Tuesday, January 22, 2019

Mark Jeftovic — The Disturbing Rise Of Modern Monetary Theory (MMT)

I attempted to link directly to the source of the post, which ZH crossposted, but got the message that the site''s bandwidth limit had been exceeded. Apparently MMT is going viral. AOC is a big deal. She has changed the national conversation.

The "criticism" is pretty standard, from the gut rather than the head. Dealing with the truth is hard.

Zero Hedge
The Disturbing Rise Of Modern Monetary Theory (MMT)
Mark Jeftovic via Guerilla-Capitalism.com


Ralph Musgrave said...

That Zero Hedge article is rubbish. First, it says MMT is into money printing and it quotes Krugman as saying “The point is that there are limits to the amount of real resources that you can extract through seigniorage.”

Well yawn. Zzzzzzzzz. We all know that. Tell me something new.

The Krugman quote continues, “When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources….”.

All that says is that inflation can be exacerbated by Ricardian equivalence. Yawn. Zzzzzzzz.

Krugman’s next sentence: “Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation.”

God this is boring. It’s just a series of statements of the obvious.

Next the article says MMT is like a perpetual motion machine.

I can’t be bothered with any more of this rubbish.

Andrew Anderson said...

Here's the problem with using Federal taxation to control inflation:

Federal taxation drains reserves and destroys bank deposits 1-for-1 - so far, so good.

But due to government privilege, bank lending is not reserved constrained anyway but capital constrained so what's to prevent the banks from replacing the taxed away deposits with new deposits?

Moreover, since reserves count as assets in calculating the Supplemental Leverage Ratio (SLR), Federal taxation IMPROVES the SLR by removing assets which means the banks can not only replace the deposits that were taxed away but lend even more deposits into existence than they could before!

So much then for using Federal taxation to control price inflation.

Noah Way said...

Using fiat creation and taxation to regulate the economy assumes that the state is the bank - i.e. there are no private banks.

When can we start?

Andrew Anderson said...

I would leave lending in private hands but drive interest rates as low as desired via equal fiat distributions to all citizens and via negative interest on large accounts at the Central Bank.

Also, high enough negative interest on bank reserves would force the banks to pass some of that on to depositors. But why should anyone want to pay for an uninsured account at a bank when they can get inherently risk-free accounts at the Central Bank FOR FREE (individual citizen account up to reasonable account limit) or for not much more?

The result is that banks could hardly create deposits at all but serve as mere loan brokers between Central Bank accounts.

And that means the banks could no longer drive the population into debt and that there would be far less need to borrow.

Clint Ballinger said...

None of these clowns can point to an example of government spending causing problematic price rises.
Their examples are always 70s oil (supply side) and various regime collapses and/or foreign-denominated debt causing currency collapses.
I encourage everyone to just hound them on this. They make a claim that "'MMT' is inflationary" (wrongly framed for a number of reasons as we know) and then can't name ANY cases of government spending causing serious price rises. Can any one here even? I just don't think in practice it happens

Clint Ballinger said...
This comment has been removed by the author.
Clint Ballinger said...

Oops, forgot to ask to be emailed responses

Bob Roddis said...

The article is outstanding and irrefutable. I would add the following:

1. The “taxing it back to cure inflation” part was excellent. What a nightmare. But what is the actual likelihood that your elected representatives are going to vote to raise taxes on the populace during an inflationary crisis as he described?

2. As Mises pointed out in 1912, the entire "state theory of money" is “acatallactic” and thus does not deal at all with exchange or pricing. Therefore, there would be no honest prices and the regime would be fatally afflicted with the socialist calculation problem and would not know what to spend the new money on.

3. The entire MMT plan is nothing but a massive Cantillon Effect. The wealth purchased by the government with new money is actually extracted surreptitiously from the wealth of average people who do not get the new money first. The illusory free lunch does not exist.

4. The MMTers talk more of the government just spending new money into existence in excess of tax receipts. There’s no need for the muss and fuss of borrowing or government debt, much less taxes. The excess of spending new funny money over tax receipts is the “deficit”.

5. We know that the market does not fail and does not lead to mass unemployment. The problem that the MMTers think they are trying to solve does not exist but for the existence of their beloved fiat funny money system. They are clueless about economic calculation and mis-calculation.

6. The MMTers howl about “democracy”. If there is a consensus to do something, just do it. There’s no need for government force. If there is a democratic consensus, perhaps that means that at least a majority of voters want to pay taxes to do something. MMT is implicitly based upon there being no consensus of the first two types.

Bob Murphy eviscerated other aspects of MMT in 2011:


Clint Ballinger said...

I have a parrot I taught to say "Cantillon Effects". It makes 10,000 a speech on the Austrian circuit.
Bob Roddis - Hayek thinks you are wrong:

"“Although I have myself given currency to the expression ‘neutral money’ (which, as I discovered later, I had unconsciously borrowed from Wicksell), it was intended to describe this almost universally made assumption of theoretical analysis and to raise the question whether any real money could ever possess this property, and not as a model to be aimed at by monetary policy. I have long since come to the conclusion that no real money can ever be neutral in this sense, and that we must be content with a system that rapidly corrects the inevitable errors.” (Hayek 1990: 87–88). "

Andrew Anderson said...

