Modern Monetary Theory

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Re: Modern Monetary Theory

Postby Elvis » Sat Aug 08, 2020 9:14 pm

https://theintercept.com/2020/08/06/nao ... mployment/

How Not to Lose the Lockdown Generation

Lessons from the New Deal point the way forward in the era of Covid-19.

Naomi Klein
August 6 2020

Picture this: You live in rural Arkansas and tragedy strikes. A family member has fallen ill with that contagious respiratory illness that has already killed so many — but you don’t have enough space in your small home to quarantine them in a room of their own. Your relative’s case doesn’t appear to be life-threatening, but you are terrified that their persistent cough will spread the illness to more vulnerable family members. You call the local public health authority to see if there is room in local hospitals, and they explain that they are all stretched too thin with emergency cases. There are private facilities, but you can’t afford those.

Not to worry, you are told: A crew will be by shortly to set up a sturdy, well-ventilated, portable, tiny house in your yard. Once installed, your family member will be free to convalesce in comfort. You can deliver home-cooked meals to their door and communicate through open windows — and a trained nurse will be by for regular examinations. And no, there will be no charge for the house.

This is not a dispatch from some future functional United States, one with a government capable of caring for its people in the midst of spiraling economic carnage and a public health emergency. It’s a dispatch from this country’s past, a time eight decades ago when it similarly found itself in the two-fisted grip of an even deeper economic crisis (the Great Depression), and a surging contagious respiratory illness (tuberculosis).

Yet the contrast between how U.S. state and federal government met those challenges in the 1930s, and how they are failing so murderously to meet them now, could not be starker. Those tiny houses are just one example, but they are a revelatory one for the sheer number of problems those humble structures attempted to solve at once.

Known as “isolation huts,” the little clapboard houses were distributed to poor families in several states. Small enough to fit on the back of a trailer, they had just enough space for a bed, chair, dresser, and stove, and were outfitted with large screened-in windows and shutters to maximize the flow of fresh air and sunshine — considered essential for TB recovery.

As physical structures, the TB huts were an elegant answer to the public health challenges posed by crowded homes on the one hand and expensive private sanatoriums on the other. If houses were unable to accommodate safe patient quarantines, then the state, with Washington’s help, would just bring an addition to those houses for the duration of the illness.

It’s worth letting that sink in, given the learned helplessness that pervades the U.S. today. For months, the White House hasn’t been able to figure out how to roll out free Covid-19 tests at anything like the scale required, let alone contact tracing, never mind quarantine support for poor families. Yet in the 1930s, during a much more desperate economic time for the country, state and federal agencies cooperated to deliver not just free tests but free houses.

And that is only the beginning of what makes it worth dwelling on the TB huts . The cabins themselves were built by very young men in their late teens and early 20s who were out of work and had signed up for the National Youth Administration. “The State Board of Health furnishes the materials for these cottages and NYA supplies the labor,” explained Betty and Ernest Lindley, authors of a 1938 history of the program. “The total average cost of one hut is $146.28,” or about $2,700 in today’s dollars.

The TB cabins were just one of thousands upon thousands of projects taken on by the 4.5 million young people who joined the NYA: a vast program started in 1935 that paired young people in economic need, who could not find jobs in the private sector, with publicly minded work that needed doing. They gained marketable skills, while earning money that allowed many to stay, or return to, high school or college. Other NYA projects including building some of the country’s most iconic urban parks, repairing thousands of dilapidated schools and outfitting them with playgrounds; and stocking classrooms with desks, lab tables, and maps the young workers had made and painted themselves. NYA workers built huge outdoor pools and artificial lakes, trained to be teaching and nursing aides, and even built entire youth centers and small schools from scratch, often while living together in “resident centers.”

The NYA served as a kind of urban complement to FDR’s better-known youth program, the Civilian Conservation Corps, launched two years earlier. The CCC employed some 3 million young men from poor families to work in forests and farms: planting more than 2 billion trees, shoring up rivers from erosion, and building the infrastructure for hundreds of state parks. They lived together in a network of camps, sent money home to their families, and put on weight at a time when malnutrition was epidemic. Both the NYA and the CCC served a dual purpose: directly helping the young people involved, who found themselves in desperate straights, and meeting the country’s most pressing needs, whether for reforested lands or more hands in hospitals.

Like all New Deal programs, the NYA and CCC were stained by racial segregation and discrimination. And the gender roles were — let’s just say that the girls discovered they could sew, can, and heal; and the boys discovered they could plant, build, and weld. Black girls in particular were streamed into domestic work.

Yet the scale of these two programs, which together altered the lives of well over 7 million young people over the course of a decade, puts contemporary governments to shame. Today, millions upon millions of young people are beginning their adulthood with the ground collapsing beneath their feet. The service jobs so many young adults depend on for rent and to pay off student debt have vanished. Many of the industries they had hoped to enter are firing, not hiring. Internships and apprenticeships have been canceled via mass emails, and promised job offers have been revoked.

These economic losses, combined with the decision of many colleges and universities to close residences and move online, have abruptly severed countless young adults from their support systems, pushed many into homelessness, and others back into their childhood bedrooms. Many of the homes young people now find themselves in are under severe economic strain and are not safe or welcoming, with LGBTQ youth at heightened risk.

All of this is layered on top of the pain of the virus itself, which has spread grief and loss through millions of families. And that is now mixing with the trauma of tremendous police violence directed at crowds of mostly young Black Lives Matter demonstrators, compounding the murderous events that precipitated the protests in the first place. In the background, as always, is the shadow of climate breakdown, not to mention the fact that when members of this generation first heard terms like “lockdown” and “shelter in place” related to the pandemic, many of their minds immediately turned to the terrorizing active shooter drills U.S. schools have had them practicing since early childhood.

It should be little wonder, then, that depression, anxiety, and addiction are ravaging young lives.

According to a survey conducted by National Center for Health Statistics and the Census Bureau last month, 53 percent of people aged 18-29 reported symptoms of anxiety and/or depression. Fifty-three percent. That’s more than 13 percentage points higher than the rest of the population, which itself was off the charts compared with this time last year.

And that still may be a dramatic undercount. Mental Health America, part of the National Health Council, released a report in June based on surveys of nearly 5 million Americans. It found that “younger populations including teens and young adults (25<) are being hit particularly hard” by the pandemic, with 90 percent “experiencing symptoms of depression.”

Some of that suffering is finding expression in another invisible crisis of the Covid era: a dramatic increase in drug overdoses, with some parts of the country reporting increases over last year of 50 percent. It should all be a reminder that when we talk about being in the midst of a cataclysm on par with the Great Depression, it isn’t only GDP and employment rates that are depressed. Huge numbers of people are depressed as well, particularly young people.

This is, of course, a global crisis. U.N. Secretary-General António Guterres recently warned that the world faces “a generational catastrophe that could waste untold human potential, undermine decades of progress, and exacerbate entrenched inequalities.” In a video message, he said, “We are at a defining moment for the world’s children and young people. The decisions that governments and partners take now will have lasting impact on hundreds of millions of young people, and on the development prospects of countries for decades to come.”

As in the 1930s, this generation is already being referred to as a “lost generation” — but compared to the Great Depression, almost nothing is being done to find them, certainly not at the governmental level in the U.S. There are no ambitious and creative programs being designed to offer steady income beyond expanded summer job programs, and nothing designed to arm them with useful skills for the Covid and climate change era. All Washington has offered is a temporary break on student loan repayments, set to expire this fall.

Young people are discussed, of course. But it is almost exclusively to shame them for Covid partying. Or to debate (usually in their absence) the question of whether or not they will be permitted to learn in-person in classrooms, or whether they will have to stay home, glued to screens. Yet what the Depression era teaches us is that these are not the only possible futures we should be considering for people in their late teens and 20s, especially as we come to grips with the reality that Covid-19 is going to be reshaping our world for a long time to come. Young people can do more than go to school or stay home; they can also contribute enormously to the healing of their communities.

While guest hosting Intercepted this week, I dug into what it would take to launch youth employment programs on the scale on the NYA and CCC — programs that, like their predecessors, addressed broad social needs while giving young people cash, skills training, and opportunities to work and possibly live in each other’s company. Put another way: What are the modern day equivalents of the home-delivered, NYA-built tuberculosis isolation hut?

Delving back in the history of New Deal youth programs, I was struck by how many of its projects have direct application to today’s most urgent needs. For instance, the NYA made huge and historic contributions to the country’s educational infrastructure, with a particular emphasis on low-income school districts, while training many young women as teaching assistants. It also provided significant reinforcements for an ailing public health system, training battalions of young people to serve as nursing aides in public hospitals.

It’s easy to imagine how similar programs today could simultaneously address the youth unemployment crisis and play a significant role in battling the virus. As just one example: We sure could use some of those nursing aides if there is a new surge of the virus this winter. A New York Times investigation last month quoted several doctors and nurses who are convinced that significant numbers of the Covid-19 deaths that took place in New York’s public hospitals could have been prevented if they had been adequately staffed. In emergency rooms where the patient-to-nurse ratio should not have been higher than 4 to 1, one public hospital was trying to get by with 23 to 1; others weren’t doing much better. Nightmare stories have emerged of disoriented patients pulling themselves off of oxygen machines and other vital equipment, trying to get up, and with no one there to stop them, dying alone. More nurses would have made all the difference.

Then there are the public schools, similarly understaffed after decades of cutbacks, that will be trying to enforce social distancing this year. If we weren’t in such a rush to get back to a bleak and diminished version of “normal,” there would be time for a NYA-style program to train thousands of young adults to help reduce class sizes and supervise kids in outdoor education programs.

And since we know that the safest place to gather is still outdoors, some college-age students could pick up the work begun by the NYA and expand the national infrastructure of trails, picnic areas, outdoor pools, campsites, urban parks, and wilderness trails. Thousands more could be enrolled in a rebooted CCC to restore forests and wetlands, helping draw planet-warming carbon out of the atmosphere.

Creating these kinds of programs would be complex, and costly. But the individual and collective benefits would be immeasurable. And as was the case during the Great Depression, many young people would be given the chance to do something they desperately want and need to do right now: Get the hell out of their childhood homes and live with their peers.

On Intercepted, I spoke about this prospect with Neil Maher, professor of history at Rutgers University–Newark and the author of a definitive history of the Civilian Conservation Corps, “Nature’s New Deal.” He told me that in his research into the CCC, he came across many participants describing their time in the program as a kind of sleepaway camp or even an outdoor university: a unique chance to live collectively, away from their families and the city, and become adults. But unlike so many actual university campuses that can’t reopen safely — given the daily commutes of faculty, staff, and many students — modern-day CCC-inspired camps could be designed as Covid “bubbles.”

The program would have to test participants on the way in, quarantine anyone who tested positive for two weeks, and then everyone would stay at the camp until the job was done (or at least their part of it). It could be that rare triple win: Heal some of the damage done to our ravaged planet, offer an economic and social lifeline to people in need, and design what might be one of the most Covid-safe workplaces around.

