While we are on the topic of monetary cranks, I thought it might be useful to quickly address a cranky idea that often comes up in comments to my blogs and also during Q&A after presentations: so-called “debt-free money”.
The first time I heard it, my immediate reaction was “Say what?”, and the second was puzzlement at the non-sequitur.
I am not sure exactly which of the crank approaches explicitly adopt the notion, but it seems common to a lot of them. I’m not going to address any particular approach but instead will address only the idea that we can have a “money” that is not a “debt”.
But first I want to tie up a loose end from my last blog, Something is Rotten in the State of Denmark: The Rise of Monetary Cranks and Fixing What Ain’t Broke, which was carried at GLF, NEP, and Naked Capitalism.…
New Economic Perspectives
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
Crossposted at Economonitor — Great Leap Forward and Naked Capitalism
Crossposted at Economonitor — Great Leap Forward and Naked Capitalism
43 comments:
It seems to me that there are two distinguishable issues here that are being mashed together: two different things that someone might mean by asking whether some monetary instrument is "debt-free."
One question is whether the monetary instrument is itself a kind of debt instrument. For example, a negotiable bank IOU such as a 19th century bank-note that circulates as money and is accepted as money would be an instrument that is both money and the representation of a debt. An old-fashioned government gold-backed note - i.e. an IOU redeemable in gold - would be another obvious kind of debt money.
Another question, though, is how these or other monetary instruments are introduced into circulation. One way for that to happen is for them to be loaned into circulation. When an ordinary bank customer accepts a negotiable bank IOU in the form of a deposit balance in exchange for a promissory note, then that bank-issued money has been loaned into broad public circulation. And when a bank borrows a reserve balance from the government, then that government-issued money has also been loaned into circulation, this time among banks.
These are completely different issues. We could imagine a type of government-issued monetary instrument that is some kind of IOU of the government, but which is not loaned into circulation, but helicopter-dropped into circulation or spent into circulation. Similarly, we can imagine a type of money that is not a debt-instrument, for example a form of gold specie-money that is issued by a government that controls the gold supply, and is not accepted as payment in taxes, but which is accepted as money purely as a matter of social convention, and is sometimes loaned into circulation by that government. In that case the creation of a new private sector debt is part of the process by which the money is issued.
When I have interacted with the "debt-free money" crowd before, it has always seemed to me that their objection is to a monetary system in which money is loaned into circulation, which means that the money supply can't increase without private debt increasing. They don't care about Innis's theory, and don't particularly care whether the money the government issues is a genuine debt or "liability" of the government.
By the way, the Innis theory strikes me as far too absolute and essentialist. There have been a variety of different types of money in the history of the world. I don't think it is plausible to think that each and every kind of money that has ever existed has been credit money. Of course, negotiable credit instruments backed by reliable promises do make for an excellent medium of exchange.
Many different kinds of things can serve as a useful and widely accepted medium of exchange. Attmepts to uncover some underlying "money-constituting" property that they all share, other than the fact that they are accepted in exchange for almost all other commodities and services, is probably futile.
By the way, MMTers should be wary of whome they are calling "monetary cranks". Although the main economists who associate with the MMT label defend reputable theories, they have courted and surrounded themselves with a fan club of cultish enthusiasts who think the government's ability to issue "fiat" money is the pain-free cure to every economic ill under the sun, including recession, depression, financial crisis, involuntary unemployment, and maybe even social injustice and inequality.
Stopping private debts becoming a form of money means an end to “debt-based” money - unless you claim that base money as a form of debt, which is a doubtful claim. Certainly MMTers are fond of pointing out that commercial bank money nets to nothing: i.e. for every dollar of such money, there is a dollar of debt. In contrast, and as MMTers also point out, base money is debt free in the sense that it's net asset as viewed by the private sector.
The advantage banning debt based money is as follows. It’s commercial banks that create that money and in doing so, they end up with liabilities (i.e. debt-based money) which are FIXED in value, and assets which can fall in value (when silly loans are made). That in turn means banks become insolvent when the value of those assets falls. And the indisputable fact is that banks have failed regular as clockwork thru history.
