in getting the data. Banks use subterfuge to conceal what their actual exposure is through SIV's, shadow banking, etc. This was a big problem in the lead up to the GFC and it's still not transparent. A lot of people think with good reason that many large US, UK and EZ banks are insolvent.
ReplyDeleteThe government doesn't "inject" "funds". It raises funds from the private sector, spends them and also issues a NFA as a bond (a security, not "funds").
ReplyDeletea 10/30 year bond (a T-bond) is not a "cash equivalent". The cash equivalents you're referring to are t-bills, money markets, commercial paper, things like that.
That seems to be the fundamental disagreement. Not a distortion, a basic difference in view. MMT says treasury bonds as a "money thing" are more or less the same as other government issued money things (reserve balances, notes and coins). As Mosler likes to put it, the difference is between a demand deposit and a time deposit at the central bank. The total assets are what matter, not the portfolio composition between reserves and treasury securities.
If you reject that premise, then it's easy to see how you end up with the line of argument you're presenting. I had to chew on that one for a good while myself before I got to a point where I felt like I understood and agreed with it then much of MMT fell into place.
Not that you're obligated to agree, of course. My intent is just to point that out as the fork in the road where your position and MMT part company.
"They're only "special" because they are government 'currency', whereas bank credit is technically an IOU for government currency, even though it's generally not redeemed for currency on the whole."
ReplyDeleteThis whole view is distorted. It's an attempt to create a money multiplier like relationship between reserves and bank credit. It's wrong.
"Well there would have to be some form of government spending or lending for government currency to enter into the economy, wouldn't there?"
This isn't a chicken and egg story. The system creates money almost exclusively through private banks. There is no "this then that" from the government side. There is only a loan that creates a deposit that might need a reserve. It's that simple. The money creation process starts with private banks. Not the government.
Anonymous: "we use our understanding to generate billions of dollars in profits"
ReplyDeleteThat's load of BS. Read Michael Hudson on fictitious capital and junk economics. Bank "profits" are rent-extraction. You are part of the problem.
"The CB will always supply reserves at its target rate to settle payments"
ReplyDeleteWhat do you think that the discount window is for? And the discount-penalty rate. If a bank comes up short of RR at the end of a period, the Fed automatically loans the rb at the discount rate.
FDO once again demonstrates that he doesn't know the difference between a payday loan and a SS check.
ReplyDelete@ Geerussell,
ReplyDeleteThe point of contention is with regards to how MMT just changes the definition of things like "cash equivalents". An accountant or the IRS or the FDIC would not consider a 30 year bond to be a cash equivalent but MMT makes an exception to blur the errors in the theory. If you're willing to cut corners and get the details wrong (which MMT does time and time again) then fine.
The current ELR system is the military-policestate-crime complex.
ReplyDeleteThios creates lots of jobs throught the prison system, the police and the military.
Is a JG based on destruction and failure to do something productive with society. Idiots are very delighted with the current state of affairs and want MORE of it.
Maybe humanity does not need JG programs, but it needs ways to give income to people so they have other options between criminality and starving, or joining the police state of corporate interests.
I heard there are various trillions of USD sitting in tax heavens doing nothing, I heard most income goes to a small percentage of the population, I think that 'productivity' gains in last decades is being hoarded.
I would start with these, I'm sure we can reduce involuntary unemployment to zero if we fix some of these issues. But if we don't we will have to look to implement some sort of JG (or send checks to mailboxes maybe).
And if some idiot talks about inflation we may examine consumption patterns and implement 'inflation creation' taxes, actually we should already be moving into that direction and totally reform the current tax structure. Inflation creators and productivity hoarders are the ones who should be targeted with the tax system.
Then only we may see some true democracy.
"MMT distorts this relationship to create a money multiplier like relationship where there isn't one."
ReplyDeleteThat's nonsense, really, though some blog commentors may have given you that impression perhaps.
Again, after all this sideshow sturm and drang is over the important point to remember is that, as you said, the government doesn't face a spending constraint. And, ultimately, it makes the rules. So let's figure out how to use those abilities in the best way possible.
