Modern Monetary Theory

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Re: Modern Monetary Theory

Postby Elvis » Fri Nov 16, 2018 6:52 pm

JackRiddler wrote:Stephanie Kelton Has The Biggest Idea In Washington
Once an outsider, her radical economic thinking won over Wall Street. Now she’s changing the Democratic Party.


I saw the headline while researching but hadn't read the article before now—really great! and good on HuffPost for publishing it.
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Re: Modern Monetary Theory

Postby seemslikeadream » Mon Nov 19, 2018 12:28 pm

Did someone mention blockchain?

Banks, ignore blockchain at your peril! It could have prevented the Danske Bank scandal
Pawel Kuskowski


Imagine if one bank, in one country, laundered almost ten times more than that country’s GDP. Imagine if that money came from non-residents in Russia, Ukraine, Azerbaijan, Moldova and other ex-Soviet states. It’d be one of the largest money-laundering scandals in history.

This is exactly what happened in September. Danske Bank, headquartered in Copenhagen and with over 5m customers, moved money from customers in the above countries through its Estonian branch – a staggering €200bn between 2007 and 2015. Estonia’s GDP in 2016 was $23.14, or around €20.15.

The sheer scale, and time frame, of the scandal, could mean

curtains for Danske Bank. But is it also the tip of the laundering iceberg? The usual line of argument is that financial institutions, and the governments that regulate them, are not doing enough to prevent money laundering. Yet perhaps the most egregious thing about the Danske scandal (and, of course, the litmus for laundering) is that people knew about it. As soon as Danske started operating in Estonia, the country’s financial regulator criticised the bank’s approach to compliance risk and KYC rules. Commentators have suggested that the lack of action could be explained by the fact that Danske’s Estonian branch accounted for 11 percent of the bank’s total profits. It is difficult to believe that what was going on in Danske is the sum of the financial system’s laundering problems.

For me, the most astonishing thing about all of this is that we have a viable alternative. In blockchain, we have the opportunity to build a transparent and secure financial system. Let’s just remind ourselves of just a couple of examples, beyond more secure and efficient transactions, of what blockchain technology offers.

A new era for regulation: if transactions are logged on an immutable, secure and transparent ledger, regulators, with access to those ledgers, could work smartly and proactively with institutions, rather than reactively. Moreover, illicit transactions could not, by definition, exist.

And, consequently, the end of audit trails: a consequence of putting blockchain underneath the banking system. It would not be just transactions that were logged on the blockchain; client documentation could also be stored securely, using public and private keys to enable them to have control, with the knowledge that nothing could be altered or tampered with.

The new Payment Services Directive (PSD2) has already required this: that documents be provided to customers in a way that means they cannot be changed. But the current banking infrastructure means consumers have left interfacing with giant conglomerates – faceless and leaving a lot of room for error. Using a decentralised system of document creation and storage would change this, and obviate the need for retrospective audit trail creation. It creates a perfect audit trail easily accessible by the regulator as well.

Changing the structure of products: as it stands, customers have little to no idea of underlying assets and where they come from. Blockchain can provide full transparency of an asset’s provenance, and how it fits into a particular product. Bond offerings, and the concomitant, complex syndication, are a good example. Using blockchain here would remove the opacity, bring immutability and auditability, streamline the long line of intermediaries, and do so in a semi-automated manner.

The overall capital market is another huge area where impact of blockchain will be immense. Imagine in ISDA transactions all nettings can be done via smart contract, visible on the market. This is not only transparency and process efficiency but also saving immediately around 5% on each transaction.

It’s also worth thinking about regulation itself, like the Basel requirements on capital reserves. Blockchain enables the identification of funds and an easier assessment of the exposure level on those funds. If you can more accurately assess risk via transparency, will stringent capital requirements remain as necessary?

The question one is left with is, do banks really want this change? It’s something I’ve been asking since I left the sector to set up a company that brings bank-grade compliance to crypto and blockchain businesses. You cannot get away from the fact that it is those doing the laundering who profit from it. But – and this is the vital point to note – if banks themselves don’t change, they will soon find themselves head-to-head with the new guard: innovative financial services companies using blockchain, with the transparency and efficiency it brings, as standard.

These new providers will see smaller profits initially, but their running costs will be far lower. They will use technology across the board, without the need to plug top-up software into cumbersome and insecure legacy systems. And because of this, they will rely on less human capital. The systems for audit trails, and the systems on top of those and people using them will be vastly diminished. Ultimately, this new sector could see faster, greater growth and higher margins, as it nimbly delivers a better service and experience to customers.

If any financial institution is at the stage of looking over its back, worrying about laundering, it is already too late. Those operating legally and compliantly need to focus on the future: using blockchain, the technology of the third wave of the internet, to transform the face of banking.
https://www.forbes.com/sites/pawelkusko ... f58f855ef7


Authorities in Denmark, Estonia, Britain and the United States are investigating payments totaling 200 billion euros ($228.5 billion) made through Danske Bank’s tiny Estonian branch between 2007 and 2015 in a growing global scandal.
http://rigorousintuition.ca/board2/view ... 52&t=41339
Mazars and Deutsche Bank could have ended this nightmare before it started.
They could still get him out of office.
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Re: Modern Monetary Theory

Postby Elvis » Mon Nov 19, 2018 1:44 pm

seemslikeadream wrote:Did someone mention blockchain?


