Sunday, March 31, 2019

Rebecca L. Spang — MMT and Why Historians Need to Reclaim Studying Money

Good read! 

Controversy over money is nothing new in US history, since it has been a lively political issue. The arguments are not chiefly about money, although couched in terms of money, economics, and finance, but rather, politics, which involves winners and losers in the policy game. Historically, sound money advocated have been the wealthy, and functional finance people have been ordinary citizens aka "the little people" (h/t Alan Simpson).

History News Network
MMT and Why Historians Need to Reclaim Studying Money
Rebecca L. Spang | Professor of History at Indiana University where she directs the Liberal Arts and Management Program, and author of Stuff and Money in the Time of the French Revolution (Harvard University Press, 2015)

Bill Mitchell — The effectiveness and primacy of fiscal policy – Part 2

This is the second part of a three-part series discussing the political issues that give me confidence in the primacy of fiscal policy over monetary policy. The series is designed to help readers see that the recent criticisms of Modern Monetary Theory (MMT) as being politically naive and unworkable in a real politic sense have all been addressed in the past. In Part 1, I gave examples of how ‘agile’ or ‘nimble’ fiscal policy can be when an elected government has it in their mind to use their spending and taxation capacities to change the direction of the non-government economic cycle. It is simply untrue that fiscal policy is inflexible and cannot make effective, well-designed policy interventions. In this second part, I will address aspects of how such interventions might be organised. Specifically, some people have advocated that MMT might replace the so-called ‘independent’ central bank, with an ‘independent’ fiscal authority, which they seem to think would take the ‘politics’ out of fiscal policy decision-making and focus it on advancing the well-being of the people. The intentions might be sound but the idea is the anathema of what progressives, interested in maintaining democratic accountability would propose. I consider such an independent fiscal authority would constitute the continuation of the neoliberal practice of depoliticisation and further increase the democratic deficit that is common in our nations these days. Politicians are elected to take responsibility and make decisions on our behalf. They should be always be held accountable for those decisions and not be allowed to defer responsibility to an external source (like an ‘independent’ central bank or an external fiscal authority)....
Bill Mitchell – billy blog
The effectiveness and primacy of fiscal policy – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Noah Smith — Examining an MMT model in detail

Ha ha. Noah Smith criticizes an MMT formal model expressed in words rather than equations (which he thinks is OK as a formal method and as a logician, I agree) based on, wait for it, unrealistic assumptions, which is exactly the same thing that heterodox economists accuse conventional economists of doing, that is, if one considered John Maynard Keynes himself to be a heterodox economist.

MMT economists should not fall into the trap of trying to mimics the mainstream in creating formal models, even conceptual ones, that mimic the mainstream. It is a failed methodology, and it won't work for MMT either, for all the reasons that Keynes gave in his criticism of Tinbergen's econometric approach and more.

If you are into modeling, this may be a useful read. Otherwise, forget it.

Oh, and Noah Smith picks up on Brad DeLong's low ball criticism of MMT as guru-based economics. It seems that Noah and Brad have a mutually appreciation affair going on. They deserve each other.

BTW, the "debate" between MMT and economists critical of MMT is becoming more personal and is descending into mud-slinging. Unprofessional to say the least. The excuse is readily available, however. Macroeconomics as a "policy science" is more about politics than economics, and politics is inherently a dirty business.

Examining an MMT model in detail
Noah Smith

Claire Connelly - Why Greece took the fall for a European banking crisis

The tragedy of Greece.  

The Greek bailouts were a banking crisis in disguise. In an excerpt of her upcoming book, editor-in-chief, Claire Connelly, explores how Greece took the fall for decades of irresponsible lending by French and German banks. If Greece continues to participate in the European Union, democracy is doomed.

It is somewhat fitting that the birthplace of democracy is now the battle ground for its continued existence.
The cliche of opulence and laziness disguises real Greek misfortune at the hands of the European community – and America – resulting in one of the most offensive punchlines of all time: Somehow Greece deserves the economic disaster wrought upon it, a severity not seen since The Great Depression.
In reality, the country’s long financial crisis is one big deliberate illusion created by some of the world’s largest banks and multinational conglomerates that have sidelined governments and made the rule of law and the will of the people all but irrelevant.
It has prioritised multinational profits over the economic needs of Eurozone countries, and even those outside of the union. With no sovereign currency with which to balance the score, Greece has become utterly subject to France, Germany, the International Monetary Fund (IMF) and the European Central Bank, (ECB).