3. The entire MMT plan is nothing but a massive Cantillon Effect. The wealth purchased by the government with new money is actually extracted surreptitiously from the wealth of average people who do not get the new money first. Bob Roddis

While the Austrians would steal by:
1) needlessly expensive fiat.
2) a money supply that does not keep up with population growth.

Besides, what right do you have to complain about Cantillon Effects if you oppose the right of citizens to USE fiat in convenient, inherently risk-free account form at the Central Bank or Treasury itself and thus increase the DEMAND for fiat?

Hypocrite much?

AXEC / E.K-H said...

MMT and the clash of old and new agenda pushers
Comment on Mark Jeftovic on ‘The Disturbing Rise Of Modern Monetary Theory (MMT)’

Bob Roddis claims: “5. We know that the market does not fail and does not lead to mass unemployment.”

This is the fundamental Austrian hallucination. Since von Mises, Austrians are known as talented story-tellers/agenda-pushers and incompetent scientist. Von Mises’ most profound insight was that “anti-capitalist sentiment was rooted in ‘envy’.” This was the intellectual level around 1900 in Vienna where Freud established penis envy as an all-purpose psychological explanans which was happily adopted by the Austro-Hungarian cretins of which Karl Kraus has given an intimate 30,000 pages portrait spanning from 1899 to 1936.

Austrians NEVER proved that the market system is self-stabilizing and optimizing if left alone. Fact is that the opposite has been proved.#1

Because the foundational premise of Austrianism is false all the rest is false. It was, however, usable for auto-hypnosis in the seances of the Mont Pelerin Society which institutionalized the political corruption of economics.

There is nothing to chose between Austrianism and MMT. Both are proto-scientific garbage.

Egmont Kakarot-Handtke

#1 Proof of the inherent instability of the market economy

Bob Roddis said...

AXEC / E.K-H: You have to prove the market fails. I don't have to prove it does not. But I will anyway.

The market didn’t fail in 1920. The government blew up a wartime bubble to finance WWI and then that bubble was popped. No funny money financing, probably no U.S. entry into WWI and no WW II. The hangover from those WWI Central Bank shenanigans led to 1929 which also was not caused by “the market”. Uber Keynesian Daniel Kuehn explains it all without realizing what he’s actually saying:

2. The austerity depression of 1920–21

During World War I federal expenditures ballooned and although the new income tax was able to partially finance the war effort, most of the financing was done through federal borrowing and by the highly accommodating monetary policy of the Federal Reserve. The role of the Federal Reserve at this time was expressed unambiguously by the New York Federal Reserve Bank Governor Benjamin Strong, who told a Congressional committee in 1921 that ‘I feel that I, or the bank at least, was their [the Treasury’s] agent and servant in those matters’ and further added that the wartime inflation caused by the low interest rates maintained by the bank were ‘inevitable, unescapable, and necessary’ for prosecuting the war(Strong, 1930) [emphasis added}

This is the pure Rothbardian explanation. Wars are funded with fiat money which robs average people of purchasing power without the victims understanding exactly what is being done to them and without any due process of law. If the citizens had to make an immediate sacrifice in the form of a forced contribution of tax money to fund wars on a pay-as-you-go format, there would be far fewer wars. Kuehn then notes that the inflation encountered by the populace had been caused by the “expansionary policy of the Federal Reserve” and thus not any alleged “market failure”. After the war, such policy was “sharply curtailed” as was government spending leading to the predictable bust:

However, after the war ended the deficit spending of the Wilson administration and the expansionary policy of the Federal Reserve were sharply curtailed to bring a halt to the inflation. By November 1919 the Wilson administration balanced the federal budget, slashing monthly expenditures by almost 75% in a matter of months.4 The New York Federal Reserve Bank raised the discount rate by 244 basis points over the course of eight months, with other Reserve System banks following suit. Shortly after these austerity measures were taken, the 1920–21 depression was under way. Postwar industrial production in the USA peaked in January 1920 as the economy moved into a major depression, with production levels dropping by 32.5% by March 1921.5 This loss in output is second only to the Great Depression in American economic history (Romer, 1999), although its duration was considerably shorter. Declines in output were matched by precipitous drops in employment and the price level. The proximate cause of the 1920–21 depression was a deliberate fiscal and monetary retrenchment following World War I.


AXEC / E.K-H said...

Bob Roddis

You tell me: “You have to prove the market fails. I don’t have to prove it does not. But I will anyway.”

Your idea of a proof is ridiculous. You need a well-articulated theory in order to carry out a proof. As Feynman made clear: “By having a vague theory it is possible to get either result.” and “Another thing I must point out is that you cannot prove a vague theory wrong.”

Austrianism is NOT a well-articulated theory but confused blather.