Thanks! Myself, I'm not sure how blockchain works, or if using blockchain in a financial system necessarily means cryptocurrency, or just better auditing etc.. But I've been hearing more and more about blockchain advantages, so am looking forward to learning more.
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Re: Modern Monetary Theory

Postby Elvis » Mon Nov 19, 2018 8:33 pm

Looks like Ocasio-Cortez is in good hands, two leading lights in the MMT scene:

Johnny Akzam
‏ @JohnnyAkzam

I haven't met Alexandria personally yet, but this photo is all I need to know I can trust @Ocasio2018. She is sitting next to @ptcherneva and across from @StephanieKelton, two of the leading economists and economic activists of our time, both leaders in the #FightForFJG.

Image

https://twitter.com/JohnnyAkzam/status/ ... 4437427204
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Re: Modern Monetary Theory

Postby Elvis » Mon Nov 19, 2018 8:50 pm

Kudos to Bloomberg for adding Kelton as regular opinion columnist:

https://www.bloomberg.com/opinion/artic ... xt-caravan

Politics & Policy
Republicans Want to Make Entitlements the Next Caravan

How Democrats can fight the bogus claims of fiscal armageddon.

By Stephanie Kelton
November 19, 2018, 6:00 AM PST
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.” ― Joan Robinson
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Re: Modern Monetary Theory

Postby JackRiddler » Tue Dec 11, 2018 11:02 pm

She's on the Twitter, of course.

One of the fascinating, new and in retrospect obvious historical insights I've had on this trip was about the function of the WWII war bonds. Here was a government in a total world war with maximum homefront mobilization and near full support of the people. We can say our part against it if we wish, but it was popular. There was no limit to what the government could have commanded other than maximum capacity and labor. It didn't need to push the war bonds so hard. At all, in fact. The functions were to a) avoid taxing the workers like the rich, thus keeping their loyalty, but to b) encourage them instead to forego consumption (which wasn't really available anyway due to war production) for a form of savings, so that c) they would have that plus some interest at the end of the war to spend again as consumers, stimulating the conversion.

https://twitter.com/StephanieKelton
Stephanie Kelton
@StephanieKelton
8h8 hours ago

Here is the U.S. Treasury summarizing Keynes' "How to Pay for the War." It was about (1) containing any inflationary pressure and (2) a just transition to make sure the benefits did not flow to the top. Exactly the right priorities for a #GreenNewDeal

Image

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Re: Modern Monetary Theory

Postby JackRiddler » Mon Dec 17, 2018 1:34 pm

"Ha-Joon Chang also recently posted another list at Huffington Post, which he covers in more detail in a lecture thats embedded below:
1. Economics was originally called ‘political economy’
2. The Nobel Prize in Economics is not a real Nobel Prize
3. There is no single economic theory that can explain Singapore’s economy
4. Britain and the US invented protectionism, not free trade
5. Free trade first spread mostly through un-free means
6. It was arch-conservative Otto von Bismarck who introduced the first welfare state in the world
7. Capitalism did best between the 1950s and the 1970s, an era of high regulation and high taxes
8. The internet was invented by the US government, not Silicon Valley
9. Before tax and welfare spending, Germany and Belgium are more unequal than the US
10. Finland, one of the most equal countries in the world, has grown faster than the US
11. The ‘lazy’ Greeks are the hardest working people in the rich world after South Koreans
12. Switzerland and Singapore are not living off banking and tourism alone
13. Most poor people don’t live in poor countries


Links to 21-minute lecture by Chang and has the graphic below.
https://www.macrobusiness.com.au/2014/0 ... conomists/

Image
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Re: Modern Monetary Theory

Postby JackRiddler » Fri Dec 21, 2018 5:52 pm

.

Going to add Green New Deal material here henceforth. Long as I'm still around. The program being developed around it is very much tied to MMT and money as "public purpose."

Today's breaking news:

https://www.telesurenglish.net/news/Dem ... -0012.html


www.telesurenglish.net
Democrats Block Ocasio-Cortez’s Green New Deal Committee

teleSUR / ne-VC
21 December 2018

Despite weeks of protests demanding Democrats to push for a Green New Deal, the Democratic leadership blocked Thursday a proposal by congresswoman-elect Alexandria Ocasio-Cortez to form a committee that would have drafted the New Deal project.

Instead, they've decided to back a plan by House Minority Leader Nancy Pelosi to revive a global warming panel lead by representative Kathy Castor.

The move sparked controversy because Castor has dismissed calls to bar people who accept money from fossil fuel companies from serving on the committee, saying it would violate the right to free speech.

“I don’t think you can do that under the First Amendment, really,” Castor said before backtracking. “Maybe that’s a discussion we need to have in the caucus,” she added.

Over the course of a few weeks, the campaign for a Green New Deal gained a striking amount of support. In an open letter last Friday, more than 300 state and local officials said they supported a Green New Deal.

Though Ocasio-Cortez's proposed committee has been struck down, the movement in support of it has pushed debates around climate change towards policies that could have an impact on carbon emissions and income inequality.

“We don’t have time to sit on our hands as our planet burns,” the congresswoman-elect said in a tweet.

“For young people, climate change is bigger than election or re-election. It’s life or death. Loading a climate committee w/ fossil fuel money is akin to letting foxes in the henhouse. We shouldn’t be afraid to lead.”