In the panic about this “lost generation,” there has been a lot of talk about how there is no work for young people. But that is a lie. There is no end of meaningful work that desperately needs doing — in our schools, hospitals, and on the land. We just need to create the jobs.
“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 Elvis » Mon Aug 10, 2020 12:05 am

The Chicken Littles are at it again. No, the sky is not falling on Social Security.

When someone says that at some point the US government might not be able to meet its Social Security obligations, they're either mistaken or lying.

If they're merely mistaken — that's mainly due to a decades-long psyop to make the public think money is a scarce, private resource. The psyop was carried out from the lecterns, pulpits, news desks and popular platforms of America, and continues today as the financial industry tries to get its hands on another fat chunk of Americans' paychecks.

If they're lying — they just want your money, and/or want you to suffer.

Threadroll edited for readability:

https://threadreaderapp.com/thread/1005 ... 13089.html
Scott Fullwiler
@stf18
2 years ago

There are 3 separate issues regarding ability to provide SS/Medicare in future years--financial ability to pay, legal authority to pay, & productive capacity to provide increasing standard of living to future workers & non-workers.

Unfortunately, these 3 separate issues are not kept separate in public discourse by journalists, policy makers, SS/Medicare trustees, and even economists.

First, though, let's understand that the SS/Medicare trust funds are about the LEGAL authority to provide benefits. They are not about FINANCIAL ability to provide benefits . . .

. . . In the future, when/if the payroll tax does not cover legal authority to pay all benefits & SS/Medicare "cash in" the bonds owned by trust funds, govt will get legal authority to pay benefits via general revenues or selling securities (deficit).

But this is exactly what govt would do WITHOUT trust funds--get legal authority to pay benefits beyond payroll tax revenues either from general revenues or selling securities (deficit)

Because govt does same thing w/ or w/o trust funds, trust funds do not provide FINANCIAL ability to pay, only LEGAL ability. But just as sufficient balances in trust funds provides no FINANCIAL ability to pay shortfall is not a legit argument against FINANCIAL ability to pay

FINANCIAL ability to provide future benefits is NEVER in question for a monetary sovereign. FINANCIAL ability to pay is a POLICY CHOICE, not a constraint. Greenspan explains this here very clearly in first 18 seconds [video link dead, refers to this clip:]


https://www.youtube.com/watch?v=Ck3FuTzZvhI

LEGAL authority to pay is also a POLICY CHOICE, not a constraint. For example, Govt could pass law giving trust funds 100% interest/year (remember, trust funds aren't about FINANCE, so not a problem FINANCIALLY), which would provide LEGAL authority to pay SS/Medicare FOREVER

Another example of providing LEGAL authority to pay future benefits is to pass a law saying govt will pay full benefits. @StephanieKelton explains here that we already do this in some cases

http://neweconomicperspectives.org/2011 ... other.html

4 Trust Funds, 3 Problems: Why is the Other one so “Healthy”?


So, FINANCIAL ability to pay and LEGAL authority to pay future benefits are POLICY CHOICES. They are UNCONSTRAINED by anything other than policy makers simply writing a law saying the benefits will be paid. Anyone who says otherwise is muddling the 3 separate issues

However, ability to provide future standards of living to retirees and rest of population w/o cutting benefits IS a constraint. If you just run deficits to pay benefits in future, if productive capacity is insufficient you will get inflation, not more real goods/services.

Greenspan again explains this clearly here starting at 45 seconds in


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

Lastly, some are talking about Fed simply transferring its govt bonds to trust funds as way to ensure future entitlements. This is simply a transfer of assets from one agency of govt to another, and shows clearly that LEGAL authority to pay is always a POLICY CHOICE ...

BUT, Fed transfer of its securities does not work under current law because to debit Fed assets you have to debit Fed capital (equity). Fed is legally required to send its retained earnings to Tsy, so they are part of govt budget position . . .

So, if Fed transfers its securities and debits its capital, under current law, this would increase current and future govt deficits by same amount until Fed's capital was built back up.

Of course, yet again, you could simply change the law and do some creative accounting on Fed's balance sheet for this debit of assets and capital. So, again, LEGAL authority to pay is a POLICY CHOICE.

In sum, always remember that govt ability to LEGAL authority and FINANCIAL ability to pay benefits are NOT CONSTRAINTS, they are CHOICES, just like govt chooses to pay for wars, cut corporate taxes, etc., all the time. It can ALWAYS choose to authorize and pay SS/Medicare

The only actual hard constraint on future entitlements is PRODUCTIVE CAPACITY to pay these benefits and maintain standards of living for others at same time.

Thus it is NOT useful for informed policy debates to have CBO & SS/Medicare trustees to forecast "solvency" of trust funds in the manner they do now.

However, it WOULD BE useful for them to say "our analysis shows govt has CHOSEN not to legally fund these programs in full after 20XX; if it CHOOSES to do so w/o taxes/spending cuts, given assumptions in our econ model we forecast inflation to be X%."

DONE!


Original Twitter w/replies, e.g.,

:arrow: "Trust fund is just an internal accounting device for historical program cash flows."


Much ado about nothing.
https://www.forbes.com/sites/johntharve ... 8968585277

Apr 8, 2011,06:16pm EDT
Why Social Security Cannot Go Bankrupt
John T. Harvey

It is a logical impossibility for Social Security to go bankrupt. We can voluntarily choose to suspend or eliminate the program, but it could never fail because it “ran out of money.” This belief is the result of a common error: conceptualizing Social Security from the micro (individual) rather than the macro (economy-wide) perspective. It’s not a pension fund into which you put your money when you are young and from which you draw when you are old. It’s an immediate transfer from workers today to retirees today. That’s what it has always been and that’s what it has to be–there is no other possible way for it to work.

To explain this, let’s create a simple world. Say there has been some sort of terrible global calamity and we only have ten people left. Further say that these ten decide to make the best of it and set up a society, including an economy. Of course, much of humanity’s technology is now lost to us, so our level of productivity is very low. As a starting point, assume that each of us is only able to produce enough output for herself or himself to survive.

How many people can retire under these circumstances? Obviously, none. Anyone who stops working, starves. It is irrelevant how many people over 65, disabled, or otherwise deserving there are, no one can quit because our level of productivity is too low. Nor is it helpful to have a pile of cash somewhere. No amount of money can change the fact that one person can only make enough goods and services for one person. If there are ten people to feed, clothe, and shelter, then ten people must work. This reality is inescapable and is the reason why the real determinant of the feasibility of Social Security (or any other type of retirement system, private or public) is productivity. If it falls short, then supporting a class of retirees is impossible, regardless of how much cash we have on hand; if it does not, however, financing it is trivial. This will be shown below.

Now let’s say it’s been several years and we have been able to increase our productivity. To make the math simple, double it. This gives us some options:

1. We could all keep working and just double our standard of living.
2. Five people could keep working and share half of their stuff with the other five, giving us each the same standard of living as at the start.
3. We could adopt an intermediate position with more than zero but fewer than five retirees, allowing us both a chance to retire and a higher standard of living.

The third would probably be the most attractive, and it is what we have actually experienced. Productivity growth has been such that, not only have people been able to retire, but we are each better off, too. Assuming we follow this path, what is the next step?

First, we would need to agree on how many people get to retire, what the criteria are, and what their share will be. As that’s more politics than economics, however, I won’t say too much about it other than to say that there is no reason to assume that the retirees should get exactly the same cut as the workers. We could decide they get more, less, or the same. The possibilities are determined by productivity, while the specifics are a function of our sense of justice and our national philosophy (and, if we are realistic about it, the distribution of power).

To make the example concrete, say we decided that three of our survivors qualify for retirement (leaving seven workers) and that we will all get equal shares. This would mean that each worker would get to keep 70% of what they produced, passing the remaining 30% to the retirees (if you grab a calculator, you’ll see that gives everyone the same share–however, understanding this is not important to the rest of the story). And that’s it–we are done. With only ten people, it doesn’t need to get any more complicated. We have a retirement system and we don’t need to talk about money at all. We just say stuff like, “Hey, Bob! I caught ten fish today–which three do you want?”

In the real world, however, there are more than ten people and thus the coordination of this effort becomes much more complex. And this is where money comes in. Its function is to enable the transfer of output from current workers to current retirees in a world where we are not all neighbors. Money does not, to reiterate, have anything whatsoever to do with whether or not we can support retirees, how many they can be, or how much they can have. That is 100% a result of productivity. Money is only the mechanism we use to make sure Bob gets his three fish.

To give it a more realistic feel, change the numbers from 7 workers and 3 retirees to 70 million and 30 million. Now what to do? Even if we have unanimous agreement on our plan, how can we make sure that retirees get their cut if it is no longer as easy as picking three fish from a basket full of ten? The most obvious and straightforward means is this: set a tax of 30% on the salaries of existing workers and give it directly to the retirees–right now, today, immediately. Have the money come straight out of your paycheck and right into your grandmother’s bank account. This accomplishes the goal neatly and directly–and it’s exactly what we do in real life. This is how Social Security actually operates. As you can see, this needs no prior financing or savings, nor would that appear to be particularly helpful. At the national level, maintaining a class of retirees (whether via Social Security or private pensions) means redistributing existing output, not putting money under your mattress. Although you can run out of money for retirement, we, as a nation, cannot.

What, then, you may ask, is the Social Security Trust Fund, the pool of money that people say will dry up and make it impossible for anyone to receive their Social Security payments? It is the surplus that resulted from having collected more in taxes than was necessary to pay out to retirees. Let me say that again: it is how much existing workers were overtaxed relative to the need to pay retirees in the past. It was never the source of the money we’ve been paying to Social Security recipients all these years. Strictly speaking, it’s completely unnecessary if we are able to precisely and continuously match tax revenues and pay outs.

We cannot do that, of course, partly because we are dealing with millions of people in a complex economy. In addition, while the payments to retirees are fairly formulaic and change in a predictable way (we can figure how many people are about to reach eligibility and how much they will draw), the revenues fluctuate with the state of the economy. They rise during expansions and fall during recessions. The trust fund can therefore serve as a place to park excess revenues when taxes exceed expenditures and from which additional funds can be drawn when the reverse occurs. It’s a buffer, sort of like that give-a-penny-take-a-penny tray at the local convenience store. As always, however, productivity and productivity alone determines our ability to support a class of retirees. This is only about how we coordinate that system.

There is another trust fund issue and it is the one related to the expected increase in the ratio of retirees to workers over the next couple of decades. This would presumably cause a net drain on the fund since payments to retirees might increase relative to tax revenues. This is actually the specific phenomenon to which many people are referring when they say that Social Security is going to go bankrupt. However, a) there is no guarantee this will occur since rising productivity could drive up wages sufficiently to compensate (although our trend of stagnating wages relative to profits is frustrating this) and b) even if that did occur, this hardly means that Social Security is kaput. Any shortfall can always be addressed in a very straightforward and supremely logical fashion: raise taxes or lower benefits (and it is exceedingly like that even if this occurs, we aren't talking about anything drastic). It bears emphasizing, however, that such changes would still be a function of productivity and have absolutely, positively nothing to do with how much money we have or haven’t saved up. Funding, finances, money, taxes, etc. are part of the coordination mechanism, not the feasibility.