The money from the three bailouts did not go to Greece at all and did not restore prosperity – it was never designed to in the first place – but flowed straight back into the coffers of French and German banks whose bad decisions over the last half century became the burden of the Greek people.
France’s top three banks had loaned €627 billion to Italy, Spain and Portugal and €102 billion to Greece and were staring down a 30 to 1 leverage ratio, meaning that if it lost only 3.33% of its loans to defaults, its capital would be wiped out and banking regulators would be forced to shut the banks down.
And if Greece defaulted on its debt, the banks were concerned Spain, Italy, Portugal and Ireland would follow, resulting in a 19% loss of French debt assets, far and above the 3% that would lead to its insolvency.
The three French banks needed a €562 billion bailout, but unlike the US which can shift its losses to its central bank, the Federal Reserve, France a) had no such central bank to shift its losses to, having dismantled it in favour of the European Central Bank, and b) the ECB was prohibited upon its formation to shift bad debts onto its books.
Likewise, Germany’s banks also went bust and required a €406 billion bailout – which it received – but it was barely enough to cover its US-based toxic derivative trades which led to the crisis in the first place, let alone what they had leant to their European neighbours. The banks came back begging, mere months after being cut a €406 billion cheque by the German government.

Alan Austin — Modern monetary theory and the real game

Good presentation about why getting progressives to admit that MMT is correct won't change them. It's about politics. Short read.

In my view, the way to proceed is by calling attention to economic rent — financial rent, land rent, natural resources rent, and monopoly-monopsony rent — along with socializing negative externality instead of imposing true cost.

A comprehensive analysis also necessitates going beyond economics and finance to include all other areas that are relevant ‚ individual and social, and social, political and economic — as well as how they fit structurally and operate functionally in terms of a whole system — the global economy.

MMT is an integral part of the solution. But it is not THE solution.

Independent Australia
Modern monetary theory and the real game
Alan Austin

Free copy of Clint Balinger's 1000 Castaways: Fundamentals of Economics for 48 hours for MNE readers

From Clint Ballinger via email:
Hello Tom, could you post this on MN? I am making a Kindle version of the
book free for 48 hours for reviewers (rather than try to send paper galley
copies etc around the world). Anyone can take advantage of this though.
I think the UK mirror site is free as well.
The link is
The UK link is
Thanks! It is all day Sunday and Monday (US PAcific time cutoffs) 48 hours.

Saturday, March 30, 2019

Jim Edwards and Theron Mohamed — Alexandria Ocasio-Cortez is a fan of a geeky economic theory called MMT: Here's a plain-English guide to what it is and why it's interesting

Generally favorable article about MMT. The mention of AOC is just clickbait. The objections it brings up in the interest of being "fair and balanced" are easy to meet.

Business Insider
Alexandria Ocasio-Cortez is a fan of a geeky economic theory called MMT: Here's a plain-English guide to what it is and why it's interesting
Jim Edwards and Theron Mohamed

Mark Curtis - Britain's New African Empire

Africa is being looted.

We need to radically rethink the notion that Britain is helping Africa to develop. The UK's large aid programme is, among other things, being used to promote African policies from which British corporations will further profit. British policy in Africa, and indeed that of African elites, needs to be challenged and substantially changed if we are serious about promoting long term economic development on the continent.

Third, British policy has done nothing to challenge multinational companies using tax havens; indeed the global infrastructure of tax havens is largely a British creation. Fourth, British governments have constantly espoused only voluntary mechanisms for companies to monitor their human rights impacts; they are opposed to enhancing international legally binding mechanisms to curb abuses.
The result is that Africa, the world's poorest continent, is being further impoverished. Recent research calculated, for the first time, all the financial inflows and outflows to and from sub-Saharan Africa to gauge whether Africa is being helped or exploited by the rest of the world. It found that $134billion flows into the continent each year, mainly in the form of loans, foreign investment and aid. However, $192billion is taken out, mainly in profits made by foreign companies and tax dodging. The result is that Africa suffers a net loss of $58billion a year. British mining companies and their government backers are contributing to this drainage of wealth.

Friday, March 29, 2019

Mike O’Donnell — Charles Wright Mills’ Sociological Imagination and why we fail to match it today

Oldie but goodie. Excellent short summary of the contributions of C. Wright Mills. 

"Follow the power."

Power should be central to economics. Economists recognize that market imperfections arise from asymmetrical market power. These imperfections are the basis of economic rents — financial rent, land rent, natural resources rent, and monopoly-monopsony rent. Market power is also the basis for socializing negative externality, also a from of rent extraction.