RELATED:
Ocasio-Cortez Won’t Join AIPAC's Israel Trip


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Re: Modern Monetary Theory

Postby Marionumber1 » Mon Jan 07, 2019 6:24 pm

Here's a recent article attacking Nancy Pelosi's push for PAYGO (i.e. austerity rules) from a MMT perspective:

PAYGO Is Based on a Fallacy
The U.S. government can dramatically increase spending without raising taxes.
BY PAVLINA R. TCHERNEVA

There is nothing more crippling to a bold policy agenda than the myth that the government can run out of money. This myth is behind every But how will you pay for it? objection to proposals such as a Green New Deal and Medicare for All. New House Majority Leader Nancy Pelosi (D-Calif.) has even proposed instituting self-defeating PAYGO (pay as you go) rules, which would require all new government spending to be matched with increased revenue, wrongly prioritizing the balancing of the budget over the well-being of the public.

Dispelling this myth is at the heart of an economic approach that is rapidly gaining a global following, known as modern monetary theory (MMT). MMT stresses that, in the modern world, where government-backed currencies are no longer backed by gold or other commodities, federal governments can’t run out of financial resources. Unlike states and municipalities (which have hard constraints on spending), for the federal government, all funding shortages are artificially created. Understanding this changes everything—from the economic possibilities before us to what the public can demand from our government.

Everyone knows that only governments can issue currencies (dollars, yen, pesos). If households tried to do it, we’d be called counterfeiters. It should be obvious, then, that the sole issuer of a currency cannot possibly run out of it. But, as Sherlock Holmes once observed, “There is nothing more deceptive than an obvious fact.”

The public understanding of government spending is a classic case of cognitive dissonance. We regularly witness how the government immediately “finds the money” when the policy priority is an endless war, financial bailouts, billionaire tax cuts. And yet the public is generally convinced that, like a household, the government can go broke, if not today maybe tomorrow, if it does not raise enough tax revenue to pay its bills.

Debt limits set by Congress create the appearance that taxes and bonds finance the government. But if we “follow the money,” as MMT economists have done, we find that the federal government does not spend tax revenue (just listen to Federal Reserve officials here, here and here) and it cannot possibly default.

So where does the money come from? In practice, government funding is voted into existence every time Congress appropriates a budget for a given program. Afterward, the Federal Reserve (the monopoly issuer of dollar reserves) and the Treasury (the monopoly issuer of coins and bonds) coordinate to clear all payments. No government checks bounce. Ever.

What this also means is that when the government runs a deficit and spends more than it takes in through taxes, it is adding dollars to the economy.

And while politicians vilify the deficits (when politically convenient), the public fails to spot that all the money spent by government—except for that which is later taxed—lives in some person or firm’s bank account or wallet. If we balanced the budget, we would also remove those funds.

Even those who understand this often resist bold government action for fear of inflation. And while MMT agrees that inflation is a relevant worry, we can avoid the inflation trap by focusing on how the government spends rather than how much. So long as money put into the economy is mobilizing unemployed resources and satisyfing unmet basic needs, government spending can be done without causing inflation—and is, in fact, desperately needed.

By highlighting the flexible and vast spending powers of the state, MMT opens new possibilities for solving our most pressing economic problems. The U.S. government debt and deficit are not among them. A clean environment, good jobs and affordable education are in short supply; green pieces of paper or digits in a bank are not.

The bottom line: How will you pay for it? is the wrong question to obsess over. The right question is the more difficult and important one about the impact of government spending on the economy. Did it generate income inequality? Did it cause inflation? Or did it help build an economy that works for all? MMT economists favor policies for shared prosperity, like a federal job guarantee, a Green New Deal, tuition-free college and Medicare for All. What are the real effects of these and other policies on the economy? Let’s have that debate.
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Re: Modern Monetary Theory

Postby JackRiddler » Fri Jan 11, 2019 2:31 pm

.

Department of you may not think it's a big deal but it is:

Discussing jobs guarantee as monetary policy at a one-day conference of legal historians at Harvard Law School, interview with the tireless Rohan Gray (graduate of Columbia Law, actually, great guy), organizer of the MMT2 in New York back in September.


https://www.youtube.com/watch?v=XFpYRikWIik
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Re: Modern Monetary Theory

Postby JackRiddler » Fri Jan 11, 2019 6:59 pm

.

Non-trashy critique of MMT, though the mag can't resist an AOC angle (and huge picture). Kind of irrelevant argument about single-payer health care, however, since "you" do not have to "pay for it" under any model: Everywhere it exists outside the U.S., it is of course always cheaper (and usually delivers better results) than the current system here. One real, unstated problem is that it will cause a massive shrinking of the for-profit insurance sector. Possibly leading to an economic disaster. Sort of what would happen if peace broke out. Most of the most important industries are now destructive when not simply cannibalistic.

http://nymag.com/intelligencer/2019/01/ ... asier.html

JAN. 9, 2019
Modern Monetary Theory Doesn’t Make Single-Payer Health Care Any Easier
By Josh Barro

You may have heard of Modern Monetary Theory, an approach to economics that is increasingly popular on the left, and which is sometimes mischaracterized (by advocates and especially detractors) as holding that budget deficits are either unimportant or inherently good for the economy.

This week, freshman representative Alexandria Ocasio-Cortez told Business Insider that #MMT needs to be “a larger part of our conversation.” You will often hear MMT cited in response to questions about how significant expansions of federal government spending, such as single-payer health care, would be financed. The idea is that MMT renders those financing questions much less important, because it counsels worrying less about the deficit.

MMT — or at least, the part of MMT that is most directly relevant to current debates about government spending — is neither crackpottery nor a revelation. It’s a way of stating an idea that can be stated equally well within an orthodox economics framework: that the desirability of budget deficits depends on the economic situation in question. MMT does not relieve policy-makers of “pay-for” questions — it just describes differently how policy-makers should evaluate whether they’re collecting enough taxes for a given level of government spending.

