Sunday, March 10, 2019

What is Modern Monetary Theory? MMT Explained

This guy describes MMT in a way which fits in really well with what my theory of what money is. No goods and services can be provided for free, so people will always have to work to provide them. So, if the government can just print money to pay for public services without taxing, then is it providing a free service?  No, society simply gets the money and works harder to provide the healthcare staff what they require.

Let's say the government decides to spend deficit created money on a state provided health service, then the healthcare workers will spend their wages into the wider economy. Companies see the new money as an opportunity to earn more income and will gear up production employing more staff.

 In our present society there are a lot of under-employed and unemployed people, many of whom want more work, so these people will find more employment and will generate more output.

Also, the staff that was already employed may start to earn more money as more managers will be required. And there will be new start ups too, meaning more entrepreneurs. All these people will want more goods and services, and so the wider community will do the work to provide them. In this way the deficit money eventually filters out into the whole of society.

The government didn't increase taxes to pay the hospital staff, but society, in a way, paid them by working harder to provide them with what they needed. But when the economy is unable to provide more goods and services the government may have to raise taxes because too much money could flow into society - but it can do this in ways that encourages a more green environment, or encourages people to look after their health better - there are many good ways in which to use taxes.

 But the good news is, with all these new people in work taxes can be shared more widely and so will be less punitive.

This video explores five principles that underly money monetary theory including the role of money, government debt, and budget deficits. The video also looks at three risks with modern monetary theory including inflation, higher interest rates and asset bubbles.


Kaivey said...

Richard Wolff explains why capitalist societies tend to always be underperforming: That the fierce competition brings about low wages and so demand is suppressed and this leads to under-employment.

The Magic of MMT.

I previously said that just because the government can issue its own currency it doesn't mean society can get free public services because people will always have to work to provide those services. But I've had some new insight - most of society will get a free service after all.

When the government deficit spends to create a public service, new money is injected into society when the public staff get paid and buy goods and services. Society then gears up to produce more products, and now the government money is backed by new goods and services.

MMT says the government is restrained by how much it can spend as human and physical resources are finite, which means spending more money won't produce more goods and services, only inflation.

How does society produce more goods and services when the government spends on public services? Well, for one thing, the staff already employed in those companies that supply goods and services may want to work longer hours, but also, these companies will employ more people as well.

In this way, the under-employed and unemployed will find more work and will be supply the goods and services to the public staff.

These people were doing nothing before, and may have been even on benefits, but now they are working contributing to society. So, in effect, it is they who do the extra work to provide the goods and services that the public healthcare workers have worked for, and the rest of society gets a free health service.

These people who were underemployed are now also buying more products and services. Society becomes richer.

A little bit of socialism and a little bit of capitalism are great bedfellows.

Kaivey said...

My above comment got misread. Here' my reply.

BBBar. Thanks for your reply, and I entirely agree with you. You have misread me. That's not your fault, it's easy to be not as clear as you think you are being ( meaning myself) when writing something.

There's is loads of spare capacity in our society, but not enough purchasing power due to the way capitalism reduces wages so much, and this leads to underemployment.

Now, the MMTers do say that the amount of money that governments can usefully create is limited to the amount of human and physical resources available, but our present day society has a long way to go yet before it maxes out. So, plenty of room for governments to create new money and spend it.