For example, a way to address "paying for" the New Green Deal is to impose the true cost of energy on markets instead of socializing the costs related to health and climate change consequent to negative externality resulting from carbon-based energy use.

The Sociological Imagination
Charles Wright Mills’ Sociological Imagination and why we fail to match it today
Mike O’Donnell | Emeritus Prof of Sociology at Westminster University

Branko Milanovic reviews Francis Fukuyama's The Origins of Political Order.

How do you write about a book that is almost 600 pages long (in small print), has 25 pages of references, and the ambition to explain political institutions from the dawn of mankind to the French Revolution, from kinship-based bands of hunters to Voltaire? This was Francis Fukuyama’s objective in this monumental (yet eminently readable) book, “The Origins of PoliticalOrder” (note the plural).
My review, given the size and importance of the book, will be done in two parts, First, here, I will review the logic of the arguments put forward by Fukuyama. In the second review, I will engage into some critique....
Global Inequality
A Grand Fresco: The Origins of Political Order

Francis Fukuyama against mainstream economics
Branko Milanovic | Visiting Presidential Professor at City University of New York Graduate Center and senior scholar at the Luxembourg Income Study (LIS), and formerly lead economist in the World Bank's research department and senior associate at Carnegie Endowment for International Peace

Mark Curtis - The Revolving Door

After UK officials have promoted the interests of arms and oil/gas corporations while in office, what do they do when they leave office? They go and work for them. The revolving door is a key aspect of British oligarchy.

Dean Baker - To Readers, $X Billion Just Means ‘a Whole Lot of Money’

The human mind can't handle big numbers very well, says, Dean Baker, and when people hear that $70 Billion had been spent on wekfare, they think that must be 30% of the federal budget, when really it is only a tiny percentage. He says that liberals must work harder to present the true facts, so that people can see that these programs are not expensive and do help a lot of people. If people knew the true cost, many more are likely to support these programs.

There really is no other side on this one. There simply is no good reason to not put numbers, and especially big budget numbers, in a context that is meaningful to readers. There is no serious dispute that almost no one can make any sense of these large numbers without any context.
This brings up the second reason not to try to push media outlets on this issue—that it wouldn’t make any difference anyhow. The argument here is something to the effect that we have lots of people who hate these programs because they are racist. They want to believe that all their tax dollars are going to undeserving black and brown people, and they are not going to let the facts get in their way.
This is surely in part true. As has become painfully obvious in recent years, there is a substantial segment of the electorate that does not want to be bothered with facts. We can assume that this share of the population is somewhere between 25 and 35 percent. For these people, hitting them over the head with the fact that only a small portion of the budget goes to anti-poverty programs is not going to make any difference in their attitude towards these programs.
There are also people that believe that the government has the responsibility to ensure everyone has a decent standard of living. These people would be willing to support anti-poverty programs even if they did impose a substantial tax burden. Let’s say this group is also 25 to 35 percent of the population.
Then there is a middle group that is willing to support anti-poverty programs to a limited extent. They are not willing to pay any price to keep people out of poverty, but if these programs are effective, they would be willing to pay a somewhat higher tax bill.
For this group, the fact programs like TANF and SNAP are only a small share of the budget is likely to make a considerable difference. If we give this group credit for some amount of serious thought, if they believed, as many do, that anti-poverty programs account for 40–50 percent of the budget, they can hardly be blamed for not wanting to see them expanded or objecting to cuts. After all, if we’re spending half the budget trying to pull people out of poverty, and we still have so many poor people, then these programs must not be very effective. How could we think that spending 5 or 10 percent more or less would make any noticeable difference?
I realize that people are not constantly searching for information on the size of the TANF or SNAP program, but if they were constantly hit over the head with the fact that these programs are relatively small shares of the budget, it is likely to sink in. This knowledge might also benefit friends and relatives who argue with these people because they think we should help the poor, even though they wrongly believe that these programs are a large share of the budget.
More here -

Roger Waters - Stop The Evil Empire: Roger Waters says ‘the Coup’ in Venezuela has Failed

Roger Waters doesn't read the Guardian, he gets the the real news.

