Like the MMT economists didn't realize this and have not addressed it. Public investment is a key aspect of government spending in order to increase supply in needed sectors of the economy. Moreover, rising demand draws forth private investment to increase supply when doing so is profitable. The assumptions also overlook the role of the external sector in supply. It's complicated.
But the fundamental point remains. The argument that "we cannot afford it" financially is incorrect. Of course, there are other considerations, and the MMT economists have dealt with them in their work. Ignoring this vitiates the argument.
Jonathan Portes | Professor of Economics and Public Policy at the School of Politics & Economics of King's College, London
In addition, Jonathan Portes builds his argument on quote of Richard Murphy, who is not only not an MMT economist but also not an economist. He is a British chartered public accountant. In addition, Richard Murphy is not a good candidate to select to represent MMT since he and Bill Mitchell, one of the founding MMT economists, have recently had a very public disagreement. Jonathan Portes seems to be ignorant of this.
Building a case against MMT without reference to actual MMT economists or citations of their work is unprofessional and Jonathan Portes should be embarrassed about it. Another fail.
Prospect
Nonsense economics: the rise of modern monetary theory
Prospect
Nonsense economics: the rise of modern monetary theory
See also
MMT economist Scott Fullwiler tweeted:
27 comments:
I have issues with MMT but consider it million times better than mainstream.
I think Bangladesh has overtaken India (in per capita terms) and India itself is thinking of universal healthcare, so Bangladesh can too.
Scarcity is a mainstream disease.
Portes’s criticisms of MMT are better than some of the others that have appeared recently. In particular Portes devotes about half his article to criticising the point made by some MMTers that government must first spend money into the economy before taxing it out again. (See Portes’s passage starting “So what is MMT…”)
I think Portes is right to say the above “spend before tax” point is true, but of little significance. I.e. the big question facing any government and its central bank is: “how big should the deficit be – i.e. what should the difference between public spending and tax be?” Whether the tax is collected a few months before or after the spending is pretty irrelevant.
These losers are becoming increasingly desperate.
“So what is MMT? First it says governments can make money out of thin air, at will… MMT then says all government spending is in fact funded by money created in this way, created by central banks on the government’s behalf… MMT logically argues as a consequence that there is no such thing as tax and spend when considering the activity of the government in the economy; there can only be spend and tax.”
Wrong.
First of all, when a monetarily sovereign government creates money for spending, the money is not created by the central bank, but by the relevant government agency. For example, if you are a Social Security beneficiary, then the Social Security Administration instructs your bank to credit your personal account each month. This does not involve the central bank (the Fed).
Second, Jonathan Portes misunderstands MMT. The popular belief is that the US government, for example, runs on tax revenue. MMT explains that this is a myth. The government must put money into an economy before the government can tax money out of the economy. Jonathan Portes says this is false, since the government can simultaneously put money into the economy and tax it back out.
Well DUH!
That’s his big revelation? His "smack-down"?
Jeezus this clown needs help. Not just an economics class; he needs a therapist.
The rest of his blather is essentially “MMT = Zimbabwe!”
That is, if a government creates more money than the economy needs, the result is inflation. Well DUH!
"I have issues with MMT... ~ Ramanan
I would like to hear your questions.
I’m much amused by Konrad’s claim that “when a monetarily sovereign government creates money for spending, the money is not created by the central bank, but by the relevant government agency. For example, if you are a Social Security beneficiary, then the Social Security Administration instructs your bank to credit your personal account each month. This does not involve the central bank (the Fed).”
So how does that work? Perhaps Konrad can give us more details. By the sound of it, Konrad thinks the SS system has dictatorial powers over commercial banks and can just tell them to credit the accounts of X, Y, Z etc, which means banks increase their liabilities with nothing to show for it on the asset side of the banks’ balance sheets.
The reality is that when SS system issues the above instruction it SUPPLIES RELEVANT BANKS with dollars taken from its own account at the central bank. Plus the SS system cannot credit accounts to all and sundry willy nilly and for the simple reason that the SS system itself has been supplied with a limited number of dollars which depends on what politicians have decided to spend on the SS system.
