Modern Monetary Theory

[Grizzly]

I haven't had anything to add to this discussion except, to ask, has anyone here seen or read, 'All Wars are Bankers' Wars! '?
By Michael Rivero of http://www.whatreallyhappened.com/

http://www.whatreallyhappened.com/WRHARTICLES/allwarsarebankerwars.php

[Elvis]

This is one of the best MMT lectures I've run across. It's 70 minutes but I highly recommend staying with it:


https://www.youtube.com/watch?v=E5JTn7GS4oA

L. Randall Wray - Modern Money Theory for Beginners

St. Francis College Economics Professors launched their first Economics Week with three days of guest speakers, and student research. Professor L. Randall Wray, professor of economics at Bard College, discussed "Modern Money Theory for Beginners" on April 6, 2018.

(Not sure why the video is not embedding, as least not on my computer.)

[Grizzly]

[JackRiddler]

Elvis:

for a youtube embed, use only the v code, not the full URL.

Thus for this: https://www.youtube.com/watch?v=E5JTn7GS4oA

Extract this: E5JTn7GS4oA

And paste in between these: [youtube][/youtube]

To get this:

[Elvis]

I knew that!

Was sleepy and got mixed up; on the other discussion board I visit (completely different subject matter), one justs pastes the YouTube URL into the text field and it automatically embeds. It's easier but no option to not embed.


Anyway, here's something to pass around, might get some minds wondering about it:

Batman explains MMT.jpg

[Elvis]

While Internet comment sections are the deserved butt of jokes, I find the reader comments on MMI blogs and articles unusually rewarding. The critics and naysayers are there, but their challenges draw out more nuanced explanations from the proponents.

More from L.Randall Wray, this short 2014 article on the role of taxes (reposted on nakedcapitalism) is followed by about a mile of meaningful debate and discussion:

https://www.nakedcapitalism.com/2014/05 ... roach.html
Randy Wray: What are Taxes For? The MMT Approach

(Note that bad faith arguments are against the rules on nakedcapitalism.)


Here's the original post on Wray's own blog with its own reader comments (far fewer, and I haven't read them yet)...
http://neweconomicperspectives.org/2014 ... roach.html

[JackRiddler]

.

Interview with Wray. With him as usual on description of how real-existing capitalism works, not so much on idea that it should continue. In the end he's not going to jump ship on "growth" and say this economy-beast needs explicit coordinated planning if we are to survive the ecological catastrophe it has generated.

This is very interesting for the part going against what is common wisdom here regarding the Federal Reserve. He maintains it is subordinate to Congress, and if the appearance is otherwise, it's because Congress critters prefer it that way. I think also that we have been vastly exaggerating the extent to which the big banks control the world through shareholder-ownership the Federal Reserve (which is actually a formality in the law). They control "the world" through owning states -- officials and politicians -- and other institutions of power as wholes, and the Federal Reserve and other central banks are subsets that provide a service they need to function.


https://www.youtube.com/watch?v=-7StbLkjBQk

[JackRiddler]

Finally!

I rediscovered the MMT Primer I knew existed and I had delved into before.

This became the basis for the textbook on Modern Money Theory, so I guess it's like the Grundrisse to Kapital.

40+ chapters. Hope to go through it in the next year.

http://neweconomicperspectives.org/mode ... rimer.html

[Elvis]

Interview with Wray.

I watched that a few days ago, thanks for posting and remarks. The host Steve Grumbine has a series of MMT interviews worth perusing (it's Gumbine's mission now, a former Ron Paul goldbug who discovered MMT).

Re the Fed, yes, I feel like my picture of the Fed's role is much clearer after watching Wray and another MMT exponent, Warren Mosler:


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

I also listened to this Mosler lecture — which I believe was given at the conference you partly attended, Jack:


https://www.youtube.com/watch?v=jfJAdxnGNL8


So if putting MMT principles to work is a merely matter of political will, same goes for any needed changes in the Fed.

[JackRiddler]

Probably a variation on it, but I missed it. But the video is from last year's conference, in KC. They jumped to NYC for the breakout, I don't know what they are doing next year.

[Elvis]

^^^^ Oops, I misread the year.

I have the flu, so when not sleeping the most comfortable thing to do is sit and watch lectures on monetary theory.