JW Mason, a leftist economist at the City University of New York who isn’t an adherent to MMT but describes himself as sympathetic to the approach, co-authored a paper last year with Arjun Jayadev of the University of Massachusetts Boston that helpfully seeks to map MMT onto a neo-Keynesian approach. That’s the approach typically associated with economic policy-makers in the Democratic party and further to the left, and it holds that when the economy goes into recession, the government should engage in deficit spending to make up for lost economic activity in the private sector, reduce unemployment, and engage otherwise idle resources.

The way Mason and Jayadev describe it is that MMT takes the traditional framework and reassigns the primary purposes of fiscal and monetary policy. Usually we would say that the government uses fiscal policy to keep public debt at an appropriate level and uses monetary policy to control inflation. MMT flips this on its head, espousing the use of fiscal policy to control inflation and of monetary policy to keep the public debt sustainable.

So while a conventional economic thinker might say you establish a new government program and levy taxes (now or in the future) to pay for it, an MMT thinker would say you establish a new government program and the government prints the money to pay for it. But that does not mean the MMT thinker thinks the new program is free! The government is not constrained by its ability to obtain dollars, but the economy is constrained by real limits on productive capacity. If the government prints and spends money when the economy is at or near full employment, MMT counsels (correctly) that this will lead to inflation, and prescribes deficit-reducing tax increases to reduce aggregate demand and thereby control inflation.

See how we have ended up back where we started? Whether you take a Keynesian view or an MMT view, if the government spends more, it’s likely going to need to tax more, sooner or later.

Of course, it matters how you describe things. And MMT economists will tell you there has been a strong bias in policy-making toward seeing the downsides of deficits instead of the upsides, in part because of the way we have become used to talking about deficits.

“One of the things that MMT has tried to do is say yes, of course, the deficit can be too big. Evidence of that would be an acceleration in inflation,” says the economist Stephanie Kelton, a professor at the State University of New York at Stony Brook, former adviser to Senate Budget Committee Democrats, and probably the most prominent MMT advocate in the economics profession. “But the deficit can also be too small. That’s something we’ve said for a long time that not a lot of other economists have pointed out.”

“Not a lot” is an overstatement — automatic and discretionary policies to expand budget deficits are policy tools both liberal and conservative governments reach for in recessions, whether they emphasize it in their rhetoric or not, and some economists must have been advising those policy-makers to use those tools — but I believe Kelton is correct that both economists and economic policymakers have been too focused on the risks of high deficits relative to low ones, and too focused on the risk of inflation versus the risk of unemployment. That is, while policymakers know we should run deficits in recessions, when the recession is really big they don’t run them large enough for long enough.

Mason argues that the key usefulness of MMT is for political economy — to restructure the choices facing policymakers so they’re more likely to achieve the goals of full employment and stable inflation, and less likely to err as they have: on the side of low deficits, high unemployment, and missed inflation targets in the down parts of economic cycles.

But there is a reason to believe an MMT approach would not lead to better management of the economy in the long run: The fact that it calls for raising taxes to control inflation when the economy is strong. It is hard enough to sell voters on the idea of raising taxes in order to provide them valuable services. Now we are supposed to tell voters that taxes aren’t for financing the government, but we need to raise them anyway so we don’t overshoot an inflation target?

“The strong argument against MMT is precisely the one you made, that tax increases will be potentially difficult to carry out,” Mason told me when I asked him about this issue. “The contractionary piece of that might not be followed in practice because it would be very unpopular.”

And Mason thinks this issue could come up a lot, because — contrary to the views of some MMT scholars and most MMT enthusiasts in the political sphere — he believes that consistently implemented MMT would call for smaller budget deficits in the long run than a traditional Keynesian approach.

Remember, the primary way the government controls inflation now is through monetary policy: the Fed raises interest rates when it believes (correctly or otherwise) that inflation threatens a rise. But MMT thinkers tend to believe interest rates should be kept low and stable, regardless of inflation conditions — Warren Mosler, one of the founders of the movement, says they should be set permanently at zero. Without the interest-rate lever, once MMT policymakers achieved their goal of an economy at full employment, the tool they’d have to use to control inflation is a very unappealing fiscal one: tax-financed budget surpluses.
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Re: Modern Monetary Theory

Postby Belligerent Savant » Sun Jan 20, 2019 5:31 am

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https://www.bloomberg.com/opinion/artic ... -s-in-debt


'Modern Monetary Theory’ Is a Joke That’s Not Funny

Yes, a government that issues its own currency can pay its bills. But piling up debt for no urgent reason is lunacy.

By Michael R. Strain

If you follow the debates over U.S. economic policy, you had probably heard of modern monetary theory well before freshman Democratic Representative Alexandria Ocasio-Cortez spoke favorably about it earlier this month.

If you thought from the start that the whole idea sounded like lunacy, you were right, even if it’s possible to admit some sliver of sympathy for it. So why is MMT, as it is known for short, generating such intense interest now?


First, let’s start with the confusion over what it is. The answer seems to depend on which advocate of MMT is being asked. It is sometimes a theory of money. MMT is also being discussed in the context of a political program to justify huge increases in social spending. Finally, there is its role as a prescription for macroeconomic policy.


Even as just an economic theory, it is not settled or fully developed. This makes engaging with it challenging — even, at times, frustrating.