And where do those dollars come from? Well the bulk come from tax, though obviously some come from government borrowing and the deficit (money produced from thin air by the central bank, e.g. in the form of QE).
As for Konrad’s claim that “government must put money into an economy before the government can tax money out of the economy” that’s a popular idea among MMTers, but as Portes rightly explains, that point is pretty irrelevant. That is, once the private sector has a decent stock of base money (and government debt which is much the same as base money, as pointed out by Mosler), it doesn’t make a scrap of difference whether the tax needed to counterbalance $X of spending is collected a few months before or after the spending.
"I have issues with MMT..." ~ Ramanan
So do I, specifically with the refusal of MMT advocates to consider de-privileging depository institutions since those compete with the ability of the monetary sovereign to spend for a given amount of price inflation. (I don't consider regulation as de-privileging since even "prudent" credit creation constitutes theft from the poor to the rich in the case of government-privileged banks.)
I remember your name from years ago as well respected so I'd very much like to hear what those "issues" of yours are.
Building a case against MMT without reference to actual MMT economists or citations of their work is unprofessional
Swell. Then I won't make that mistake.
MMT godfather Abba Lerner was busy as late as 1980 constructing a Rube Goldberg type straightjacket of price controls demonstrating that MMT’s advocates are aware it has a serious problem with price inflation:
“Functional Finance, New Classical Economics and Great Great Grandsons” by David Colander July, 2002:
Initially he toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market [they're kidding, right?] anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]
http://tinyurl.com/4rfk3jk
A normal person could not dream up such a monstrous and ghastly system in their worst nightmare. Just another typical day for an MMTer.
That is, once the private sector has a decent stock of base money (and government debt which is much the same as base money, as pointed out by Mosler), Ralph Musgrave
Can US Federal taxes be paid with anything but base money? I think not. Nor does the Fed stand ready to exchange base money for US sovereign debt.
So Mosler is wrong unless I'm wrong in the above statements.
Reminder on ‘Jonathan Portes — Nonsense economics: the rise of modern monetary theory’
Jonathan Portes is wrong with regard to inflation.
MMT was right all along: Gov-Deficits do NOT cause inflation
https://axecorg.blogspot.com/2017/10/mmt-was-always-right-gov-deficits-do.html
MMT and the inflation-red-herring
https://axecorg.blogspot.com/2018/04/mmt-and-inflation-red-herring.html
The gov deficit causes a one-off price hike but NOT inflation. Repeating the deficit period after period leaves the price at the elevated level. This holds for current output. Deficit spending on investment goods is an entirely different matter. Both cases are constantly confused.
The lethal effect of MMT policy is NOT on inflation but on DISTRIBUTION. See
Stephanie Kelton on how to become fabulously wealthy
https://axecorg.blogspot.com/2019/01/stephanie-kelton-on-how-to-become.html
Anti-MMTers are just as incompetent as MMTers. So
Debunking idiots does not prove that MMT is valid
https://axecorg.blogspot.com/2019/01/debunking-idiots-does-not-prove-that.html
Egmont Kakarot-Handtke
@ AXEC / E.K-H,
You seem to assume that deficits shall be financed with sovereign debt?
But MMT advocates Overt Monetary Finance - spending by the monetary sovereign WITHOUT new sovereign debt to mop up the new fiat created.
Huge difference.
Well not a huge difference according to MMT theorists but then they assume the current, huge privileges for the banking cartel shall continue, if not increase.
Andrew - Whether with "debt", OMF or several other methods, the spending of a currency-issuer always shakes out the same with proper accounting. OMF is best for the simple reason it is most transparent, so the public can elect politicians who actually know how spending works (we do not do so now). If you can understand what L Randall Wray means in the last bit of this article from 2001 you will understand why all currency-issuer spending is, accounting-wise, the same...
http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.639.2447
"FINANCING STATE AND LOCAL GOVERNMENT INFRASTRUCTURE INVESTMENT" (yes, you actually have to read this! :)
As far as AXEC, his basic point that spending in more than we tax out is bad IF WE ALLOW IT to accumulate to wealthy hoarders of our public good ("money"), is correct. We need far higher taxes on the rich, not for "paying for things," but to stop the wealthy from corrupting our political system with their hoarded financial power that we ourselves enable.