Yes we will have differences of opinion about how to do that.
Getting all het up about how important reserves are or how important credit is, is really beside the point.
"You are part of the problem."
ReplyDeleteNo, you are the problem here spreading lies about the way the system actually works. MMT actually makes some useful contributions, but it's distorted by all these other simplifications that cut corners and fail to accurately describe reality.
Duty calls. Good day gentleman.
"Paul, a 10/30 year bond (a T-bond) is not a "cash equivalent"
ReplyDeleteI believe anything 10 years or less is considered a cash equivalent as it is readily exchangable for cash.
What do you think Apple has their $100 Billion in "cash" invested in? They may very well be short-term securities (like 28 day maturity) that they constantly roll over, I don't know and it doesn't matter.
Regardless, they have $117 Billion referred to as cash or cash equivalents on their balance sheet.
Is that in dispute?
"There is only a loan that creates a deposit that might need a reserve. It's that simple."
ReplyDeletewell perhaps but the reserve is lent out by the Fed, or the Fed buys an asset from the private sector, or it swaps a reserve (Fed liability) for a Treasury liability. And Treasury liabilities are created when.... the government spends...
AnonymousL "
ReplyDeleteThe government doesn't "inject" "funds". It raises funds from the private sector, spends them and also issues a NFA as a bond (a security, not "funds"). You have it all wrong Tom."
Govt need not issue bonds. It could just issue directly. That would directly increase NFA as adds to deposit accounts. Now it chooses to issue through the cb-Tys liability route, which means that the NFA appear on the books as tsys.
In both direct issuance, e.g, greenbacks, and indirect issuance, the NFA are Tsy liabilities. In the first instance, notes and in the second, tsys.
The issuance of tsys instead of notes makes it appear as "borrowing" instead of directly crediting non-govt accounts. But the net effect is exactly the same, except that there is interest add with Tys, so over time increasing NFA held by non-govt.
"This isn't a chicken and egg story... The money creation process starts with private banks."
ReplyDeleteI thought you said it isn't a chicken and egg story?
@ Y,
ReplyDelete"Again, after all this sideshow sturm and drang is over the important point to remember is that, as you said, the government doesn't face a spending constraint. And, ultimately, it makes the rules. So let's figure out how to use those abilities in the best way possible."
This is a fine approach, but then why does MMT insist on getting so many of the details wrong? I think the MMR guys would agree with everything you wrote there, but accountants like JKH are detail oriented and reject MMT for this exact reason. You can't claim to explain "operational realities" when you get the details wrong.
@ Paul,
ReplyDeleteYou're just lying now. No one cares what you "believe". There are specific definitions to the terms you're using. Why does MMT continually distort everything?
"Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less"
http://en.wikipedia.org/wiki/Cash_and_cash_equivalents
…"An accountant or the IRS or the FDIC would not consider a 30 year bond to be a cash equivalent but MMT makes an exception to blur the errors in the theory…"
ReplyDeleteYou are the only one here that has mentioned anything about 30 year bonds.
The government portfolio of 30 year bonds appears to be pretty small right now.
Corps store cash and banks store excess reserves as tys. This is why Bill Mitchell says that Tsy issuance is a corp subsidy that should be ended. This is also the point of the people agitating for direct issuance instead of cb liability-Tsy liability. Just do directly to Tsy liability with no interest, i.e., Tsy notes.
ReplyDeleteThe point of contention is with regards to how MMT just changes the definition of things like "cash equivalents". An accountant or the IRS or the FDIC would not consider a 30 year bond to be a cash equivalent but MMT makes an exception to blur the errors in the theory. If you're willing to cut corners and get the details wrong (which MMT does time and time again) then fine.
ReplyDeleteI think viewing treasuries as cash equivalent has great explanatory value. As a practical example, predicting the outcome of quantitative easing policy.
From the MMT view, it's a shift in portfolio composition that isn't inflationary and results in no change in net assets or purchasing power. As Fullwiler put it, treasuries don't constrain spending.
