Modern Monetary Theory

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Modern Monetary Theory

Postby JackRiddler » Sun Sep 23, 2018 12:27 am

Ten years ago, even eight or so when I started the "Wall Street" thread, I did not yet understand this.

- www.counterpunch.org - https://www.counterpunch.org -

“Taxpayer Money” Threatens Medicare-for-All (And Every Other Social Program)

By Jim Kavanagh

September 21, 2018


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Photo Source Molly Adams | CC BY 2.0

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

-Apocryphal (often spuriously attributed to Mark Twain)

Three assertions:

+ There is no such thing as “taxpayer money.”

+ Taxes do not pay for government spending. (Nor does debt. No revenue is needed.)

+ Leftists who continue to talk as if “taxpayer dollars” must be collected to “pay for” government programs are undermining Medicare-for-all and every other progressive policy initiative.

I know these assertions run counter to an economic ideology that has been ingrained in us as obvious and irrefutable, known for sure. And I know how easy and seemingly effective it is to say things like: “Look at all the taxpayer dollars going to the military. We should spend some of those taxpayer dollars on healthcare instead.” But I want to show, with specific examples, why using this language is a bad idea—a really bad idea.

Maggie’s Farm

There are two reasons why it’s important to stop talking like this: 1) Because it’s not true, and 2) Because it perpetuates an ideology of how money and public financing work that is not only false, but profoundly reactionary and politically damaging—that is designed to, and will, impede achieving the most basic progressive goals.

Let’s deal with the second point first, since I know a lot of leftists won’t overcome their resistance to understanding and promoting an economic proposition that runs counter to the common wisdom unless they can see the political point of it.

Consider the logic of this language. If government spending depends on tax revenue, if the government—the public authority—is an empty pocket that has to be filled with dollars that originate in the private pockets of “taxpayers,” that means public wealth depends on private wealth.That means private wealth is thesource, the wellspring from which the public treasury draws; It means that, without large concentrations of private wealth (which are subject to the highest rates of taxation), the public authority cannot function.

Is that not precisely the theoretical grounding of capitalist socio-economic theory in its most regressive Thatcherite form?

If that’s true, we are then in a polity where those who pay more dollars in taxes have a prima facie credible claim to demand more influence on the use of those dollars by the public authority—i.e., more political power. After all, the government depends on them; they are its donors, the breadwinners of this household, the source of its wealth. In a taxpayer/donor-financed polity, you can debate whether “taxation is theft” and to what extent “winners”—i.e., meritorious taxpayers—are paying for “losers” and “moochers”—i.e., “undeserving” non-taxpayers. It’s a polity where social programs of universal benefit exist at the sufferance—whether forced or voluntary—of the wealthy,subject to constant negotiation about how far that should go.

This is the paradigm of noblesse-oblige, welfare-state capitalism, whether more or less “generous,” where the public authority—the federal government—must go hat in hand to the wealthy to pay for public services.

This paradigm exudes an ideology that valorizes the wealthy 5% and renders everybody else dependent on them. It feeds the arrogant, trickle-down, anti-social individualism which has such a tenacious and pernicious hold on the minds of working-class as well as elite Americans. It’s an ideology in which there is no such thing as society, just a collection of individual taxpayers. That ideology is a main pillar of the capitalist social order, and must be destroyed if we are ever going to move toward a socialist society.

Yes, “taxpayer money” to “pay for” federal government spending is a central support of all that. Every time we say “taxpayer dollars,” no matter in what progressive direction we are flailing, we are enmiring ourselves deeper in the quicksand of this anti-social capitalist paradigm.

And if leftists and socialists do not understand this, our class enemies damn well do:

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Maggie has succinctly stated for us the foundational principle of the neo-liberal capitalist austerity paradigm: The federal government is an empty pocket that must be filled with someone else’s dollars.

Are you beginning to see now why it’s important—politically important—to know whether that’s true or not?

Let’s look at what’s happening in the current debates and proposals regarding progressive programs like Medicare-for-all, to see why a rejection of the Thatcherite paradigm is not just a matter of esoteric economic theory, but a practical-political necessity for the left; and to see how almost everybody who is arguing for those programs is actually reinforcing that paradigm in a way that threatens to undermine their important progressive goals. The left has to stop speaking Maggie’s language.

Let’s start with the Democratic Party. It’s not the left, I know, but it is the legislative horde that left activists must corral and entame to get programs like Medicare-for-all. And, pressured by its angry constituents and the bevy of self-identified “socialists” who have recently joined it, the party has even, however squeamishly, agreed to accommodate the “Medicare-for-all” demand.

As can be expected, the Democratic Party, under Nancy Pelosi’s leadership, has bought into the federal deficit and debt hysteria. It has fully committed itself to a PAYGO policy, whereby, to avoid the horror of grandchildren-destroying debt, any new spending must be “budget neutral”—offset by reductions in other spending programs or tax increases. ‘Cause, hey, the state has no source of money of its own.

A lot of left-of-Pelosi progressives see and reject the trap this represents. They understand this as part of a cat-and-mouse game the Republicans and Democrats have been playing for decades:

Republicans have made clear time and time again that they don’t care about the deficit. And Democrats shouldn’t either. Rather than fixating on the GOP’s shaky math, Democrats should highlight the cruelty of shoveling money to the rich at a time when inequality is soaring and millions languish in poverty….

Democrats should be bold and single-mindedly focus on downwardly redistributive taxing and spending. Go for Medicare-for All, public child care, green jobs. Propose popular programs, and don’t worry about the cost. If the GOP raises deficit concerns, waive them away by predicting fabulous economic growth, just like Republicans do.

–Josh Mound

Pay-Go is a good example of self-hating Democrats trying to be the “fiscally responsible” Republicans that the Republicans themselves never are. The GOP just passed a $3 trillion tax cut for the rich, with no offsetting revenue or budget cuts whatsoever. A Pay-Go rule means that all we’ll ever see is GOP tax cuts for the rich, never Democratic tax cuts for the middle class and seniors. The Republicans figured this out a long time ago: there are exceedingly few ‘fiscal responsibility’ voters, and they’re going to vote Republican no matter what.

–Alan Grayson

Our families in MI-13 reside in the second poorest congressional district in the country, and they need real help from the federal government. House Democrats insisting on paying for progressive legislation that elevates working families with budget cuts elsewhere needlessly ties our hands before we even begin to fight. If Democratic leadership is going to buy into right-wing talking points and stand in the way of progress for our families, we will replace them with representatives more in touch with the families we represent.”

–Rashida Tlaib (D-MI)

PAYGO is a self-imposed, economically illiterate approach to budgeting. Republicans know this. They understand that deficits pose no risk to our national solvency and that the budget can be used to improve the financial well-being of the donor class. So they have unabashedly used their power to expand deficits and, hence, deliver windfall gains for big corporations and the already well-to-do. Instead of vowing budget chastity, Democrats should be articulating an agenda that will excite voters so that– when the time comes– they can unleash the full power of the public purse on their behalf– a cleaner planet, good jobs, a secure retirement, affordable child care, debt-free college, and Medicare-for-All.

–Stephanie Kelton

The Republicans always preached balanced budgets. But, starting with Carter and cemented with Bill Clinton, the Democrats decided to win for themselves the title of “the party of fiscal responsibility.” As Billsaid: “I hope you’re all aware we’re all Eisenhower Republicans…We’re Eisenhower Republicans here, and we are fighting the Reagan Republicans. We stand for lower deficits and free trade and the bond market. Isn’t that great?” Clintonism explicitly turned the Democrats into the second Republican Party.

So, when the Republicans come into power they balloon the deficit with tax cuts for the rich and military spending. When the Democrats are elected, their civic mission becomes pointing out the profligacy of the Republicans and doing the Republicans’ budget-slashing, deficit-reducing work for them.

You’d think someone might notice that, whatever either “Republican” party says about the deficit and the debt, the one consistent result of both parties’ policies has been increased wealth inequality.

Progressive voters like those cited above correctly presume that’s the intended result for the Republicans, and now understand that, no matter what the Republicans preach, the purpose of their spending and tax policies is not, and will never be, toeliminate the deficit; it is to relentlessly increase the wealth and power of “their” people.

A lot of progressive voters also indulgently think the increasing inequality is an unfortunate result the Democrats are forced into producing for “their” people—because somebody’s got to do something about the deficit. What they don’t notice is that it’s an inevitable result of precisely that “deficit” concern.

The Democrats, and many of their leftsh progressive supporters, continue to think that shaming the Republicans for their fiscal hypocrisy and promising to enforce fiscal discipline will be the political bomb that will win over the voters. But, they’re the only party that’s actually done anything to reduce the deficit, and their political position has still weakened. Why, oh why, they wonder, are “their” people not voting for them?

You’d think somebody might notice that what’s important here, what really matters for the people and the country, is the growing inequality of wealth, not the deficit.

And, indeed, there are a slew of sincere progressives—like the ones cited above—who have noticed this dynamic, know all about and reject the Clintonite Republicanization of the Democratic Party, and do want to change the game. At the leading edge of this, activists and insurgent Bernie-inspired candidates have turned Medicare-for-all from a “never, ever” to a great “new idea” that’s de rigueur for Democratic politicians. People are at the end of disgust with the for-profit health-insurance “market” and the half-assed attempts to patch it up (the ACA). Healthcare as a right—universal single-payer coverage under the rubric of Medicare-for-all—is a significant progressive advance, and it does seem its time has come.

Thus, Bernie Sanders has introduced a Medicare-for-all bill that’s been co-sponsored by more than a third of Democratic senators (I’ve warned about the duplicity of those Democrats here), and John Conyers has one in the House that has over 120 co-sponsors and is considered the “gold standard” by the single-payer movement. These are the kinds of plans most lefties—from New-Deal-“socialist” Democrats through harder left socialists and marxists—are counting on to bring us the social program we want and need.

But both of these plans, just like Nancy Pelosi’s PAYGO, rely on and reproduce the fundamental Thatcherite capitalist principle that public spending derives from and depends on private wealth, more blandly stated as “taxes fund government spending.” Both think it is necessary to define the new taxes that are needed to pay for Medicare-for-all.

Here’s a page from Conyers’s aptly named “gold standard” bill:

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Note the new but undefined taxes in sub-sections (1) B through E. With these provisions, Conyers is honoring the “taxes pay for government spending” paradigm that he feels he must respect.

But then note sub-section (3), which authorizes the annual appropriation of any “additional sums” that will be needed to “maintain” the program, without any reference to whether that matches the undefined and unknowable amounts raised by the taxes.

Similarly, on his website, Bernie says his plan would be “fully paid for” by a 6.2% tax (“premium”) on employers and 2.2% on households (i.e., working-class families), as well as higher tax rates on high income tiers, new capital-gains and estate taxes, etc. But those taxes do not appear in his bill.

His bill establishes—“create[s] on the books of the Treasury of the United States”—a “Universal Medicare Trust Fund” that replaces the current Medicare Trust Funds, and would presumably receive all the new taxes. But, again, that Fund “shall consist of such gifts and bequests as may be made and such amounts as may be deposited in, or appropriated to, such Trust Fund as provided in this Act, including “Notwithstanding any other provision of law, thereare hereby appropriated to the Trust Fund for each fiscal year… amounts that would otherwise have been appropriated to carry out the following programs:” So, whatever taxes are paid to the Trust Funds, and whatever else the law says, we’ll appropriate what we need every year to carry out the program.