One solution is TBTF subsidies or taxpayer funded deposit insurance, but that’s a subsidy of banks, so that’s no good. Ergo private debts should not be a form of money. As to any deflationary effects of banning that form of money, that’s easily compensated for by having the central bank and government create and spend enough base money into the economy (and/or cut taxes) to give us full employment.
To me this seems to be another exercise in semantic variance.
The only "debt" I see is a commitment of parent generations to child & grandchild generations.
That commitment is not an unwilling obligation, which is one of the currently more common ways in which "debt" is defined.
Hence, I personally favor the term "investment" rather than debt.
Since there is no absolute conclusion to the question of semantic meaning - which varies with context and generational usage - this debate becomes a purely fiat exercise. :)
As always, unfolding nature really is stranger than the approximate fictions we invent.
ps: is there an accepted difference between "debit" and "debt" - and universal consensus on exact definitions?
Whether consensus investments are viewed as voluntary commitments by some or involuntary debts by others a matter of group statistics.
The closer you look, the more you see probability functions, and never absolutes.
The bigger issue is that we have far bigger issues to deal with than fixating on the arbitrary form of fiat currency, at the expense of ignoring functional outcomes.
In that regard I have to agree completely with Randy's implicit message. The semantics are a secondary issue, which we can deal with, if we keep our policy process geared to exploring our emerging options.
Yet that is only practically possible if we maintain an adequately educated public, capable of discussing function over illusory form.
Dan c'mon they dont think that a policy of FFNC state currency itself will 'cure all ills' or whatever...
They think that new policies can be implemented to combat those failures in our economic system by a govt staffed with personnel who have a realization of the higher level of authority present in a govt institution that issues FFNC currency ...
Get people in there who can perceive this authority (such perception is exhibited by a demonstrated understanding of MMT for instance) and then we can change policy to combat those economic failures.... its not just the fact that we have 'fiat' currency.
"Observing, you will be observing, and may by no means be perceiving," Acts 28:26
Its about perception not observation... anyone can observe not all can perceive.
rsp,
Dan,
The MMT economists can't choose who is their fan and who isn't. They can't veto what their fans write online.
Y, that's true. But they could correct people when they are wrong, or who defend crude and overly simplified views. My feeling is that instead of doing this, they decided to turn their attention away from serious research and toward a lot of proselytizing, framing, propagandizing, slogan-mongering and ballyhooing and have allowed - and even encouraged - a lot of ignorance and magical thinking to run rampant under the "MMT" banner.
Of course since MMT lives in a world of purely qualitative vagueness and despises qunatitative analysis, it's nearly impossible to derive concrete policy recommendations from the MMT framework anyway.
"By the way, MMTers should be wary of whome they are calling "monetary cranks". Although the main economists who associate with the MMT label defend reputable theories, they have courted and surrounded themselves with a fan club of cultish enthusiasts who think the government's ability to issue "fiat" money is the pain-free cure to every economic ill under the sun, including recession, depression, financial crisis, involuntary unemployment, and maybe even social injustice and inequality."
Exactly!
MMT can't fix racial polarization. It can't fix ideological difference, whether along religious or political grounds. It can't create oil or clean water out of thin air. It can't create national consensus. It can't make crime go away. It won't cure melancholy. It won't prevent wars (it might even be used to promote them).
In other words MMT has a very limited role in making this a better world. It might be necessary, but it is far far from sufficient to right our languishing national ship.
Dan,
"Of course since MMT lives in a world of purely qualitative vagueness and despises qunatitative analysis, it's nearly impossible to derive concrete policy recommendations from the MMT framework anyway".
Really? I thought they had offered clear policy recommendations, such as Mosler's proposals for example. Bill Mitchell does a lot of quantitative analysis, doesn't he?
Mal,
How can you say you agree with Dan when Dan says we have an empirical problem and then you go on to describe a philosophical problem?
You can't have it both ways...
rsp,
Mal/Dan,
Its like Dan is lamenting about the lack of egalitarianism and then says the problem is that MMT cant show empirically how big of a deficit we should run or something...
Then he asserts a fiat currency doesnt solve anything in the first place....