That's a practical example where the thinking applied to real world policy with predictive value. For me, that kind of thing makes MMT both correct and useful. YMMV, I doubt you'll find this convincing and I'm happy to agree to disagree on the point.
@ Paul,
ReplyDeleteYou wrote:
"A bond (Treasury) is a highly liquid asset, nearly as liquid as cash and listed as a cash-equivalent on balance sheets."
A Treasury bond is a US government security with a maturity of 10+ years.
Are you always this dishonest and hostile when you're just blatantly distorting the meaning of words?
Anonynous, "Paul, a 10/30 year bond (a T-bond) is not a "cash equivalent". The cash equivalents you're referring to are t-bills, money markets, commercial paper, things like that. Or are we playing reality distortion games again?"
ReplyDeleteTsys of any form are used for repo and collateral and can be "converted" to cash without selling them. This is by far the preferred way.
Anonymous: "The money creation process starts with private banks. Not the government."
ReplyDeleteNot if a bank wishes to make loans in the unit of account and use the settlement system like everyone else.
Anyone is free to issue their own IOU's but not to call them USD.
Why don't we have a free banking system in the US that competes with the existing system. Because of the value that the govt creates cannot be duplicated cost-effectively.
You are in la-la land.
…operational realities…"
ReplyDeleteThe arcane operational realities you are talking about don't define the functioning of the over-arching system which is quite simple. The system is natural, the operational realities are man-made.
Man-made systems more resemble a rube-goldberg contraption than elegant real-world systems.
Growth and natural leakages must be accompanied by fiscal expansion, credit is a temporary enabler but because of the nature of systems and arithmetic can't provide the necessary assets for stable expansion.
As far as the non-government is concerned the only thing that matters is that liabilty-free money comes out of the black box.
This will be true until we can find a different system to motivate workers to work so others may profit.
The original way was slavery, I'm not willing to go that route and assume that most aren't.
Here we go again distorting reality and oversimplifying things.
ReplyDelete"Anyone is free to issue their own IOU's but not to call them USD."
No, you are not free to issue IOUs like a bank. If you issue an IOU you lose purchasing power. When a bank issues an IOU it increase purchasing power. Think about that for a few minutes and let it sink in before you write your next condescending comment. You don't even get the basics correct.
Anonymous: " Good day gentleman.
ReplyDeleteHave a nice day.
MMT doesn't get the details wrong!
ReplyDeleteCullen gets details wrong when he ends up saying daft things like "the government is an important currency user". How on earth can that possibly be correct?
None of your technical objections, such as that people pay taxes via banks and not by posting cash to the treasury - None of that is in contradiction to anything in MMT!
The only real difference I can see is one of emphasis. You quite like banks. You're not so fond of government. Ok.
"accountants like JKH are detail oriented and reject MMT for this exact reason"
Nothing JKH has said about anything changes anything. You end up in the same place, basically.
Government spending isn't operationally contrained, government deficit is non-government surplus, etc.
Again, the difference is one of emphasis at best, and then of course disagreements over the correct policies. For example you think the JG is a bad idea.
1 = 1 + (1-1) doesn't suddenly reveal the truth that 1 is better than 1.
" this looks like the biological "ex post" condition though... what actually causes it remains elusive...."
ReplyDeleteEmotions come first than other 'higher' cognitive functions (like 'rational thinking' or some logic functions, which actually are modulated by other heuristic functions already, so are pretty low in the hierarchy of information processing).
They act as modulators, so emotions can filter information received. If something does not 'feel right' about something information will be ignored so the frontal lobe won't process it.
It's a very complex thing that is not really well understood but there is plenty of evidence on this feedback loops. Brain will check memory for previous information and most times will ignore and oppose the conflicting and not cohesive information (information bias).
If you are exposed to new situations (information) you won't discriminate emotionally by previous information. But if you have been exposed to similar topics previous information will be used to discriminate against the information you are receiving (take in mind this already happens at the origin of the perceptual process! when you are hearing or watching something).