The lesson from this is that if we want Social Security to “be there” when we retire, our efforts must be focused on increasing productivity and making sure in particular that these increases get passed on to workers in the form of higher wages. But raising the value of the trust fund is, in this respect, pointless. Even if we had an infinite amount of money in it such that we could reduce all workers’ taxes to zero and still pay retirees, the exact same thing is still happening: Bob is getting three fish from the basket of ten, leaving seven for the original fisherman. Whether we accomplish this via direct taxation or from a pool of funds is absolutely, totally irrelevant in terms of the underlying economic impact (except for the fact that paying retirees from a fund is likely to cause inflation–explaining why is a little complicated so I don’t pursue it here). We are fooling ourselves if we think that taking money from the trust fund is giving us a free lunch. If there are only ten fish, there are only ten fish. Nothing other than changing productivity can affect that. The trust fund is worth having as a buffer, but it has zero to do with the feasibility of the system. If it runs out tomorrow, we can still have Social Security because we still have ten fish.

Incidentally, there appears to be every indication that productivity increases should be sufficient for the Baby Boomers to retire AND allow the rest of us enjoy even higher standards of living (assuming the compression of wages ends). That’s good news. In fact, it’s the only news that’s important.

In closing, I'm not telling you whether you should be for or against Social Security, but the argument that it is going bankrupt is a non-starter. It is much ado about nothing.

I am a professor of Economics at Texas Christian University, where I have worked since 1987. My areas of specialty are international economics (particularly exchange rates), macroeconomics, history of economics and contemporary schools of thought....



https://fair.org/home/media-treat-trump ... nt-report/
June 8, 2018
Media Treat Trump Administration’s Partisan Fear-Mongering as Objective ‘Government’ Report
Adam Johnson

On Tuesday, dozens of media outlets broke what at first seemed to be a major story about “the government” announcing that Social Security and Medicare will be broke in less than 20 years:

Medicare Will Become Insolvent in 2026, US Government Says (AP, 6/5/18)
Medicare’s Trust Fund Will Be Depleted in 2026: Trustees Report (The Hill, 6/5/18)
Trustees Report That Social Security Benefits Are at Risk in 16 Years (Forbes, 6/5/18)
Social Security Must Reduce Benefits in 2034 if Reforms Aren’t Made (CNN, 6/5/18)

If the lifelines of millions of poor, elderly and disabled were going to crumble in less than a generation, this would be major news indeed. But they’re not really. Or, at least, we have no objective reason to believe they will, since the authors of the report was not “the government,” as it’s generally understood—the Congressional Budget Office, or some other ostensibly bipartisan “commission” sanctioned by “both parties”—but the not-so-reliable Trump White House. The same White House that has a long, documented track record of venality, lying and corruption, and leads a Republican Party that has been quite explicit in its desire to “reform” Social Security and Medicare through slashing and privatizing.

The report was commissioned by the US Social Security Trustees, a benign-sounding but overtly partisan group of people all appointed by Donald J. Trump. Of the seven slots, two are vacant and the other five—Steven T. Mnuchin, secretary of the Treasury; R. Alexander Acosta, secretary of Labor; Alex M. Azar II, secretary of Health and Human Services; Nancy A. Berryhill, acting commissioner of Social Security; and Mark J. Warshawsky, deputy commissioner for retirement and disability policy—were all put on the commission by the White House.

Three of the “trustees,” Mnuchin, Acosta and Azar, are Trump cabinet members. Berryhill worked for the Society Security commission prior to Trump’s term, but was elevated by him in 2017, and Warshawsky has previously served as assistant secretary for economic policy at the Treasury Department under George W. Bush from 2004 to 2006, and since then has frequently been published in right-wing outlets like the American Enterprise Institute and the Wall Street Journal. Put another way: The report is a partisan document produced by partisan actors.

The New York Times (6/5/18) was one of a few major outlets to note this fact. Though its headline was as bad as the others, simply asserting as fact that “Medicare’s Trust Fund Is Set to Run Out in 8 Years. Social Security, 16,” the article by Robert Pear at least noted the actual source of the claim, starting out by noting the ideological source of the the “report” (emphasis added):

The financial outlook for Medicare’s Hospital Insurance Trust Fund deteriorated in the last year, and Social Security still faces serious long-term financial problems, the Trump administration said on Tuesday.


Image
...

NBC Nightly News (6/5/18) also got into the uncritical fear-mongering game. Citing “the government” in a quick segment, anchor Lester Holt lamented, “The report said [the Social Security] trust fund will run out of [money] by 2034 unless Congress acts to fix Social Security’s finances.” Got to act now—call in the next ten minutes!

The Washington Post editorial board (6/6/18) was equally Very Concerned, but had a unique twist, turning a Trump administration report into a bludgeon to attack Trump from the right. Citing “the trustees who oversee Social Security and Medicare”—and without, of course, mentioning they’re all Trump appointees—the Post criticized Trump for “refusing to act” on “modest reforms.” An obligatory do-goody line about how much harm the Republican tax cuts did was thrown in, but the message the administration wanted to send, that Social Security and Medicare need to be cut, was firmly reinforced.

Image

CNN (6/5/18) was one of the most egregious offenders, skirting the “officials say” or “report” frame altogether, and simply asserted in its headline that Social Security was, as a point of fact, doomed:

Image

“Must reduce benefits,” according to whom? CNN doesn’t say, really, only citing these mysterious “Social Security and Medicare trustees.” Everything is presented as a bunch of bureaucrats calling balls and strikes.

And why does “reform” always seem to mean a variety of schemes to cut benefits?
...

Such myopia is a common occurrence when it comes to cutting programs for the poor. Despite having zero questions about poverty or climate change in the 2016 presidential debates, the billionaire-funded Committee for a Responsible Federal Budget was held up as an objective, sober think tank in not one but two debate questions, by CBS’s Elaine Quijano and Fox News’ Chris Wallace—despite its decades-long ideological project of privatizing Social Security (FAIR.org, 10/21/16).

...
Image

... Corporate media ought to subject this claim to skeptical scrutiny, not mindlessly repeat it because some Trump flunkies said so.



http://neweconomicperspectives.org/2011 ... other.html
4 Trust Funds, 3 Problems: Why is the Other one so “Healthy”?
Posted on April 6, 2011 by admin | 8 Comments

By Stephanie Kelton

Every year, the Trustees of Social Security and Medicare issue an annual report that examines the financial status of the various “trust funds” that purportedly sustain these vital programs. Social Security’s (OASI) and (DI) Trust Funds, as well as Medicare’s (HI) Trust Fund all face chronic problems, some in the not-too-distant future. In contrast, Medicare’s (SMI) Trust Fund always receives a clean bill of health. Why is that?

The answer is so simple it apparently escapes notice, but here it is, straight from the annual report:

The Hospital Insurance (HI) Trust Fund is expected to remain solvent until 2029. The Disability Insurance (DI) fund is projected to become exhausted in 2018. And the Old-Age and Survivors Insurance (OASI) Trust Fund is considered adequately financed until 2040. In contrast:

Part B of Supplemental Medical Insurance (SMI), which pays for doctors’ bills and other outpatient expenses, and Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.


In other words, it is sustainable — INDEFINITELY — because the government is committed to making the payments. Indefinitely.

And, as we have argued many times on this site (and elsewhere), the same commitment can easily be made to sustain Social Security (OASI and DI) and Medicare (HI) in their current form. There is no economic justification for cuts to either program. The decision is entirely political.

The American people must realize this before it is too late.
“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 Elvis » Fri Aug 21, 2020 4:46 am

Awkward moment at ECB press conference.


https://youtu.be/7EYW85tcKuo

:lol:
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Re: Modern Monetary Theory

Postby Belligerent Savant » Tue Aug 25, 2020 8:32 pm

.


Elvis » Mon Aug 24, 2020 9:43 pm wrote:
Iamwhomiam wrote: The Dore piece was accurate and the Carlin bit too, Hard to believe how long ago his performance was, considering he died in 2008.


Everything Carlin says in the bit is correct.

The Jimmy Dore segment is mostly right but Dylan Ratigan makes a common mistake in his thinking.

It may be interesting to note that Ratigan's comments opening his appearance are from 2011, referring to the 2008 GFC, well before the Covid crisis. By 2019, we were in about the same place as before the GFC, but with even slightly higher employment, so I think his remarks were a little overheated. This recession is worse and will certainly end up with more financial consolidation than before.

In 2011 Ratigan said, "Tens of trillions of dollars are being extracted from the United States of America."

What does that even mean?

The only way to meaningfully extract US dollars from the USA is for the federal government to tax them gone. (Some paper cash goes abroad outside the US system, but otherwise 90+% of USD live at the Federal Reserve.) But I don't think that's what he means.

I'm sure he means the financial sector extracting money from consumers. Ratigan says we "kick the can down the road" "using "taxpayer money" but he's confused about where the money starts.

Also, $10 trillion is pushing it as far as the existing savings that can be taxed. The government would have to, ah, spend the money into existence first. That makes things a little different, doesn't it?

On one hand Ratigan keeps saying that "taxpayers" are paying for all this, then on the other hand he says, "the only place to get money is from the government." Those two entities—taxpayers and the federal government—are two fundamentally distinct sectors of the economy, and which one's paying makes all the difference. So which is it? He makes the category error of treating US government finances like a household's. One creates the money, the other doesn't.

Ratigan refers to the Federal Reserve as separate from the government, a fallacy explained here. This contrubutes to his confused interpretation of the extractions he outlines:

- "through banking" — Yes! This part is right of course. Taxpayers (in aggregate) get net $$ savings from federal budget deficit spending—then the financial industry finds ways to take it away from them.

- "through trade" —No. In the US we get tons of real goods at cheap prices from overseas, it's a good deal. Of course the carbon footprint of all that manufacturing & transportation needs to be addressed immediately, but trade-wise the US is (was) doing okay. Imports are a benefit, adding real goods; exports are a cost—sending away real resources. Also, given the three broad sectors—government, private and foreign—a foreign trade deficit allows the US to more easily run a private sector financial surplus (the flipside of a government deficit), since one sector's deficit must equal another sector's surplus.

- "through taxes" — No. Through its dollar outlays, the federal government provides the net financial surplus we use to pay taxes. It's understood that when the government spends, some will be taxed back. It's a removal of money. Federal taxes are where dollars go to die.


Ratigan rightly says the need for universal income & healthcare is "obvious"—but he needs to stop thinking in terms of "kicking the can down the road." Future taxpayers will not be paying for it—rather, they will inherit the benefits of a healthier society.


Covid-19 has brought these basic issues to the fore, and there's a battle for our minds over it.


Moving this to the MMT thread as I'd like to explore this further, more broadly.

This is not an urgent request, of course, but I'd be obliged if you can reframe this all as if you had to explain it to a 10 yr old. I mean this earnestly -- no sarcasm.

Part of my inquiry is based on what I'm interpreting, in your descriptions, as an inherent trust in our monetary system. Near the end, you type, "Future taxpayers will not be paying for it—rather, they will inherit the benefits of a healthier society."