It’s important to see the two things that are going on here. First, both bills, with their authorization of appropriations in every year going forward, establish what is categorized as a non-discretionary, or mandatory, budget item—as Max Mastellone puts in an excellent essay: “a more or less permanent appropriation of funds that does not have to be renewed year to year by Congress.” That’s why neither of these bills appropriates a specific sum; they authorize a continuing, variable, appropriation. They differ from a discretionary budget item, like defense spending, which requires authorization of a specific amount every year.

“Non-discretionary” is also what is meant by “entitlement”—a word we should stop hiding from. Isn’t the whole point to make healthcare a right? Isn’t a right something we’re entitled to? An entitlement program is the category of program that we have a right to as citizens, a program the government therefore must fund every year. Whatever word we want to use, we should not retreat from, but step right into, the concept. This is exactly the concept, and the kind of program, the right is trying to discredit and destroy, and we must fight that head-on.

Secondly, however, both of these bills uphold and reinforce the “taxes-for-spending” paradigm that is a primary tool to undermine universal mandatory programs like Medicare-for-all, but which they think they can use as a support. Both politicians feel they absolutely must specify which taxes are going to pay for their program, even though their bills explicitly acknowledge they’ll be funded if the taxes don’t cover it.

The Money MacGuffin

What they are doing here is repeating the Roosevelt ruse. When he established the Social Security program, FDR included separate payroll taxes going into separate Trust Funds to supposedly pay for it That was a ruse for political reasons; it had no economic rationale. The federal Trust Funds are an accounting fiction, “created on the books,” not a separate pool of money. (LBJ repeated the ruse with a dedicated Medicare payroll tax and Trust Funds.)

Whether the earmarked taxes/Trust Fund ploy was a shrewd political tactic, a poison pill, or both, we shall see. But a ruse it was. In cinematic terms, it’sa MacGuffin—something put in the plot that looks like it’s important, but really has no effect on the outcome at all.FDR’s administration admitted this in a1937 lawsuit: “The proceeds of both [payroll] taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.” And FDR himself acknowledged it quite openly in 1941, when an advisor challenged him to dispense with the fiction and eliminate the payroll taxes:

“I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics”.

So, the FICA payroll taxes are an economically unnecessary political device, based on pay-your-taxes-to-fund-your-benefits fiscal conservatism, that FDR thought would insulate the Social Security program from right-wing attacks.

How’s that working out? Has it stopped those right-wing attacks?

Today, Conyers and Sanders and virtually every Medicare-for-all progressive are reprising Roosevelt’s ruse: “We’ll show you how we’re going to pay for it, every penny! There, now you can’t object.” And all that’s happened is that the right, ignoring the MacGuffin, shifted the focus onto taxes and the deficit. The whole argument becomes: “Can you really pay for it without immense, continually augmented, tax increases, and without increasing the deficit?” “Yes, we can.” “No, you can’t.” “Yes, we can!” “I’ll show you my figures when you show me yours.” Yada, yada.

This is a futile and losing game. Futile, because, in reality, nobody knows what a Medicare-for-all program will cost. That’s unknowable precisely because the federal government will constitute a monopsony—a single buyer of health services that will dominate the market and radically change the price structure. Swatting imaginary numbers back and forth is beside the point.

The public controlling the cost is exactly the kind of change the right doesn’t want. Let’s be serious: The right-wing, and all the protectors of for-profit healthcare do not care about the cost of healthcare. In fact, the more expensive it is, the better for them. A main reason they oppose it is because they and everybody else know that single-payer healthcare will cost less—every year, for every person and in the aggregate. The right is not in it to win an economic argument or to cut costs; they are in it to protect material interests. The right’s objection to single-payer isn’t about high costs to the people or to the state; it’s about lost profits for health insurance and pharmaceutical companies.

There’s no discussion like this about defense appropriations. An $80 billion increasein military spending, and nary a “how are you going to pay for it” peep from the all the Serious People. You won’t find any purportedly earmarked taxes in a defense bill. All you’ll find is: “the following sums are appropriated.” That’s how it’s “paid for,” no questions asked.

Nor did the public healthcare programs in every other advanced capitalist country come about because some party leaders produced a column of numbers proving that some designated tax would pay for it. They came about because the power of the working class and the communist and social democratic parties that did represent them at the time—before they were zombified by Thatcherite neoliberalism—demanded it. They came about because the soldiers and their families who fought in two world wars could not be refused, and because the example of post-capitalist societies could not be ignored. Under these conditions, the ruling classes had to capitulate on socializing healthcare in some way. (Some of them even realized capitalism could get along rather nicely with it.) The nation made a political decision, and then paid for it. That’s the way it works.

If you fight about “how are you going to pay for it,” you’re fighting on their ground, and you’ll never win, because the right will always be able to throw another numerical “projection” at you to put you back on the ropes. The rightists here are not debating; they are diverting, and there’s no end to it.

It’s a losing game, because, if you accept that progressive social programs require tax increases, you’re in a debate that will inevitably focus precisely on taxes. That’s a debate where you (the “left”) are trying to make everyone pay more tax and the rightists are trying to help everyone pay less, and saying, correctly, that you’ll end up raising taxes forever—and you lose.

Republican reactionaries will watch in delight as you become enmeshed in preaching about the need to raise the most regressive taxes on the most overtaxed people—the payroll taxes that are deducted every week from working-class paychecks. “Just a teensy bit. This is the last time, I swear. Look at my calculations.” You can write Paul Ryan’s answer.

We have to get off their ground. This fight is not about numbers; it’s about power. It’s not about a tax; it’s about a right. It’s about replacing the power of an enormous private industry to profit from healthcare services and prices with the power of a social program that manages them for everyone’s benefit. It’s about giving all working-class people more personal health and economic security and more power over their social lives. We have to refuse their “how are you going to pay for it” numbers game, and focus relentlessly on our point that healthcare must be a non-discretionary social right.

Nowhere Man, Please Listen

But if we’re not going to stand on their ground, we have to stand somewhere else. We have to realize that the bedrock of their ground is the proposition that taxes fund government spending, that the federal government must get money from taxpayers—per Maggie, the money “people themselves earn”—to pay for any government program.

Not only Nancy Pelosi, with her “PAYGO,” but also Bernie Sanders and John Conyers and the growing legion of single-payer supporters, with their “raise a few taxes here and there, mostly from the rich, just a little from workers,” are standing on Maggie’s ground. And that puts them in grave danger of being cornered. (I can see the “public option” cavalry riding in to save them.)

The Medicare-for-all battle should make it clear: If you are going to get out of this trap, you have to get out of the “taxes fund spending” paradigm. You’re either with Thatcher, or you’re somewhere else. You either think what she said is true, or you think something else is true. You’ve got to find another rock to stand on.

Maybe a place that allows you to argue for Medicare-for-all while at the same time abolishing all those payroll taxes (as 77 years ago the Democratic president who levied them knew you could)? Thereby giving most American workers the biggest immediate pay raise they have ever seen? Put Paul Ryan in the position of arguing against that.

But to do that you have to understand the truth of the proposition—really get it—that taxes do not fund government spending. That is the other rock to stand on.

The whole point is to be the anti-Maggie, to reject the neoliberal austerity paradigm she so forthrightly represents. That means rejecting with equal forthrightness—as matter of knowledge, not just political expediency—the notion that taxes or “taxpayer money” “pays for” federal government programs.

As Maggie knew, there is an easy way to rhetorically avoid the trap, Whenever one is tempted to say “taxpayer,” substitute the word “public.” It is public money that pays for government programs, and the word can be seamlessly substituted in almost any current progressive discourse on the subject.

But, while changing the word is a useful way to sidestep reactionary implications, we need to go further and positively understand and step into the different concept, and the more radical and accurate paradigm that the word “public” implies.

We need to understand that we have power over money, not as taxpayers, but as members of a political community.

We have that power right now, whether we recognize it or not, because of the factthat we have a fiat currency. That is not a wish or proposal or demand, of the left or the right; it is a fact of our present economic order, indisputably true since 1971 whenNixon ended the gold standard.

It’s important to recognize what changed then.

Prior to 1971, a physical substance, gold, was the money-commodity—in a strong sense, the “real” money. U.S. dollars represented, and (at least internationally) were convertible to, that “real” money, gold. Issuance of dollars was constrained by that external commodity: if the number of dollars in circulation exceeded the mandated relation to the amount of gold owned by the U.S. government, it could cause big problems.

That is exactly what happened, when France and other foreign governments sought to exchange the dollars they held for gold. So Nixon took the dollar off the gold standard.

Ever since, the dollar has been a fiat currency. It means dollars do not represent, and are not constrained by, any physical commodity or any external “real” money-thing whatsoever. A dollar represents itself; it is exchangeable for (besides goods and services)…a dollar. That dollar, which is nothing more than a number in an account ledger, is the real money.

And it doesn’t come from taxpayers. A dollar is now created on the command, by a political decision, of the public authority—a decisionto spend. Money is created when the Congress says: “the following sums are appropriated,” thereby commanding the Treasury to issue the dollars to make it so. The federal government creates dollars by spending them, by putting them into—which means marking up the numbers in—the accounts of individual citizens and businesses.

A fiat dollar in the modern monetary system is thus a social and political thing at its inception, and all the way through. When you trace money back to its origin, you do not arrive at a private, individual “taxpayer” who “earned” it, you arrive at a public, political authority that decided to create it. The source of the dollar is not a person; it’s a decision. It’s not an individual entity but a social act. That is precisely the fact that Thatcher & Co do not want you to see. But when you think through the logic of fiat money for a few minutes, you’ll realize that it is a fact. Kinda obvious, really. It just is so.

“Taxpayers” and taxpaying are products and effects of this thoroughly social monetary system, not its source. The federal government (including here, subsidiarily and differentially, its delegated agents, the banks) is the only creator/issuer of the dollar. Persons and businesses can get money from each other in various ways—working, earning, borrowing, stealing, profiting, etc.—and the differences among them are important, but none of those social actors createthe dollars that are being passed around.

Taxpayers are users, not issuers, of the currency. They cannot and do not provide original revenue for the government to spend; they return a portion of the fiat money the federal government has already spent into the economy and wants to recoup. Fiat dollars can be thought of as interest-free loans that do not have to be fully repaid.

The idea the government needs to collect tax revenue (or revenue of any kind) to spend is a vestige of an obsolete currency system, more archaic even than Maggie. As the sole currency issuer, the US government can, and does, create as many as dollars as it wants, without “collecting” any dollars in advance from any source. And a “tax dollar” does not go to fund government spending; it cancels out a debt, turns a -1 in the government’s ledger into a 0. You can’t spend a 0.

As Ellis Winningham puts it: “All federal spending is dollar creation. All federal taxation is dollar destruction.”

All of this makes the federal government completely different from, and incommensurable to, any household, business, or state or local government, all of which do have to collect money from somewhere else—taxes, loans, or the federal government—to pay for their spending.