This why 'indoctrination' (in colleges for example, economy courses) works well, or why people has preference over endogenous or exogenous origins of money despite evidence. It's very hard to overcome this mechanisms (they have evolved to protect the subject), that's why science advances one funeral at a time and why have 'historical' cycles (from a sociologic or economic point of view).
I doubt we can overcome these until we evolve ourself biologically btw, but this is an other subject (and controversial).
geerussell: "From the MMT view, it's a shift in portfolio composition that isn't inflationary and results in no change in net assets or purchasing power. As Fullwiler put it, treasuries don't constrain spending."
ReplyDeleteThis is a key point.
1. Some think that tsy are for saving and rb for spending, so that if tsys go down and rb go up as in QE spending will automatically increase. This is kernel of the hyperinflation argument at ZH for instance. That has been shown to be monumentally incorrect but some people are still betting on it.
2. The MMT position is that the ratio of tsy to rb does not affect spending-saving decisions, because tsys can always be converted immediately to a more liquid form by sale, repo or other collateral. Holding tys make no difference is spending-saving preferences of individuals or firms.
Tsys are used to park large sums as interest. Look at the volume of exchange in tsys as households and firms move assets from one form to another, both financial and non-financial. Tsys are to large amounts what cash is to pockets.
Roche is on a soapbox. JKH (and Feiebiger to a lesser degree) is the mastermind behind MMR. And his paper explaining why MMT is wrong is exactly right. But none of you are interested in understanding why MMT might be wrong because you're too caught up in the policy potential behind having a money tree at your disposal. So you continually fudge details and blur reality.
ReplyDelete"No, you are not free to issue IOUs like a bank. If you issue an IOU you lose purchasing power. When a bank issues an IOU it increase purchasing power."
ReplyDeleteOnly because the banks are govt backed. That is why we dont have free banking. Banks that are not govt backed would have to provide their own backing. They could not compete with the advantage that govt-backed banks enjoy as an extraordinary privilege of the charter they receive from govt. The "pay" for this privilege by playing by rules set by govt.
You really need to study up on money and banking, Anonymous. You don't understand the most basic concepts.
"his paper explaining why MMT is wrong is exactly right."
ReplyDeleteWhat, his 'contingent institutional approach' paper?
That's a good paper, but changes zero. Nada. Nothing.
What he fails to mention, of course, is that while Fed liabilities are counted as 'assets' in the Treasury's accounts, they are US government liabilities.
Fed liabilities, Fed assets (Treasuries), Treasury liabilities, Treasury assets (Fed liabilities)... They're all US government liabilities. One type of government liability being swapped for another. He didn't mention that.
He gets too caught up in the smoke and mirrors, like you, as if they might hold some fundamental truth. But the conclusion at the end is the same! No operational spending constraint etc etc etc.
"Only because the banks are govt backed."
ReplyDeleteSo you take the fact that banks are regulated by the government and extrapolate that out to mean that government spends first and taxes second? You're hopeless.
"…banks are regulated by the government…"
ReplyDeleteBanks are capitalized and backstopped by the government. The LLR.
Regulated… not so much.
Still, your basic premise that an economy can grow and be stable on credit money alone fails.
You haven't accounted for leakages.
Personally I suspect the Treasury's accounts don't even make sense from a logical perspective, but that's just me...
ReplyDelete@ Y,
ReplyDeleteLooks like you didn't digest the paper fully. Sigh.
@ Paul,
I didn't even get into leakages. I know they're there and I never said NFA creation was bad, but you keep changing the point because you keep making inaccurate statements and changing definitions so you can prove your failing points.
Ok, so what did I fail to digest?
ReplyDelete"There is only a loan that creates a deposit that might need a reserve. It's that simple."
ReplyDeleteComing back to this, aren't you forgetting to mention regulatory capital requirements?
or just bank capital full stop
ReplyDelete"…keep making inaccurate statements…"
ReplyDeleteDon't know what you are talking about here. This isn't a spelling bee.
What we are discussing here is abstract, you keep focusing on meaningless little semantic gotchas.
