Tuesday, July 2, 2019

Bill Mitchell – Why the financial markets are seeking an MMT understanding – Part 2

There was an article in the Project Syndicate (July 1, 2019) – Does Japan Vindicate Modern Monetary Theory? – written by a Yale economics professor and advisor to Shinzo Abe, that reveals the extent to which the mainstream is becoming paranoid and is failing to understand what MMT is about.
I won’t deal with it in detail because it is not my brief today. But it aims to disabuse readers of the notion that “Japan … [is] … proof that the approach works.”
The approach he refers to is MMT.
Basic flaw. MMT is not an approach. These commentators haven’t even reached the first place in understanding what our work is about.
Mainstream economists have crudely characterised or framed MMT within their own conceptual structure (typically the so-called ‘government budget constraint’ (GBC) framework) and imputed their own language when discussing MMT.
The Project Syndicate author is no exception.
He thinks MMT is about “excessive deficit-financed spending” which “lacks any safeguard”.

He says:

Policymakers who recklessly implement MMT may find, like the sorcerer’s apprentice, that once the policies are set in motion, they will be difficult to stop.

One cannot “implement MMT” – recklessly or otherwise.
One can understand it and use its insights to craft policy interventions that accord with one’s value system (ideology).
MMT is not policy, or even about policy. It informs policy by putting the approach to policy on a correct monetary, financial, and economic foundation instead of an incorrect one, as is currently the case.

This is a longish post but not wonkish at all. It is one of Bill's most important posts for a basic understanding of the "MMT framework" (lens) versus the "flawed GBC framework" of the mainstream.

Note: "GBC" signfies "government budget constraint."

Bill Mitchell – billy blog
Why the financial markets are seeking an MMT understanding – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


AXEC / E.K-H said...

Is MMT good for WeThePeople or for the Oligarchy?
Comment on Bill Mitchell on ‘Why the financial markets are seeking an MMT understanding ― Part 2’

MMTers call themselves Progressives and they claim to work for a better world if not for the salvation of Humanity. To this end, they educate Washington, UK Labour, Bernie Sanders, grassroots movements, AOC and the Green New Dealers, and Wall Street in matters of economics.

The message for WeThePeople is: We MMT Progressives will free you from the yoke of Austerity and realize the Job Guarantee.

With UK Labour things turned a bit sour lately: “The bottom line … is that MMT is here to stay. The UK Labour Party can choose to stick to the old neoliberal fiscal paradigm ― or it can join the revolution.”#1

But MMTers have not only something to offer to the Little Man but also to Big Money. Bill Mitchell and the others get a lot of speaking invitations. Bill Mitchell feels that this is a bit at odds with the conscience of a Progressive: “While accepting these invitations raises issues about motivation ― they want to make money, I want to educate ― these groups are influential in a number of ways. They help to set the pattern of investment (both in real and financial terms), they hire graduates and can thus influence the type of standards deemed acceptable, and they influence government policy. Through education one hopes that these influences help turn the tide away from narrow ‘Gordon Gekko’ type behaviour towards advancing a dialogue and policy structure that improves general well-being. I also hope that it will further create dissonance in the academic sphere to highlight the poverty (fake knowledge) of the mainstream macroeconomic orthodoxy.”#2

If some observers have the impression that MMTers are pushing a political agenda, though, they are mistaken: “Basic flaw. MMT is not an approach. These commentators haven’t even reached the first place in understanding what our work is about. … One cannot ‘implement MMT’ ― recklessly or otherwise. One can understand it and use its insights to craft policy interventions that accord with one’s value system (ideology).”

So, what MMTers are telling Wall Streeters is how to integrate MMT into their value system which is known to have one value only. What they can learn from MMT is among other interesting things:

• “Chasing higher yields via these ‘widowmaker’ trades led to losses because the investment banks etc were engaged in a battle against the Bank of Japan, which is a battle they can never win. An MMT understanding shows that the sovereign government (central bank and treasury) typically calls the shots over the financial markets.”

• “An MMT understanding would have told these investors that the mainstream economists (no matter how prominent they were) were plain wrong and that they would be foregoing profitable investment opportunities if they stayed within that orthodox economics framework.”

• “'This viewpoint would have been valuable at the time, and it is one potential benefit of understanding the MMT framework. It would have also provided a unique insight on the policies implemented in Japan and Europe.' Well it was available at the time and savvy investors took advantage of it.”

• “'Wealth managers and investors should have a complete view of how this could work and what the potential costs and benefits could be.' … It is clear that MMT economics is a preferred framework to consider and analyse these trends and policy choices.”

• “Fiscal deficits mean more non-government net financial assets One of the reasons the ‘sharpest macro investors’ didn’t get sucked in by orthodox macroeconomics was that they understood the most basic aggregation in macroeconomics ― the relationship between the government (as the currency-issuer) and the non-government (as the currency user). This relationship is a core starting point for MMT reasoning. The sectoral balances framework is not new.”

See part 2

AXEC / E.K-H said...

Part 2

• “You will never learn that in a mainstream economics course. The mainstream economists can claim they knew MMT all along, or that there is nothing new, but you will never read those propositions in a mainstream textbook or hear them in a standard macroeconomics class.”

• “This means that financial market operators should never be joining lobbies that proclaim the deficits are bad and should be avoided. Quite the contrary.”

So, folks get it, the MMT policy of deficit-spending/money creation is good for Wall Street and the Oligarchy but it is also good for WeThePeople and Democracy.

This seems to be a plain logical contradiction. It is. But in the political Circus Maximus there is no logic, “truth” depends on who the audience is. This is the basic rule of political agenda pushing.

Now, Bill Mitchell is an academic who has committed himself to the pursuit of scientific truth, that is, to well-defined material and formal consistency. So, where exactly does he give away science? It is exactly here:

“What we learn from an MMT understanding is that:

1. A government deficit equals a non-government surplus ― dollar-for-dollar. It is not an opinion but an accounting fact.

2. Such a deficit adds net financial assets (wealth) to the non-government sector. Deficits make us richer.

3. A government surplus equals a non-government deficit ― dollar-for-dollar.

2. Such a surplus reduces the net financial assets (wealth) to the non-government sector. Surpluses destroy non-government wealth.”

Bill Mitchell’s fraud is in the sentence “Deficits make us richer.” No, deficits make NOT US but THEM, Wall Street and the Oligarchy, richer because the correct sectoral balances equation implicates Public Deficit = Private Profit. Deficits make WeThePeople poorer.#1 This is the scientific fact of the matter, all else is stupidity and corruption.

Egmont Kakarot-Handtke

#1 For the full-spectrum refutation of MMT see cross-references MMT