To be clear, and to address a misunderstanding of many progressives, the fact that taxation does not fund government spending does not mean that taxation is unnecessary. On the contrary, taxation is an indispensable condition that makes the fiat monetary system work by requiring tax payment in the fiat currency. It also serves important social functions. Economically, it’s necessary to help control the money supply, aggregate demand, and therefore inflation. Socio-politically, it’s necessary to direct where the money goes and promote or discourage specific social goals—most important for the left, to prevent wealth inequality.

I certainly think leftists should support high progressive income tax rates, estate taxes, etc., but not because we need them to fund Medicare-for-all. If you argue for higher taxes for that reason, or if you object to tax cuts for the wealthy because they increase the deficit, you have ensnared yourself in the trap. The reason to object to tax cuts for the wealthy is because they’re for the wealthy, because they increase inequality—not because we need the money for healthcare or because they increase the deficit. We need to re-configure both spending and tax policies for progressive goals, based on a correct understanding of how our money system works. If we don’t, the right will continue to configure them to reactionary ends.

In saying that taxation is not a funding source for government spending, this analysis puts the focus on taxation as a matter of political and social decision—adecision made from a position of power, not dependence. It allows us to make spending decisions without asking the rich for a damn thing. Imagine we’re in a meeting to decide on a new social program (‘cause we are), and there are two possible ways to set the agenda: 1) Let’s figure out how much tax we’ll have to collect from the rich. Or, 2) Let’s ignore those fuckers and do what we want.Which is more radical? To answer that question, you have to understand that the second agenda is possible.

The radical possibility of budgetary decision-making independent of the rich is contained in the fact that money is created by a public authority—a fact that fundamentally undermines any “taxation is theft” or “government spending is parasitic” argument. This package holds powerful potential for leftists, if they’ll open it. Right off the bat, for example, it allows you to say: “Abolish payroll taxes!” Not a bad place for progressive class politics to start.

There are two other necessary, a fortoriori, truths about the modern monetary system to note here, which foreclose the diversionary two-Republican-party deficit-chasing we discussed above. Both of them again mark the fundamental error in confusing the federal budget with a private business or household budget, because words like “deficit” and debt” do not mean the same thing for the currency issuer as they do for currency users:

1) Deficits are good. It would make no sense to retrieve in taxes all the money the government spent into the economy. The amount of the federal deficit is the amount of money the federal government has left in the economy. That’s a mathematical fact. It means the government has not zeroed out all the negative numbers in its ledger. So what? To whom does the government owe those zeros?

And

2) The federal debt will not bankrupt the country, or us, or our grandchildren. The federal government cannot default on obligations denominated in its own currency. It can and will create all the dollars needed to pay dollar-denominated debt.

Nor does the federal government have to borrow money to fund spending. The government is not required to borrow by economic necessity, but by laws and policies—political demands—that require it to borrow the difference between what’s spent in the budget and what’s collected in taxes (by selling Treasury Bonds). That’s another relic of an obsolete monetary regime, which is designed to make it seem like there’s a relation between the money in those Treasury Securities and government spending that there is not. The “borrowed” money in those securities accounts—dollars that were already in circulation—just sits there; it is not used to “pay for” government programs.

James K. Galbraith summed it up well: “Could the Treasury skip the rigamarole and pay its bills without bonds? Economically, sure. Why doesn’t it? Well, the Fed has regulations governing “overdrafts” — but apart from these, the answer is plain: to do so would expose the ‘public debt’ as a fiction, and the debt ceiling as a sham.”

The Social Network

All in all, this is a thoroughly social system, which, if operated well, can facilitate and encourage productive economic activity and the welfare of society. And, which, if operated regressively, as it is in our society, exacerbates hoarding, financial speculation, and inequality. Modern Monetary Theory (MMT) is the current descriptive (not prescriptive) account of how this modern fiat money system actually works, and is consistent with what the managers of that system have known and acknowledged for decades.

Understanding it means knowing that the relevant questions are not “Where are we going to get the money to spend?” or “Are we spending more than we collect in taxes?” but “What do we want to create/spend money for? and “How much money can we create/spend to fully utilize, and respect the limits of, the productive resources of the economy?”

Regarding Medicare-for-all, it is evident that there are abundant healthcare goods and services—doctors, hospitals, medicines, etc.—available for purchase for all the dollars Bernie’s or Conyers’s bill might create. That is all we need to say.

Understanding MMT means dismissing the fear-mongering about the deficit and the debt as the canard that it is. It concentrates the mind right where it should be for leftists, on the political character of the public authority or government doing the money creation via spending: Who controls it? Whom does it serve? What does it spend for? In whose pockets does the money left in the economy end up?

MMT doesn’t answer those questions. It “just” directs our attention to them, and away from the diversions.It “just” replaces the taxation-to-fund-spending paradigm, which liberals portray as (enforced) altruism and wealthy conservatives call theft, with a paradigm in which spending is a public exercise of rightfully-held financial power in the service of social solidarity. Like single-payer healthcare, understanding MMT will not bring socialism; it will “just” enable us to take more conscious, democratic control of the public monetary system and fund social programs without apology or mystification.

Dream Team

I’ve explored MMT in greater depth in a previous essay, and googling Stephanie Kelton, Ellis Winningham, Randall Wray, Michael Hudson, or visiting New Economic Perspectives or Modern Monetary Theory for Real Progressives will provide a plethora of information on it. There’s a learning curve, not so much because it’s complicated—the premises are in fact quite simple and the conclusions therefrom evident—but because it takes some psychological and intellectual doing to let go of what you know for sure. Speaking from personal experience, the MMT analysis is one of those things you don’t want to waste your time on, until you get annoyed and intrigued by the mention of it so many times that you take a deeper look.

But, among an increasing number of leftists who have followed that trajectory, it is sinking in that the “taxes fund spending” paradigm of the federal budgetary and monetary system, which the left has insouciantly shared with right-wing analysts for so long, is factually wrong; it just ain’t so. That’s going to become a critical mass in the left that those who are promoting universal social programs like Medicare-for-all won’t be able to ignore.

The Roosevelt ruse does not need to be repeated; it needs to be rectified. To those who think Bernie, Conyers, et. al., have no choice but to adopt FDR’s ploy of 83 years ago, because, really, it’s just too complicated to explain all this, and the American working-classis too stupid to get itpeople will never listen, I ask: Do we really have time, after 83 years of letting that poison pill fester, to postpone, yet again, a decisive reckoning with what is necessary and really possible? Isn’t reinforcing the wrong economic premises among the populace and expecting to get support for expansive social programs as foolish as reinforcing American exceptionalism and expecting to get opposition to imperialist wars?

I’ll pursue that analogy. Remember how leftists pointed out how the outpouring of worshipful encomia to John McCain reinforced the worst kind of militarism and exceptionalism, and demonstrated that the entire bipartisan political and media establishment was on the same imperialist team? Well, the idol of debt/deficit/”taxpayer-money” is the John McCain of domestic politics. Here’s the bipartisan establishment, and more, praising and preaching it:


https://youtu.be/PY-HO3YPL0g

Whose team is that? Maggie’s all-stars? Is this where leftists want to be? Well, you’re either on that team, or you’re on another.

Don’t wanna play on Maggie’s team no more? Get off it, and get on one that starts tomorrow with this slogan: “Medicare-for-all and abolish payroll taxes!” I guarantee: People, all working-class people, will listen.

The problem right now isn’t whether people will listen. It’s whether left activists will learn for themselves. and develop sincere and effective ways of explaining what they know to be true.

There is one simple answer to the question “How are you going to pay for it?” That answer is: “With money.”

You know, the kind of money that’s created for everything else, with: “the following sums are appropriated.” Let’s make it so.

Article printed from www.counterpunch.org: https://www.counterpunch.org

URL to article: https://www.counterpunch.org/2018/09/21 ... l-program/

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Re: Modern Monetary Theory

Postby Elvis » Sun Sep 23, 2018 1:37 pm

Bump --

This is so important. (Thanks, Jack.) I'd love to see more on this, I spent last night following some of the links etc.

Busy this afternoon, but have some notes for later and want to encourage exploration —and dissemination — of this whole perspective.
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Re: Modern Monetary Theory

Postby JackRiddler » Sun Sep 23, 2018 2:25 pm

There’s a learning curve, not so much because it’s complicated—the premises are in fact quite simple and the conclusions therefrom evident—but because it takes some psychological and intellectual doing to let go of what you know for sure.


That has been my experience. Overcoming common sense falsehoods is very hard. It took me a very long time. Go look at the start of the Wall Street thread, I was getting a lot of this wrong in a very conventional way, even though I always said things like "money is not real." Even most of the propagandists of the false common sense don't guess the common sense is based on false premises. They support the redistribution up, but they really think there are physical limits to money, that it is a commodity. It just seems so evident that money is made by people and taxed by the state, that it exists out there somewhere before a polity is involved, as was the case with metals. That is true of wealth in a material sense -- wealth and stuff to use and consume are created out of nature by collective labors -- but the currency in which wealth and goods are measured and exchanged on markets is issued by the state (at any rate, by the political part of political economy, the polity) or its licensed agents, i.e. the banks. Taxation circulates it back to the source, where it ceases to exist. Spending by the issuer (or extension of credit by financial entities licensed by the issuer) creates money, which is then exchanged for labor and goods and services. Taxation and paying debt subtracts money from the total supply.

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Re: Modern Monetary Theory

Postby Elvis » Sun Sep 23, 2018 6:57 pm

Late one night dialing the radio, I caught a European economist (wish I knew who it was) saying that major social programs (a UBI in this case) could be funded by the state issuing the necessary money then simply writing it off — not treating it as a debt. The important thing was to get money into people's hands and circulating into a real economy.

It seems the only real objectors would be the Fed: "You can't do that in our system."




JackRiddler wrote:Taxation circulates it back to the source, where it ceases to exist. Spending by the issuer (or extension of credit by financial entities licensed by the issuer) creates money, which is then exchanged for labor and goods and services. Taxation and paying debt subtracts money from the total supply.
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Re: Modern Monetary Theory

Postby JackRiddler » Sun Sep 23, 2018 7:43 pm

Issuing money for UBI or JG without denominating it as debt or accounting it against state revenue works right up until the productive machinery is operating at capacity, or all available able/qualified labor is occupied. A means to circulate money out would still be necessary to control inflation. Thus, taxation. Also, debt jubilee is good for many obvious reasons but raises the same problem of needing a control on resulting money supply when it causes excess demand.

We're still talking about a market economy with all this implies, including growth reflected in a proportion of superfluous junk produced that still uses energy and land and resources, and incentives (the better it all works in democratizing capitalism) for investment in new production of more junk/nonjunk. (Oh no, who is to judge the difference?! My new iPhone is a life-necessity!) It won't discriminate. So it doesn't address the real biggest problem of all. One idea is to shift as much taxation as possible to a) incomes in say, the top 20% or less, and b) use of carbon and nuclear energy.

Weirdly enough, where normally I see a million political impossibilities, with the author of the OP I think MMT is simple and compelling enough when understood to bring together vast coalitions in favor.

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Re: Modern Monetary Theory

Postby Wombaticus Rex » Mon Sep 24, 2018 8:34 am

Cool to see an MMT thread on RI.