Mar. 25, 2019 The attempt by foreign powers to impose regime change in Venezuela has failed, ex-Pink Floyd frontman Roger Waters has said, adding that final victory over the “evil empire” was on the horizon. In a short video posted to Twitter, the famed English rock star and activist expressed disgust with those who supported Venezuela’s self-declared interim president Juan Guaido and his attempt to push President Nicolas Maduro out of office. “We were right about #RUSSIAGATE we’re right about VENEZUELA,” he wrote in a message accompanying the video clip, likely in reference to Robert Mueller’s special investigation finding no “collusion” between US President Donald Trump and the Kremlin. "To see a great experiment in Bolivarian socialism taking place in a great country like Venezuela, and to watch the evil empire destroy it, is sickening. It’s failed. The coup failed. Guaido can go back to being a thug on the street, or whatever it was that he did." He mocked the Western assertion that Maduro was a coldhearted dictator, noting that in a real totalitarian state, Guaido would have been detained and executed. Instead, he’s allowed to travel freely between Venezuela and Colombia. “Maybe Maduro needs to take lessons in evil dictatorship from some of the people supported by the United States of America,” the rock star joked. He ended his video with a short message to his fans. We are strong, and we are many, and we will win this battle in the end. Stop the evil empire.

Richard Wolff - What is Modern Monetary Theory?

Richard Wolff gives a simple explanation of MMT, but he has a caveat - the MMTers, he says, don't have much to say about how capitalism can be transformed into something better.

Thursday, March 28, 2019

Julianne Escobedo Shepherd — Nixon Policy Advisor Admits He Invented War On Drugs to Suppress 'Anti-War Left and Black People'

Dan Baum, writing in support of drug legalization at Harper’s, has unleashed a frank 1994 quote from former Nixon policy advisor John Ehrlichman, and as inadvertently salient an argument for legalizing drugs as any I’ve ever seen:
At the time, I was writing a book about the politics of drug prohibition. I started to ask Ehrlichman a series of earnest, wonky questions that he impatiently waved away. “You want to know what this was really all about?” he asked with the bluntness of a man who, after public disgrace and a stretch in federal prison, had little left to protect. “The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.”
Nixon Policy Advisor Admits He Invented War On Drugs to Suppress 'Anti-War Left and Black People'
Julianne Escobedo Shepherd

Brendan Greeley — When DoJ and the FCC slowed inflation

Two weeks ago Alphaville published a clarification on modern monetary theory by Scott Fullwiler, Rohan Grey and Nathan Tankus. They argued that, counter to what had been reported, MMT does not rely exclusively on raising taxes to counter inflation. Proper MMT, they wrote, uses a lot of tools to manage inflation -- taxes only one among them....
FT Alphaville (Free registration required if not a FT subscriber)
When DoJ and the FCC slowed inflation
Brendan Greeley

Greenspan: "We can guarantee cash benefits as far out and at whatever size you like"

Greenspan: "We can guarantee cash benefits as far out and at whatever size you like"


GREENSPAN: I think we should maintain the principles of Social Security, but I think the existing structure is not working, and that until we can construct a system which creates the savings that are required to build the real assets so that the retirees have real goods and services, we do not have a system that is working. We have one that basically moves cash around, and we can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power. This is why the issue ultimately has to be resolved in terms of do we have the material goods and services that people will need to consume, not whether or not we pass some hurdle with respect to how financing occurs, because the financing is a secondary issue, and it is the means to create the real wealth, not an end in itself.

Pepe Escobar — The EU bows to ‘systemic rival’ China

Slowly but surely, the EU is shifting its priorities to the East
Asia Times
The EU bows to ‘systemic rival’ China
Pepe Escobar

Andre Vltchek - Welcome to Hell: Peruvian Mining City of La Rinconada

No one can agree how high above the sea level that La Rinconada really lies at: 5,300 meters or 5,200 meters? On the access road, a metal plate says 5,015. But who really cares? It is indisputably the highest settlement in the world; a gold mining town, a concentration of misery, a community of around 70,000 inhabitants, many of whom have been poisoned by mercury. A place where countless women and children get regularly raped, where law and order collapsed quite some time ago, where young girls are sent to garbage dumps in order to ‘recycle’ terribly smelling waste, and where almost all the men work in beastly conditions, trying to save at least some money, but where most of them simply ruin their health, barely managing to stay alive.
I decided to travel to La Rinconada precisely during these days when the socialist Venezuela is fighting for its survival. I drove there as the European elites in Bolivia were trying to smear the enormously popular and successful President of Bolivia, Evo Morales, while the elections were approaching.
As in so many places in the turbo-capitalist and pro-Western Peru, La Rinconada is like a tremendous warning: this is how Venezuela and Bolivia used to be before Hugo Chavez and Evo Morales. This is where Washington wants the entire Latin America to return to. Like those monstrous and hopeless slums surrounding Lima, La Rinconada should be a call to arms.
Just some five years ago we thought: This is how Latin America was never supposed to look again. We thought so, before the extreme right-wing forces in Washington managed to regroup and to deploy old dogmas of the Monroe Doctrine back to the frontlines, against Latin American independence and socialism.
Do they blame capitalism, the extreme savage pro-market system, adopted by their country?
“It’s life,” I hear the same fatalistic reply.
Do they know about Bolivia; about the great changes just across the border? Do they know that some 30 kilometers away from here, ‘as the condor flies’, on the Bolivian side, there is the pristine Uila Uila National Fauna Reserve?
People gain nothing; almost nothing. A miner makes 800 to 1,000 Soles (roughly $250 to $300) per month. Private companies and corrupt government gain billions. Once again, Latin America is getting poorer. But the West is not pushing for ‘regime change’ in Peru, or in Paraguay, or Brazil. This is how it is supposing to be; this is how Washington likes it.