The bedrock observation of MMT is correct: Any government that issues its own currency can always pay its bills. This observation allows policy makers to show less concern about the budget deficit than is typically the case.

In fact, MMT is growing in prominence precisely because of its relative lack of concern about the size of the deficit. In the years immediately after the Great Recession, which started in December 2007, this aspect of MMT stood in favorable contrast to the position of fiscal-policy centrists and many Republican politicians who called for significant reductions in the deficit at a time of very high unemployment.

Today, when some are continuing to question commonly held views about fiscal policy, the thrust of MMT — the deficits matter a lot less than its critics would have you believe — is attractive to many solid economists. (Though I am not yet sold on their arguments.)

In my reading, this is about all that can be said favorably regarding modern monetary theory. As a political program, the observation that a government issuing its own fiat currency can’t involuntarily default — an observation with which mainstream economists largely agree — has been used to advocate for extremely expensive spending policies, including a universal jobs guarantee and single-payer health care. There’s no need, some MMT advocates argue, to let paying for these proposals through tax increases get in the way of enacting them; government can just increase the deficit.


In a short review of MMT, the economist Stan Veuger (my colleague at the American Enterprise Institute) notes that on its face this is not all that different from current policies that deliver benefits today and costs tomorrow, including the deficit-financed 2017 tax cuts. But that’s more of a criticism of this approach to legislating than a justification for MMT.

Political progressives like Ocasio-Cortez who are showing sympathy for MMT are also being short-sighted. If we further loosen the shackles tax revenue has placed on federal spending, then Democrats may get Medicare for All the next time they control the government. But, in turn, when the GOP is next in the White House, what might it do with its newfound fiscal freedom?

Both parties claim to care about the deficit, but once in power they often act as if they care more about putting their preferred policies in place, whether these are tax cuts in the case of conservatives or new spending programs in the case of liberals. Further loosening political constraints on deficits is reckless, no matter which party is doing it.

But it is in its ideas about macroeconomic policy that MMT fully earns its place on the fringe.

The theory understands that the economy is constrained by real limits on its inputs to production. If you push its advocates hard enough they will admit that at some point all that spending could send the economy into a bout of damaging inflation.

But they quickly dismiss that risk, in part by pointing to the lack of inflation in advanced economies in the recent past and by appeals to vague thought experiments.

So what does MMT have to say about inflation when it does materialize? Since under MMT the central bank is responsible for financing government programs through printing money, it falls to the institution with authority over tax and budget policy — the U.S. Congress — to make sure prices are stable by raising taxes and moving the budget deficit into surplus. As part of a series of columns last year for Bloomberg Opinion, leading MMT exponent Stephanie Kelton called on fiscal policy, not the Federal Reserve, to manage the business cycle.

But it is extremely difficult to imagine Congress responding to an overheating economy by legislating tax increases. If anything, the opposite is easier to imagine: When households are being hit with price increases, the natural inclination of an elected representative might be to increase their disposable income by lowering taxes, not raising them.


It is precisely this dynamic — the occasional need for the institution in charge of price stability to inflict short-term pain for long-term benefit — that justifies in large part the political independence of central banks.

Veuger, who is largely critical of MMT, points out that its advocates may envision an independent fiscal authority, though even on this their views are hard to decipher.

But tax policy changes the way income is distributed across households — the after-tax income of high-earning households is reduced, and households to which income is redistributed see increases — and Veuger argues that for this reason it should not be conducted by an agency that is independent of politics.

Monetary policy also has distributional implications. For example, low interest rates are good for borrowers but bad for savers. But given that the U.S. already heavily redistributes income through the tax code, Veuger is right that we should avoid the turmoil that would be created by handing tax policy over to a new, independent agency.

We typically think of inflation as being generated from an overheating economy with excess demand. But prices can also rise because it has become more expensive for businesses to produce goods and services. For example, this situation could occur if the price of oil were to increase rapidly — the economy could experience stagnation and inflation at the same time.

In this scenario, MMT seems to call for tax increases in order to restrain inflation. But the economy is already slowing. Raising taxes
would only make a downturn worse, increasing unemployment and further slowing the economy.

Modern monetary theory is seductive in its promises and, occasionally, in its observations. But if enacted it could cause great harm to the U.S. economy. Like Medusa, it may seem beautiful. But if you look it in the eye you will turn to stone.



Selected Comments in response to the article:




JohnfrmCleveland

"In this scenario (a rise in oil prices), MMT seems to call for tax increases in order to restrain inflation."

Wrong. There is little that can be done about the price of imports like oil. You just have to live with it, or look for alternatives. You certainly don't damage the domestic economy to deal with an import problem.

MMT only calls for tax increases in the event that the domestic economy is (broadly) not able to meet demand, resulting in inflation. Which is extremely rare. When is the last time that has happened? WWII?