So at least I am confused...
Is this an empirical problem or a philosophical problem?
I vote for 'philosophical'... so forget the empiricism at least for now...
rsp,
Y, Warren does have some good banking reform proposals.
Here's the thing Matt: I think the US economy is in steep decline and and its social contract is unraveling. In my view we need major structural reforms to our retirement system, our employment system, our education system, our job training system, our health care system, our energy system, our criminal justice system and our financial system.
We also need a major social redistribution of capital assets and a new regulatory regime to control and equalize the distribution of income. We need a revival of democratic institutions and an all-out assault on concentrated plutocratic capital. We need a larger role for national, state and local government in leading the way economically and in charting a strategic economic direction for the country. We need a new commitment to national growth and progress that goes way beyond attempts to "stimulate" more macroeconomically amorphous "demand".
All of these changes are going to require political mobilization and an energetic government committed to a ambitious new agenda for spending, planning, re-organizing and regulation. We're talking about something close to a war effort.
Now suppose there is someone out there who agrees with me on all this, but who thinks that in "the long-run" budgets need to balance. Does that disagreement make all that much difference to where we will end up on policy? I seriously tend to doubt it. The volume and nature and quality of the spending and government activism are much, much more important than the public finance details.
I would of course like to convince them to take a look at the ideas of functional finance, and think of different ways of organizing the public finance system in ways that are not so tax dependent. But if these others potential allies want to accomplish the same things I want to accomplish by taxing the piss out of rich people instead, it's no skin off my nose. I'm not going to say they are "morons" or "faux-gressives" or some other deficient category of humans because they want to get moving in a standard way most people can understand and don't want to screw around with half-baked ideas about platinum coins or other MMT Magic Money Ponies, especially when the people putting forth these ideas have never been able to come up with a quatitatively precise set of rules for managing monetary policy in their brave new world of free money.
Am I worried that the tax-financed approach will be a huge drain on demand? Nah, not really. In the 60's, we had dynamic economic growth, wages that grew rapidly throughout the decade, an energetic national government investing in space, science, education and public works - and yet deficits were a realtively small relative to GDP. The idea that there is some strong, direct correlation between growth and employment on the one hand, and the size of the deficit on the other hand, now strikes me as crude. As long as we don't go building surpluses, I don't think it matters all that much whether we go the tax route or the bond route.
The vast amount of energy that has been invested in endless "How many Dollars Can Dance on The Head of a Pin" exercises in ivory tower monetary theology in comparison to actual line items for a policy agenda and set of programmatic deliverables is absurd. Look at the folks at Naked Capitalism. They have no end of time for one MMT theory discussion after another; for yet another impotent round of daily dialectics among the Austrian cranks, the Positive Money cranks, & the MMT cranks. But bring up an actual proposal from political action and government? Then thay fall into their usual morose net-rootsy whining and self-paralyzing pessimism about the evils of government, the hopelessness of all change, the vanity of politics, the imminence of disaster and the rest.
I'm really sick of the whole scene. Ten years from now, the MMT net community will still be recycling the same tired articles about Knapp, Innis, "Weirgild", sectoral accounting, medieval tally sticks, interest on reserves, whether taxes "drive" the demand for money, etc. There will still be a gang of followers who never tires of this business. But hopefully many others are ready to move on and actually do something.
Dan
Some of us are already moving (personally just taken over as local organiser for a political party) it is up to us to do it but i think you are very harsh on the internet crowd as it is via the internet that these ideas have spread.
A good example would be UK newspapers btl comments,3 years ago i could count number of MMT supporters commenting on fingers of 1 hand. Now go onto the guardian and you can't move for them. That in turn will feed into political parties support. Over there you have someone who supports MMT going for congress in NC (on the democrat ticket).
MMT doesn't & will not have all the answers but it is a powerful tool to fight back with.
Just to add the neoliberals through the MPS had 30 years and serious funding. We haven't got either but we do have the net.
The term "debt" is a loaded word, that means many things to many people - but mostly "being in debt is bad!"