Now here's Mark Blyth, "a British political scientist from Scotland and a professor of international political economy at Brown University" a year ago. In 45 minutes of lecture and 25+ minutes of Q&A, he never mentions MMT by name but he's explicitly onto it at the 50:00 mark when he brings up fiat money and says Greece is in default because "they don't have their own money."

While not specifically about MMT, I got a lot out of this watching it from an MMT perspective (watching because the slides are helpful, if blurry; good graphs and the Japanese one going back to 1350 is a must-see.)

Why People Vote for Those Who Work Against Their Best Interests


https://www.youtube.com/watch?v=BsqGITb0W4A


Here, again without naming MMT, Blyth gets to some of its core—and btw he's a good, funny speaker (used to do standup) as the title suggests:

Why Do People Continue To Believe Stupid Economic Ideas? - Full Talk (April 2017)


https://www.youtube.com/watch?v=lq3s-Ifx1Fo

Mark Blyth is the Eastman Professor of Political Economy at The Watson Institute for International and Public Affairs of Brown University. Before becoming an academic Blyth has been variously, a stand-up comedian, a chef, and a funk bass player. Realizing that such pursuits where long options at best, he finished his PhD. in political science at Columbia University in 1999. He then joined the Johns Hopkins University before moving to Brown University in 2009. His research focuses upon the causes of stability and change in the economy and why people continue to believe stupid economic ideas despite buckets of evidence to the contrary. The power of economic ideas is a common theme in Blyth’s work, as seen in his recent award winning Book Austerity: The History of a Dangerous Idea (New York: Oxford University Press 2015) and in his new projects on the economic legacies of the baby boomers and the politics of low growth. When not writing, he still likes to cook, and he recently has become a serious cocktail mixologist, which eases the pain of the stuff he writes about.

In his Twitter feed, Blyth says, "to be honest I'm MMT" but has his own takes on it. I can't get past the NYT paywall to see this recent piece by Krugman that Blyth tweeted:

Mark Blyth
‏ @MkBlyth

I've never tweeted out a Krugman column until now. This one is really quite good. It summarizes a lot of what I think about how we think about the economy just now. So it must be right

https://www.nytimes.com/2018/09/16/opin ... nkish.html
What Do We Actually Know About the Economy? (Wonkish)

In my face to face chit-chats about MMT, people want to know what Krugman thinks about it. Krugman appears to be slowly coming around. With the Krugman stamp, a lot of progressives will accept MMT with little further argument. Sad but true in my experience.

[JackRiddler]

Oof. The Krugman stamp. It's too fucking true. Arbiter of the acceptable liberal middlebrow. To be honest, stopped reading him so many years ago except when he's referenced. Same guy who supports single-payer now and then, then in 2016 acts as a long-term member of Team Clinton and declares it unaffordable suddenly in a hatchet job on Sanders. He even did a "Bernie Bros" thing. (I think I ran into him in the lobby on the same day and almost made the mistake of telling him off, which of course would have been framed as...) The soft-spoken prof goes postal whenever it's time to be a political operator. I doubt he will be very MMTish once "the deficit" is designated the primary evil that Trump has committed.

[Elvis]

During an idle moment I typed "MV = Py" into Google, and found Cullen Roche (an investment portfolio advisor who's been on some TV money shows) and his "Monetary Realism" (MR) approach to money theory.

He acknowledges that the US federal government can never default because it can create all the fiat money it to pay obligations, and even predicted that QE would not induce inflation. But he seems to contradict himself by nevertheless insisting that government gets spending money by taking it from the private sector.

First, his take on MV=Py, and a notable omission about the factors in the equation:

The MV=Py Myth
Cullen Roche - 07/28/2015

I’m pulling this one out of the AMA section because it’s a common question I see. Reader Oshe asked about the Equation of Exchange otherwise known as MV=Py, where M is the quantity of money, P is the price level, Y is total output and V is velocity, or the number of times that a dollar is used to purchased goods and services. He asks how useful [is] this equation and if its assumptions are valid. I don’t think so.

First off, we should be clear that the Equation of Exchange isn’t used by many economists these days. The old school Monetarists who relied on this sort of thinking are largely gone. This is the result of many erroneous assumptions in the theory that the empirical data simply doesn’t support.

That said, we can’t deny MV=Py. After all, this is just a tautology. You can’t debunk it. But you can poke serious holes in the assumptions that go into it. So, what are some of those erroneous assumptions?

