Although confusion over “money” is immense, it seems fairly common on the left to view the topic as superficial compared with study of “real” stuff. I think downplaying the significance of money is a mistake. Downplaying its connection to the real is also a mistake. And imagining the analysis of money is any less threatening to the powers that be than analysis of the real is a bigger mistake. Probably the only topic as taboo as money in orthodox economics would be the identification of profit with surplus labor. The reason for money’s taboo status seems clear. Understanding existing monetary institutions and operations points to a way of undermining the profit system and exploitation of labor.heteconomist
Significance of MMT for Progressives and the LeftPeter Cooper
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But Dan Kervick assures me that discussion of monetary matters is irrelevant and that we should get involved in the "serious discussions". #pretentious
I didn't say it was irrelevant DD, just that it is much less relevant than the people who flock around MMT seem to believe.
Again, the proof is in the pudding. Let's see people put together some policy packages.
I should note that Randy Wray seems to be part of a working group with Mariana Mazzucato that is working on doing something of that sort.
I didn't say it was irrelevant DD...
at least 90% of the most important and urgent economic issues of our time can, and should, be discussed without reference to monetary issues, which tend to throw a blurring screen of opaque and secondary instrumentalities over the fundamental phenomena. [Dan Kervick]
Okay then. Obviously, "the proof is in the pudding". Do you have any idea how inane that cliche is? I have no idea what your point is, other than "MMT is stupid". Please stop before you undo all the good you have done with your previous constructive posts. You were one of the best...
Dan, why do you lose your temper so easily about this stuff? My criticisms are constructive, and we're all big girls and boys. I'm arguing that people who claim they are in possssion of a better framework for thinking about economic policy than the ones used by most other policy makers and policy professionsals should put comprehensive policy proposals on the table so that the framework can be put to the test in concrete ways and subjected to critical appraisal.
My criticisms are constructive [Dan Kervick]
No, they are assertions unsupported by any specifics. Your claim that MMT economists haven't put forth any policy proposals is ludicrous. If the proposals aren't comprehensive enough for your taste, I encourage you to propose some specific additions (as you used to)...
Money has taken many forms thru history, but today it’s essentially a liability of a bank, and it’s a liability that is fixed in value (inflation apart). I.e. $100 buys pretty much the same selection of goods in a week’s time as it does today.
In contrast, on the asset side of commercial banks’ balance sheets are assets that CAN LOSE VALUE (e.g. when silly loans are made). Now to have liabilities that are FIXED in value and assets that can LOSE VALUE is just asking for trouble: witness the fact that banks thru history have failed regular as clock work. And recently it lead to 5 years of excess unemployment, house re-possessions etc.
So stopping that should interest the left. And the way to stop it is to forbid lending institutions (i.e. banks that lend) from funding themselves with “money”. I.e. they should be funded only with shares: that’s liabilities that can vary in value.
Money market mutual funds in the US are actually being forced to do precisely that right now. See:
http://www.forbes.com/sites/keithweiner/2014/07/26/will-new-money-market-rules-break-money-markets/
And
http://www.sec.gov/rules/final/2014/33-9616.pdf
Dan K imo there is just not enough of us who currently understand things this way to put all of that together... maybe when (if?!?!) I retire someday I'll run for office....
but short of a person with the financial magnitude of a Soros/Peterson getting involved I think we are going to have to develop a lot of patience (I should be the one to talk) with this...
To my knowledge, our young Justin here is the only "boots on the ground" we have in DC currently and he is just getting started there...
We would need probably an endowment of $100M to $200M to really get it going imo... I keep playing the Mega Millions I'll let everyone know if I ever end up winning...
rsp,
Dan K btw another multi-million $ dystopian book-movie out this week with "The Giver" and looks like it has some form of appeal on the right...
Bipartisan dystopia now.... oh brother!
rsp,
Matt-- Who is this young Justin you speak of?
Ralph-- Interesting post regarding the banks being funded by liabilities. Thanks! Thanks also for the link to the article on Money Market Funds (MMFs). Good food for thought (MMT thoughts on MMFs).
On Wednesday, the Securities and Exchange Commission announced changes to money market fund (MMF) regulation... MMFs are basically mutual funds, though with a share price fixed at $1. The second rule allows the share price to change with market conditions... By allowing the share price to drop if necessary, it does remove the incentive for investors to rush for the exit. Sure, investors take losses and risk further losses, but the threat of total loss is eliminated.... A floating share price creates the perception of risk that MMFs never had... MMFs are now a less attractive place to park money than they used to be. Some investors may pull their money before the new rules go into effect in 60 days.
This seems like a big deal.
Dan K-- Is this a serious discussion?
"and it’s a liability that is fixed in value (inflation apart)."
Only in the minds of those that struggle with these things.
In any real bank there are bonds, bailed-in depositors and most importantly *shareholders* whose bank liabilities are definitely not fixed in value and very much depend upon the quality of the assets.
As I've pointed out before, mistaking an agency relationship for a direct relationship is the source of the problems
"Again, the proof is in the pudding. Let's see people put together some policy packages."
Why would monetary theorists be the ones putting together the policy packages?
Their job is to provide the monetary theory. It is the job of others to take that and provide policy packages consistent with the description of a dynamic floating rate state currency system.
You wouldn't ask a physicist to build a bridge.
Ralph,
If we choose a definition of money that just includes bank deposits, yes bank deposits are a major component. If we widen it to include other short-term private sector liabilities, the picture is more eclectic.
Hobbling banks will just move financing towards vendor finance and shadow banking. We would revert to a system that has no lender-of-last-resort. Crises of confidence will still cripple production and employment,and the authorities would be powerless. That is, until they recreate the banking system almost exactly as it is now.
You would't ask a physicist to build a bridge.
Right. In physics, there are theoretical physicists, experimental physicists, and engineers, all tasked with different responsibilities.
In economics, the theoretical people are supposed to do the whole job, even through it is even more complex than most physics? Bonkers.
Hobbling banks will just move financing towards vendor finance and shadow banking. We would revert to a system that has no lender-of-last-resort.
Moreover, in effect there would still be a lender of last resort and bailouts, since no government is going to let the financial system collapse, taking down the economy and creating massive social unrest, and likely political change, overturning the government.
The BoE is already realizing it needs to act as the lender of last resort to the shadow banking system, too, in order to avert meltdown in the future.
Modern capitalism depends on modern banking, which have developed together and are joined at the hip. To resolve the issues, modern capitalism has to change in radical ways, or we will just see more of the same, because it's built in.
Moreover, as we move into a global economy with translational banking, risk exposure becomes amplified systemically, as we saw with the GFC.
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