Brad DeLong — "Job Guarantee" vs. "Functional Finance"

Brad DeLong apparently missed the part about role of the job guarantee in mopping up residual unemployment after the implementation of fiscal policy based on functional finance and using automatic stabilization to maintain output close to an optimal level with respect to growth, full employment and price stability. This would be done using Godley-inspired SFC macro modeling rather than the conventional approach to econometrics.

I mention DeLong's criticism even though it is getting thinner and thinner since it is marginally serious. Most of the other criticism I see is complete nonsense. I don't have time to waste on nonsense, and I doubt you do either. If you want to know about the nonsense for some reason, set a Google alert for "MMT" and "Modern Monetary Theory." There's plenty of it.

Grasping Reality
"Job Guarantee" vs. "Functional Finance"
Brad DeLong | Professor of Economics, UCAL Berkeley

D.T. Cochrane — How government deficits fund private savings

The received wisdom on government debt is that it saddles future generations with the burden of repayment. The received wisdom is wrong. As long as a government’s debt is denominated in its own currency, repayment is never a problem. Why? Because the government can always create the necessary funds. 
A sovereign government’s debt is one source of a country’s currency. National governments literally spend money into existence.
Deficits can cause problems, but to properly understand those problems, we have to understand the role that government finance plays in a country’s monetary system....
The Conservation
How government deficits fund private savings
D.T. Cochrane | Lecturer in Business and Society, York University, Canada

Bill Mitchell — The effectiveness and primacy of fiscal policy – Part 1

In this two-part series I will:
1. Consider the question as to whether fiscal policy is sufficiently flexible enough to provide an effective counter-stabilisation against the non-government spending cycle.
If a nation is heading into recession, can governments act quickly enough with discretionary spending changes?
If a nation is ‘overheating’ and inflation is threatening to accelerate, can spending and tax changes be implemented quickly enough to counter these tendencies?
2. Should fiscal policy be outsources to technocrats, who work independently of the political cycle and stop politicians from making political decisions that might not be economically sound?
3. Is MMT a flawed paradigm for policy development given that a progressive application of its principles, relies on politicians understanding the operations of the monetary system and the capacities that the currency-issuing government possesses and to use those capacities to advance the public interest rather than sectional interests or their own venal political survival?  
Can we trust politicians?
These are all issues that have been raised in some of the critiques of MMT over time and warrant attention and response.
In Part 1, I will consider the first of the questions above – the flexibility of fiscal policy….
Bill Mitchell – billy blog
The effectiveness and primacy of fiscal policy – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Wednesday, March 27, 2019

Mark Curtis - British foreign policy in the Middle East: A secret history of self interest

Covert involvement in Yemen raises the same old questions about the machinations of the British oligarchy

I have put out a number of articles out here recently about the murkey world of the ruling elite. A dark world of war, shady finance, mercenaries, money laundering, arms sales, etc.

Mark Curtis says the U.K. is not a democracy, but an oligarchy where the aristocracy practice the dark arts. There is so much money to be made out of evil, that it attracts all the swamp creatures, oddballs, cranks, weirdos, gangsters, monsters, spooks, and psychopaths. They rob Africa and the world, and whack up hostilities with other countries just to keep their arms sales going, while pretending their business is plain old capitalism. Killing millions is no problem to them, especially when there's money to be made. Look at Yemen?

With Brexit going wrong, Theresa May is thankful for the £4.7 Billion arms sales to Saudi Arabia.  No doubt MBS will be dining with the Queen again one day soon. A guest of honour!