This is brought out very well in the interview Pete Stark Blows Up Over National Debt If National Debt had been called "Taxpayer Equity" - which is what it is in the lingo of double entry bookkeeping, there would be no such reaction. It is the terminology that is used. But the accounts always balance, and there are always two ways to look at the accounts.
Andy, I have learned a lot from MMT and probably agree with 60% - 70% of its core ideas. There are important parts I don't agree with as well.
My chief concern, as I have said, is not so much with these core ideas, but with the mindset of the cultish following of true believers that has grown up around MMT, people who treat MMT as though it were some kind of doctrine of economic salvation, and who respond to all adverse commentary or alternative frameworks for economic analysis with kneejerk hostility, repetition of slogans and consignment of people to enemies lists. The whole MMT phenomenon has an insular, bunker-metality feeling I'm afraid. I feel this environment has often sabatoged potentially constructive working realtionships. And while MMT followers frequently say the point is to focus on real resources, constraints and opportunities, my feeling is that in practice they have a terribly difficult time thinking about these real factors because they are obsessed with the monetary dimensions of the economy.
I am sympathetic to the idea that scholars can't be responsible for the attitudes of their followers. But I also think the personality of a school of thought tends to be a reflection of the personalities of its leaders.
Take your point Dan but i will say is there anything wrong with not not giving concessions? Neoliberals haven't given an inch and neither should we. Has been way too much and all one way. So i am fine with knee jerk reactions.
There is no one associating MMT with solving all ills, other than its dunderheaded critics who disparage it for not fixing everything.
It's a cheap polemical trick to throw around words like "cult". To the contrary MMT advocates are very up front regarding its limitations.
Should add i will support fellow travellers ie LVT not the panacea they think but looks good to me. But in context of the post really can't support positive money.
"It's a cheap polemical trick to throw around words like "cult". To the contrary MMT advocates are very up front regarding its limitations."
Oh please. Anyone who criticizes the sacred cow of MMT (mostly liberal critics, btw) will have the wrath of god spewed at them in a condescending flurry of put downs writ large along with internet ostracism, which to my mind is akin to cultish behavior.
No other contemporary economic school of thought elicits as much defensiveness and vitriol as the MMT school's followers exhibit. Even Austrians (who annoy me too) come off as far less strident.
And Dan is correct. MMT is a small part of the societal equation needed to bring our world into a better place--a small part. It might be a necessary part (then again it might not be), but is so pedantic (and wooden) I doubt even one soul, outside MMT's small internet support structure, would be moved to the concerted action needed to repair our ailing world.
At any rate, I think Dan said it best, and I agree 100% with his sentiments.
I strongly object to Dan K's criticisms. The generalizations don't help. If you've got a specific example, fine. Otherwise, you're just part of the problem of people calling other people names.
Here are some examples of what I am talking about -- Dan K quotes:
"they have courted and surrounded themselves with a fan club of cultish enthusiasts who think the government's ability to issue "fiat" money is the pain-free cure to every economic ill under the sun, including recession, depression, financial crisis, involuntary unemployment, and maybe even social injustice and inequality."
"MMT lives in a world of purely qualitative vagueness and despises qunatitative analysis"
"They have no end of time for one MMT theory discussion after another; for yet another impotent round of daily dialectics among the Austrian cranks, the Positive Money cranks, & the MMT cranks. But bring up an actual proposal from political action and government? Then thay fall into their usual morose net-rootsy whining and self-paralyzing pessimism about the evils of government, the hopelessness of all change, the vanity of politics, the imminence of disaster and the rest."
"I'm really sick of the whole scene. Ten years from now, the MMT net community will still be recycling the same tired articles about Knapp, Innis, "Weirgild", sectoral accounting, medieval tally sticks, interest on reserves, whether taxes "drive" the demand for money, etc. There will still be a gang of followers who never tires of this business."
Name some specific examples or shut up. You're exhibiting exactly the kind of behavior you're claiming that others exhibit. You're shutting the door on civil discourse by belittling perfectly reasonable historical references used in discussing various topics. You are not helping your purported causes, in my opinion.
If you disagree with 30%-40% of MMT, tell us what you disagree with and why and dispense with the name calling.