Inherit the benefits of a healthier society? How? I see nothing approximating a future 'healthy' society without some massive overhaul of current systems.

But perhaps I'm simply not tracking this theory, hence the ask to explain it in the most basic/fundamental/simple terms -- to the extent you've got the patience to indulge me, that is.

Your descriptions/understanding of MMT may well be accurate (and far be it from me to determine that one way or another), but that doesn't necessarily mean that our current system currently operates under such a model, at least as intended by the theory. For example, we can describe a democracy and point to all the ways our system of govt overtly represents a 'democracy', but we all know better than that, right? Our system, of course, is not a 'democracy'.

[I reserve the right to walk back my last assumption once I have clarity on this topic -- right now I'm speaking largely from a position of relative ignorance]


On edit, this piece below provides a useful overview -- Elvis, welcome your thoughts otherwise. (other than the cringe-worthy description of Elizabeth Warren as "uber progressive", among a few other bromides that raise my cynical eyebrow).



What Is Modern Monetary Theory? An MMT Theorist Explains

A resurgence in a popular economic theory might make it possible for Universal Child Care and other programs to actually see the light of day.

The national debt is ballooning, surpassing $22 trillion. Conservatives and progressives alike, are aghast at the number and different political parties will use this number to different ends, but all will say the debt is immoral and that we are leaving our kids with an untenable fiscal situation. So, therefore, when programs like the Green New Deal or Medicare for All, or a Universal Childcare Program are proposed, an obvious question is asked: Okay, but how do we pay for it?

Conservatives say we should cut taxes so private corporations and billionaires will put more money into the economy. Many progressives abide by the pay-go rule and say that we have to levy taxes to pay for programs and to pay down the debt. Elizabeth Warren herself just proposed a huge plan — the Universal Child Care Act — and a way to pay for it by taxing the uber-wealthy, which would put some $1.75 trillion into the economy over the next decade.

But what if all of them were wrong? What if we’ve all been thinking of taxes and that funny little pay-go rule the wrong way all along? What if the national debt doesn’t actually matter, and taxes don’t pay for anything?

That’s what Modern Monetary Theory, a niche economic theory that has gained ground with the introduction of the Green New Deal, argues. The complex theory works on the idea that because the U.S. can borrow in its own currency, it can therefore continue to borrow on itself. Some argue that MMT presents a solution. But what might that solution be? To gain more information, Fatherly spoke to Fadhel Kaboub, an MMT theorist, president of the Global Institute for Sustainable Prosperity, and professor at Denison University, to put it into perspective.

For those who are unaware, what is Modern Monetary Theory?

The people who usually try to find the bumper sticker description of MMT end up with something very simplistic and misleading, which is, sovereign governments can print their own money so they can spend it on anything they want. That’s technically true, but it’s not what MMT is all about.

So what about that isn’t true?

Well, let’s talk about what we mean by a sovereign government. It’s not really sovereign in the political sense, which is what most people are really thinking about the government that has independence and territory, a military, a flag, and all that stuff.

We’re talking about monetary sovereignty. A monetary sovereign government is a government that issues its own currency. Most governments do that. It’s also a government that taxes its population in that same currency, which most governments can do. The third condition is that it’s a government that issues debt denominated in its own currency. So when the treasury issues government bonds, they’re all denominated in U.S. dollars. The Japanese debt, for example, is also denominated in Japanese yen. But if you look at developing countries, they issue debt denominated in foreign currencies, which is where they lose their monetary sovereignty.

The fourth is related to the third. It’s the idea of governments not fixing the value of their currency to a foreign currency or taking their currency to gold, silver, or any specific commodity. In other words, monetary sovereign governments don’t follow the gold standard [BSavant comment: I understand there's arguments to be made for and against this, but what assurance do we have that basing the value of currency on, essentially, the faith of the system in place is the best option?] or fixed exchange rate regimes. For developing countries, sometimes they have to, because of the structural conditions they have. But the U.S. has all four conditions of monetary sovereignty.

So you need monetary sovereignty to live under the MMT. So, if the U.S. is a monetary sovereign nation, what next?

MMT re-establishes a logical foundation for understanding the monetary system. In the mainstream understanding of the monetary system, we have it backwards. We usually say that taxpayer money pays for the infrastructure, the war, the education, and the fire department. That’s illogical when we think of it from the federal government perspective. It’s true at the local, state level, but it’s not true at the federal level.

How so?

MMT makes a distinction between the issuer of the currency, which is the federal government, and the users of the currency, which is everybody else. States, municipalities, us, individuals, families, households, and companies, and the rest of the world. Once we look at that distinction, it becomes illogical to say the government needs to borrow money in order to spend it. In order for the U.S. dollar to exist in circulation in the economy, it must come from the only source: the federal government.

What do you mean?

The federal government spends money into existence. That’s what allows for the circulation of currency in the system, so that the rest of us can use, spend, borrow, and lend it to each other and use it to pay taxes back to the government. So, in MMT, first, the government spends, then taxes some of it back. Then the question becomes: if taxation doesn’t fund government programs, what’s the purpose of taxation?

MMT’s explanation: Because taxation is required for everyone, it creates demand for an otherwise useless piece of paper. The US dollar is not backed by gold or silver. So that in and of itself gives it value. It’s required via the coercive authority of the government. It’s required for the payment of taxes.

Okay, so taxation gives money value, but it isn’t required for enacting new programs that would require a lot of federal spending. So, why are taxes still important in the MMT framework?

Taxation also withdraws money from the system. So, yes, the government can spend anything it wants, but that would put too much money in the system, which would allow consumers to go on a shopping spree and could cause inflation. So taxation takes some of that money out of circulation. It can tame inflation.

What’s stopping us from adopting an MMT mindset and just going right into funding a huge social program right now, tomorrow?

Inflation is the limit. Let’s say, tomorrow, we decide as a nation that dental care is a human right, and we are going to provide it to every person in this country. Anyone can call up their dentist and schedule an appointment without insurance. The government is going to pay for it. I call my dentist and say, ‘I’d like to schedule an appointment.’ They say, ‘Sure. We’ll put you on the list and we’ll see you in 2035.’ And I say, ‘Why?’ They’ll say: ‘Because everyone is calling and everyone is scheduling because they were excluded before that.’

What good does it do for us, having the government pay for dental care, if we don’t actually have the physical resources and productive capacity to provide those things? The dentist will say, ‘By the way, we have this premium platinum service where you pay $7,000 and we put you in an elite club and you can schedule your appointment next week.’

If you have a shortage of productive capacity, and a huge amount of demand, regardless of whether we have the money or not, that will cause inflation. MMT says let’s increase the productive capacity of all the things that we care about: renewable energy, medical services, whatever the national priorities are. The good thing is those resources are producible. Dentists can be trained.

So, obviously MMT became newsy when Alexandria Ocasio-Cortez brought it up when being pressed on how we would pay for the Green New Deal (GND), which appears to be an infrastructure plan to create domestic green energy. Is that intentional?

More government spending, if it’s done the right way, actually reduces inflation, it doesn’t cause it. If you spend money on training doctors and nurses and building solar renewable energy, that will reduce inflation. What drives inflation in the U.S. today is four major areas: Housing, college education, energy, and healthcare. The MMT policy framework that deals with inflation says: let’s target those four areas and kill inflation at the source. So, when we talk about a Green New Deal, a job guarantee, Medicare For All, it’s really about reducing cost in those areas.

With the GND, we’re talking about building alternative sources of energy away from fossil fuels because, most of the energy, transportation, and electricity generation that we have in the U.S. is driven by fossil fuels, which is priced internationally. The best way to insulate the U.S. economy from that source of inflation is to produce it domestically at a much lower cost. The only way to do it is to scale up production of renewables, which creates thousands of jobs, and will protect the US economy from any fluctuation in oil prices or energy prices because of global conflict. That’s the MMT lens. It allow you to go to the root causes of inflation.

Parents worry a lot about the national debt. It’s skyrocketing, and a lot of parents worry that we’re leaving our children with a debt that they will never be able to pay for, that they’ll drown under. How does MMT respond to the threat of a growing deficit?

Deficit hawks, economists, and politicians say the national debt is immoral and irresponsible, because it’s us, adults, spending irresponsibly, and then passing on the debt to our children and grandchildren, which then, in their generation, they have to tax themselves more to pay for. During the elections, we’ll get postcards of pictures of babies crying that say “The national debt is irresponsible and is a burden on future generations.”

The more deficit-dove perspective, the Paul Krugman, middle of the road, liberal type, they say, “The debt is not immoral or irresponsible, because responsible parents also borrow money to buy a house, buy a car, and they pay it off on time.” There’s nothing wrong with debt, per se. It doesn’t need to be paid off completely. But it does have to be managed within reason. For them, the reasonable time to borrow and spend is when interest rates are really low, when there’s a deep, severe recession and we need to jumpstart the economy. As soon as things go back to normal and it becomes expensive to borrow, the government should balance the budget and not massively spend.

What we call the national debt is not the same thing as a personal debt. From an MMT perspective, we don’t believe that taxes fund government spending, so when those payments come due, principal and interest, the government pays for it the same way it pays for anything else. Congress approves the payment to bondholders. If that puts too much money in the system, MMT says: we will do the same thing we always do, which is either tax more to take money out of circulation to combat inflation or sell more bonds to take money out of circulation, or whatever the source of inflation is, go after it at the source. There is zero risk of default from an MMT perspective as long as you have monetary sovereignty.

Elizabeth Warren, who is uber progressive, plans on paying for the Universal Child Care Plan she proposed by levying a wealth tax. Is that a disingenuous argument, based on MMT?

Taxing the rich, which is a hot topic these days, is not because we need their money to fund education or public health. Taxing the super rich should be because inequality has negative effects on society. It should be to protect the democratic process. We say democracy is one person and one vote. But in practice, it’s the billionaires who have huge influence politically, via lobbying and political campaign contributions, so taxing excessive wealth is a way of protecting democracy from oligarchy. Not because we need their money for education.

So we won’t actually be taxing the wealthy to pay for the program. We’ll be doing it to combat inflation if we were to put this huge infrastructure package in our budget.

Exactly. It’s completely misleading for a congress or anybody running for office to say, “I’m going to tax this in order to pay for that.” That’s not how that works.

We’re not going to transition into an MMT world. MMT is the way the world is. It’s just that Congress has this silly rule of tying their hands behind their back and saying, “Sorry, we can’t do this unless we do the other thing.”

MMT is not new. World War II came right after the Great Depression. The country was broke, there was no money, there was nobody to tax and borrow from, and then this massive challenge of saving the world was on the table. We spent money into existence and built a massive military industrial complex to win the war. The taxing happened during and after the war. The borrowing — the freedom bonds and war bonds the treasury issued — happened during the war, not before. It was after the money was spent, and people had cash to spend, that’s when war bonds were sold, to capitalize on the patriotic mood of the population, and primarily to convince the population to abstain from consumption until after the war. The government said, “Give me your cash, I’ll give you this government bond, I’ll pay you back in ten years, plus interest.” And that’s exactly what people did. Because there were no new cars and no new homes to buy or build. Everybody was working for the war effort. Had it not been for the war bonds, and the taxation that happened during and after the war, and price controls, there would have been hyperinflation.