Mark Curtis wonders if Jeremy Corbyn has the will to take on the aristocracy. Well, it would be war if he did, and very dangerous. These people are professional killers.

On Tuesday in the British parliament, Labour's shadow foreign secretary Emily Thornberry asked an urgent question relating to allegations that British troops have been covertly fighting in Yemen and supporting the Saudi-led coalition.
As reported in the Mail on Sunday, five British special forces troops from the elite Special Boat Service (SBS) were injured while "advising" Saudi Arabia on their deadly campaign in Yemen.
The commandos were injured in gun fights as part of a top-secret campaign, and other reports have claimed British troops have been killed in such battles. British soldiers from the Special Air Service (SAS) have reportedly been secretly deployed and operate “dressed in Arab clothing”. 
Responding to Labour's questions Mark Field, a minister in the UK's foreign office, said that he would seek to get to the bottom of these "very serious and well sourced" allegations. 
The presence of British soldiers in Yemen, secretly fighting a war that has brought death, famine and destruction to millions of innocent civilians, raises an age-old question: why does British foreign policy in the Middle East support dictatorships, abuse human rights and prioritise Britain’s power status? 
It’s tempting to say the reasons are simply geopolitics, oil and other commercial interests. But there is a deeper explanation: Britain, far from being a true democracy, is in reality an oligarchy that promotes the interests of a privileged domestic elite. The idea that Westminster is the "mother of all parliaments", representing a democratic model for the world, is a cultivated myth. 
The UK has elections every five years, an independent judiciary, freedom of speech and association, and strong laws protecting the equality of all citizens and civil liberties. Yet real power rests in the hands of an elite few who control policy-making institutions and the dominant ideas in society.
British foreign policy-making is so centralised that it is akin to an authoritarian regime. A prime minister can send troops into action without even consulting parliament.  
Britain is currently fighting several covert wars with no parliamentary authorisation or debate. Away from Yemen, special forces are operating on the ground in Syria, despite parliament only having approved air strikes against the Islamic State (IS) group. The British covert war in Syria has been going on since 2011, with almost no discussion by elected MPs. 
Middle East Eye

Mark Curtis - British foreign policy in the Middle East: A secret history of self interest

Brad DeLong — James Montier will soon have an answer to his question why people hate MMT. MMT is about to hate James Montier too

Kill shot, or low ball?

I say low ball.

If that's all you got....

Grasping Reality
James Montier will soon have an answer to his question why people hate MMT. MMT is about to hate James Montier too
Brad DeLong | Professor of Economics, UCAL Berkeley

Bill Mitchell — Bid-to-cover ratios and MMT

It is Wednesday so very little blog writing today. One question I often get asked is what would happen if the bond market investors in a nation stopped bidding for the debt instruments being offered in the regular auctions. Interestingly, overnight I was sent some news from a Deutsche Bank information service written by their New York-based Chief International Economist, who signs himself off as “Torsten Sløk, Ph.D”. It related to these issues. The problem is that Dr Sløk seemed to want to take a snide shot at Modern Monetary Theory (MMT) and just made a fool of himself. It goes on. This is what the point is....
Bill Mitchell – billy blog
Bid-to-cover ratios and MMT
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — When Can Yield Curves Fail As Indicators?

Although yield curve slopes are very effective indicators for forecasting recessions, they are not infallible. This article discusses some of the reasons why a yield curve inversion can be a misleading recession signal....
Bond Economics 
When Can Yield Curves Fail As Indicators?
Brian Romanchuk

Clint Ballinger — 1000 CASTAWAYS: Fundamentals of Economics is now published! Here is the Amazon link

1000 CASTAWAYS: Fundamentals of Economics is now published! Here is the Amazon link:
1000 CASTAWAYS: Fundamentals of Economics by Clint Ballinger
Enjoy! Any feedback welcome on the Amazon site.

Tuesday, March 26, 2019

Randy Wray — A Must Read: Why does everyone hate MMT?

The attacks on MMT continue full steam ahead. Janet Yellen (former Fed chair, but clueless on money and banking)—a centrist–has joined the fray. Jerry Epstein—on the official left–has ramped up his ridiculous claims, now associating MMT with “America First” and fascism (you knew that was coming—it has always been the refuge of critics who couldn’t come up with valid critiques).
But there are some rays of light. Bloomberg published a more balanced assessment ( The authors of that piece actually took the time to go through our new textbook (Macroeconomics, by Mitchell, Wray and Watts—now available for purchase in the USA : And in Australia).