1) MV = Py is only useful if V is constant. In this world V = Py/M. And if V isn’t constant then it can basically be fudged to mean whatever you want. So, if P is 1, Y is 1,000 and M is 10 then V has to equal 100. If you were an old school Monetarist then you would say that doubling M will double P because P=MV/y or P=((20*100)/1,000)=2. But what if P doesn’t double for some reason? Well, then you can just say V went down. In other words, the demand for money increased. It’s like voodoo economics. The equation can mean whatever you want it to. That’s not very helpful.

He doesn't mention that raising M might well also raise y, in other words (more from an MMT perspectve), that federal spending can raise productivity. To me this is a pillar of MMT.

The rest of the short article:

2) The bigger problem in the Equation of Exchange is that it doesn’t define money accurately. “Money” in this model generally refers to the Monetary Base or Central Bank money. So, if you were applying an old school Monetarist sort of view then you’d have used this equation to conclude that QE would cause sky high inflation. In fact, we saw this sort of analysis all over the place in recent years. But the problem is that “money” is a really complex thing in a modern economy. It is not merely Monetary Base, cash, coins or even deposits. Money, as I’ve described, exists on a scale of moneyness and different things meet the properties of money in different instances. So, trying to peg “money” as Central Bank money is misleading at best and totally erroneous at worst.

In short, the Equation of Exchange is a very limited description of how the quantity of money actually impacts the economy and prices. And that’s primarily due to some broad theoretical assumptions that make it a lot less useful than many people think.

https://www.pragcap.com/the-mvpy-myth/

Cullen's FAQ includes this acknowledgement of federal fiat money, yet he seems to contradict himself by insisting that the government gets its money from taxes:

Do You Worry About the USA Going Bankrupt?

The US government is the issuer of the US dollar within a system in which it has a free floating currency and no foreign denominated debt. This means that the US government cannot be forced to default on its liabilities. There is no reason for the US government to have to worry about “running out of money”. The government could, however, be susceptible to causing high inflation. One of the primary reasons why the US government does not have to worry about solvency is because it can tax such an enormously productive economy. But if it were to establish policies that reduce the overall output or cause high inflation then the US dollar could begin to decline in value thereby causing a reduction in living standards.
https://www.pragcap.com/frequently-asked-questions/

And this, which could come straight from an MMT text, from his paper quoted below:

As the issuer of currency, the government need not have a solvency constraint as there might be for a household or business. In this regard, one must be careful comparing the federal government to a household because the federal government has no solvency constraint (i.e., there’s no such thing as the federal government “running out of money” as it can always call on the Central Bank to serve as agent of the government to create money for its own spending needs)... The federal government’s true constraint is never solvency, but inflation and foreign currency risk.

True and good enough. But then he says:

What’s your Opinion on Government Spending & Taxation?

Economists and pundits often talk about spending and taxes as if they should always be this or that, but I think the world is much more complex than that. In a general sense I am a traditional Keynesian and I believe the government should run deficits during recessions and either small deficits or surpluses during expansions. But each environment is its own unique situation and requires its own analysis so it’s impossible to paint too broadly here as it simplifies what is really very complex situations.

From a budget perspective a tax cut is the same as a spending increase so much of this debate is political. But it’s important to understand the details nonetheless. The govt can “print” notes, coins, reserves and issues t-bonds. So in that regard it’s best to think of the govt as an important facilitator of liquidity and an issuer of some kinds of money. We call these portions of the money supply “outside money” because they are created outside of the private sector.

But most govt spending is taking bank deposits (inside money because it is created INSIDE the private sector by private banks) and recycling them through the economy. So govt spending can be really useful when the economy chokes up because they eliminate the paradox of thrift in essence by creating a flow of funds (see here for more on this). So yes, most govt spending is just a circular flow taking from the private sector and redistributing it. So, contrary to popular opinion, fiscal policy doesn’t actually increase the money supply. It just redistributes it.

But deficit spending involves an important component in that it adds net financial assets through bond issuance which can make the pvt sector more liquid in various ways. That is, when the govt spends it procures funds from the private sector and recycles it into someone else’s account. But it also credits the account of the bond buyer with a t-bond which adds a net financial asset to the private sector.