So there’s a reason the Green New Deal is styled so purposely after the New Deal effort. It’s an infrastructure plan, to build a capacity of workers, to create national energy programs, to combat inflation and save the planet.

There’s one element that everyone in the media so far is missing, or at least criticizing with the Green New Deal. People ask, “Why are you including everything and the kitchen sink? Medicare for all, energy, inequality, why is it everything at once? Why not just do the green stuff?” This is precisely where they fail to recognize the MMT approach on inflation. The main sources of inflation are health care, energy, college education and housing. Medicare for all will be deflationary, not inflationary. At the same time, we will have components of the Green New Deal that will put pressure on prices. Raising wages and services. These things will offset each other. The fact that we are spending massively on renewable energy? Yes, of course at first there will be upward pressure. We don’t have the productive capacity built in yet. But we will be building it. And eventually, things will taper off. The biggest burden on any employer today is the cost of health are. Reducing the cost of health care will reduce the cost of education and the cost of doing business across the country. That’s deflationary, not inflationary. So, having everything in the kitchen sink is by design.




https://www.fatherly.com/love-money/mod ... -new-deal/
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Re: Modern Monetary Theory

Postby Elvis » Tue Aug 25, 2020 9:36 pm

Belligerent Savant wrote:Moving this to the MMT thread as I'd like to explore this further, more broadly.


Thanks!

First, have you read this thread? Lots of explanations and resources herein. Even though I was somewhat prepared for MMT by earlier reading, you can see where I still struggled a bit to see through the new "lens."

I'll start here with a specific question:

Belligerent Savant wrote:Inherit the benefits of a healthier society? How? I see nothing approximating a future 'healthy' society without some massive overhaul of current systems.

I mean healthy humans, but really that can only mean a healthier society, too. Without any massive overhaul, the federal government can simply pay for healthcare.


So without changing anything except who gets the bill, besides people's physical & mental health, what other benefits would fully-funded universal healthcare provide?

- More money in people's pockets, since they're not paying 18% of their income on healthcare (including private insurance).

- The end of medical bankrupties, numbering 500,000 every year.

- Frees up resources wasted on administrative and billing industries that hamper rather than help healthcare.

- Reduces economic inequality by ending health insurance profiteering, cutting off that redistribution of incomes to the top.

- Reduces racial disparities in health outcomes.

- There's more, but offhand, these suggest themselves right away.


Bernie Sanders; M4A plan called for a 4% tax on incomes over $29K, to offset the government outlays—but really, the tax should only be imposed to the extent the outlays are expected to cause inflation (not to "pay for" the program).

Tax offsets aside, there are other considerations: the displaced workers from the insurance & billing industries will need new work, but there's plenty to be done.

More replies to come.
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Re: Modern Monetary Theory

Postby Belligerent Savant » Tue Aug 25, 2020 9:50 pm

.

Ah, i see. I misread your earlier comment (in the covid thread). I get/understand M4A and Bernie's platform, but it appears i misinterpreted part of your earlier point (you're explaining common misconceptions -- by talking heads in TV/media -- of how currency is distributed, taxed, etc, and then further explaining how applying concepts as understood via MMT would help correct these misconceptions.. etc).

All helpful, regardless. Will take up your suggestion and dig into this thread in more detail as spare time allows.
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Re: Modern Monetary Theory

Postby Elvis » Tue Aug 25, 2020 9:52 pm

Belligerent Savant wrote:On edit, this piece below provides a useful overview --


Yes, that interview is bang on. The only part of the intro I object to is that MMT is not really a "complex theory"; there are many details that matter, but the general gist of it is simple—though often hard to wrap one's head around because of the wrong stuff we've all been taught.

Belligerent Savant wrote:Fatherly spoke to Fadhel Kaboub, an MMT theorist, president of the Global Institute for Sustainable Prosperity, and professor at Denison University, to put it into perspective.


I've watched a few of Kaboub's lectures and he's excellent. :thumbsup

I just watched this one a couple of days ago — everything you need to know about a Green New Deal in one hour:


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

Postby Elvis » Tue Aug 25, 2020 11:02 pm

Belligerent Savant wrote:In other words, monetary sovereign governments don’t follow the gold standard [BSavant comment: I understand there's arguments to be made for and against this, but what assurance do we have that basing the value of currency on, essentially, the faith of the system in place is the best option?]


I'll take a stab at this...

The value of the currency is first of all based on the requirement to pay taxes in that currency. As soon as a government says, "Heads up, everybody—head tax!—payable only in the currency we issue!" then everybody needs some of the currency.

The government issues its money, and creates private employment opportunites, when it makes purchases from & payments to the non-government side. (Important to remember that the central government and the private economy are intimately bound together, but have separate roles).

This in turn facilitates private trade, since traders will now eagerly accept the state currency. The government outlays get spread around, as workers, craftspeople and merchants et al. are all happy to use the state money to buy & sell their labor, goods & services.

And it seems to me that when the govt buys something from "us" the money paid is simply "backed" by the value of the goods purchased. Sure, the "money" is just a number put on a computer by the government, but there seems to be no end of people willing to accept those phantom credits for just about anything that can be bought or sold. I do. I'm certainly not refusing any dollars today because they might buy less ten years from now.

Money, created either by government or private banks, is debt, but one way to look at it is, the government (usually) has no reason to demand full repayment. Government bought what it wanted to provision itself, and can create more of its currency next year when it buys more horses—and it remains the government's responsibility to manage the stability of its currency as the outlays accumulate (e.g. tax some back out).

I chat a bit with a wealth manager for one of the TBTF banks. He knows MMT (and turned me on to Knapp's State Theory of Money) but mostly looks at things from an investor point of view. Anyway, he's predicting some kind of "replacement" for the dollar, but only as the "world's reserve currency"; I think that would probably be a good thing.

JM Keynes proposed a "supranational currency," the bancor but the USA shot it down (naturally), and apparently, instead, we got the IMF. Here's something I wrote on a corner of a page of notes about something else:

Bancor = elasticity system
IMF = discipline system

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Re: Modern Monetary Theory

Postby JackRiddler » Wed Aug 26, 2020 1:42 am

Sure, money is an illusion. Sorta like everything else in this vale of tears. Or an invention.

Yes, monetary systems are rigged to favor the rich and powerful.

That being said, what is it, and where does it come from?

It is not a natural resource. It is an institutional arrangement overseen by the "stakeholder," in modern times usually meaning a state and a banking system.

The monetary sovereign is the house. It is not like the players, no matter how rich they are.

Money is created or injected in two ways.

1. Banks lend, at interest and against collateral. They ostensibly lend against reserves they keep, but the money creation is just accounting, many times the reserves. Write the sum on both sides of the ledger, as asset and liability, as loan and deposit. Now it exists and can circulate. Borrower draws on account. This works, long as there isn't a bank run that exhausts the reserves.

2. The monetary sovereign spends. They ostensibly do so against raised revenues (taxes_, but in reality, it's just accounting.

It is removed in two ways. Debt is repaid to a bank.

Or the monetary sovereign taxes it out of existence.

In America the latter was well understood already in colonial times, and has been obscured since. In colonial times, paper money issues were accompanied by taxation that would only accept the paper money and collect it all back within a set number of years. At the end of that time, the re-collected paper was burned. Seriously.

MMT goes back way before Franklin, that printer and big advocate of paper money.

All else about the monetary sovereign's role is obscured by mythology of money as natural resource, as something with a limit.

There is no limit on sovereign issue of money except real resources (labor, land, natural raw materials), and limits from effects (inflation, deflation).

The 'deficit' and national debt, if it is held against the currency sovereign in its own currency. It's real for states, because they aren't money sovereigns. They have to raise money and balance books, like a company. It's not real for the federal government.

Same thing with the Social Security trust fund. Sure, that much more has been raised in tax and denominated as special treasure notes, but it's an accounting fiction. It is not a real limit on spending (which means spending money into existence). The reason the trust fund is accounted, in reality, is because they understood they would have to show a running surplus in order to SELL THE PROGRAM against the capitalist and right-wing resistance, and to reassure the payers. (Hey, your money is safe! It's right HERE. See that number? It's the real total of what you've paid, minus the total paid out so far.)

This also blew my mind when I realized it, and it's such a tough sell that in arguments against those who have picked up the brainwashing about Social Security, I just stick to detailing the standard liberal trust fund numbers.

I hope that starts to make sense. It took me 10 years to get it, because of all the brainwash which even most of the brainwashers don't know is brainwashing. You can find posts on this site from 2011, 2013, when I sound like a fucking goldbug. But eventually it's obvious.

Where does the money ultimately come from? It's not produced by anything. It spent or lent into existence.

Again, different for most government entities. New York State doesn't issue dollars, it has to actually raise them and spend them. Any country with debt denominated in a currency of which it is not sovereign, same deal. That's not true of the US federal government (Treasury and Fed). It only "owes" money in the currency it issues, and that every other country uses. Spectacular advantage.

Anyone who draws comparisons of the US to "Greece", Weimar, or - ffs - Zimbabwe, exposes themselves as fools or frauds.

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Re: Modern Monetary Theory

Postby Elvis » Wed Aug 26, 2020 10:07 am

Kids, tell Mom! :bigsmile
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Re: Modern Monetary Theory

Postby Elvis » Wed Aug 26, 2020 10:22 am

I was just pointed to this excellent set of questions & answers, by a Warren Mosler Tweet: "The financial sector is paying attention":

https://globalriskinstitute.org/past-ev ... -covid-19/
Modern Monetary Theory: What is it and Implications Post COVID-19

On June 18, 2020, the Global Risk Institute (GRI) presented a webinar with David Bezic, who is an independent economic consultant, specializing in the operational aspects of fiscal and monetary policy, and modern monetary theory (MMT). The webinar was moderated by Drew McFadzean, Executive in Residence, and hosted by Vanda Vicars, Chief Operating Officer, GRI.

During the webinar there was strong participation from GRI membership and many questions were submitted which were not answered during the presentation. Below is a list of questions submitted during the webinar that Mr. Bezic has addressed.


Question and Answers

What are MMT’s implications for stagflation?

It is difficult to draw specific links between MMT and stagflation as MMT does not relate to a particular set of “easy” or “tight” policy settings. Whether government spending and taxation are growing or shrinking depends on the state of the economy (i.e., automatic stabilizers) as well as politically-approved and -motivated programs.

If deficits are growing because of discretionary programs at a time when there is a sizeable pool of unemployed workers and significant spare capacity, the prospects for inflation would be limited. However, if deficits are growing at a time when labour markets and productive capacity are tight, the injection of net financial assets resulting from deficits could raise the possibility of inflation without corresponding growth (i.e., stagflation).

This latter set of conditions has not been apparent in any major economy for decades, which have instead seen persistent unemployment and low growth/low inflation. It is possible for stagflation to result from rising input costs (e.g., oil price spike) but that falls outside the direct influence of fiscal policies, including MMT-influenced ones.