Personally, I find MMT much more practical, empirical, and positive than the Piketty stuff you've been exploring. But I've read and respected what you've written and try to refrain from dismissing it casually with comments such as those you have made here...
Summary of my comment above:
I posted four quotes of Dan K which are sweeping generalizations without a single reference to an example of the behavior that he objects to.
I'm fine with people expressing opinions, but opinions without any supporting evidence are just a waste of time.
Dan K is wasting our time. I'm putting him in the Bob Roddis category for the time being..
In my view, MMT is most significant for showing how a shift in mindset and a few policy changes mostly having to do with fiscal policy could radically alter the economic landscape fore the 99% while also growing the pie so that the 1% would also share in the benefits.
The chief obstacles is failure to appreciate the policy space afforded by the existing monetary system. Very little needs to be changed in most countries that are currency sovereigns. Of course, those countries that are not sovereign in their own currency would require more radical change to regain it, but is in the political reach of every sovereign nation.
This understanding is arrived at through explication of monetary and fiscal operations and how they interface.
The sectoral balance approach reveals the boundaries that affect economic policy through the fiscal balance of the various sectors.
Functional finance sets forth general rules for fiscal policy.
This is done in a way that accessible to virtually anyone with a basic understanding of double-entry accounting, arithmetic, and algebra.
A lot of people have tuned into this so far and many are incensed when they learn that policy failures have been necessary and are rather easily corrected by this applying this knowledge.
Quite naturally, some people are going to get militant about this in the face of what they regard as inexcusable ignorance or egregious disingenuousness.
I seriously doubt that anyone thinks that MMT is a panacea for all social, political and economic challenges. Anyone who does is naïve, but so far I can't point to anyone specifically who thinks this.
It would be nice to fix or overhaul the present social, political and economic system to bring it into the 21st century to address existing issues and emergent challenges. However, that's not what MMT is about, and confusing MMT with this and criticizing MMT for not being this is, I think, off the mark.
MMT seeks to work within the existing system to produce the most effective and efficient change with least effort. MMT economists have also suggested more but even instituting the most basic MMT principles would result in almost immediate reversal of some of the most misguided policy.
MMT economists also emphasize that this a knowledge issue on one hand, which is their province to address. It is also a political issue, and there is a limited amount that a few MMT economists can do as political activists. However, some of them have been quite active either politically, running for office or contacting people in politics and government, or in attempting to affect public opinion. A few can even be regarded as at least somewhat influential in this, and likely more influential than their blog critics.
As I have said, MMT is small step that is possible to take today since the policy space already exists in nations that are currency sovereigns. But even this small step is an uphill slog. Fixing the system, overhauling it, or replacing it are huge challenges that seem almost impossible under current conditions without a social revolution and consequent political revolt. That is probably not going to happen before the next crisis hits and the outcome of crises is unpredictable.
We don't need to wait to bring the insanity called austerity to an end and get the economy producing greater prosperity for everyone. This may not address distributive justice, but at least a lot more people will be better off, and some who are now excluded would be included. This is a huge gain for minor change and not a great deal of effort. It just requires getting the word out in the right places to generate the political leverage required to reverse the direction of policy.
Andy yes there is something wrong with not giving concessions. All scholars learn they have bend wrong about things, generally frequently. You discuss contentious issues critically, courting a variety of different opinions, and then acknowledge errors and correct them.
Are you suggesting that MMT economists have made mistakes, Dan? If so what would they be in your view and what is the correct view in your eyes?
I have to say I'm not sure where Dan has gone politically.
I find this with people who 'get fed up' with MMT. They come up with odd objections and then don't justify why it is a problem. You had the same thing with Cullen and his hysterical objection to ensuring everybody had a job and an income.
Perhaps it is just a feeling thing because MMT tends not to push the entire Marxist/socialist revolution stuff, or the Free Markets uber alles stuff.
It's just an engineering solution to make the current system work a bit better assuming you're interested in actual full employment and a more suitable distribution profile.
'Debt free money' basically means more government spending and/or lower taxes. That's it. Not at all sure why people feel it has to be dressed up in some other form.