I think the strength and weakness of MMT is bound up in the same fact: it's not a Utopian framework, it's an attempted explanation of what has been happening in the era of exhorbitant privilege. Because according to tenets of macroec, the US economy should have flown off a cliff onto the barren desert floor -- instead we've been riding a five-lane superhighway in the sky.

This means that the tenets of MMT could all just be based on, say, a nuclear capable global empire, rather than any intrinsic properties of state economies, or even the global exchange currencies of a world system running on petroleum.

That said, I'd much rather have an explanation for how things work than why.

MMT will make slow progress with the intelligensia because it is so alien to the post-70's "national conversation" rituals of the pundit class. Even if they understand it perfectly at their dinner parties, it's a bit unspeakable in the ring.
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Re: Modern Monetary Theory

Postby Belligerent Savant » Mon Sep 24, 2018 1:47 pm

.

Great topic, and insightful replies. Coincidentally, I recently began reading about MMT while digging deeper into digital currency research/blockchain applications.


I found the below overview helpful -- perhaps a bit more approachable for a layman like me.


https://blog.usejournal.com/how-modern- ... 8a67a1556d

(embedded links at source)


Modern Monetary Theory (MMT) completely changed my mind about how the US government can dramatically increase equality and the overall wealth of Americans. To every “socialist” policy out there, it answers the “how will you pay for it?” question. What’s more, MMT’s answer is rooted in monetary operations — an approach I personally find more revolutionary than hunting Mark Zuckerberg down and extracting his tears. It turns out we don’t need his tears, or his profits, to pay for things. They’re just nice-to-haves.

The downside to MMT’s logic is that once you grasp the basics it seems so obvious that those who disagree seem a little dumb. Like they’re not even trying to think that hard. I wish I was more sympathetic, but I’m an insufferable MMT enthusiast myself, so my only hope is to make you an insufferable enthusiast too. Explaining MMT is a little dry though so before I go into that I’ll give some context about why folks are treating it like the big deal it is.

How MMT proved it was kind of a big deal

For any theory involving money to prove its mettle, it’s gotta do 1 of 2 things in 2018.

1. Make somebody a truck load of money
2. Predict a crisis


MMT did both. And if you’re stiffening your skeptical spine right now I’ve got you right where I want you so good. Read on.

MMT is a set of interrelated legal and macroeconomic ideas that started getting cohesive in the early 90s. Warren Mosler developed a lot of this cohesion himself while running his own hedge fund and made $100 million in the early 90s betting that Italy wouldn’t default on its own debt, because they could print as much Lira as they wanted. For the 80% of folks who read that and thought $100 million is a lot of money, yes you are correct. For the 20% who read that and thought $100 million is nothing to write home about, first of all, we’re talking 1992 money here, which is damn solid. Second of all, you’re a pig, and you know it.

On the crisis front, MMT economists predicted the Euro crisis like nobody else did. By the early 2000s, MMT economists had predicted that the incentive structure of the Euro would create employment and credit problems for member countries, that Germany’s labor policies would make it harder for other EU members to increase wages, and that the standard mechanisms used by countries like the US to unscrew itself out of economic recessions would not work for the EU, prolonging the crisis. This is exactly what happened, and you can read about it here.

And for a theory to really cement itself in the annals of monetary history it helps if its origin story involves Donald Rumsfeld in a steam room, which probably makes a lot of MMT aficionados uncomfortable, but I’m here for it. As for why it’s gotten popular in the last year, the recent history of MMT’s ascent is better explained here.

Why the MMT approach is different

The singular frame that helps explain MMT thinking for me is accounting. As MMT economist Scott Fullwiler puts it, “every transaction in a real-world economy affects financial statements of those engaged, and if an economic theory or a posited model is not consistent with how real-world financial statements are affected, then the theory is inapplicable.” Reread that sentence (or not, fine) because it’s a little dense but the message feels like it should have been a big deal in like 1800, not in modern times. Scott’s arguing that money leaves a paper trail everywhere it goes. Every party that transacts in money will see their financial statements affected by those transactions, dollar for dollar. So if you want to figure out how money works, look at those financial statements and stop theorizing about stuff you can’t count. It’s bonkers that this argument was novel when Scott wrote it in 2012 and that today 99% of economics departments in higher ed do not teach this as an approach to understanding financial causation.

Here’s how MMTers put this kind of thinking into practice. In this paper by MMT economist Stephanie Kelton, she walks through how government spending affects accounts at the Fed, the Treasury, and commercial banks. By looking at which accounts at which institutes go up and down over time, she concludes that taxes and taking out loans do not actually fund the US government. That’s a direct refutation of the macroeconomics 101 class I took at Harvard Business School. Counterintuitively, the US government creates the money first, then spends the money, and then uses taxes and bonds to drain excess reserves from the banking system to hit our target interest and inflation rates. Even if the phrase “uses taxes and bonds to drain excess reserves” has you you hitting the snooze button, her first point is a gamechanger: the US government doesn’t need taxes to spend money.

Ok so what does MMT actually mean?

For a theory built on the technicalities of government accounting, the major takeaways are not that technical. I’ll dig into the core ideas that personally make me excited for it, and how these ideas differ from previous thinking. I like to group these ideas by the major questions it answers:

What is the limit of sustainable government spending?

The answer I learned in business school was the deficit. Seems reasonable. If spending is greater than tax revenue, we have a deficit, which is paid for by borrowing from other countries. And while this allows us to pay for things in the short term, our kids and their kids will be stuck paying back the US’ creditors, hampering the US’ ability to spend and invest at a later day. In other words, deficit spending is sacrificing our future for present comforts.

Under MMT, the public deficit is not inherently bad — it is in fact necessary. It sees spending in general as a balance sheet, comprised of the public, private, and foreign sectors. A deficit in one must be offset by a surplus in another. Here’s how these deficits and surpluses normally add up:

- The private sector is in surplus because households and businesses wish to save for the future.
- The public sector runs a deficit — we’ve done so every year since 1789 with only 7 short exceptions.
- At least since the Reagan years, the foreign sector runs at a surplus, otherwise known as a trade deficit (or current account deficit for the economists).


The academic phrase for this view of the economy as a group of sectors that balance each other out is “sectoral balances”.

As economist L. Randall Wray sums it here, “if we want our private sector to save, which almost everybody agrees is a good idea, the public sector must run a deficit.” And what happens when the private sector runs a surplus? The US has do so 7 times, and Wray has an answer: “The first 6 of those were followed by our only 6 depressions.” And the 7th was during the Clinton years, which led to a recession in the early 2000s and then a global financial collapse in 2008.

But inflation is indeed a real limit, because if national spending vastly outpaces our ability to nationally produce things, the public sector competes with the private sector for spending on resources, which raises prices and brings inflation. Inflation means what costs $5 today costs $6 tomorrow, and so if a buncha inflation happens without folks’ incomes rising, people get angry.

The ideal level of government spending under MMT is the amount necessary to buy up the economic output of the United States at full capacity — any more and we get inflation — but any less and we’re leaving material wealth on the table, which usually disproportionately affects our poorest citizens.

And just to be clear, deficits can coincide with inflation, but do not cause inflation. A good example of this is Japan. Japan’s total debt/GDP ratio is 253% and their deficit/GDP ratio is 4.5% — the highest in the developed world. The US’ total debt/GDP ratio is 105% and our deficit/GDP ratio is 3.4%. If deficits caused inflation, Japan should be experiencing inflation big time, but Japan’s most recent published inflation rate is 0.7% — even below their 2% inflation target. The US’ inflation is 2.9%. Clearly, the deficit is not a great predictor of inflation.

When are we at risk of rising inflation?

Both MMT thinkers and current Fed leadership agree that when spending power exceeds our full production capacity, inflation likely rises. However, they differ on how to measure when we’ve reached “full” production capacity.

The Fed’s current policy measures production capacity through unemployment rates. Currently, full production capacity is benchmarked at a “full employment” rate of 4.5% unemployment over the long term. I used to think this made sense because it’s also referred to as “the natural rate of unemployment” and why mess with it if it’s natural? As the Fed’s theory goes, if unemployment dips below that, we’re at risk for higher inflation, because presumably this is the point employers start thinking they need to raise wages to hire the candidates they want. The Fed uses this unemployment target to control a target inflation rate, which is currently 2%. When unemployment gets “too low”, the Fed makes it more expensive for commercial banks to borrow money, which means loans to businesses and households also get more expensive, which makes it harder for households to buy things and businesses to spend money and hire more people.

MMT objects to this method for two reasons:

1. 4.5% unemployment is a poor proxy for full production capacity.
2. There’s nothing “natural” about 4.5% unemployment. It’s a policy decision that’s needlessly cruel as it uses our most marginalized citizens — the unemployed — as a “buffer stock” for controlling inflation.

On point 1, it’s MMT thinkers’ perspective that full employment should actually means 100% of people who want to work, are working. The unemployment stats obscure underemployment and people who would otherwise work, but have given up, and so increased spending at 4.5% unemployment would not necessarily lead to wage gains. We can see this in employment stats and wage data. If you look at the percent of people who actually have a job, as opposed to those who qualify as “unemployed,” we are nowhere near pre-recessionary level of employment. Regarding wage data, while we’ve done a fabulous job of controlling inflation since the 1970s and keeping “unemployment” low, real wages haven’t budged. For 40 years, despite hitting “full production capacity,” employers have not raised wages except to keep up with inflation.

On point 2, it worries MMT advocates that we’ve chosen permanent unemployment for a set percentage of people as our primary means for controlling inflation. Other buffer stocks exist, and MMT argues that a job guarantee would be much better. Instead of people going in and out of employment with business cycles, people would enter and leave publicly guaranteed jobs. In bad times, more public jobs. In good times, people leave those for private jobs. What’s more, this would be a lot faster than the trickle down effects of our current strategy of lowering interest rates — in a recession you could get a public job rather quickly as opposed to waiting years for the economy to pickup again. For the US economy to be strong, having a “stabilizer” that works swiftly is important — otherwise people literally get depressed and sick and never work again.

One final note on inflation — many times US inflation has more to do with foreign economies and governments affecting commodity prices than the US job market. In the late 1970s, inflation reached 14% . This was due to the price of oil spiking due to the Iranian Revolution. We’ve seen this in smaller amounts more recently. In 2011, despite unemployment still being high, inflation in the US bumped up a bit and Ben Bernanke was quick to explain it was due to commodity spikes, not excess government spending. In these cases, unemployment is even less effective as a buffer stock to control inflation.

Don’t increasing deficits lead to greater default risk?

Oh boy. Caring about this is the ultimate test of considering yourself a responsible business person (of which I am one). We should absolutely not default on our debt — I can’t think of a way for our Treasury to simultaneously screw more people than defaulting on our debt. This is why Howard Schultz, Starbucks CEO and prospective Presidential candidate in 2020, claims our national debt is our biggest weakness. He’s a responsible business man and we have a lot of debt. I mean he also says that because he believes he can run for president and fix it, but he’s still pretty worried. Fortunately for America, and unfortunately for Howard’s ego, it’s impossible for us to default.