Note, the real world doesn't run on semantics, that's a communication tool. At best a semantic description is a cartoon of the real thing.
I've asked you dozens of questions trying to get you to explain WHY what you claim is true but your responses refer to us lying, being dishonest, etc., so why do you bother?
If you have that little respect for what we have to say why are you even here?
In the meantime, you haven't put together a single logical chain of argument, so you can't think that such weak tea is going to change our minds can you?
Must be a slow day at the office.
Anonymous: "So you take the fact that banks are regulated by the government and extrapolate that out to mean that government spends first and taxes second? You're hopeless."
ReplyDeleteThe govt could conceivably prohibit all private banking and run the monetary financial system itself. Banks are not necessary and there are in fact proposals out there now to do just that. I am not will to go that far personally, but I would greatly curtail the scope of private banking. There is no need from much of it and it just enriches a bunch of people unnecessarily due to their special relationship with govt.
There are essentially three possible systems: 1) govt run, 2) private run or "free banking," and 3) a combination of govt and private. There are a lot of ways to structure this.
In 1, govt could just issuance currency directly and tax from this issuance, or issue currency and Tsys as its does not if it wanted to provide non-zero maturity interest bearing liabilities are a public service. No private banks so govt taxes obviously taxes from its spending.
in 2, all money is bank money and govt obtains bank money to spend. In this model, govt relies on the private sector for funding.
IN 3, the combination can be structured variously. Presently, the US uses the cb liability-Tsy liability for currency issuance and permits banks to create deposits by crediting bank accounts and risking their capital to do so. The govt provides backing for the banking system in terms of deposit guarantees (FDIC), for example. Under the gold standard, govt provided the gold reserves. Under ELR, govt provides rb as needed to settle.
"Personally I suspect the Treasury's accounts don't even make sense from a logical perspective, but that's just me..."
ReplyDeleteAccounting doesn't "make sense" because it is based on complex accounting rules that only experts understand and get paid a lot for understanding. Trying to figure out anything beyond very basic accounting in terms of making sense is impossible. One has to study the rules and these rules are both general (customary) and vary by jurisdiction and institution.
Tom - you are proving anons point. I think his issue is with MMT's operational description. But MMT really describes a system that needs to be changed (combine Fed and Treasury for instance). I understand your point, but you're proving his by showing that MMT doesn't exactly describe how the current monetary arrangement works. The whole thing might be a farce, but that doesn't matter. It's what we're stuck with.
ReplyDeleteCombining Fed and Treasury would make no difference to what the government can and can't do.
ReplyDeleteGreg, the point is that the MMT description is what happens at the macro level. The day to day is mostly relevant here. People that work in banks understand the day to day but not the macro.
ReplyDeleteMMT has emphasized over an over that temporal priority is not logical priority, for example. There were hundreds (585) of comments on this in Marshal's latest at Warren's on this, although just checking only the first page is visible and I don't see how to get to the other pages. But the post says 585 comments.
"Combining Fed and Treasury would make no difference to what the government can and can't do."
ReplyDeleteOf course it would. The government can only spend by first obtaining funds from the private sector under the current monetary arrangement. Giving the Fed the ability to monetize would mean you remove the private sector from the equation in its entirety.
Y: "Combining Fed and Treasury would make no difference to what the government can and can't do."
ReplyDeleteY is simply reiterating Warren here. This is what he says to the AMI people agitating for direct issuance, for instance.
No difference.
MMTers are statists. That's why they don't care whether the government issues money directly or has to obtain money from the private sector first.
ReplyDeleteOf course it would. The government can only spend by first obtaining funds from the private sector under the current monetary arrangement. Giving the Fed the ability to monetize would mean you remove the private sector from the equation in its entirety.
ReplyDeleteUnder current arrangements, private sector involvement does not constrain the ability of the government to spend and issue debt.