We all know that from an accounting point of view that means the Treasury running an overdraft at the central bank.
Again here in the UK we already have that. It is called the Ways and Means Account. So politically you just say you are using the Ways and Means Account, you're going to provide some other mechanism to back private pensions, etc and shrink back the banks.
Detroit Dan, I could go deeper into the specifics, but I am uninterested in either airing dirty laundry or embarrassing individual people.
Tom, I have already discussed most of the specific issues I have with MMT, on this blog and elsewhere, over the past year or so. They usually came up naturally in the course of discussion of some MMT-related issue. (I'm not talking about political disagreements, but only disagreements on subjects that I think everyone would regard as economic: the determinants of prices, the causes of unemployment, the analysis of the monetary system and its operations.) I have no interest in issuing a summary statement and creating some further pretext for MMT melodrama. For the most part I've tried to move on and deal with entirely different kinds of issues on my blog. I suspect I might have something more to say about monetaty economics in the future, and then any criticisms I have of MMT, explicit or implicit, will fall out of that analysis.
I wrote a rant but Tom & Neil have put things much more politely so I'll leave it at that.
I like DK but his arguments are the equivalent of another Dan whom also seems 'fed up' with MMT.
At the end of the day for what DK would like to see advance he needs to put up his own policy proposals (which I think he has in the past)
Right, Dan, and as far as a can see the MMT economists and other's with an astute understanding of economics and finance disagree.
Secondly, some disagreement is that MMT is not progressive enough. I and others agree with that. But MMT's present policy position is not meant to be any more than an incremental approach to reversing the present trajectory from within the system with only some relatively minor tweaks.
If a critical mass of people understood how the monetary system actually works, change would take place overnight, since it's mostly an attitude shift that is needed.
I am not talking about Warren's proposals for financial reform here. They constitute major revision and would be much more difficult as a practical matter.
Those who believe that either a major overhaul or upgrade, or replacement, of the system is in order are not going to be satisfied with a system update. But until that is feasible I'll take the updates to just letting things go to rot because they can't be fixed properly now.
It would be possible to install the update almost immediately with just a few tweaks to existing policy and law with relatively little disruption of anything. What not to like about that?
"If a critical mass of people understood how the monetary system actually works, change would take place overnight, since it's mostly an attitude shift that is needed."
Tom,
First of all, you certainly know there will not be a critical mass of people understanding our monetary system, at least in our lifetimes.
Second, even if a so called critical mass came to understand MMT, the incremental change effected, by itself, would fall far short of curing what ails us as a polity. I don't see how a balkanized country like ours will come together under the umbrella of MMT. That's so fanciful that I'm sure no one here believes that outcome for a minute. Thus, like Dan, I've got bigger fish to fry (to effect positive societal change), but will keep MMT on the back-burner nonetheless. It won't be front and center in my quest for a better world, however.
Still, it gets back to what DK has written above. Our problems are far more serious than any notion that a mass MMT embraced catalyst can forestall. Nothing wrong with pushing an MMT agenda, but in the end no matter how much the word gets out regarding its applications, the trajectory this country is on will be little changed if at all. Our problems have a lot less to do with money and a lot more to do with people themselves, no matter what monetary system rules the day. Sorry, but obsessing over MMT is so much tilting at windmills. It ain't a heart changer, which is what we need first and foremost in this troubled land of ours.
I agree that nothing will change substantially while neoliberalism is driving the national and international agenda, and I would extend that to "capitalism" as a system that favors men and machines over people, and exalts individualism and power over holism and love.
I came to this conclusion in the Sixties and Seventies and also concluded that major change was unlikely in the near term. So I further concluded that the preferred strategy was to participate in creating a counterculture and an underground economy as a parallel society.
That's where I've been since while simultaneously promoting radical politics and social change. I very much doubt that there will be significant change prior to a meltdown, and I have tried to put myself in a position of not being needlessly exposed to collapse while enjoying a creative lifestyle with like-hearted people.
The reason I support MMT is that I think it is the best shot at a fix of sorts that would relieve the burden on a whole lot of people that are stuck in the existing system. While I advise dropping out, that's not possible for many people or at least that is what they think. But that's not a reason for me to forget about their plight. Moreover, we are all in this together and if the ship goes down, we are all going down with it.