I reckon we shouldn't allow anyone to hold a value of our public tokens that represents more relative wealth than a person with a pile of hoarded wheat and gold could protect with a pitchfork in the olden days :)
Andrew Anderson
You say: “You seem to assume that deficits shall be financed with sovereign debt?”
No. In the elementary case Public Deficit = Private Profit, deficit spending creates first business sector deposits (= money) and government sector overdrafts on the balance sheet of the central bank. Whether the overdrafts are consolidated by selling bonds is a separate question. See
MMT: Not a joke but a fraud
https://axecorg.blogspot.com/2019/01/mmt-not-joke-but-fraud.html
REPLY to Bob Roddis on Jan 18
Egmont Kakarot-Handtke
I reckon we shouldn't allow anyone to hold a value of our public tokens that represents more relative wealth than a person with a pile of hoarded wheat and gold could protect with a pitchfork in the olden days :) Clint Ballinger
And that's what negative interest is for - but only for non-individual citizen accounts (including "the banks") and individual citizen accounts above a certain limit.
The reason banks can enslave populations are government privileges - including non-negative interest on their reserves at the Central Bank. But only individual citizens have an inherent right - to a reasonable limit on account size and transactions per month - to use their Nation's fiat FOR FREE.
As it is, it appears that depository institutions are the only true citizens of the US, for example, since only they may use fiat in convenient, inherently risk-free account form at the Federal Reserve. Not only true citizens but privileged citizens in that they receive positive(!) interest on reserves (IOR).
Can US Federal taxes be paid with anything but base money?
The IRS has the power to confiscate property.
In the elementary case the Profit law = Fart in the universe. Profit law creates first a gigantic ego where giant ego = everyone wrong and overdrafts of toilet paper becomes the balance sheet of the fart in the universe.
See
EKH: Not a joke but a fart.
https://axecorg.blogspot.com/2019/01/EKH-not-joke-but-fart.html
Clint Ballinger
You say: “As far as AXEC, his basic point that spending in more than we tax out is bad IF WE ALLOW IT to accumulate to wealthy hoarders of our public good ("money"), is correct. We need far higher taxes on the rich, not for "paying for things," but to stop the wealthy from corrupting our political system …”
You directly contradict the official MMT doctrine which says “Don’t tax the rich.” See
MMT: academic snake oil for the people
https://axecorg.blogspot.com/2018/02/mmt-academic-snake-oil-for-people.html
MMTers like to have it both ways. Schizo is the very logic of the political agenda pusher.
Egmont Kakarot-Handtke
“You directly contradict the official MMT doctrine which says “Don’t tax the rich.”
No such MMT doctrine. Just one of EKHs’ many brainfarts.
AXEC writes "You directly contradict the official MMT doctrine which says 'Don’t tax the rich.'"
Maybe I do - I merely study "economics" and make no other claim.
Although, I think you need to show sources - any sources at all - that show "MMT" saying/writing "Don’t tax the rich."
I doubt you can
Clint Ballinger
You say: “I think you need to show sources ― any sources at all ― that show "MMT" saying/writing "Don’t tax the rich." I doubt you can.”
I have given the source already above. Here it is again for the illiterate/retarded:
MMT: academic snake oil for the people
https://axecorg.blogspot.com/2018/02/mmt-academic-snake-oil-for-people.html
Egmont Kakarot-Handtke
Clint Ballinger
MMTers in general and Stephanie Kelton, in particular, have a problem. As useful idiots for the Oligarchy, they preach for years now Make deficits―don’t tax. Taxes are NOT needed for spending, only for inflation control, and there is NO inflation.
But now this happens: Alexandria Ocasio-Cortez and Senator Elizabeth Warren come forward with a marginal tax rate of 70% and a new wealth tax.
From the MMT standpoint, this is madness the super-rich have to blame themselves for.