For the sake of discussion, consider a hypothetical case where the Treasury wishes to issue debt and the private sector doesn't want to buy. Zero takers for the auction. How do the institutional mechanisms of the current system function in this event? The Fed provides liquidity to the PD's to purchase 100% of the issue which the Fed then buys from the PD's leaving the PD's whole, the Treasury satisfied and the private sector market for bonds indifferent. It's direct purchase with institutional hoops to jump through.
Current arrangements allow private sector involvement, they don't require it. This is why it's possible to look at the current arrangements and say combining tsy and fed wouldn't make any difference.
Unless you're going to argue that the Fed might refuse. Now that would be pretty far from reality but if it did happen, we'd get a refresher on where authority resides as Congress flexes its statutory and constitutional authority to bring a rogue central bank to heel.
Of course it would. The government can only spend by first obtaining funds from the private sector under the current monetary arrangement. Giving the Fed the ability to monetize would mean you remove the private sector from the equation in its entirety.
ReplyDeleteAnother one taken in by the cool aid.
Th only actual constraint on govt money creation has been imposed by Congress in the form of a debt ceiling. This prevents Congress from issuing more USD, which it does by issuing Tsy instead of notes under current law. (There is already a tight limit on the amount of notes that TSY can issue.)
The only legal way around this is either by something like the platinum coin gambit, or by the Fed stretching interpretation of the law and going fiscal, which could jeopardize Fed independence.
"But none of you are interested in understanding why MMT might be wrong because you're too caught up in the policy potential behind having a money tree at your disposal."
ReplyDeleteRE-VEAL-ING!
Do I detect some love for any/all of the elements in column 11 of the periodic table Anon?????
Little fetishism for copper/silver/gold huh????
rsp,
@ geerussell
ReplyDeleteExactly. Auctions don't fail because the PD's are committed as market makers to expand inventory as needed, and the Fed accommodates this expansion with lending. The Fed is always available thereafter to expand its balance sheet as the ultimate buffer beyond the PD inventories. There is not operational limit to this.
"Under current arrangements, private sector involvement does not constrain the ability of the government to spend and issue debt."
ReplyDeleteYou MMTers don't even understand your own constraint. Of course the government is constrained by how much it can raise in taxes and bonds. It is constrained by the purchasing power of its currency which is DIRECTLY tied to the solvency of bonds and the payment of taxes. In a hyperinflation tax receipts and bond sales collapse. The government cannot obtain funding so it monetizes. The fact that the government has a printing press is irrelevant here and you're taking it to an extreme to prove a fictitious point. Government must still obtain funds from the private sector or its money is worthless.
"The government can only spend by first obtaining funds from the private sector under the current monetary arrangement."
ReplyDeleteThis is a semantic description of what seems to occur (to some).
If you look at the before and after net asset positions the non-government ends up with more financial assets in either bonds or dollars. Nothing has changed on the government side except it has created a new liability/asset pair out of nothing, bonds or dollars, from the same place where every dollar or bond comes from.
This can go on forever at zero cost so…
"Government must still obtain funds from the private sector or its money is worthless…"
ReplyDeleteSo the ~ $5 Trillion the government has printed without selling bonds to the private sector is worthless?
"In a hyperinflation"
ReplyDeleteYes, inflation is a financial constraint that follows from the non-financial constraint of availability of real resources. That's basic MMT.
If the govt actually followed from non-govt, there would be no concern with govt action being inflationary under a fiat currency. It would be dependent on bank credit extension to the private sector, which is based on ability to pay from revenu, more borrowing, drawing down savings and sale of assets, as well as acceptable collateral if the case that the the expected ability to meet cash flow requirements doesn't materialize.
The whole point of a fiat regime and the fears generated by it is the ability for govt to issue currency "without backing." The ability to tax is not needed for funding govt but rather to quell the threat of inflation.
But why am I repeating this when it has been said over and over again.
Some people are apparently never going to get it, no matter what.
"In a hyperinflation tax receipts and bond sales collapse"
ReplyDeleteWhen was the last U.S. episode of hyperinflation?
@ Tom,
ReplyDeleteHyperinflation can occur in a fixed or floating exchange system. You should know this. You're being dishonest as you have been throughout this thread.