Lemme elaborate as this is when MMT really starts departing from mainstream thinking. There’s a strong condition to not defaulting, which is that the nation in question has to be financially sovereign. Financial sovereignty means all the following are true:

1. You own your own currency (e.g. the US has dollars, the Japanese have yen)
2. Your currency is not pegged or tied to anything else like gold or another currency. It “floats.”
3. You owe no debt in currencies besides your own (e.g. the US’ debt is all in US dollars).

In other words, if all our liabilities are in US dollars, and we can “print” money at will (“print” is a loaded term in MMT since what actually happens is digitally crediting and debiting accounts at the Treasury and Fed), then we can’t go bankrupt. Why would we? We will always create money to pay back our debt. As long as we are financially sovereign, we are at zero risk of default
unless Congress pulls a Ted Cruz and stops paying people for no good reason.

Now, if we spend too much, we do get inflation. Inflation is real and is currently screwing Venezuela left, right, and center. You get inflation when you spend way more than your country’s productive capacity is capable of matching. Like if there were 100 computers in an economy and $100 of spending money, every computer would be $1. If there were 100 computers and $1 million of spending money, every computer would be $10,000. Creating more money doesn’t make people richer if there’s no more stuff to buy.


If deficits don’t matter, what’s the purpose of taxes?

The status quo conception of taxes is that the government takes in money, usually via taxes, in order to spend it. Under MMT, the government spends money into existence, then taxes. National output, not taxes, fund the government. The underlying theory here is chartalism and has had various proponents over the last 100 years (such as this one by a former Chairman of the New York Federal Reserve, who also is the father of income tax withholding). Chartalism states that the point of taxes is not revenue, but for the state to direct economic output in a certain direction. A famous example of this is colonial Brits trying to get an African village to mine metals for them. The way they do this is creating a hut tax, payable in British pounds. The way to get British pounds is by working in the mines, and thus Britain’s currency comes into use. But a) the British needed to pay wages in pounds before taxing in pounds and b) taxes were what created demand for British pounds.

Taxes, in other words, may not fund the US government, but are a very useful (and potentially exploitative) tool. In the modern economy, taxes do a few things: curb inflation (taxes lower demand for goods), disincentivize certain behaviors (such as a cigarette tax), and redistribute wealth. This is true whether you subscribe to MMT or not, but MMT thinkers don’t just believe this is what taxes do - they believe this is the whole point of taxes. As a result, our tax policy should be designed to optimize for these social outcomes. Similarly, government spending should be optimized for full employment, not to balance the budget. This view that we should design taxes and government spending around explicit social outcomes stems from functional finance, a theory that builds on chartalism and was developed by Abba Lerner in the 1940s.

There are big policy implications of this frame. For one, we don’t need taxpayers to run the US government, we need natural resources and people who make goods and services. Mitt Romney famously complained that 50% of America doesn’t pay taxes (which was wrong because 82% of us pay taxes due to payroll taxes but roll with me here). The implication was that 50% of the US is paying for the goods and services of everyone else. Under MMT, the notion of “taxpayers’ money” is false — public money is created by the US government with zero help from tax payers. Taxes exist to generate demand for the currency and achieve certain social outcomes. It would be more accurate to say that taxpayers have money that leads to inflation and inequality, two things we want to check, and so they’re taxed. This explanation is dramatically unsatisfying to anyone who’s ever paid taxes, but it means that the richest among us are not paying for the poorest among us. Raul Carrillo and Jesse Myerson expound on this and the identity and class implications here.


If we can spend more, what should we spend it on? A job guarantee? Universal basic income?


Policymakers could use MMT to justify spending money on any number of government sponsored programs, including free college, Medicare for All, free childcare, universal basic income etc. And many MMT economists do support some or all of them. But if there’s one idea that promises to reduce inequality the most within the MMT framework, it is the job guarantee. Here are the main reasons, contrasted with the other popular anti-poverty idea making waves these days — universal basic income (UBI).

1. Higher wages. If the limit to government spending is inflation, and increasing national output lowers inflation, then we can spend more if we create more. A guaranteed wage under a federally funded job guarantee could therefore be much higher than a federally funded UBI. Tcherneva provides a mathematical model for why that’s the case here. This paper from Wray, Dantas, Fullwiler, Tcherneva, and Kelton models what the program would actually look like and finds that if the job guarantee employed 15 million people and paid $15 / hour for full time work (~$30,000 a year), plus benefits, inflation would only rise 0.74 percent. Meanwhile, supporters of UBI generally support UBI incomes that are much lower, due to inflation. Andy Stern’s UBI proposal and Sam Altman’s UBI field study, which are more generous than most UBI proposals, propose $12,000 per year. UBI as a result is strictly an anti-poverty measure, while a job guarantee could get folks closer to a middle class lifestyle.

2. Better health, social mobility, and education. Less incarceration and suicide. Unemployment causes serious negative secondary effects. These include higher suicide rates, increased sickness/healthcare costs, declining mental health, increased incarceration rates, and lower social mobility and educational attainment for children of unemployed people. Studies showing the results of these effects are explored in Tcherneva’s paper here. All these secondary effects carry social costs that get worse during economic downturns, and so employment can be seen as a social good. And while we don’t have enough data to make claims about UBI’s effects on these social outcomes, the bar is pretty gosh darn high.

3. Better help for our most marginalized communities. While UBI would certainly help reduce poverty and improve social outcomes among all demographics, its inherent focus is everyone — not communities who have been held back the most. Simply put, when it comes to addressing the barriers for black wealth accumulation, most of our policies — whether they be education, skills, or family focused — rest on assumed deficiencies of black people themselves, not the ongoing structural barriers that prevent black wealth accumulation. While a job guarantee doesn’t fix racism, it provides a direct link to jobs as opposed to relying on education or the private sector — which can have their own racist barriers. In a paper published by the Federal Reserve Bank of St. Louis Review, economists Darrick Hamilton and William “Sandy” Darity Jr. walk through the myths of the Black wealth and employment gap and are joined by Alan Aja and Daniel Bustillo in explaining why these gaps are best addressed through a jobs guarantee here. And of course Black communities are not the only ones who stand to gain. Aja, Carrillo, and Rita Sandoval explain why Latinx communities should care about the job guarantee here. For a by-the-numbers breakdown, The Wray, Dantas, Fullwiler, Tcherneva, and Kelton paper estimates who would participate in a job guarantee, broken down by race and gender. They find that Black and Latinx communities and women would directly benefit the most out of a job guarantee plan.

4. A better stabilizer when the economy tanks. Private markets go up and down in cycles, creating a greater need to address unemployment and poverty in the down times, and less of a need during the good. UBI does nothing to counteract these cycles, while a job guarantee is at its peak usefulness during the lowest moments of our economy.

5. Socially useful projects. The private sector is not capable of creating goods and services that people want when it’s difficult to capture value (aka get people to pay for it). Cleaning the environment is one big example, and solutions are generally government-sponsored (e.g. Pakistan just pledged to plant 10 billion trees in 5 years to fight climate change). Our own health is another. To be clear though, the “what will people actually do” under a job guarantee is still a hotly debated issue and is the question I’m personally most interested in these days. And to all the Pessimistic Patricks out there saying there just aren’t enough jobs that the government could provide to employ folks, the options are as limitless as human needs are. All these jobs need to be is useful for this policy to work. There most definitely are enough needs and jobs out there to fulfill a job guarantee.

6. It competes with bad jobs and doesn’t subsidize good ones. If McDonalds had to compete with a job guarantee, what would they do? Either raise wages or automate. Both are totally acceptable outcomes with a job guarantee in place. If there was a UBI, there would be a higher chance McDonalds would decrease wages than increase wages. Given UBI without a job guarantee, any pressure to raise wages to a living wage standard would be due to federal or state laws making them.

To reiterate, the job guarantee is not mutually exclusive with UBI — many MMTers want both given some people are not able to work and yet have every right to live above poverty. However, there is a general belief that a job guarantee would provide for a higher standard of living for the poorest among us, would create a more inclusive economy across race, gender, income, and age, would make recessions suck less, and could accomplish some truly useful goods and services that the public sector is not willing to do.

And if any of this makes you want to talk/learn more about Modern Monetary Theory a) let’s get in touch. I’m johnnybowman at gmail dot com b) the 2nd International Conference of Modern Monetary Theory is September 28–30 in New York City. Please come and I’ll see you there.
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Re: Modern Monetary Theory

Postby JackRiddler » Mon Sep 24, 2018 4:35 pm

Wombaticus Rex » Mon Sep 24, 2018 7:34 am wrote:Cool to see an MMT thread on RI.

I think the strength and weakness of MMT is bound up in the same fact: it's not a Utopian framework, it's an attempted explanation of what has been happening in the era of exhorbitant privilege. Because according to tenets of macroec, the US economy should have flown off a cliff onto the barren desert floor -- instead we've been riding a five-lane superhighway in the sky.

This means that the tenets of MMT could all just be based on, say, a nuclear capable global empire, rather than any intrinsic properties of state economies, or even the global exchange currencies of a world system running on petroleum.


Japan's been getting away with it in a notably extreme way for more than 25 years. They're still nominally doing it with debt, but the central bank buys it. 237% debt-to-GDP and still deflationary pressures. They run on petroleum and food imports, but so does almost everyone else. They are a major industrial power, but not the only one. They do have an aging population, high automation levels, relative autonomy and size, and zero population growth. But I'd still argue for currency solvency and lack of harrassment and sanctions from the outside world as the most important factors.

That said, I'd much rather have an explanation for how things work than why.


Yes, that's the thing. It's how things actually work, macroeconomically it's indisputable. The system was not originally this, but it mutated into this and it's indisputable. It is how things have worked since 2008, certainly, but really how things have worked since 1971, when the illusion of commodity money was ended by no hero greater than Nixon in a fit of pique, which makes this ironic:

MMT will make slow progress with the intelligensia because it is so alien to the post-70's "national conversation" rituals of the pundit class. Even if they understand it perfectly at their dinner parties, it's a bit unspeakable in the ring.


A well-funded pundit and think tank class, with large chunks of the actual academics also integrated into the pay-for-study system and billions at the ready to unleash a shit-storm of propaganda against it. But also a matter of genteel conditioning among the educated and meek.

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Re: Modern Monetary Theory

Postby Elvis » Tue Sep 25, 2018 1:47 pm

Elvis wrote:It seems the only real objectors would be the Fed: "You can't do that in our system."


This was my quandary — how would MMT work under the present Federal Reserve System?

The September OP article by Jim Kavanagh doesn't discuss the Fed (curiously?), but in a similar January blogpost, Kavanagh, "The Polemicist," spends the latter half the post talking about the Fed and how it would need to be re-legislated or dismantled for MMT to work. Do I have that right?

Since the first half is basically covered in the OP article, I'll just copy the second half, beginning with a look at the Fed; and FWIW including the footnotes:

Monday, January 22, 2018
Behind the Money Curtain: A Left Take on Taxes, Spending, and Modern Monetary Theory

[ . . . ]

But the kicker is that all that money owed is on deposit in accounts at the Fed. When you take a loan from the bank, you take the money and spend it. When the government takes a loan from China, it takes the money and deposits it in an account at the Fed. It is not used for spending. It just sits there, numbers in an electronic ledger. (It’s not a household, and they know how it works!). So, all the principal amount of every loan could be paid off instantly by being transferred from one account to another, if there were no political or legal constraints on doing so, As Bostick says:

The FRB [Federal Reserve Bank] could pay off 100% of all federal debt tomorrow, simply by transferring already existing dollars from T-security savings accounts to checking accounts.