What impact would the larger deficits associated with MMT policies have on the banking system’s capacity for private credit creation?

Unlike common economic narratives, which typically view government deficits as “crowding out” private borrowing and lending opportunities, MMT recognizes the fact that these deficits actually add risk-free assets to private sector balance sheets. This is true by the accounting definition, as deficits mean that the government is adding more via spending than it is taking away through taxes.

This net add typically takes the form of new risk-free government bonds, which are issued in amounts (approximately) equal to the size of the deficit. These newly-minted bonds end up on private sector balance sheets, thereby adding to the total supply of risk-free securities available to be lent, repossessed, etc. MMT recognizes that these risk-free assets, particularly US Treasuries, are the most liquid and sought-after form of collateral in the world, and that an increase in their supply thus adds lubricant to collateral-based markets.

An interesting example of the impact that government deficits have on this liquidity was provided by Australia and its budget surpluses in the early 2000s. As a result of these surpluses, the supply of AAA-rated Commonwealth Government Securities (CGS) began to dwindle, creating discomfort for financial institutions and investors who were reliant on these assets for various purposes. This prompted an official Review of the CGS market, and a subsequent decision to continue issuing debt instruments – even in the face of persistent surpluses.



Is MMT assuming that the government spending is always adding assets to the economy?

Yes, MMT recognizes this addition of assets as a matter of accounting. When a currency issuer spends, it does so by crediting the bank account of the recipient, be it a household receiving social assistance or a business being paid to build a bridge. This leaves these particular households and businesses with more financial assets than they had before the transaction. The next question is what, if anything, happens to the accounts of other people and firms in the economy?

This depends on how the government “pays for” its purchase or program. If it raises taxes from someone else in an equivalent amount (i.e., runs a balanced budget), then there is no addition to the non-government sector’s holdings of financial assets in aggregate – someone’s gain is another person’s loss.

However, if the government instead chooses to allow the spending to occur without an offsetting collection of tax revenue (i.e., it runs a deficit), then the addition of net financial assets applies not just to the recipient of the spending, but to the entire non-government sector as a whole. It is these accounting dynamics that led MMTers to recognize federal government deficits as net adds to the private sector’s net financial wealth, with budget surpluses having the opposite draining effect.

Note that this injection of financial assets occurs even in cases where the government issues new bonds or bills to cover the deficit “shortfall”. In that scenario, the bond purchaser is just replacing already-existing deposits with newly-issued bonds on the asset side of their balance sheets, thus altering the composition – but not the level – of their financial holdings. The recipient of the government spending, meanwhile, still has their new deposits.

MMTers recognize that, unlike the vast majority of deposit-creating actions (i.e., bank lending), this sequence does not generate a corresponding liability anywhere else in the private sector. Some might argue that it actually does, but that this liability is simply being deferred to future taxpayers. It is hard to square this argument with the fact that Canada has been in a perpetual net deficit position since 1870 – if the debt has not been “paid off” at anytime since then, why should we expect that our kids’ or grandkids’ generations will suddenly be expected to bring its balance to zero?



Wouldn't an MMT-oriented economy lead to lower taxes?

It certainly could, but this need not necessarily be the case. Recall that MMT does not imply a particular set of policies, but rather highlights the fact that these policies should be set according to targeted societal goals and desired economic outcomes. If inflation is running hot, for example, then higher taxes might be called for. If the goal is to reduce inequality then we might see higher taxes on wealth, but lower ones on general consumption. Key to the MMT framework is its suggestion that the purpose of these taxes should be to promote the chosen objectives, and not to “pay for” things or to reduce debt numbers on a spreadsheet (at least at the currency issuer – i.e., federal – level).

This recognition, coupled with the fact that people presumably prefer keeping more of their money rather than handing it over to tax collectors, suggests that taxes could very well be lower in an MMT-oriented economy. For this to materialize, however, taxpayers would first need to become more aware of the way money works, including MMT’s distinction between currency issuers and users. Armed with this knowledge, taxpayers would then be more likely to put pressure on politicians to deliver on societal goals, rather than on collecting tax revenue in order to keep the debt and deficit “under control”.



What happens when the economy starts to perform and employment and inflation both rise and so do interest rates? Aren't we then mired in debt and the related costs of servicing it?

A pickup in employment would be welcomed by MMTers, as they see economic growth as the most effective and desirable means to reducing debt burdens. Measures such as debt-to-GDP decline in such environments as automatic stabilizers kick in, with the need for income supports (e.g., employment insurance) declining at the same time that tax revenues pick up. This differs from many conventional frameworks, which focus instead on reducing the numerator via cuts to spending. The flaws inherent in this latter approach were highlighted by the recent experience of Italy, which saw its debt-to-GDP metric actually rise through externally-imposed austerity programs. This was no surprise to those viewing the situation through an MMT lens, as they recognized that the resulting drag on growth would very likely outweigh the “benefits” of fiscal cuts.

Reducing debt through growth is possible so long as GDP is expanding at a faster rate than the average cost of servicing the debt. Or, in economist-speak, so long as “g” is greater than “r”. This has in fact been the historical norm, as confirmed by recent research from the IMF. The potential for the sign on this relationship to flip for extended periods of time is limited in currency issuing nations, given their policymakers’ ability to manage these rates. This could be done, for example, via Quantitative Easing (QE) programs that target particular prices on security purchases rather than quantities. The Bank of Japan’s current yield curve targeting program provides a timely example of this ability.

Worries about the relative size of debt servicing can also appeased by the possibility of having the government “owe” the principal and interest to itself, as is the case when the central bank buys and holds government bonds. These bonds could be bought from market participants via QE programs or directly from the government at primary auctions. Despite fears amongst conventional economists that the latter would be inflationary, MMT recognizes that it simply means the related deficit spending will add deposits to bank accounts, rather than the more typical addition of bonds to brokerage accounts. Experience also provides assurances on this front, as the Bank of Canada has been buying Government of Canada bonds at primary auction for decades (up to 20% of offered supply, increased to 40% more recently as part of the COVID response) without causing a spike in inflation.



How does the analysis change in an open economy and one where the debt may be held outside the country?

So long as a country’s debt is denominated in a currency that it itself produces, MMT’s analysis of currency issuers still applies (assuming that the currency is also not convertible into anything other than itself – i.e., no gold standard – and that the country has a flexible exchange rate). A currency issuer’s ability to service and repay its debt is the same whether the bonds in question are held by a hedge fund in New York or an insurance company in Tokyo. In either case, these credits reside on the same “spreadsheet” over which only the issuing nation has read and write access. The same ability to pay would not be available if the country had instead issued debt in a foreign or external currency, as is the case with Argentina’s USD-bonds or Eurozone nations’ Euro-denominated debt.

This differs from conventional narratives, which often suggest that countries like the US are dependent on the kindness of lenders in other countries (e.g., China) in order to fund their government’s deficit spending. This makes little sense to MMTers, who often like to point out that there’s no US dollar printing press in the basement of the Peoples’ Bank of China. Instead, the ultimate source of the dollars used to buy the Treasuries is recognized as being the US itself. When China buys Treasuries, it is just giving the US back the dollars that it had previously obtained via some other means (e.g., export sales).

Looking beyond ability to pay, the fact that an economy is open and/or has large amounts of debt held by foreigners can impact the analysis. One way this might manifest is via leakages. As noted above, deficits add net financial assets to non-government accounts, possibly including ones owned by the foreign sector. Even if the recipient of the actual spending remains a domestic household or business, the fact that the actual net asset injection shows up on the balance sheet of another countries’ private sector could alter a given policy initiative’s local impact. Another possible avenue is via exchange rates. Even though a sudden decline in foreigners’ appetite for a particular currency issuer’s debt does not alter the latter’s ability to pay, any resultant swings in the exchange rate could alter local inflation rates, competitiveness, etc.



Isn't this just a way for governments to avoid any fiscal discipline?

The MMT framework sees the need for fiscal discipline, but for reasons other than the ones typically invoked in conventional economic narratives. MMTers recognize that inflation can result from deficit spending if the associated injection of net financial asset exceeds the economy’s ability to absorb these new assets. As a result, MMTers see productive capacity and potential inflation as the limiting factors when it comes to the size and scope of fiscal programs. This differs from conventional frameworks, which typically view governments’ access to market-provided financing at economical rates as the purveyor of discipline. This makes little sense to MMTers, given that they recognize currency issuers themselves to be the ultimate source and backer of the money being used in these fiscal operations.

Simple observation supports the MMT perspective, with sovereign bond yields seen to have declined to historical lows at the same time that debt levels have risen to all-time highs. Despite these empirical facts, many conventional economists maintain persistent fears of a market backlash “someday”. Rather than lean on vague timelines and unknown catalysts, MMTers would probably suggest that these economists instead question their faith in the so-called bond vigilantes as providers of market discipline. Similar for ratings agencies, whose downgrades of sovereign debt in the US (August 2011) and Canada more recently (June 2020) were met with declines in bond yields.

Note that MMT does see a discipling role for financial markets and credit ratings, but only in the case of currency users such as households, corporations, Canadian provinces and Eurozone nations.



Further to the question of fiscal discipline, does MMT contribute to policymakers sitting on their hands for structural reforms to improve productivity for example?

The descriptive elements of MMT do not imply any particular outcome for policy choices. As noted earlier, “optimal” policy is largely a function of the state of the economy (e.g., available capacity, inflation, growth) and society’s identified priorities (e.g., full employment, health, quality infrastructure, etc.).

What MMT does do, however, is encourage policies to be pursued with those factors and objectives in mind, rather than with the goal of limiting debt and deficits. Or, as MMTers like to say, policymakers should be focused on balancing the economy and not the budget. In this sense MMT could indeed be seen as encouraging policymakers to sit on their hands, but only when it comes to placating the ratings agencies and bond vigilantes.

The same sitting-on-hands encouragement, however, cannot necessarily be applied to the pursuit of societal goals. By raising public awareness of the possibilities and opportunities available to currency issuers, the MMT framework would likely make it more difficult for policy makers to respond to demands for action by simply pointing to big debt numbers and suggesting that “sorry, we just can’t afford it”. In such an environment, the policy debate could switch from questions around how things will be paid for to ones asking what will be paid for.



How does the economy’s ability to produce play a role in the MMT lens? Thinking about the closed loop you described between government spending and assets in economy?

While not necessarily unique to MMT, the framework recognizes that government spending can support production directly via productivity-enhancing investments in infrastructure, education, health, R&D, etc. Contrary to conventional frameworks, MMT notes that these investments do not necessarily “crowd out” the amount of money available left over for private projects, given that we operate in an endogenous money system that finances itself i.e., one where banks create money when they extend loans. MMT does acknowledge, however, that government spending on such projects can crowd out real resources – workers, bulldozers, etc. – and that inflation is the place to look for signals that this may be occurring.

MMT also sees a role for government deficits to support productive capacity indirectly, via the confidence- and demand-boosting effects that go along with adding financial assets to private sector balance sheets. To the extent that the tax cuts and income and revenue supports associated with the higher deficits induce people to spend more than they would have otherwise, a self-reinforcing feedback loop to investment can be triggered.