However, here is the best response to the critics I’ve seen:
WHY DOES EVERYONE HATE MMT? Groupthink In Economics, by James Montier, March 2019,
Not only does he take down prominent critics like Summers and Rogoff, he also provides a very useful 400 word summary of MMT. Some of you have asked for a concise statement, and this is as good as you’re likely to find....
New Economic Perspectives
A Must Read: Why does everyone hate MMT?
L. Randall Wray | Professor of Economics, Bard College

Here is a more direct link to James Montier, WHY DOES EVERYONE HATE MMT?

Jonathon Pie (Tom Walker) on Centrism

Centrism also means never ending war! KV

Warren Mosler - MMT White Paper

MMT White Paper
The purpose of this white paper is to publicly present the fundamentals of MMT.
What is MMT?
MMT began largely a description of monetary operations, which are best thought of as debits and credits to accounts kept by banks, businesses, and individuals.
Warren Mosler independently originated what has been popularized as MMT in 1992.  And while subsequent research has revealed writings of authors who had similar thoughts on some of MMT’s understanding and insights, including Abba Lerner, George Knapp, Mitchell Innes, Adam Smith, and former Fed Chairman Ruml, MMT is unique in its analysis of monetary economies, and therefore best considered as its own school of thought.
What's different about MMT?
MMT Alone Recognizes that the US Government and its Agents are the Only Supplier of That Which it Demands for Payment of Taxes
That is, the currency itself is a simple public monopoly.  
The US government levies taxes payable in $US
The $US to pay those taxes can only originate from the US government and its agents.
The $US to purchase US Treasury securities can only originate from the US Government and its agents.
The economy has to sell goods and services to the US Government or borrow from the US Government, or it will not be able to pay its taxes or purchase US Treasury securities
1.  The US government and its agents, from inception, necessarily spend first, only after that can taxes be paid or state securities purchased.

This is in direct contrast to the rhetoric that states the US government must tax to get US dollars to spend, and what it doesn't tax it must borrow from the likes of China, and leave the debt to our grandchildren.  
MMT thus recognizes that it's  not the US government that needs to get dollars to spend.  Instead, the driving force is that taxpayers need the US government’s dollars to be able to pay taxes and purchase US Treasury securities.
2.  Crowding out private spending or private borrowing, driving up interest rates, federal funding requirements and solvency issues are not applicable for a government that spends first, and then borrows.  
How are You Going to Pay for It?  
The US government, for all practical purposes, spends as follows:
After spending is authorized by Congress, the Treasury instructs the Fed to credit the recipient's account (change the number to a higher number) on the Fed's books.  

For MMT, the Money Story Begins with a State that Desires to Provision Itself:
1.  The state imposes tax requirements in the form of financial obligations.  
2.  Consequently goods and services are offered for sale to get the funds required to pay the taxes.
MMT recognizes that taxation, by design, is the cause of unemployment, defined as people seeking paid work.
3.  The state can then buy those goods and services.
4.  Taxes can then be paid.  
5.  If people on average want to earn more than just enough to pay taxes, goods and services will be offered for sale in sufficient quantity to obtain those extra dollars.
6.  State spending in excess of taxes- deficit spending- provides those dollars to be saved.  
7.  The public debt equals the dollars spent by the state that haven't yet been used to pay taxes.
8.  After the state has spent those extra dollars, Treasury bills, notes, and bonds can then be purchased which depletes dollars the state has already spent.  
8.  Payments by the US government are added to reserve accounts of Fed member banks.
9.  When securities are purchased the Fed debits reserve accounts and credits securities accounts.
10.  When interest on the public debt is paid, the Fed credits securities accounts.
How is the Public Debt Repaid?  

When US Treasury securities mature, the Fed debits the securities accounts and credits the appropriate reserve accounts.  
There are no taxpayers or grandchildren in sight when that happens.
 What is the Relevance of MMT Today? 
The MMT understandings put policy options on the table that were not previously considered viable.
Interest Rates
MMT recognizes that higher interest rates can impart an expansionary, inflationary (and regressive) bias through two types of channels- interest income channels and forward pricing channels.  This means that what’s called ‘Fed tightening’ by increasing rates may increase total spending and foster price increases, contrary to the intended effects of reducing demand and bringing down inflation.
MMT understands that a permanent 0% policy rate is the base case for analysis for a floating exchange rate policy.    
The MMT understanding of interest rates is at times in direct conflict with central banks and the large majority of academics.  We see those “mainstream” views as at best applicable to fixed exchange rate regimes, but in any case not applicable to today’s floating exchange rate regimes.
Only MMT recognizes the source of the price level.  The currency itself is a public monopoly.  Monopolists are necessarily “price setters”.  
The price level is necessarily a function of prices paid by the government’s agents when it spends, or collateral demanded when it lends.
In a market economy the government need only set one price, letting market forces continuously determine all other prices as expressions of relative value, as further influenced by institutional structure.   