Ideally, the one resource you *want* to run short of is labor. A bit of labor-driven inflation would be a very good thing for the economy.


leif

Wow, this author has done very little in the way of research concerning MMT.
Deficits only matter when demand outstrips resources, MMT stresses demand pull inflation.
MMT describes having a buffer stock of employed people using a federal job guarantee, throwing the debunked NAIRU aka natural rate of unemployment out the window.
No where does the author write on the metric of sectoral balances, Godley’s sectoral balances is a need to know metric if you write on the MMT subject.
I could go on, yet this author is obviously under researched on this subject.
Sad to see such drivel.


sufferingsuccatash Re: leif

Michael Strain is one of Bloomberg's economic hit men---along with Cowens and the ever tedious and obtuse Bershidsky. The irony of this article and the dregs of these types of free marketeers and neoliberal economists is that none of them had the slightest inkling that the global financial crisis of 2007/08 was coming. Nor did any of their modeling predict it. Not only were they responsible for it, they are likewise responsible for the aftermath which is a doubling down on the same economic strategy that is predicated on central bank transfers to the investment banks and the further ballooning of private sector debt as that money is lent out producing scant economic growth in relation to the cost while wealth inequality increases.


edj11 Re: leif

Yes. The writer clearly has not experienced the "light bulb moment". Once a person understands the full picture of what MMT is saying, one understands the world differently than before. One understands that a sovereign currency has completely different constraints and responsibilities than the currency user. Acting as if it is also a currency user is shirking real responsibilities to the economy that uses the currency.


DoADeal

The arguments here against MMT are weak and easily refudiated.
RE: "... Further loosening political constraints on deficits is reckless, no matter which party is doing it. ... ..."
• This is a nonsense statement. The Federal Debt is a total nothingburger and can be safely ignored. Deficits need to be managed to the extent they influence things that DO need to be managed: 2 things:
a) Unemployment - as in keep it at ZERO at all times, and
b) Inflation - as in measure monthly and keep it at a low manageable and comfortable level at all times. (3% to 4%?)

RE: "... So what does MMT have to say about inflation when it does materialize? ... But it is extremely difficult to imagine Congress responding to an overheating economy by legislating tax increases. ...to inflict short-term pain for long-term benefit"
• Inflation is easily managed through tax increases primarily: income, sales /vat, and asset value. The trick is to incorporate the taxes automatically in the law across the board when inflation rises above a Target, say 4% for 6 months in a row. Increase each each rate by1% collectible monthly or quarterly. That would cool things off pronto!
• Easy Peasy.

RE: "...this situation could occur if the price of oil were to increase rapidly ... MMT seems to call for tax increases in order to restrain inflation. But the economy is already slowing. Raising taxes
would only make a downturn worse, increasing unemployment and further slowing the economy. ..."
• With the implementation of a Job Guarantee as part of a Full Employment Fiscal Policy, everybody is always working. A slowdown is a 4 day news cycle.

RE: "... But if enacted it could cause great harm to the U.S. economy. ... ..."
• Like what?
• Pretty weak objections.


JonathanMaddox Re: DoADeal

The debt *is* an issue to the extent that interest payments on it are regressively redistributive, pouring public money into the pockets of private and foreign sector bond holders. MMT advocates envisage a long-term zero interest rate (not clear whether this means literally zero or "effectively zero" ie. "close to the rate of inflation"), which would put this problem to bed.

The fiscal variables which MMT advocates envisage dealing with inflation on a short-term basis are automatic *spending* stabilisers, not automatic tax rate increases. A properly MMT-informed policy would not increase the budget deficit in an economy near full employment: it is right and proper that large-scale spending initiatives like universal public health care and free education, or any increased spending on the military for that matter, should indeed be "paid for" with tax increases if the economy is already riding high near full employment.

However MMT policy would also institute policies like a Job Guarantee, which in an economy near capacity would have little or no effect on the deficit: only a small number of people would take up new minimum-wage public sector jobs when the private sector is already offering more. The thing with a Job Guarantee is that it promptly boosts public spending in a market downturn. When the private sector slows investment and/or production, the government "automatically" puts public money directly into the hands of the people immediately disadvantaged by those private sector spending cuts. This is equally true whether the private-sector downturn is the result of a credit cycle, some commodity scarcity problem, or even the consequence of a tax hike.


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Re: Modern Monetary Theory

Postby Grizzly » Mon Jan 21, 2019 11:19 pm

“The more we do to you, the less you seem to believe we are doing it.”

― Joseph mengele
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Re: Modern Monetary Theory

Postby JackRiddler » Fri Jan 25, 2019 2:34 pm

.

Image

Source: https://www.marketwatch.com/story/heres ... 2018-08-21

38 percent of treasury note value is held by Federal Reserve or U.S. government directly.

China is one trillion out of the six held by non-US actors.

Image

I can't believe how long I fell for the panic about owing money to China.

Another idiot with the same problem I once had posted this in the comments to the above: "None of this debt will ever be paid off or even paid down without printing even more money out of thin air." Yeah, unlike that REAL money that comes from... ???

Also:

US actors hold 9 trillion in sovereign debt of other nations, compared to 6 trillion in US treasury notes held by foreign actors.

Image

Source: https://www.titlemax.com/discovery-cent ... to-the-us/
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Re: Modern Monetary Theory

Postby JackRiddler » Sat Jan 26, 2019 8:15 pm

.

This short piece really resonates with me and makes points I've come to emphasize:

1. neoliberalism was born of the end of the Golden Age of Capitalism and the break-up of the postwar consensus around relative shared prosperity in "the West," as the intellectuals steering the thinking at corporations and in the ruling class who had entered the New Deal helped steer a turn back to traditional capitalism and class war over social peace.

2. Free market fundamentalism was the ideology, not the reality.

3. The reality was more like Pinochet, or in the Western democracies, an actual expansion of the public sector while repurposing more and more of its resources to support corporate power and assure profits by every means available, including setting up crony markets and using state welfare as a means of disciplining and conditioning the work force.