If you are a lender to the federal government, your money is all there, right in your T-security account at the FRB. All of it. Every cent. So is China's money, Europe's money, Japan's money [the Social Security Trust Funds’ money]-- every one of those 12 trillion dollars of federal "debt," all sit safely in FRB T-security accounts.

And despite what the fear mongers tell you, you don't owe a penny of it. Nor do your children, nor do your children's children. The FRB owes it all, and it's all there in T-bill accounts.

So, yes, Social Security could be “fixed” with a few keystrokes (or a two-trillion dollar coin). It doesn’t require an argument about whether and how much to raise payroll taxes.

Unless it does, because the ideological and political and legal and institutional structure says it must.


Jekyll and Hide

Of course, what MMT presents is, I think, an accurate model of how money works, based on the undeniable fact of fiat currency and monetary sovereignty, and of the monetary and fiscal policy that fact implies—i.e., economically-logically demands. We all know, as Bostick’s remarks above imply, that this is not what American monetary and fiscal policy looks like.

American monetary policy is structured, and forced to function, around economically illogical confusions that obscure these facts and impede our understanding of how to promote spending for progressive purposes.

The United States government, under the archaic legacy of the gold standard and the controlling influence of the plutocracy, has constructed a scheme of institutions and laws that set up a complicated, unnecessarily antagonistic relation between fiscal and monetary policy, and put the latter into the hands of private, profit-making interests. A lynchpin of this scheme is the Federal Reserve Bank.

The Fed is a curious, chimeric entity. Most of the public believes, and its name implies, that it’s part of the federal government, but it is defined as "an independent central bank.” That means that, although it was established, and can be eliminated by, Congress, and its Board of Governors is appointed by the President and approved by Congress, its actions “do not have to be approved by the President or anyone else in the executive or legislative branches of government.” It’s another example of democratic pretense: Its Governors are Congressionally-appointed dictators. As Alan Greenspan famously proclaimed: “[T]here is no other agency of government which can overrule actions that we take.”

The Federal Reserve System was planned in a secret meeting (because the planners “knew their ties to Wall Street could arouse suspicion about their motives”) of plutocrat bankers and politicians, arranged by J.P. Morgan in 1910 at the Jekyll Island Club off the Georgia coast—called at the time, "“the richest, the most exclusive, the most inaccessible” club in the world. It became law in 1913. Its public purpose was to centralize and rationalize bank funding, in order to prevent the recurrent Panics that had embroiled the country. Its other purpose was to keep monetary policy under the control of the plutocrats’ banks, and out of the hands, and the sight, of the public. The Fed likes the air of wizardry and mystification that befogs the public mind about its operations. It does not want the public to know what it knows about how money works. As Henry Ford said.

The Fed is actually a consortium of private banks—its “members,” who own its stock and receive a 6% dividend from its activities. To start with. They also get interest on the 10% reserves they hold, which Ellen Brown calculates nets them “at least $700 billion annually” in public money. So, the Fed is “a servant to the banking system while also trying to be a public purpose servant. It has, in effect, two masters by design.”

To give the simplified version of a complicated set of financial relationships: Its nominal master, the US government, has ceded to the Fed the authority to create money via debt instruments (Treasury securities); and the Fed has in turn passed that authority to its effective master, the private commercial banks, which create money through interest-bearing loans. In the American monetary system, it is not the people’s government, but the bigamist Fed and its member banks that create money, and money is debt.

As Positive Money explains: “Most of the money in our economy is created by banks...Banks create new money whenever they make loans. 97% of the money in the economy today is created by banks, whilst just 3% is created by the government.”

And Ellen Brown: “Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.”

And David Graeber: “[E]verything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.”

So, we have a “legal order” that grants banks the right to create money as debt. That grants private banks the exclusive right to create money in the form of interest-bearing debt that they profit from. This is apex privatization—the privatization of the power to create money.

This shifting of monetary authority out of the hands of government and into the hands of an unaccountable, kinda-sorta public-ish, but really privately-owned, banking cartel is not dictated by any economic logic. Indeed, as MMT shows, it contravenes the logic of fiat currency and monetary sovereignty, which allows the government to make as much of its own debt-free money as it wishes. As Ellen Brown points out: “If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves.”

This sub-contracting of money creation is driven, rather, by the political demand to keep the powerful instrument of monetary policy out of sight and out control of democratically-controlled representative institutions. It deliberately creates a situation where the representative institutions that serve the public and control fiscal policy are constantly hobbled and undermined by decisions of an institution that serves another master.

Recall what I said above about the Fed and the Congress using different benchmarks for what they can do with money. The Fed controls the money supply by calculating what’s necessary in relation to the productive capacity of the economy. It asks a pertinent question: How much money does the economy need to function well? The Congress, through the Congressional Budget Office (CBO), relies on a revenue forecast. It asks the irrelevant question: How much money are we going to collect? This discrepancy is a sign of the pernicious form of separation between monetary and fiscal institutions that’s enforced in America. The Bank knows how things really work, and makes its decisions on that basis, in ways that are opaque to the public; the Congress—the people’s house—makes decisions on the basis of an entirely fictional problematic, with a lot of public hoopla.

There are laws and policies that further complicate and hobble the process. The aptly-named Government Budget Constraint requires that the government borrow enough from the “money market” every year to cover its deficit (the difference between taxes collected and money spent). This is an anachronistic mandate and should be a key target of critique. Per Bostick, it’s “like having a law stating for every car there also must be a horse.” With fiat currency, it’s not an economic requirement, but it is a tool that enriches investors and supports the fiction.

Thus, what could and should be monetary sovereignty from external constraint (by gold or another commodity) is turned back into monetary submission to the constraint of class control (via the “money market”). Debt, like taxes, is conjured as another source of entirely unnecessary revenue. Like taxes, debt is forced into an awkward and meaningless marriage with spending, by an archaic “constraint” that serves to restrict the promiscuous possibilities that, their masters fear, people might discover if revenue and spending were freed from each other.

Similarly, the “debt ceiling” is another redundant, self-imposed hoop the Congress must jump through to confirm that the government really can borrow money it doesn’t need for the spending it has already approved. It’s a mandatory “Did we really mean it?” second chance to stymie public spending.

The public authority, Congress, taking account of the same kind of factors the Fed now considers (the “full productive capacity” of the economy), should be able to approve a spending bill, and have the government create and spend debt-free money for the purposes for which it was approved. It can and should be up to the public authority, in a transparent and democratic process, to decide how much to spend. If it’s too much, they can always take some back. No need for opaque, undemocratic institutions and procedures, which force indebtedness to “the money market”, to intervene.

As Australian economist, Peter Cooper, points out:

In the present economic system, real resources are mobilized only on the say-so of the issuers or possessors of money, and only on their terms. No production, even for profit based on the exploitation of labor, takes place until finance is secured. It makes a great difference whether money is made available on our terms, by a democratically accountable currency-issuing government, or on the basis of private interests motivated narrowly by profit, facilitated by an unaccountable government.

This highlights the need for fighting for a public banking and credit system, as a necessary part of a more accountable political regime. The fiat currency could and should be issued by a public authority as debt-free money. The current system of having money created by private banks as interest-bearing debt is unnecessary and dangerous.

Even the industrialists and economists of the classical, “heroic” period of capitalism, the producers of things for profit (“Look at all the new, cheap and useful goods we have produced for you!”) thought that the proper role of banking and credit was to be a kind of service sector to the productive enterprises of the economy. Every society has understood the danger when that relationship is reversed. Because money is so important—the necessary conduit of value—in capitalist society, the tendency for it to become the focus of a primary profit-making activity is strong.

The path to severe and inevitable crisis is paved when, instead of finance acting in the service of productivity, productive enterprises become pawns in financial enrichment schemes. This is the domination of financial capital over productive capital that classical capitalism shunned for the parasitism that it is, and that Lenin analyzed as the “highest [and “imperialist”] stage of capitalism.” It’s what contributed to our last financial crisis (as Michael Hudson has shown so persuasively), and its persistence makes inevitable the next one. Without careful management of debt and interest, and strict constraints on financial speculation and on financial institutions dominating the economy, the tendency toward the hegemony of finance capital becomes an irresistible force. Everything in our history and experience screams the need for public, debt-free money creation, and MMT makes the logic of it clear.


What’s Left of It?

It’s true that MMT is not an intrinsically “left” analysis. A look at the burgeoning debate over a Universal Basic Income (UBI) and/or a Jobs Guarantee demonstrates that.

Leftists can use MMT paradigm in support of some version of one or another of these initiatives. Understanding how money works, in MMT terms, makes visible why it’s entirely unnecessary to figure out how to “collect” money for social programs, and why it’s absolutely necessary to surtax the wealthy. It also makes clear, I think, why any consideration of a minimum income program requires what would effectively be a maximum income policy as well.

But we should beware the right-wing minimum-income schemes, which go back to Milton Friedman’s “negative income tax” and “helicopter money,” and are coming back to the future as capitalist-friendly, inequality-preserving, simplistically anti-tax UBI proposals from Sili-Libertari-con Valley. On the one hand, these proposals demonstrate that they know that taxes-don’t-fund-spending is really the way fiat money works, and they see some hobbled version of UBI—something that provides the masses with subsistence income outside the gated compounds—as necessary to keep the jobless society they’re creating from exploding. On the other hand, they are very wary about coming out too strongly with proposals that might reveal the radical possibilities this knowledge opens up for fiscal policy.

Not only is MMT not an intrinsically “left” analysis, it is not a new analysis at all. Today’s MMT proponents are only reprising a well-known knowledge of the implications of fiat money that has been stubbornly ignored by latter-day capitalist economists.

Take a look at the following excerpt from a 1946 article, titled “Taxes For Revenue Are Obsolete,” by Beardsley Ruml, a former Chairman of the Federal Reserve Bank of New York, which was brought to light by Warren Mosler a few years ago. In this article—perhaps because he was writing in the post-WWII moment when the need for 94% marginal tax rates was accepted even by Republicans—Ruml, in the course of an argument for eliminating the corporate tax (not as bad an argument as you may think: he maintains that it “works contrary to the principles of the progressive income tax”), was able to present all the radical implications of fiat currency:

[With an] inconvertible currency, a sovereign national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue... It follows that our Federal Government has final freedom from the money market in meeting its financial requirements... All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.”…

The purposes themselves are matters of basic national policy which should be established, in the first instance, independently of any national tax program…

[A] principal purpose of federal taxes is to attain more equality of wealth and of income than would result from economic forces working alone. The taxes which are effective for this purpose are the progressive individual income tax, the progressive estate tax, and the gift tax. …Their purpose is the social purpose of preventing what otherwise would be high concentration of wealth and income at a few points, … These taxes should be defended and attacked it terms of their effects on the character of American life, not as revenue measures. (My emphases.)

So, it may have been kept in the shadows of economic discourse, and out of the minds of the average politician and pundit, but the MMT paradigm has been known and clearly articulated by the economic leadership of the ruling class since at least 1946.