The Job Guarantee
The Job Guarantee is a proposal for the US Government to fund a full time job for anyone willing and able to work at a fixed rate of pay.  A $15 per hour wage has currently been proposed, which becomes the numeraire for the currency- the price set by the monopolist that defines the value of the currency while allowing other prices to express relative value as further influenced by the institutional structure.  
The Job Guarantee works to fight inflation more effectively than the current policy of using unemployment to fight inflation.  An employed buffer stock policy better facilitates the transition from unemployment to private sector employment, as private employers don't like to hire the unemployed.  
It also provides for a form of full employment, and at the same time is a means to introduce minimum compensation and benefits “from the bottom up”, as private sector employers compete for Job Guarantee workers. 

Bill Mitchell — The German undervaluation obsession is resistant to ‘reform’

Martin Höpner, who works at the Max-Planck Institute for the Study of Societies in Cologne, recently sent me a copy of his latest paper – The German Undervaluation Regime under Bretton Woods: How Germany Became the Nightmare of the World Economy (published January 2019). He presented this research at a Makroskop workshop in Wurzburg on October 13, 2018 – I was on the same panel as him at that workshop and enjoyed some very productive conversation about these issues. It is a very interesting historical analysis of the way that the German elites (central bank, industry groups, banks, politicians, and trade unions) have collaborated since the 1950s to suppress domestic consumption and maintain the nation’s export competitiveness, even though this has undermined material prosperity for workers. The relevance of the analysis to current debates about the Eurozone and its capacity for reform are that the undervaluation regime is entrenched in Germany’s institutions, its history, its culture, and its power elites and have been that way for many decades. What the Europhile progressives, who still think reform is possible, have to show is that this entrenched position can somehow be abandoned. They have never provided any convincing argument to substantiate that hope/belief. That is why I continue to call them out as dreamers – good intentions but naive to history....
It is hugely to the advantage of the German elite to devalue the DM in effect by substituting the euro for it. This is the foundation of contemporary German mercantilism. It is a major reason the EZ cannot work. The advantage to Germany is too great under it, and the German elite is not willing to give it up.

Bill Mitchell – billy blog
The German undervaluation obsession is resistant to ‘reform’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

See also

The Euro is Not Without Alternative
Wolfgang Streeck

Ramanan — Some Extreme Reactionary Views Of The Neochartalists

MMT is taking flak not only from the right over abandoning "sound finance," but also from the left for apparently advocating reduction in the welfare state through a job guarantee and opposing the attempt to reduce inequality through progressive taxation.

What we are seeing now is the transition from MMT as a macroeconomic theory based on institutional analysis to MMT as a policy science advocating for a specific angle on policy formulation that appears to be centrist.

First, is this a fair characterization and appraisal of the MMT position? If so, is there a political faction in the US to support this?

The Case for Concerted Action
Some Extreme Reactionary Views Of The Neochartalists
V. Ramanan

I'm looking for recession and not finding it.

These are stats from my latest MMT Trader report. Are these recessionary signs? Warren Mosler is bearish as hell.

Auto loans rising at the fastest pace in 8 months.
Residential real estate loans rising at fastest pace in 3 weeks.
Bank "residual" (capital) at record highs and up 3 weeks straight and up 6 of the last 7 weeks. (Implies growing bank earnings.)
Bank assets at record levels.
Gasoline demand at 6-month high.
Distillate demand at 3-month high.
Federal tax deposits have been rising since January and are on track to completely erase the y-o-y negative gap. Going positive.
Corporation taxes rising, too. They bottomed vs last year in early February.
Social Security (largest spending item) growing at fastest pace so far this fiscal year.
"Other Withdrawals" (military and defense) growing at fastest pace since early February and has accelerated 63% since then.
Unemployment benefits down and falling  y-o-y.
Food Stamps down y-o-y. 

These are all coincident or leading statistics. Most of these CREATE the forward conditions of the economy rather than reflect what the economy is already doing like much of the data cited by other economists.

I don't know...I just don't see it.