Also, your historical examples count for nothing. As an Austrian, you should at least have a superficial knowledge of Popper who was an active co-agenda-pusher of the Mont Pelerin Society.

Here are some highlights:#1
• Almost anything can be a verification, as it can be justified after the fact.
• Confirmations are easy to find if you look for them.
• A theory that is non-refutable is not scientific.
• Confirming evidence doesn’t count unless it is a result of a genuine test.

Austrianism is logical BS: (i) Markets never fail if left alone, (ii) no, the Great Depression is a proof that markets fail, (iii) no, the Great Depression happened because the Central Bank and those pesky Keynesians intervened, (iv) if no-one had messed things up markets would have worked just fine because of (i).

Austrians swallow this methodological junk without turning an eyelid.

Egmont Kakarot-Handtke

#1 Karl Popper Conjectures and Refutations, presented by Lucas Kempe-cook

Noah Way said...

Troll fight!

Somebody pass the popcorn.

Greg said...


Do you even go back and read what you type?

"2. As Mises pointed out in 1912, the entire "state theory of money" is “acatallactic” and thus does not deal at all with exchange or pricing. Therefore, there would be no honest prices and the regime would be fatally afflicted with the socialist calculation problem and would not know what to spend the new money on.

3. The entire MMT plan is nothing but a massive Cantillon Effect. The wealth purchased by the government with new money is actually extracted surreptitiously from the wealth of average people who do not get the new money first. The illusory free lunch does not exist."

Would not know what to spend the new money on??? What does that even mean in the context of a currency issuer provisioning itself or the populace? A govt spends money on what it needs (military, labor etc) the only question is what price to pay. If your talking about providing public goods for the people like healthcare, security, court system, parks its simply about finding a price the people will accept to provide the service and the price of constructing whatever needs building.

Your comment about the purchasing of wealth by govt being extracted surreptitiously ignores the fact that a purchase by govt is a purchase FROM the non govt, which includes mostly average people. The people are receiving the money first. Now, there is certainly a legitimate discussion to be had about how and which people/companies get to secure the contracts for services from the govt but that does not seem to be what you are concerned with in this comment.

You had a comment on another thread about the the Fed conjuring out of thin air the money to pay off national debt? Do you think your bank has to "conjure out of thin air" the money in your savings acct when you want to move it to checking? No its always been there...... you put it there. Same with Fed bank accts and national debt.

Bob Roddis said...

Greg: You are completely wrong. The government cannot properly price anything under socialism. You have no familiarity with the Socialist Calculation Problem. It is what causes the inevitable grinding poverty in socialist countries. How do you not know this? Do I also have to teach you how to tie your shoes?

Bob Roddis said...

AXEC / E.K-H is now an honorary MMTer for his profound debating skills.

AXEC / E.K-H: Would you debate an Austrian with a PhD in economics from NYU in a university setting and attempt to refute Austrian concepts and analysis (of which you know and understand nothing) by noting that Mises and Freud were both from Vienna and that Freud propounded a theory of penis envy? Are you claiming that because they lived in the same city that Freud's allegedly untenable theory of psychology refutes the completely unrelated economic analyses of Mises? Are there people in your town that say ridiculous things? Does that refute your claims?

You take my breath away. ROFL.

AXEC / E.K-H said...

Bob Roddis

Science is about proof. You parrot the Austrian tenet: “We know that the market does not fail and does not lead to mass unemployment.” Austrians know nothing. Austrians are storytellers and political agenda pushers. Walrasians at least understood that they had to deliver a proof that partial supply-demand-equilibrium logically entails the existence of a General Equilibrium with certain welfare properties. Austrians have never felt any obligation to prove their central tenet. You just echo this methodological deficiency: “You have to prove the market fails. I don’t have to prove it does not.”

The first point to mention is that Austrians never understood what profit is. There can be no greater laughing stock than an economist who has no idea about the foundational concept of his subject matter.

The second point is that Austrians never understood how the price mechanism works. The core of the price mechanism is the relationship between wage rate and employment.

The Employment Law is a macrofounded relationship which states that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. This is the OPPOSITE of what microfounded Walrasianism and Austrianism say.

“We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin)

This is provably false. The macroeconomic Employment Law states that a reduction of the average wage rate REDUCES overall employment. This means that the price mechanism is NOT self-stabilizing. Just the opposite. At the heart of the market economy is a destabilizing positive feedback-loop.#1

The macroeconomic Employment Law is a testable relationship which can also be used to empirically refute the central Austrian tenet.#1

In sum, Austrian Profit Theory and Price Theory is provably false.

So Austrians, it’s over. Only proof counts. Now pack your bag and get out of economics. And do not forget to take the MMTers and their falsified sectoral balances equation with you.

Egmont Kakarot-Handtke

#1 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment

#2 For details of the big picture see cross-references Employment/Phillips Curve

AXEC / E.K-H said...

To be continued

Both Austrianism and MMT is proto-scientific garbage
Comment on Robert Murphy on ‘The Upside-Down World of MMT’

resp. here

Egmont Kakarot-Handtke