I generally prefer tax cuts over spending increases, but I am not ideological here. It’s just that spending has a tendency to be poorly allocated so I generally prefer stimulus that allows the people to decide how they want to spend their money. But I am certainly not against government spending, especially if it’s wisely implemented.

https://www.pragcap.com/frequently-asked-questions/

The bits I bolded above seem quite off the mark, based on what I've learned from MMT. Cullen differs on MMT by insisting that most of the money supply is created by private bank lending, whereas MMT asserts that bank lending cancels itself out as it's repaid, thereby not effectively adding to the money supply. From Understanding the Modern Monetary System a 2011 paper by Cullen:

In many market based systems such as the USA, the money supply is essentially privatized and controlled by private banks that compete to create loans which create deposits (money). Contrary to popular opinion, governments in such a system do not directly control the money supply nor do they create most of the money.

In today’s electronic money system most money exists as a record of account on spreadsheets as a result of the accounting relationship that created the money through the loan creation process.

over 90% of the money supply is created by private banks.

I haven't read the entire paper yet, but so far he hasn't acknowledged that bank loans cancel themselves out when repaid—thus not truly adding money to the system.

So, assuming MMT is correct, I see two main errors in Cullen's view:

1. That the federal government gets its spending money from taxation, and,
2. that the money supply comes mostly (90%) from private bank lending.

All that in spite of his recognition that a fiat currency needn't tax or borrow to spend.

[Elvis]

I don't think I've seen it mentioned specifically in MMT literature, but it occurs to me that the power of fiat money to fund broad federal programs such as job guarantee, healthcare, education, housing and clean infrastructure has been shouded from public understanding primarily for this reason: it would deny or greatly reduce private industry's ability to profit from these activities, including access to money itself.

Obscuring the tenets of MMT (e.g., taxes are not required for federal spending.) gives them more control, more profit, and perpetuates the myth that everything must be marketized and commodified. (And you will do as you are told / Until the rights to you are sold!)

Maybe that's a big "duh" but I haven't seen it as part of any appeal to adopt MMT as a fiscal guiding light.

Conservatives will yell, "but The Market is good!"—self-correcting, blah blah blah. A different argument, perhaps. But consevatives should love MMT for its minimal taxes and its power to lay corporate subsidies, build gargantuan militaries, fully fund omniscient police states and construct a southern border wall (what the hell, throw in a northern wall! because Canada taking advantage too long MAGA!!).

I think this is why progressives need to understand and seize MMT principles now. I've been working on a few friends with evangelical zeal. I explain repeatedly and they persist with, "so we just keep spending and spending and spending, wheeeee! Is that it?"

And I say, "Yes! that's it!" (With all the caveats re inflation, capacity etc.)

Then many will get suspicious when you tell them that applying MMT to federal spending would mean largely eliminating income taxes. ("Sounds Libertarian.") I sort of lead them around the corral one more time, stomp your right hoof three times if you understand, and so on.

If I get them curious enough with my kooky-sounding claims, I don't direct them to a specific article or video, I tell them to just Google, and to search YouTube for the academic lectures (easily spotted by the thumbnails), and in general watch for the names like Stephanie Kelton, L. Randall Wray, Bill Mitchell, Warren Mosler and Mark Blyth.


Oh, and Paul Krugman. Just this morning, after a good MMT back-and-forth with another friend, they seemed eager to go read & learn more about it (even if just to disprove me), and I went for the close:

"Ya know, even Paul Krugman's thinking is starting to line up with MMT..."

"Oh!—I love Krugman!"

[Elvis]

This 2015 L. Randall Wray talk has a good history of MMT thought, and for me the explanation of why the U.S. gov't sells bonds was very helpful (hint: it's not for revenue):

L. Randall Wray - Modern Money Theory: Intellectual Origins and Policy Implications


https://www.youtube.com/watch?v=-KRi9nF8BiA

Again, here the viewer comments are useful. User "Rob" aka Rob Mews has been trolling MMT sites for awhile, with dozens of comments on this video alone. How badly he gets things wrong is instructive. Most naysays are stuck on the strawman idea that federal money creation is "theft," the Fed is robbing our children, yada yada.

One comment gets to one of the roots of these misunderstandings (though Rob Mews strikes me more as a disingenuous shill):

"Skimming the comments section it does sound like it's especially difficult to get folks to separate the "truths" about currency & debt from the "opinions" about social policy."