4. It did not die in 2016, as the narratives of illiberalism and bad populism would have it, but it entered a new phase. It is designed always to leverage crisis (including the ones it inevitably generates) to advance ever-harder demands in new guises. Besides David Harvey's Brief History of Neoliberalism, Naomi Klein's Shock Doctrine really understands how this works. It did not die in 2008, as the likes of Krugman would have it, because it was never about the ideology. That is flexible; it's gone from Thatcherite conservative virtue and Reagan Revolution to the fake identity politics at the top only of today. It is about the class war, the aggressive, state-authoritarian enforcement of everything the corporate power needs in a workforce and in all other conditions. The key turns after the sparking crises of the 1970s and the "conservative revolution" came with the takeover of virtually all Western social democratic parties by the 1990s, the aggressive advancement of state authoritarianism under Bush, and the crisis response to the "failure of neoliberalism" starting in 2008.

5. So I really like the clarifying, strong distinction between neoliberalism (itself just a word for a particular perpetually evolving strategy of capitalism in crisis) not as "FMF" but as Corporate Power.

Anyway:

https://www.counterpunch.org/2019/01/25 ... ore/print/

www.counterpunch.org

You Can’t Go Home Again: the Liberal State is No More

By Richard Moser

On January 25, 2019


In a previous article I argued that often confusing and divergent arguments within the neoliberal critique could be best understood as the tensions between two opposing currents of thought. One tendency understands neoliberalism as the unfettered reign of the free market, often called Free Market Fundamentalism (FMF), the other sees neoliberalism as the fusion of the corporation and the state sometimes called Corporate Power.

If it’s FMF what does that mean for activism. If it’s Corporate Power what does that imply for strategy?

The greater the emphasis on FMF then the more possible it might seem to re-regulate the corporations back to within tolerable limits after recapturing the state through elections. The greater the emphasis on corporate power the less possible incremental (primarily) electoral approaches seem, and the more likely that revolutionary measures will be required to abolish corporate power.

You Can’t Go Home Again

FMF remains such a popular idea among progressives precisely because it allows us to imagine an easy escape. That escape is a return to the liberal-regulatory state that governed the US between the mid-1930s and mid-1970s. The problem — and most likely an insurmountable one — is that the old liberal-regulatory state was dismantled and replaced by a new corporate-regulatory state.

This bit of wishful thinking also forgets that the now defunct liberal state was codified by law and mandated by election due to massive protest and organizingin the 1930’s and cemented into place only at the high human costs of world war. The construction of the liberal state required mass movements, some with revolutionary aspirations, and it’s reconstruction would require nothing less.

Equally daunting is the fact that the decline of the liberal state wasn’t caused by the rise of neoliberalism alone but by urban rebellions and social movements. Why would we return to the liberal state that brought us the Vietnam War, COINTELPRO, environmental destruction and the urban crisis among other wonders?

In Death of the Liberal Class, Chris Hedges argues that the liberals who once managed the regulatory state were marginalized or adapted to the corporate state.

“But the assault by the corporate state on the democratic state has claimed the liberal class as one of its victims. Corporate power forgot that the liberal class…gives legitimacy to the power elite. And reducing the liberal class to courtiers…who have nothing to offer but empty rhetoric, shuts off this safety valve and forces discontent to find other outlets…The inability of the liberal class to acknowledge that corporations have wrested power from the hands of citizens, that the Constitution and its guarantees of personal liberty have become irrelevant, and that the phrase consent of the governedis meaningless, has left it speaking and acting in ways that no longer correspond to reality.”[1]

The Bill of Rights is in tatters. “We the people” do not rule. Representative democracy is all but dead. Welcome to the real world.

Q: What killed Democracy? A: Corporate Empire.

The corporate power destroyed the limited democracyof the liberal state because it was an obstacle to its insatiable need for power and profit.

If democracy is dead, what is the new reality we face? By the 1980s a new version of the two-party system emerged: the extreme right-wing takeover of the Republican Party accomplished largely by the “Reagan revolution” on one hand and the rise of “third way” or corporate Democrats represented by the Clinton machine on the other — both wings of one duopoly dedicated to establishing and maintaining the new corporate order.

Along with the earlier restructuring of the US government in order to wage our imperial wars— it was this corporate takeover of the political parties and the government they have a chokehold onthat killed American democracy. And, both parties championed policies that were responsible for a steep decline in the power of the working class.

Follow the Money

This new corporate political class managed the fusion of the state and corporation — as can be clearly seen in the history of finance capital. Banks are the executive branch of corporate power dispatching capital, natural resources and labor in a war for profits. To the degree that capitalism is planned, bankers do the planning. During the exceptional period of limited economic democracy from the mid-1930s to the mid-1970s, capital was forced to share the wealth. But by the 1970s big changes were underway. As a response to the upheavals of mid-20th century, the ruling elites reasserted their class power and bankers were their vanguard.

In All the Presidents’ Bankers: The Hidden Alliances That Drive American Power, Nomi Prins documents the relationships between presidents and bankers. By the 1980’s that relationship had grown lesspersonaland moreinstitutional. Not only were bankers routinely appointment to powerful government posts but all agreed that free-market neoliberal ideology was the best rhetorical strategy to maintain US hegemony — even as they created the corporate state.[2]

Before long the power of capital grew to such proportions that it overshadowed even presidential power, as well as the other branches of government. The bankers’ supremacy was based on the remarkably rapid concentration of capital and control in the hands of a few. Between 1960 and 1979 there were 3,404 bank mergers, from 1980 to 1994 there were 6,345, but in a short period from 1995 to 2000 — in the middle of the Clinton presidency — 11,100 banks merged, crushing competition, centralizing power and overtaking the state in the name of the free market.[3]

Corporate Coup or Merger of the Corporation and the State?