One of the reasons the left has not embraced MMT is because its academic proponents have generally avoided presenting it as a “left” idea, or pushing its radical left policy implications—some perhaps for considerations of getting a hearing in the economics profession, some certainly because they are far from anti-capitalist themselves. They are not positing a revolutionary change in the relations of production. They are mostly content with saying, truly and evasively enough: “As economists, we are demonstrating how the fiat money system works. That knowledge can be used for different kinds of social and political purposes, and these are beyond our professional purview.”

For their part, left socialists rooted in the Marxist analysis of capitalism (myself included) are generally content with their Capital, Volume One understanding of how wealth and surplus-value is produced via the exploitation of labor-power, and they’re eager to figure out how to achieve the democratic control of the means of production. They’re not so interested in thinking about money, which they consider a secondary element of the “real” economy, something that will have a much-diminished role in a socialist society, and, anyway, is too damn complicated. Their version of true and evasive enough. As Peter Cooper, puts it: “it seems fairly common on the left to view the topic as superficial compared with study of ‘real’ stuff. I think downplaying the significance of money is a mistake.”

I tend to agree with British Marxist economist, Michael Roberts, that MMT is a more radical Keynesianism, whose thinking about money is consistent with Marxism, even if its conception of the cause of crisis is not. I also agree with Peter Cooper that ignoring the analysis of money is a mistake, and that:

Modern Monetary Theorists’ careful and, as far as possible, objective institutional description and analysis of monetary and fiscal operations in a sovereign currency system arguably brings to light a radical democratic potential inherent in sovereign money, waiting to be seized upon. It opens the way to managed capitalism or social democracy or socialism or beyond, however far (or not so far) we wish to take it…

[F]reedom from the profit imperative, when desired, is always near at hand in a modern money system. A prerogative of a currency-issuing government is to ignore the profit criterion and to proceed on a different basis. The absence of a revenue constraint means that real-resource availability (in relation both to the inflation barrier and environmental sustainability) is the only hard constraint. There is no need to generate a profit. There is no need to provide a flow of interest income to rentiers. If the production is something that the majority would consider socially beneficial, and is within resource limits, the main obstacle to its going ahead is the electorate’s own failure to understand the options available to it.


And Australian economist Bill Mitchell:

I see MMT as a progressive body of thought and consider that progressives should first and foremost seek to educate the public about how the economy and money actually operates and what opportunities the government has to act on our behalf to advance our well-being.

If we think in this way, then options that have been constructed by the neo-liberals to be ‘dangerous’, ‘radical’ or ‘taboo’ will start to appear reasonable and grounded in reality. The next step is that they eventually become the mainstream orthodoxy.

I see MMT as demonstrating the power of public economic endeavour to fundamentally transform the structure of the economy and the opportunities it provides, which will deliver a very different sort of growth than would be forthcoming if we just uphold the sanctity of capitalism and liberalism a la Keynes.


Walk This Way

The first reason leftists should adopt MMT is the same reason some conservatives do—because it’s true, and has been known to be for a long time. And a strong left movement can only be built on a correct economic analysis. Money is a powerful tool/weapon in the hands of our class enemy. We better know how it works.

The left’s response to the state of incipient crisis we all know we are living in should be to embrace and explain the reality of monetary sovereignty, and to fight for realizing its radical potential. It should certainly not be to revert to reactionary and wrong Clintonite-Republican discourse of “fiscal responsibility” that always-already hobbles progressive social programs. As commentator Joe Firestone says: “MMT policies can help to bring an end to the …crisis [of a failing economy and growing economic inequality]; but not if progressive and others continue to believe in false ideas about fiscal sustainability and responsibility, and the similarity of their Government to a household.”

I say again to progressives: Your enemy—the financial and academic elite of your enemy—knows these things. (Henry Ford knew it!) They are using that knowledge to run the mother of all scams. Our task is to seize that knowledge for ourselves and our movement, and to change the ideologies, laws, and institutions that enshroud and operate the scam. We cannot pretend it doesn’t exist, or doesn’t matter even if it’s true—just because we’re more comfortable, and know all the rhetorical moves we have to make, within what’s basically the household analogy, an ideological crutch that keeps us in the scam.

We don’t have to raise a dime of taxes to pay for universal single-payer healthcare, or public college tuition, or infrastructure improvement (or military spending, for that matter), and we should refuse to submit to the “How are you going to pay for it?” interrogation.

Have you noticed that the proponents of military spending get away with not submitting to it? How we have no special taxes to “pay for” wars, as we do for programs like Social Security and Medicare? How the “fiscally responsible” proponents of making sure all government spending is “paid for” by taxes forget that the minute they have the fiscal power, and embark on aggressive military spending and tax cuts for the wealthy?

Do you think maybe that’s because at least some of them know the “How are you going to pay for it?” line is bullshit?

And the Democratic response of: “See, we’re the real fiscally-responsible ones, who will make sure everything is paid for!” helps progressive social causes how? By reinforcing the anachronistic taxes-for-revenue, balanced-budget just-like-a-household paradigm that serves no financial purpose, but does serve as a political and ideological rope that strangles social spending?

We do have to make choices, but political and economic choices are made in the spending decision, and they are not dependent on the choices made in the taxing decision. Spending and taxing are separate, parallel activities, and in both of them, MMT concentrates the mind right where it ought to be—on questions of political will.

If everyone were to understand that, and participate in those decisions, what do you think we’d be spending more on—nuclear weapons or healthcare? If.

Peter Cooper is right, I think:

An understanding of modern money makes clear that a democratically accountable government with the backing of the greater part of the electorate would already, under present institutional arrangements, be in a position to begin an extensive transformation of social and economic institutions. But it would require going against the interests of the rich and powerful. To do that successfully, government needs the overwhelming backing of the electorate. And, for that to happen, the electorate needs to be liberated from its confusion over “money” and comprehend the viability of following such a course.

MMT will not get us where we want to go, but it will pull back the curtain on what’s conjuring up the show that’s been mesmerizing us. Understanding and explaining the MMT paradigm will not bring socialism, but it will get us off the yellow brick road of distraction, and point out a more direct path towards it.

Henry Ford’s feared, and our hoped-for, new revolutionary day requires understanding that the earth revolves around the sun, not vice-versa. The road to a socialist dawn will dead-end unless more people understand that everything we thought we knew about taxes, spending, and money “is not just wrong – it's backwards,” and we damn well better get it turned around.



Update (1/23/2018): Changed "10% interest on the reserves they hold" (a misstatement) to "interest on the 10% reserves they hold."



1 Modern Monetary Theory is associated with the work of economists like Warren Mosler, Steve Keen, Stephanie Kelton, Randall Wray, Michael Hudson, and others. Its academic home in the U.S. was at the University of Missouri–Kansas City, though it’s branched out from there. A good primer on it can be found at New Economic Perspectives. I’ve also found Robert Bostick’s short pieces on it helpful.

2 Everything discussed here pertains to the realm where the fiat dollar is the Monetary Sovereign. That certainly comprises the domestic economy of the United States. International sectors based on other currencies would be another story, and beyond the scope of this discussion. But it’s worth noting that the fiat dollar is also the effective reserve currency of the world—meaning almost all of international financial and most of international commercial transactions are carried out in dollars. As this discussion indicates, that makes the dollar a very powerful instrument, a key support of America’s imperial hegemony. It also makes rising economic powers eager to break from the dollar, and their attempts to do so particularly threatening to the American state.

3 It’s important not to confuse dollars with circulating cash in the form of physical currency. 90% of the entire dollar money -supply is comprised of deposits in (simplifying) various kinds of accounts, only 10% of it is portable physical tokens—bills, coins—of cash currency. Those coins and bills are tokens of numbers in account ledgers, the “real” money in this system. That’s why governments are embarking on campaigns to eliminate cash. They can, and will, ensure that there is no money, no claims on value, untraceable to those accounts. Another virtually inevitable development that can have good or bad effects, depending on who controls it and for what ends.
Gold-bug conservatives see fiat currency as a terrible thing. They think that money must be tied to a physical commodity in order to prevent inflation and achieve “economic discipline.” But why should a nation’s money supply be constrained by an external commodity, subject to manipulation by the those who control the production of, or access to, that commodity? The point of a fiat currency—which modern Keynesian economists do, and socialists should, understand—is to free a polity from any external constraint against putting as much money in circulation for whatever purposes it wants.

Of course—and this is what all conservatives hate and too many left-liberals fear—that freedom condemns us to confront the fact that all the rest is a question of political will.

4 I’m saying “government authority” here because, as we’ll see below, the government can transfer the power to create money to private institutions, which are not “the government” but act on its authority.

5 Taking extra money from the wealthy was recognized as a social good even by Republicans, who supported post-WWII marginal tax rates up to 94% (on income above $200,000, equal to $2.4 million in 2009 dollars). I’ll point out—because I know it’s a casual misconception, implicitly encouraged by the media—that that does not mean someone who makes more than $2.4 million pays 94% of their entire income in taxes; it means they pay 94% on every dollar of income above $2.4 million. That’s the rate on that portion or “margin” of income. The effective tax rate on the whole income would be a lot less. A serious progressive income tax policy would impose little or no taxes on income up to the median level, and high rates on the portion of income well above what anybody needs to live well. Nobody, in any rational economic sense, “earns” or needs to keep all the dollars collected over some millions of dollars a year—what, Five? Ten? One? Pick a number. I’ve seen proposals for more than 100% tax on high tranches of income.

6 Note that—even if we adopt the conventional paradigm, and take this amount at face value as “debt”—the $2.5 trillion of debt that one part of the government owes another was not caused by the Social Security program; it was caused to it. Social Security is a creditor of the United States government. This also means that paying off all of that $2.5 trillion the government “borrowed” would not increase the national debt by a penny. It would, in fact, be paying off the largest piece of the national debt. You cannot add to the national debt by paying off an obligation that is already part of it.
See my piece from 2012, just before I became acquainted with MMT, thoroughly analyzing the purported Social Security “crisis.” I showed—again, within the conventional paradigm—how funds collected from workers through payroll taxes were replaced with shady debt instruments (“special issue securities”), which were created in order to allow the government to renege on them without harming the “real” debt market of the investor class.

http://www.thepolemicist.net/2018/01/be ... taxes.html
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Re: Modern Monetary Theory

Postby Elvis » Tue Sep 25, 2018 2:18 pm

I love this contrast, pointed out in the OP and by Paul Gambles, below; paraphrasing Gambles (who uses Corbyn as the example in the video clip):

Public: "We need universal health care!"

MSM: "Yeah, and how you gonna pay for it?"

Public: "We need free education!

MSM: "Yeah, and how you gonna pay for it?"

Public: "We need basic housing as a human right!"

MSM: "Yeah, and how you gonna pay for it?"

Theresa May: "We need a new war!"

MSM: "Great! How soon can we get started?"


PAUL GAMBLES on Fiat Economies
In this extract from 'The Gamble: Party Like It's 1929’ episode of Renegade Inc, Paul Gambles explains how money can be created in in a Fiat economy without being inflationary.


https://www.youtube.com/watch?v=IZbi4mMw8m4



I found the Gambles clip on the Facebook group, MMT FOR THE BRITISH LABOUR PARTY, which (being FacePalm) is "meme"-heavy but has some offerings to explore further.
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Re: Modern Monetary Theory

Postby JackRiddler » Tue Sep 25, 2018 2:22 pm

Elvis » Tue Sep 25, 2018 12:47 pm wrote:
Elvis wrote:It seems the only real objectors would be the Fed: "You can't do that in our system."