@ Paul,
When was the last time you had a life threatening disease? Probably never, but when it happens you'll likely be interested in what caused it. Saying that something hasn't happened doesn't make it irrelevant and is just plain ignorant.
I don't spend a lot of time worrying about the boogie man, and i don't listen to people running around with their hair on fire screaming "HYPERINFLATION".
ReplyDeleteBeen listening to those scare tactics for more than 60 years now. At least now I recognize bullshiit better.
I have a pretty good idea what conditions are necessary to create hyperinflation (as do most MMT'ers) and those conditions can't sneak up on me.
I'm much more concerned about climate change, which is coming whether I like it or not.
We've screwed the pooch.
http://dealbook.nytimes.com/2012/07/30/suggestions-for-an-apple-shopping-list/
ReplyDeleteOh look, Apple is ABLE to SPEND their hoard of TREASURIES, just can't find anything to buy.
Anonmous: Hyperinflation can occur in a fixed or floating exchange system. You should know this. You're being dishonest as you have been throughout this thread.
ReplyDeleteyou didn't read what I said. Are you really that stupid or just set on being right at the expense of continually making a fool of yourself.
I said nothing about other system. I said it is a fear of fiat system since people know that fiat has no backing.
So Congress set up an illusion of govt having to borrow from the private sector at market-set rates to allay those fears about politicians running away with spending. This is of course nonsense in that the market doesn't set the interest rate and the yield curve is a projection of the interest rate.
Moreover, the PD system effectively insures that there will never be a failed auction and the Fed can absorb all the tsys it needs to in order to faclitiate Tsy ops, which are just agency ops that carry out appropriations. It is Congress that spends, not the Tsy.
The smart people in the GOP know this is an illusion, which is why they tacked on the deficit ceiling, which is actually a constraint. This is not a constraint on the Tsy but on Congress, forcing Congress to continually raise the ceiling, which is political unpopular because voters don't understand that public debt is non-govt NFA that increases non-govt financial wealth. If they understood this, they would ge more concerned with who holds the bulk of that wealth.
@ Paul,
ReplyDeleteApples cash equivalents don't include T-bonds. Do you even try to learn or are you so self absorbed in MMT that you're incapable of digesting any outside info?
@ Tom,
It is not an illusion that the monetary system falls apart when a government cannot obtain funds from the private sector. The ONLY reason a government is seen as having a AAA rating is because it can tax and sell bonds at will. If it loses this capability it's no better than a private corporation. This constraint is very real and it is the demise of an economy. It is the private sector's rejection of the currency. The fact that you think this is an "illusion" is both frightening and ignorant. You'd think that MMTers would understand what happens in a hyperinflation since they claim that inflation is the constraint that matters.
Anonymous: " The ONLY reason a government is seen as having a AAA rating is because it can tax and sell bonds at will. If it loses this capability it's no better than a private corporation."
ReplyDeleteBut not because govt cannot fund itself.
The only fiscal way that inflation can be addressed is by using taxation to draw down money in circulation thereby constricted effective demand.
Who cares if a government can monetize its debts if the public is unwilling to buy its bonds or pay taxes? It's really astounding to me that you're trying to shrug this off as some minor detail.
ReplyDeletepaul: "I have a pretty good idea what conditions are necessary to create hyperinflation (as do most MMT'ers) and those conditions can't sneak up on me. I'm much more concerned about climate change, which is coming whether I like it or not."
ReplyDeleteYes, there are many reasons that hyperinflations have occurred in the past. One is due to destruction of an economy in war.
Global warming can result in this, too, by disrupting national economies and the global economy. 10% of the world's population — over 600M people — where without electricity just now when the grid shut down in India. This gives an idea of how quickly things can happen and on a vast scale.
IOR kinda renders bond sales superfluous, there FDO.
ReplyDeleteTaxes maintain the USD as the coin of the realm.
Who cares if a government can monetize its debts if the public is unwilling to buy its bonds or pay taxes? It's really astounding to me that you're trying to shrug this off as some minor detail.