Stephanie Kelton and the self-destructive stupidity of the super-rich
https://axecorg.blogspot.com/2019/02/stephanie-kelton-and-self-destructive.html
MMT is NOT bold policy but spineless fraud
https://axecorg.blogspot.com/2019/01/mmt-is-not-bold-policy-but-spineless.html
Egmont Kakarot-Handtke
You can't really be that daft Egmont, can you?
Pointing out that playing a zero sum game of finding tax revenue from someone before you fund something else is unnecessary is not the same as saying "dont tax the rich".
The point of Keltons article was simply to say to the plutocrats, "The rules of the game you have set up are leading to the calls for higher taxes on you, and they aren't going away just because your bought and paid for supply side economists write snarky op-eds in major newspapers or write intro level econ text books. There is another way."
Haha!
Egmont is asked to provide the source where “the official MMT doctrine which says “Don’t tax the rich.”
And he delivers his own self made source. What a hack.
You can't really be that daft Egmont, can you?
Rhetorical question.
Greg
You say: “Pointing out that playing a zero sum game of finding tax revenue from someone before you fund something else is unnecessary is not the same as saying ‘dont tax the rich’.”
No, it is NOT the same, and I never said so. Fact is that MMTers say (i) don’t tax and (ii) don’t tax the rich: “Bill Mitchell is politically consistent. He not only promotes deficit spending but also downplays the idea of taxing the rich and closing their tax havens: ‘Do we need the rich’s money?’ ‘No’.”#1
As good foot soldiers of the Oligarchy, MMTers see to it that the rich get their profits via deficit-spending/money-creation, their interests on government bonds, which the IRS conveniently takes from WeThePeople, and that the rich’s taxes are low and the loopholes are big and that the foundations/charities/think tanks/lobbies are tax exempt.
The thing is that billionaire folks like Pete Peterson are really that daft that they complain about deficit-spending/money-creation. Capitalism is already for a long time on the life-support of public deficit-spending. Zero deficit means zero macroeconomic profit. Any complaints of the Oligarchy about the state saving Capitalism from breakdown are pure madness.
On this point Stephanie Kelton is right: “The Wealthy Are Victims of Their Own Propaganda.”
From the standpoint of simple self-interest and because of Public Deficit = Private Profit, the one-percenters and their useful academic idiots should consistently argue FOR deficit spending and the ninety-nine-percenters and their useful academic idiots should consistently argue AGAINST it.#2
Curiously, it’s just the opposite.
Egmont Kakarot-Handtke
#1 MMT: academic snake oil for the people
https://axecorg.blogspot.com/2018/02/mmt-academic-snake-oil-for-people.html
#2 Austerity and the political games Progressives play
https://axecorg.blogspot.com/2018/05/austerity-and-political-games.html
Again, no MMTer says don't tax the rich. What they say is dont call for more taxes on the rich to pay for the things you want. There are plenty of other reasons to raise taxes on various income classes. Mainly to discourage certain behaviors but never use it as a justification to pay for something. 1) It gives them the impression that THEY are paying for it and 2) It turns them against that thing
Greg
Why don’t you simply follow the links given?
Bill Mitchell’s piece is titled: “The ‘tax the rich’ call bestows unwarranted importance on them.” and “Do we need the rich’s money?” "No".” and FULL NODE says “MMT agrees. Taxing rich people for revenue is a silly claim.” and Richard Murphy says: “The time for pussy-footing with new taxes to extract a little more from the rich is yesterday’s news. There is no time for that. This is the time to create money for change.”
This is three MMTers speaking out against taxing the rich.
This answers Clint Ballingers’ silly challenge: “Although, I think you need to show sources - any sources at all - that show "MMT" saying/writing "Don’t tax the rich."
And what does Stephanie Kelton tell her fabulously wealthy friends? If you want to avoid taxes you must accept deficits and not complain about them like this brainless billionaire Pete Peterson.
She is right. Pete Peterson simply does not understand that MMT is a wellness program for the Oligarchy.#1
Egmont Kakarot-Handtke
#1 MMT: Redistribution as wellness program
https://axecorg.blogspot.com/2017/10/mmt-redistribution-as-wellness-program.html
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