This was my quandary — how would MMT work under the present Federal Reserve System?


I think you are missing the point.

The present system of money issuance, circulation and deletion works "under" MMT. That is to say, MM THEORY endeavors an empirical description of how things work, and so if it doesn't also describe the current state of things, it's not an empirical model.

Empircally, more than 99% of money is issued by currency sovereigns (certain states and central banks), e.g. by the U.S. government fiscally through appropriation; or (the majority of money issuance, currently) by state-appointed creditors, through debt extended to borrowers that then circulates and can be redeposited and used as reserve in further debt creation. That is a central tenet, alongside the reverse of the process: money is deleted through taxation and by paying off debt.

There is no limit to how much a currency sovereign can appropriate in its own currency, it can never go bankrupt on debt denominated in its own currency, the only true limits are real-world productive capacity, labor, land, and resources (whether or not at sustainability) and those posed by the possibility of inflation. (Non-currency sovereigns, like you, me, municipalities and U.S. states, or Greece and Argentina, are limited because they must borrow in a currency they do not issue, and pay interest in that currency.)

By the very nature of accounting under capitalism, the total surplus/deficit in a defined economic jurisdiction such as a nation-state is always at zero. This means that in the standard division of the national economy into three macroeconomic sectors - public, private and external (trade and capital flows) -- the total surplus or deficit in the public is always balanced off by opposite deficit or surplus in the domestic private plus external sectors. If the federal government has a +10 surplus, the total deficit of the private sector plus external sector is -10. And vice-versa. Federal deficits have the effect of issuing money into the economy, surpluses delete it. By dual-ledger accounting, this is fact. (Non-monetary exchange and off-the-books money flows complicate this, as do state governments and municipalities.)

The point of MMT is that all this is always true as long as the political economy and its accounting are fashioned this way and do not rely on commodity currency (e.g., gold and silver, which impose limits by requiring backing that is not issued through dual accounting entries but a mined substance in the real world; bitcoin simulates that; and also non-sovereigns, like many if not most countries and all sub-state governments; I am not aware of exceptions to the latter).

So MMT claims to be a scientific model describing how the dollar, for example, has worked since the end of the first Bretton Woods system in 1971. If it doesn't, it's wrong or needs modification.

So, to your question: How the Federal Reserve manages the system (and it is far from the only factor) can be judged bad, which we do, and alternatives can be proposed. But MMT would still describe the macroeconomic dynamics of money.

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Re: Modern Monetary Theory

Postby Elvis » Tue Sep 25, 2018 3:16 pm

JackRiddler wrote:The present system of money issuance, circulation and deletion works "under" MMT. That is to say, MM THEORY endeavors an empirical description of how things work, and so if it doesn't also describe the current state of things, it's not an empirical model.


Thanks for that clarification and summary, it all helps. I'm grasping the tenets, it just seems that the banking establishment (embodied in the Fed?) would not be too crazy about the government issuing its own debt-free money, which appears to be the ideal in MMT.

JackRiddler wrote:So, to your question: How the Federal Reserve manages the system (and it is far from the only factor) can be judged bad, which we do, and alternatives can be proposed.

Again, I'm just thinking of how those alternatives will go over in certain quarters, I'd expect major roadblocks.

On the other hand, if MMT seeps deeply enough into the national consciousness, needed changes could become so obvious as to rule out objections. Question mark.

I saw some exponents of MMT calling for the nationalization of the Fed—fold it into the Treasury Dept. Any thoughts there?


edit: (or is that too far beside the point?)
edit: tenets, not tenents
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Re: Modern Monetary Theory

Postby JackRiddler » Tue Sep 25, 2018 4:29 pm

Elvis » Tue Sep 25, 2018 2:16 pm wrote:
JackRiddler wrote:The present system of money issuance, circulation and deletion works "under" MMT. That is to say, MM THEORY endeavors an empirical description of how things work, and so if it doesn't also describe the current state of things, it's not an empirical model.


Thanks for that clarification and summary, it all helps. I'm grasping the tenets, it just seems that the banking establishment (embodied in the Fed?) would not be too crazy about the government issuing its own debt-free money, which appears to be the ideal in MMT.


On the other hand, they're painfully aware that it's the best empirical model for what they actually do, today more than ever. Sounded crazy to me too, but then you read Federal Reserve literature for dummies going back decades and they concede the tenets. Or you go, as I did as a mere volunteer-factotum, to a conference full of middle-level central bank employees from many countries, and they are trying to hash out what they already do in the terms of MMT. They know it's what they do. They run the engine as it currently exists, then put on a captain's hat (or a pope's) and make a speech to the passengers about how God (the private sector) creates wealth and thus generates money, part of which the devil (the public sector) takes away.

If you look at academics, the shift has gone a few steps. The prevailing wisdom among economic historians until now was that democracy means governments please clienteles and therefore cause inflation, with the 1970s as the worst decade ever and the 1990s as the best of all possible times. Meanwhile, the understanding of how concentrated power makes a sham of democracy and that neoliberalism is a serial failure in ever-more beastly forms is spreading, and that causes readiness to reassess the old wisdoms.

Again, I'm just thinking of how those alternatives will go over in certain quarters, I'd expect major roadblocks.

On the other hand, if MMT seeps deeply enough into the national consciousness, needed changes could become so obvious as to rule out objections. Question mark.


Every reform idea runs into the Poulantzas problem. Capital will attack. Depart. Sabotage. Obfuscate. Astroturf. Etc. What they've been doing since the 1930s, but all the way to the wall. The existing ideology serves them. Few of them care how "the system" works. Their love of technocratic enlightenment is probably shallower than you think. Each unit of capital, whether corporation or robber baron (plus what's quaintly called the petit bourgeois or mom-and-pop insofar as they still exist) sees their own accumulation as sacred. Maximize your own and the big picture will sort itself out for the best. It's a religion, you know it. Systemic thinking for a public good is the devil's work, communist (conservative version). Or it's nice long as it stays within the narrow comfort zone of the owners (liberal version).

I saw some exponents of MMT calling for the nationalization of the Fed—fold it into the Treasury Dept. Any thoughts there?


It's one possibility. Right now, and I mean right right now, as in, my mood of today as opposed to last week, I'd say no way. Not before movements and struggle and reform get us to an actual democracy of informed citizens willing to consider the needs and interests of other people, and the rest of the world, and to account for the ecological basis from which they live. It's going to go wrong. Not for monetary theory reasons, but for reasons of a political-economic culture that in the best case is wildly undeveloped, but also in an advanced state of dementia (take your pick). What makes you think the Treasury Department currently is more of a democratic or benevolent institution than the Federal Reserve? They're less powerful than I used to think. They can act as a service station to the banking sector, as they have, or they can fuck everything up. Or what makes you think that the donor-owned Congress, elected by one of the Western world's more systematically misinformed and angry people, will direct it to do the right thing? I'm usually about reform to scale (since it otherwise doesn't work, and that's true of physical infrastructure), but on this piecemeal with a series of successes seems wiser.

And yet if we could rewind to 2008 and put me in charge, that's pretty much what I'd try to do. Because that was the right moment, absolutely, to nationalize and liquidate the fuck out of the Wall Street banks and make a grand transition.

In that small steps spirit, my first modest plan if only you would elect me World Monarch today would not be to fuck with the Fed just yet (and activate a guerilla-war spirit among the banks and bondholders globally), but a debt-free direct appropriation from the Treasury of a mere couple of trillion for a WPA-style infrastructure restructuring program that hires 10 or 20 million directly at high wages to solarize and lay down some high-speed rail and subsidizes more local farming (realistically: not as the solution for all food needs).

Then, when they're on the hook...

WE TAKE AWAY THEIR CARS, GUNS, CROSSES, GOLD, MAN-BALLS, AND BURGERS, MWAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

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Re: Modern Monetary Theory

Postby Sounder » Tue Sep 25, 2018 4:52 pm

Great thread, thanks Jack. The trick here is that the middleman can be cut out, and given that Central Bank charters have been revoked in the past, they can be again. MMT realizes that states don't go bust because they issue the currency. Score an empirical point, but the middleman is not needed and all countries can issue currency directly, as Libya was doing until Qaddafi was removed.


The Fed is actually a consortium of private banks—its “members,” who own its stock and receive a 6% dividend from its activities. To start with. They also get interest on the 10% reserves they hold, which Ellen Brown calculates nets them “at least $700 billion annually” in public money. So, the Fed is “a servant to the banking system while also trying to be a public purpose servant. It has, in effect, two masters by design.”

To give the simplified version of a complicated set of financial relationships: Its nominal master, the US government, has ceded to the Fed the authority to create money via debt instruments (Treasury securities); and the Fed has in turn passed that authority to its effective master, the private commercial banks, which create money through interest-bearing loans. In the American monetary system, it is not the people’s government, but the bigamist Fed and its member banks that create money, and money is debt.

As Positive Money explains: “Most of the money in our economy is created by banks...Banks create new money whenever they make loans. 97% of the money in the economy today is created by banks, whilst just 3% is created by the government.”

And Ellen Brown: “Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.”

And David Graeber: “[E]verything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.”

So, we have a “legal order” that grants banks the right to create money as debt. That grants private banks the exclusive right to create money in the form of interest-bearing debt that they profit from. This is apex privatization—the privatization of the power to create money.

This shifting of monetary authority out of the hands of government and into the hands of an unaccountable, kinda-sorta public-ish, but really privately-owned, banking cartel is not dictated by any economic logic. Indeed, as MMT shows, it contravenes the logic of fiat currency and monetary sovereignty, which allows the government to make as much of its own debt-free money as it wishes. As Ellen Brown points out: “If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves.”
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Re: Modern Monetary Theory

Postby Elvis » Tue Sep 25, 2018 5:39 pm

Really good explanations there, thanks. I sent some MMT notes to a friend to see what he thinks, I want to be prepared for any cross-examination about it. I brought up MMT to another friend, the Professor, and caught hell for not having the inflation part covered. After he left, muttering about wheelbarrows loaded with currency, I went back and got a more solid understanding of that, will try again tonight.

JackRiddler wrote:on this piecemeal with a series of successes seems wiser.

And yet if we could rewind to 2008 and put me in charge, that's pretty much what I'd try to do. Because that was the right moment, absolutely, to nationalize and liquidate the fuck out of the Wall Street banks and make a grand transition.

In that small steps spirit, my first modest plan if only you would elect me World Monarch today would not be to fuck with the Fed just yet (and activate a guerilla-war spirit among the banks and bondholders globally), but a debt-free direct appropriation from the Treasury of a mere couple of trillion for a WPA-style infrastructure restructuring program that hires 10 or 20 million directly at high wages to solarize and lay down some high-speed rail and subsidizes more local farming (realistically: not as the solution for all food needs).


Good plan.


Then, when they're on the hook...

WE TAKE AWAY THEIR CARS, GUNS, CROSSES, GOLD, MAN-BALLS, AND BURGERS, MWAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

:rofl:
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