But the problem the world faces is only subsidiarily economic. It much more political, which implies that that it is chiefly social. In the final analysis, it comes down to the level of collective consciousness. Radical change is dependent on a shift in collective consciousness toward greater universality. This has been my focus although I have only alluded to it here at MNE.
" It ain't a heart changer, which is what we need first and foremost in this troubled land of ours."
You must be a funny lot if providing people a job with a living income, somewhere reasonable to live, a decent pension, decent healthcare and education, doesn't capture hearts.
That's why a shift in the level of collective consciousness is required. Awareness of universality is too low to overcome the individualism that is now dominant.
I'm all for civility and I believe Dan K makes an important point. The rhetoric of "moron" and "fauxgressive" is counterproductive. It leaves no face-saving exit for the other party to come around to agreement.
Even if you convince me I am literally a moron, we can't be allies if you keep saying it.
What I can't wrap my head around though is the notion that getting the operations right is an impediment to progressive goals.
I mean, if someone asks me why I want to tax the piss out of the rich, I'm going to say it's because wealth concentration sucks the life out of the economy. I might follow that up with a bunch of boring stuff about rents, stocks, flows, links to Dan K's quality pieces on Piketty, money in politics, etc but it all of it boils down to the simple idea of taxing something because it's a problem and you want less of it.
There are plenty of good arguments that have the virtue of being A) logically consistent and B) don't boomerang back as a proven-effective "fiscal responsibility" attack against other progressive priorities the way that "taxes for revenue" does.
I'm a big fan of MMT because:
1. It gets all the economic operations and emphases right, as far as I can tell (e.g. monetary policy is a blunt instrument and not very effective).
2. It's got a solid, if untested, proposal for improving the economy for those who most need it.
Wray, Mosler, and Mitchell should get the Nobel prize for economics, in my opinion. Not to say others aren't also deserving, but the way they put together MMT really cut through the fog and exposed the heart of how our economic system works. Wray's "pyramid of liabilities", for example, seems like the clearest explanation of money to me.
The MMT defectors, on the other hand, make some good points about the abrasiveness of MMT advocates, and occasional misrepresentations by MMT followers. But the end product as expressed at sites such as Monetary Realism is muddled, in my opinion. For example, much time is devoted to discussion of the Market Monetarist ideas which never seem to go anywhere productive.
MMT, on the other hand, is very straightforward about what we can do and should do, although obviously opinions will differ on the latter. The government can and should spend money to put people to work and address environment, infrastructure, regulatory, and other issues. Certainly, that's a good start for us to get to where we want to go as a society. These are economists doing their jobs well -- explaining how the economy works and providing suggestions as to what can be done to make it work better. If I can make a contribution, it seems like it might be in cutting through misconceptions that impede progress...
geerussell, the issue is effective demand at full employment. There are two ways to do it. One is redistribution through taxation and the other is using the government fiscal balance to offset the non-government fiscal balance so as to maintain effective demand at full employment without regard to distribution, which basically means the rich get rich since the flow of $ is toward the top and government is providing the $ that get saved by the savers.
I don't like a solution that rewards savers for hoarding when much of the gain is from economic rent. It would be more equitable to tax away economic rent.
But waiting for politics to get around to that leaves a lot people unemployed, underemployed or not participating in the meanwhile.
The immediate issue is ten dogs and only nine bones. The way to address this is to add another bone and that can be accomplished by a full employment budget regard of how the distribution shakes out.
It's not the best solution but it is both economically and politically feasible, even in the current poisonous environment.
Agreed it's a relatively small step. But that's what makes it political feasible.
Where I think that a lot of progressive are acting ideologically rather than being smart is demanding that the rich be soaked through taxation to accomplish redistribution. When they hear about MMT, many of the not only dismiss it but get huffy about it.
I have been insulted plenty of times by progressives for suggesting that there is an alternative way to proceed rather than taxing the rich for redistribution. It comes across not so much about making life better for people at the bottom as punishing the rich for being rich and refusing to share the wealth.