This view of investment is consistent with John Maynard Keynes’ “animal spirits” concept, which sees confidence and uncertainty around a project’s future ability to generate cash flows as key determinants in whether or not it is undertaken. If customers are not walking through a business’ doors, the business is less likely to invest in expanding production, boosting R&D, etc., even if the project can be financed at zero or even negative interest rates. MMTers have this dynamic in mind when they favor fiscal supports for demand, rather than arms’ length monetary policy measures, as a way to bolster an economy’s productive capacity.



It is fine to acknowledge that expanding money supply is ok if there is high unemployment, low growth, and low inflation. However, money supply does not affect the economy instantly. What is the risk that the "money tap" is left on too long?

One thing that distinguishes MMT from more conventional frameworks is that it recognizes fiscal levers, rather than monetary ones, as the most relevant policy-driven “money taps” in our economy. Headlines about central banks risking inflation through all their purported money printing fail to recognize that these QE programs (mostly) just change the composition of financial assets in the economy, and not their level. This contrasts with fiscal deficits, which actually add to new financial assets to private sector balance sheets.

Consistent with this view, MMT recognizes that unchecked deficit spending can eventually lead to inflation. For this reason, many of its proponents suggest that automatic stabilizers should be enhanced, which would reduce the need to rely on elected politicians to grow and shrink deficits as required. Suggested improvements include a more thorough assessment of spending and tax programs’ inflationary impact within the budgeting process itself, rather than waiting until later to see if, and how, it shows up in price indices.

Another suggested automatic stabilizer is a Federal job guarantee program that would help anchor a key potential driver of inflation (i.e., wages), while also helping keep otherwise unemployed people working and ready to be hired by the private sector once the business cycle re-accelerates. Such a program would allow productive capacity to expand faster than if previously inactive workers had to be re-trained, while also limiting the incentive for businesses to lure active workers away from their current jobs by offering them higher wages. Both features would help defuse inflationary pressures, as would the fact that the program itself would automatically shrink in size as the economy recovers and unemployment declines.
“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 Elvis » Thu Aug 27, 2020 10:15 pm

This is a very good piece, a bit "wonkish" but for those following along it makes some bang-on rebuttals to common-but-fallacious cautions raised by critics—whose arsenels of attack are dwindling as history, empirical reality and logic prevail. Murphy also points up how it's become not so much a fight among economic theories but rather now it's boiled down to what it's always really been: a political fight.
Written a few months before the pandemic.

I'm posting the Naked Capitalism repost for the reader comments there; the original post is here, also with comments.

(linked references at link)
https://www.nakedcapitalism.com/2019/06 ... nkish.html
Richard Murphy: For MMT (Long and Wonkish)
Posted on June 6, 2019 by Yves Smith

Yves here. Even though Richard Murphy is debunking some UK-based complaints (they don’t rise to the level of being critiques) about MMT, similar arguments come up in the US, so I thought his piece would be instructive on this side of the pond too.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK


Modern monetary theory (MMT) is certainly getting it in the neck right now. Two articles I noticed this week were direct attacks in it. And bizarrely, they come from the left and right.

That said, they have things in common. First, they agree that MMT is right: neither can deny that what MMT says is an accurate description of how the economy works. Second, they do not like the implications of that truth. Third, to achieve their goal they do, of course, misrepresent what MMT is about.

The first of the articles is by Ian Stewart, Deloitte’s Chief Economist in the UK. It is described as a personal view. The second is by James Meadway who was, for a while, economics adviser to John McDonnell but who has now left that job to write a book in Corbynomics.

Stewart provides a summary of his view of MMT in his piece and concludes:

[It’s] worth noting that both MMT and QE involve the government creating money electronically – or, more graphically though incorrectly, printing it. But with QE a central bank creates money to buy assets, such as government bonds. This injection of new money into the system drives down interest rates and bolsters asset prices. Under MMT, by contrast, the government spends the money directly on public services.


In that one paragraph he does two things. He agrees QE works. Money can be created by governments at will. That means a government issuing debt in its own currency cannot go bankrupt. And since government debt is simply a by-product of government spending not funded by taxation, government created money can fund public services. Everything he seeks to portray as fantastic (in the sense of ridiculous) about MMT is then, in his own analysis, true.

James Meadway, writing for Tribune under the title ‘Against MMT’ agrees with Stewart, albeit unwittingly. He says:

There is a sliver of truth here [i.e. in MMT]. As a technical detail, modern governments do not have to collect taxes before they can spend: they can also borrow the money, or create and spend that money directly. On a day-to-day basis, these three things can (and often do) all happen at once.


So, rather as Martin Wolf did about a week ago, here we have opponents of MMT agreeing it is a fully functioning description of how the world really works. For that, I offer them my thanks. But, like Wolf, they then suggest they do not like MMT because of what they claim it means for political policy, and not because it is not true. This moves the whole debate into political arenas.

For Stewart the objections are twofold. The first is that:

[There’s] one crucial difference [between quantitative easing and MMT][, and from it a second follows. With QE, as practised in the US and Europe, central banks have promised to reverse money creation. They can do so because, unlike under MMT, the money that has been created has been swapped for assets which can be sold. The idea is that central banks will, in time, sell these assets, withdrawing money from the system and dampening asset prices and activity. This has so far convinced investors that the new money created will eventually be absorbed back into the system. The message from central banks is that QE does not represent a permanent expansion in the supply of dollars, euros and pounds. By contrast, the money created under MMT will be spent on public services and not in purchasing assets. And, since there are no assets to sell in future, the money creation is permanent.


It’s as if Stewart is saying QE works because we still believe in fairies, but MMT does not work because we don’t. Because let’s be clear that around the world more than $6 trillion has now been injected into economies by QE, and in the UK it’s £435 billion, and to pretend for a moment that most, or even very much at all, of this is going to be reversed is to live in fantasy land. It’s true, a little has been in the US. But that was only possible to reverse the dire impact of Trump’s tax cut that would otherwise have flooded money into markets, which has been mopped up by reselling back into the markets bonds previously owned by the QE programme. And that process is likely to be coming to an end. In the rest of the world nothing like that has happened, and nor is it going to do so. QE is not being reversed, and never will be so Stewart’s claim is literally fantastical and has to be dismissed as such.

But he has another:

A related concern is that government, with its infinite spending power, could hoover up people and resources and crowd out the private sector. This would reduce the tax take and could tempt the government to print more money to fill the gap.

More fundamentally, the state could end up with a far greater role in allocating capital in the economy. The market has flaws and limitations. But it tends to be better at allocating capital and raising efficiency than the government. A worry, therefore, is that MMT could enfeeble the private sector.


I think this is what he really thinks: this is where the objection lies. And it is just wrong. First, we live in a world where most larger businesses have what is in effect a zero cost of capital right now: they can borrow for near enough nothing. If, given that, they do not drive the economy to full employment at a living wage by forcing up the price of labour – and they have spectacularly failed to do so – then there is no risk whatsoever that they will be crowded out of the economy by the state. The fact is that the state has to pick up the slack they have created. And as MMT makes clear, what a government must do must be chosen to make sure that activities by the state can be ‘turned off’ if full employment is reached – which is also the moment when the private sector may be crowded out. In other words, not only has MMT got no plans to sweep the private sector aside, it has a plan in place to make sure it does not.

But in the meantime it will, indeed, allocate capital. Because the evidence is – read The Entrepreneurial State by Mariana Mazzucato – that it is really good at doing so. And at last as good as the banks who crashed the economy in 2008. The state will not enfeeble the private sector. That’s already feeble. What it will do is provide it with the contracts and work it needs to survive because it can’t think of what to do for itself. Stewart does complain too much, and with deeply feeble arguments, including this classic:

For centuries governments have taxed, borrowed or created money to pay for public spending. All carry risks. Heavy taxes dampen growth and upset voters. Excessive public borrowing triggers financial crises. Printing money to pay for public spending can look tempting. But, as rulers from Henry VIII to Venezuela’s Nicolás Maduro have discovered, creating money out of thin air and spending it tends to destroy confidence and send inflation rocketing.


There’s just one problem: Henry VIII was not using a fiat currency and Venezuela was running a currency perpetually undermined by the dollar: it was nowhere near the scenario where MMT might work in that case. But telling tall stories is where the opponents of MMT now are.

Which brings me to James Meadway. James’s argument is more considered, but is again about the politics he considers associated with MMT rather than MMT itself. If I might let me select just some of the arguments he uses and address them. The first is his argument with chartalism which is implicit in MMT. He says:

Chartalism holds that money receives its value fundamentally as a result of its use to pay taxes — that, in the words of leading chartalist Georg Knapp, ‘money is a creature of law’. This is dubious as a historical claim, since money has existed in many different forms throughout history, and only some of those forms have arrived with the stamp of the state — and dubious as a description of reality today, since most money is created by private banks when people take out loans, whose relationship to the state is (at most) indirect.


This, I am afraid is just wrong. Let’s ignore history: the money to which James refers was not fiat currency, and that is what we have now. The comparison then is, to be candid, bogus. But James is also wrong about most money now being made by banks: this is the Positive Money argument that just 3% of money is government made – and is notes and coin – and the rest is bank made. This, again, is superficial at best. Firstly this assumes anyone can create a bank, and they cannot: all banking is under government licence. And second this assumes that central banks have no influence over what banks might do, which they have, albeit they exercised it very poorly for the first decade or so of central bank independence. The reality is that private banks create money – that is government backed money given its value by the promise that the government gives to accept it in payment of taxes – but do so solely because they are given a government licence to undertake this activity and take credit risk when doing so. In principle the Bank of England could take on that role, although I would not want it to do so. But to claim that the central bank has no role in money creation when it is very obvious that it does – as QE evidences – is just wrong.

I then move to James’ claim that:

[I]t is worth keeping in mind … MMT’s greatest theoretical failing — to provide any account of power and the state, or even (like neoclassical economics) to provide a reason why it doesn’t need one.


This is interesting at a number of levels. Firstly, because neoliberalism quite clearly does not say we do not need a state: it is core to that idea that government has the essential task of preserving property rights. Second, you can argue what Keynesianism in its various guises has to say on this issue. I suspect there are about as many answers as there are Keynesians. And third, I think the claim is wrong. What MMT is effectively saying, as Weber might, is that the values projected onto the state (as Keynesians would do) are in effect what the state is: it is the tool for realising values and has value so long as it continues to secure support from the population at large for the values it believes appropriate to adopt based upon its understanding of the population it serves. The power of the state is, then, reflected in its ability to read the collective will and to seek participation in it, indicated by the willingness of the population to accept the obligation to pay tax. And since tax is at the core of MMT, despite all claims to the contrary, I believe James’ claim is wrong, again.

So let’s deal with another objection. It is this:

Unfortunately, what holds as a technical description of how governments pay for their daily operations does not apply over the longer term. The grave danger from issuing money, in particular, is that it will lead to a general rise in prices, known as inflation, something readily acknowledged by academic MMT supporters. They often argue that governments should use taxes to deal with this problem: taxes take money out of wider circulation, and by reducing the amount of money chasing goods and services, you reduce the pressure on prices.