The rise of the corporate state was nothing so sudden or confrontational as a coup. Nor will it be undone easily. Corporate power is the outcome of a century of growing corporate influence, imperial war and the historical development of capitalism itself. There was no hostile takeover — the economic policies of Reagan, Bush, Clinton, Bush, Obama and Trump — and the parties they led — fully supported the aims and ambitions of the largest bank and corporations.

[T]he federal government and Fed response to the third world debt crisis, S&L bailout, and 1987 stock market crash was to subsidize the banking system with federal and multinational money. The bankers had succeeded in pushing the presidency to back losses….They had succeeding in privatizing their profits and socializing the costs of failure. This fiscal policy had officially become US domestic and foreign policy.[4]

Socializing costs and privatizing profits reached new heights after the 2008 crisis but the instruments of corporate power were already well in place. On a few days notice the elites launched a global bailout of unprecedented scale and scope that rescued banks “too big to fail.” Few asked how we were going to pay for it but during the height of the crisis 19 $trillion was made available in subsidies and bailouts to bankers.[5] Profits and wealth inequality soon returned to record levels while permanent austerity for millions was sold as the cost of “shared sacrifice.”

The faux reform of the Dodd-Frank bill was a revealing response to the crisis because it only further cemented the corporate state while preserving the largest concentration of capital in US history.

The bill was riddled with holes punched out by bank lobbyists with Washington connections: forty-seven of fifty Goldman Sachs lobbyists had previously held government jobs (or were “revolvers”). In addition forty-two of forty-six JPMorgan Chase lobbyists in 2010 were revolvers, as were thirty-five of Citigroup’s forty-six. President Obama signed the bill into law on July 21, 2010.[6]

Dodd-Frank was the corporate-regulatory state in action.

The unprecedented concentration of capital through mergers, loan guarantees, massive bailouts to investors, enormous subsidies, tax breaks and virtually free cash infusions — while shielding the same bailed-out bankers from prosecution for fraud — made the US government the agent and guarantor of vast wealth inequality. If these payments were cash transfers to the poor it would clearly be understood as part of the liberal-regulatory state but cash transfers to finance capital are seen as what? Free market fundamentalism? No, its corporate power.

The merger between corporations and government was accomplished at the pinnacles of power. Antonio Gramsci showed us the right place to look when he wrote, “The historical unity of the ruling classes is realized in the state.”

The great wall between public and private, between government and corporation has come tumbling down. Maximizing profit and power are the new rules shaping the regulatory environment because under the dictates of the corporate state, power = money and money = power. The 2010 Supreme Court decision Citizens Unitedsimply legalized the existing order by protecting corporations as people and money as free speech. The consequences? Corporations are the only “people” who matter and money the only form of “speech” heard by politicians.

This fusion of finance capital with national executive power may well be the economic foundation of fascism. In order to secure the equivalence of money and power, the corporate state seeks to weaken democratic institutions, such as trade unions, and institutionalize austerity — paving the way for the rise of fascism. The concept of corporate power helps us better understand that neoliberalism and fascism are blood kin. One cannot save us from the other — that much should be clear.

What is the Passage Beyond Corporate Power?

The corporate capture of the state means any return to the liberal-regulatory state — let alone genuine economic democracy — would require something more like revolution. History would suggest that the kinds of popular unrest and social movements responsible for the long period of reform from the Great Depression to the end of the Vietnam War are the true engines of history and should be the true goals of strategy. For it was those movements that both created the liberal state and began a transition beyond it.

In the last revolution, the civil rights/black power and the peace/anti-imperialist movements provided transition beyond what was then called the “liberal consensus.” Many people started out from a straightforward moral perspective wanting something that seemed like an achievable and reasonable reform: peace and racial justice. Later many discovered that the entire system was largely based on racism and empire and that both Democrats and Republicans were guardians of the establishment. So to win those seemingly simple reforms people had to build disruptive movements that raised the question of capitalism, white supremacy and empire itself as a necessary part of challenging power. What will allow us passage beyond today’s neoliberal consensus?

Climate Crisis and War

The return to the liberal state would require us to literally live on a different planet. The environmental crisis will prohibit returning to past ways of reforming capitalismbecause past models were also based on permanent war, unsustainable growth and the insatiable drive to plunder earth’s resources and human labor. It’s unlikely that legislation or even significant electoral victories are going to be enough to re-regulate the corporations and scale back, let alone dismantle, the world’s largest empire. Show me an empire dismantled by legislation or an ecosystem saved by the profit motive. Show me an example from history when a crisis — of similar proportion and scale to what we currently face — was resolved by “normal” electoral means.

When the people of Standing Rock stood up against some of most powerful corporate interests in the world, their prayers, their prophecy, their vision was not to cage the “black snake” but to kill it.We defeat corporate power or it will defeat us.

Climate destruction may just be our last stand, our greatest opportunity and most dangerous crisis. But, to make the most of it we’ll have to raise revolutionary demands and adopt the movement-building strategies that have the best chance of challenging corporate power.

Notes.

[1] Hedges, Death of the Liberal Class, p.9

[2] Prins, All the Presidents Bankers p. 319-323

[3] Prins, 382

[4] Prins, 356

[5] Prins, 411-414

[6] Prins 415
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I am by virtue of its might divine,
The highest Wisdom and the first Love.

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