ReplyDeleteYes, the public can shut the country down due to panic, financial or non-financial. What does that tell us? Or do your really think that people en masse would just decide not to pay taxes or buy govt bonds.
Not buying bonds would make no difference since bonds are unnecessary. Taxes are necessary to give value to state money.
It's not the problem of people refusing to pay taxes that is significant. This is a constant issue. The problem arises when a govt can no longer enforce the tax obligation. Under most circumstances, if people refuse to pay taxes, govt just confiscates their property. When govt can no longer do this, then the regime collapses.
Tom -
ReplyDelete"The problem arises when a govt can no longer enforce the tax obligation."
Right. Otherwise Walmart could pay most of a salary in "Walmart Bonus Bucks". As it is, if the IRS caught wind of it, they would re-categorize that as income in USD and there would be hefty taxes, fines and interest to pay.
"The problem arises when a govt can no longer enforce the tax obligation."
ReplyDeleteSorry everyone, but this statement is also wrong. Zimbabwe did not run out of the ability to enforce tax payments. Mugabe had a massive army, murdered anyone who broke the law and had all the power anyone could ever want. He didn't run out of the ability to enforce tax payments.
It's amazing how much MMT gets wrong on the one thing they claim is the constraint for a fiat money.
So what do you think caused Zimbabwe's hyperinflation?
ReplyDeleteAnon writes: "Government must still obtain funds from the private sector or its money is worthless."
ReplyDeleteThis proves that at core Anon believes in exogenous "money" ie gold 'standard', ie 'philarugria', etc... hence is blinded to the details of how an endogenous system operates.... or at least he is blinded to much of the details of an endogenous system...
Lev's comment (btw great comment Lev) on brain function above is probably applicable to what we are witnessing with Anon.... he may not be able to escape this...
rsp,
"Zimbabwe," the Godwin's law of economics
ReplyDeleteBill Mitchell, Zimbabwe for hyperventilators 101
I would point out that Beo's platinum coin method (which interestingly is left open using platinum via the US law that Beo discovered) is using a metal that is NOT from column 11, platinum is in column 10 IIRC... platinum is NOT a so-called "noble metal" so this is interesting....
ReplyDeletersp,
btw, my former colleague, Fungisai Nota (who comments at Bill's site in the link Tom provides) is from Zimbabwe, maintains several business interests there, and has a policy research institute there. At the time Bill wrote that piece Nota said it was the best analysis he had seen from outside Zimbabwe on Zimbabwe's hyperinflation (perhaps he says that in the comment on Bills' site--can't recall). Nota regularly seeks out Warren's views regarding returning Zimbabwe to monetary sovereignty.
ReplyDeleteLets re-frame my question as chicken/egg, then we can go around in more circles…
ReplyDeleteDid hyperinflation cause Zimbabwe to print all that money or did all that money-printing cause Zimbabwe's hyperinflation?
Which direction would you like to run around that circle?
Zimbabwe was simple. You had a socialist leader who destroyed the one productive resource they had - the farms that were owned by the whites. Mugabe redistributed the land in typical socialist fashion and output collapsed. When output collapsed the currency collapsed.
ReplyDeleteMitchell's explanation is half decent, but he doesn't explain how this was all the result of failed socialist government's redistribution of wealth.
A properly depicted review of what happened in Zimbabwe is actually a great refutation of MMT and debunks many MMT points, in particular, this false idea that tax enforcement can avoid currency collapse.
FiDO has an exceptionally warped understanding of what MMT actually says. Everyone here is far better off ignoring her than engaging or troll feeding as the case may be (though it is amusing to see someone who doesn't like us so much not able to resist spending hours on end reading our material and "commenting" on our blogs--the word "obsessed" comes to mind). Certainly there is nothing to learn about MMT itself from reading any of FiDO's "comments" as the actual literature and our views have been completely twisted and corrupted in her mind somewhere by the time she starts writing. Suit yourselves, of course, but that's my 2 cents.
ReplyDelete