In this scenario, far from the transformative claims made by its online fans, we have ended up in a place remarkably similar to the hated mainstream of economics. Mainstream economics also acknowledges that inflation is an issue, but instead of saying taxes should be used to control it, its adherents, known as neoclassical economists, propose interest rates as a remedy. When these go up, it becomes more expensive to borrow, people borrow less, and this in turn reduces the amount of money in circulation — so the theory goes. But as two left-wing economists sympathetic to MMT, Arjun Jayadev, and J. W. Mason, have recently argued, this means that the only meaningful difference in policy terms between MMT and the mainstream on the central issue of managing inflation is whether the government should use taxes or interest rates.


Except that is absurd. That assumes that the main object of all economics is to control inflation to maintain the value of money so that the value of the claims of the world’s assets owners, to whom debt is owed, are upheld consistently. I sincerely hope left-wing economists do not think that. I hope James does not. But that is what he implies.

Let’s be clear what the difference really is. Neoclassical economics does think that controlling inflation is what economics is about. This is why it promotes independent central banks. This is why it tolerates growing wealth inequality. This is why it has no employment target. And stagnant real wage growth is fine as far as it is concerned.

But to pretend that MMT shares these views is just wrong. I’d hope I could say that for all on the left, who I rather hope should think inflation is acceptable, to some degree, not least to erode the claims of the owners of debt precisely so that inequality is reduced, but also because the issue is secondary to the creation of long term, meaningful, productive well-paid employment which is the goal of MMT, hence the job guarantee. And it should (subject to other resource constraints which redefine these relationships but do not remove them) also be the goal of MMT when mixed with the Green New Deal. That does not mean MMT is indifferent to inflation. And rather usefully – when monetary policy is dead in the water because of zero-bound interest rates that are likely to last for the foreseeable future, where that is a very long time – it has an inflation control policy that can work when nothing else can or will. But let’s not say that makes it the same as neoclassical economics. It is not. James is wrong to suggest that it is.

And it’s absurd to suggest that MMT cannot work in an economy because governments wanting re-election cannot increase tax rates, as James also claims. If that’s a measure of the left’s commitment to a) democracy and b) honesty with the electorate and c) conviction based economic management, heaven help us, most especially when we have the bigger issue of climate change to also deal with, which is much harder to address.

And as for the claim that MMT only works for the US and the dollar, again, that’s just James and the left saying that the bond vigilantes really do rule our economy and we’ll never break them. What faith James has in the power of markets to break democracy! But he’s wrong: that power exists for a few days at a time, but not beyond. That’s largely because MMT removes bond vigilantes’ power by simply saying that if they try to disrupt markets the central bank will buy all the bonds they wish to sell using QE funds created for the purpose – which on this occasion may be quite quickly reversed, I admit. That neuters the threat from the bond vigilantes then. And then that means that real exchange rates will only move on the basis of external shocks (like Brexit, or oil price variation, and MMT cannot control them come what may) or on the basis of real variations in productivity – which MMT seeks to address like no other theory does. Again, James is wrong.

So what is James Meadway really objecting to? What is all this really about? I’d suggest it’s this:

Labour has adopted a strict set of rules for how a future government will manage its finances. The ‘Fiscal Credibility Rule’ says, first, that Labour will commit to removing the deficit on day-to-day government spending at the end of a five-year period.

I hate to say it, but the objection is that Labour thinks it needs balanced budgets. It does not. We know the result is austerity. But Labour can’t countenance anything else. As James says:

Leading MMT advocates like Richard Murphy ask why bother with a rule at all? There are three main reasons. First, a commitment to the Fiscal Credibility Rule allows Labour to put together a coalition of support for its programme from across the economics profession. The party can’t expect every economist to agree with every dot and comma, but the impact of having well-respected experts onside for at least some of that programme is significant. If we want to not only form a government, but make a difference in government, these alliances are essential.


In other words, having neoliberals onside is important. And is achieved by being neoliberal.

The second argument is no better:

The second reason is that clarity and planning help cut through some of the more obvious challenges to Labour’s programme — from journalists demanding to know Labour’s plans for the debt and the deficit, and then, later on, as a guide for civil servants expected to implement its policies.

In other words, Labour cannot be bothered to do the hard work of re-education to deliver what the country needs. Which is deeply depressing. But not as desperate as this, from his conclusion:

The problem with MMT for a genuinely transformational government is not that it is too radical. Quite the opposite: it is nowhere near radical enough. It substitutes a belief in the unlimited capacity of a sovereign government to spend money for the hard reality of the political fight needed to rebuild and transform our society. It is the expression of a deeply conservative faith in the benign nature of our economic institutions. In an increasingly class-divided society, with institutions from the Treasury to the Bank of England to the City that have failed systematically to deal with crisis after crisis, we cannot simply flush away our social problems on a tide of government-printed money.


I am really struggling here. What MMT says is that there need not be a fight for the resources to deliver transformation: they exist. The need is not to have the struggle, but to deliver the outcome. That’s what MMT permits. The demand then is not to campaign, but to do. But apparently that’s too easy for James, for whom the struggle is everything.

And yes, I do have a belief in the benign nature of government. Shouldn’t the left do so? I accept it can be corrupted but to think the government can be a force for good seems to me to be a left-wing basic. James denies it. And so I am lost as to what he is all about. And most certainly as to what his unspecified theory of government might be.

The simple fact is MMT delivers a government the chance to be free of the bogus constraints neoclassical thinking places on it. James would rather continue the ‘struggle’ to be free within the neoclassical model he believes in rather than deliver the reform we need. He makes the wrong choice whenever he’s given the chance to do so. And I confess, why he wants to do so baffles me.

We need people who can think for a new paradigm. Ian Stewart and James Meadway are not it.
“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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Huh, I'm totally in the tank.

Postby JackRiddler » Thu Sep 03, 2020 12:32 pm

I now automatically write stuff like this when anyone posts bullshit about the deficit or the "national debt" on Facebook. Saving it here to just fish it out for the next time. ;-)

1. "National debt" is a misnomer when applied to the U.S. federal government, Japan, or other currency sovereigns. A "debt" "owed" by a currency sovereign in its own currency is not a debt. It has no relation to the real debt owed by entities who borrow in a currency over which they are not sovereign, such as Greece, Illinois, or me and you. To keep up payments, you, I and Greece and Illinois need to acquire a supply of the currency in which we owe our debts. The U.S. federal government has no such restrictions, other than the ideological ones. It creates its own dollars. It is why dollars exist. It can freely "repay" any of its dollar-denominated "national debt" at any time, although that would have terrible consequences for the world economy. They are not the ones you think, however.

2. The figure called the "U.S. federal deficit" is not debt. It is a macroeconomic accounting measure of, roughly, the amount of U.S. dollars put into circulation by the means of federal fiscal appropriation -- spending -- minus the amount taken out of circulation by federal taxation and other revenues over the same period. This amount is offset by the issuance of an equivalent amount of interest-bearing U.S. treasury bonds, which is called borrowing but happens separately from U.S. federal spending. These are sold to buyers and resold on highly liquid secondary treasury markets. The issuance of treasury notes equivalent to the sum of the deficit in a given period is done as a matter of course, but it is not a necessity for the U.S. federal government to spend money into existence in excess of the amount of revenues it raises in the same period. This description is not how the process is understood by most people, including many of the people engaged in it, who believe the spending above revenues is only possible because of the simultaneous issuance of debt notes by the Treasury. But it is an accurate observation of what how the actual process works.

3. Meanwhile, the same U.S. government also issues even more dollar money by monetary means, through the actions of the Federal Reserve in lending to banks and buying their troubled assets. Meanwhile-meanwhile, the private banking system issues the vast majority of dollars, creating these through lending and taking these out of circulation through repayment.

4. In the presently existing world, the U.S. treasury notes resulting from a surplus of fiscal appropriation above taxation function as a central foundational element of the larger global financial system, and have done so for many decades since the Second World War and especially since the abandonment of any pretense to maintaining a gold standard in 1971. Treasury notes are effectively a form of secured money savings held and circulated among banks and states globally and accepted by all for use as collateral in borrowing and in creating new credit-money. The global banking system relies on them. This a big reason why the dollar is still the global King of currencies. For American Empire, this is a fundamental instrument of power. The fictional example of "paying off" all treasury notes at once would mean a loss of this power, but it would also (at first) mean a total disruption of the world financial system.

5. Furthermore, what we call the U.S. deficit is just a fraction of the overall U.S. money supply, most of which is created through private bank lending. The "deficit" talk obscures the relevant macroeconomic question, which is whether the money supply in productive circulation -- the amount of money being used to buy and sell goods -- is properly balanced and adjusted to economic needs and purposes. Hint: currently it is not. That is, unless you are among whose whose need and purpose are to keep almost all of the wealth concentrated in an ever-dwindling number of ever-richer hands. And the current problem is not too high a deficit, or too much money being issued by the federal government! The effective money supply in productive circulation is too low, as compared to the bubble-money supply circulating within equities, derivatives, and real-estate markets, backed and largely provided by the Federal Reserve in order to prop up the continuation of astronomical valuations during a long period of crisis and depression (in reality since 2007, not only 2020).

6. It is misleading to use the terms deficit or debt for U.S. federal spending by fiscal appropriation above the level of taxation, with the resulting supply of new money in the economy offset by an equivalent supply of U.S. treasury bills, or to imply that this debt will eventually be unpayable. This is a form of confusionism, albeit one sincerely believed by most people, including most economists (another term that should usually be put in scare-quotes). Deficit talk seems natural, given the examples of entities who cannot issue their own money as currency sovereigns, but it misleads when applied to the federal government within the U.S. dollar system. Deficit talk is an essential part of the overall ideological framework. Among our national Big Lies, it is as important and as misleading as American exceptionalism itself.

7. The genuine belief in, and the deceptive propagation of the bullshit about "national debt" is a big reason we can't have nice things. It is a weapon in the class war waged by deficit hawks in the Congress by their maintenance of an artificial, self-imposed "debt ceiling" that periodically allows them to set off spending panics and cut any spending that is going to the people (or, as these things usually happen, that isn't going to the military). The myth is intentionally deployed in class war by some of most powerful, most destructive elements of the ruling class, represented for example the late hedge-fund pirate-billionaire Pete Peterson, who used part of his plunder to back large-scale all-channel propaganda initiatives meant to generate panic about the deficit and the supposed insolvency of the Social Security system.


Numbered to mix and match in future.

.
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Re: Modern Monetary Theory

Postby liminalOyster » Thu Sep 03, 2020 1:03 pm

David Graeber died in Italy yesterday. I'll post in RIP but this also seems an appropriate spot. Rest in righteous and thank you David.
"It's not rocket surgery." - Elvis
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Re: Modern Monetary Theory

Postby JackRiddler » Thu Sep 03, 2020 1:30 pm

Very upsetting.
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.

To Justice my maker from on high did incline:
I am by virtue of its might divine,
The highest Wisdom and the first Love.

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