I no longer visit those places since I have concluded that people there are not interested in learning anything. They have made up minds and belief in non-affordability fits into their argument for the necessity of redistribution through punitive taxation.
Tom, I don't think the issue of unemployment and the issue of inequality are all that closely connected. You could have a neo-fuedal society in which there is monstrous inequality and yet close to 100% employment. You could also have a fairly egalitarian society in which there is massive unemployment with lots of people living on the public dole. They are really different issues. The point of redistributive politics, whether carried out via taxation or other means, is not to produce full employment. And going in the other direction, while producing full employment will be an important factor in rectifying the worst inequalities in labor income, the inequalities in our society are so grotesque that much, much work would remain to be done even in a full employment environment.
My feeling about full employment is that getting it, and sustaining it, and making sure the jobs are both socially worthwhile and provide the people who have them with dignity, isn't a simple matter of of increasing some amorphous quantity called "demand". Also, economic models that assume there is such a thing as "aggregate demand" - from which the concept of effective demand is derived - are extremely idealized. It seems a little strange to me that people who are often so skeptical that there is a single category of stuff called "capital", the portions of which have values that are commensurable and that thus allow us to measure the total amount of capital, are nevertheless so comfortable with the idea that there is a single quantity of human behavioral dispositions called "demand" and that these dispositions can all be aggregated into a single function.
But that issue aside, even if one is comfortable with the notions of aggregate demand and effective demand, you could have a society in which the level of effective demand is enough to get full employment even if the economy is both inefficient and barbaric. You could have full employment in a society in which millions of people pick belly button lint out of the navels of superstars, and others work in factories turning their babies into Soylent Green.
I know I'm being absurd, but this is a problem I have with the field of macroeconomics in general as it bears on public policy, whether in the MMT form or other forms. It's way to abstract. There is a kind of deeply-rooted aloofness and political fear built into macroeconomics as a discipline, as though all of its practitioners are terrified of making value judgments about what kind of world we should live in. All they can bring themselves to endorse is "demand", "employment", or "growth" of no matter what kind. This isn't just an academic question. The predilection for this kind of abstractness is a symptom of the general deference to untrammelled market forces and a general hostility to intelligent human planning and democratic decsion-making about our future.
I have few quibbles with MMT. I just don't see it as a world changer, no matter how it's perceived. It serves the greater good as far as it goes, but I believe it has a very limited application in righting our broken world. I'll argue strenuously for it on the dinner circuit, but beyond that I'll leave it to the wonks to obsess over.
Dan, you are coming back to at least a system upgrade if not a new system. MMT is merely a minor update in that it is simply what of understanding existing policy space and how to use it more efficiently (unemployment is wasteful) in a way that benefits everyone, although still grossly unequally.
There is full employment under slavery and servitude. Of course it matters how full employment is achieved. MMT shows how to do it using presently available tools without having to even tweak the existing neoliberal system much at all. That's a huge plus in that it is doable politically in a very though political environment. Still it would not be easy.
But it is also a huge weakness since it doesn't address the more important issues of our times, in particular the corrosive effects of rampant individualism the consequences of which are social, political and economic dysfunction, and the wholesale assault on the environment in the name of growth, profit and efficiency.
I understand why some criticize MMT as a stopgap measure that leaves the greatest challenges unaddressed, challenges which are social and political as well as economic.
Here I think that the perfect is the enemy of the good. Change comes incrementally and iteratively. MMT is a worthwhile initial step.
If there is another way to achieve a balance of growth commensurate with population, full employment and price stability with a minor upgrade, let's hear it.
I'm also open to hearing about a system upgrade rather than just an update. But I know that this would be much more difficult to design and install that a simple update. I would regard addressing economic rents across the board as an integral component of such an upgrade, as well as addressing financialization, and the tension between capitalism and democracy, for instance.
I am actually more interested in hearing about a possible replacement of the present system, which places money and machines (capital) above people (labor) and the environment (land), that is, ownership above work/leisure and stewardship. This would involve a reversal of the present order. A new order is reeded that puts people and the environment ahead of money and technology.
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