The erroneous ‘lets have a little, some or no MMT’ narrative
It is Wednesday – so just a few observations and then we get down a bit dirty (funky that is). Today, I consider the GND a bit, critics of MMT, Japan, and more. Never a dull moment really. I didn’t really intend writing much but when you piece together a few thoughts, the words flow and so it is. The main issue is the recurring one – the lets have a little, some or no MMT narrative. This misconception regularly crops up in social media (blog posts, Twitter etc) and tells me that people are still not exactly clear about what MMT is, even those who hold themselves as speaking for MMT in one way or another. As I have written often, MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’. An application of this misconception is prominent at the moment in the Green New Deal discussions. The argument appears to be that we should not tie progressive policies (for example, the Green New Deal) to Modern Monetary Theory (MMT) given the hostility that many might have for the latter but who are sympathetic with the former. Apparently, it is better to couch the Green New Deal in mainstream macroeconomic concepts to make the idea acceptable to the population. That sounds like accepting Donald Trump’s current ravings about the scourge of socialism. It amounts to deliberately lying to the public about one aspect of the economics of the GND just to get support for the interventions. I doubt anyone who thinks democracy is a good thing would support such a public scam. And so it goes.
Book launch
Macmillan publishers have made an extra 20 spaces available for the launch of our new Macroeconomics textbook in London on Friday, March 1, 2019.
The event will be held at the Springer Nature – Stables Building, Trematon Walk, Kings Cross, London from 17:00 to 19:00.
We have a guest speaker from Sandy Hager (City University of London). I will say a few words around 17:30.
You will need an entry ticket (free) to attend.
The first round of entry tickets were exhausted quickly and I realise several missed out who wanted to come.
So the first 20 to E-mail me will get the extra tickets. If you want to go get in fast.
With or without MMT
I receive a lot of E-mail, particularly recently about whether we should tie progressive policies to Modern Monetary Theory (MMT), given the hostility that many might have for the latter who might be sympathetic with the former.
The idea of a Green New Deal seems to have become a case in point.
It is ironic because in the past various people have argued vehemently that we should drop the Job Guarantee from MMT and just concentrate on the monetary theories because the idea of a Job Guarantee is unacceptable to them but they would be conducive to supporting the monetary aspects.
The fact is that the Job Guarantee is central to the ‘monetary’ aspects seems to be lost by those mounting this type of argument.
But that is a reverse type issue to the one here today which says we should ditch the monetary aspects and just concentrate on the Green New Deal, embedded in a perfectly mainstream New Keynesian macroeconomic framework.
There are two issues.
First, the idea that the GND debate can be advanced by distancing itself from any reference to MMT shows a complete lack of understanding of what MMT is.
And anyone saying that should not be held up as a spokesperson for MMT.
In a fiat currency world you cannot have a little, some or no MMT.
I have stated this point often but it still seems to escape the attention of many critics (and second-generation MMTers, for that matter).
MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’.
Rather, MMT is a lens which allows us to see the true (intrinsic) workings of the fiat monetary system.
It helps us better understand the choices available to a currency-issuing government.
It is not a regime but an accurate perspective on reality.
It lifts the veil imposed by neo-liberal ideology and forces the real questions and choices out in the open.
In that sense, MMT is neither right-wing nor left-wing – liberal or non-liberal – or whatever other description of value-systems that you care to deploy.
I mean by that, that while MMT provides a clear lens for viewing the system, to advance specific policy platforms, one has impose a value system (an ideology) onto that understanding.
To talk about MMT’s prescriptions is to reveal a lack of understanding about that distinction.
The point is that MMT is what is.
For example, Britain’s monetary system is governed and operates under the principles outlined by MMT.
It is not a matter of moving to MMT.
By eschewing the discretionary use of fiscal policy and imposing fiscal rules or by claiming it is okay to issue debt to ‘fund’ a GND, one is not exercising ‘non-MMT’ policy options.
The MMT lens allows us to tease out and more accurately predict the consequences of such a policy choice.
But there are no ‘non-MMT’ policy options. That is not very well understood.
So you cannot choose to have a GND with or without MMT.
The debate should be focused on what a GND means for real resource usage and what redistributions of access to real resources might be required to ensure that total spending (on the available real resources) can accomplish the GND goals without accelerating inflation.
Those redistributions of access is just another way of saying – if the current real resource usage is leaving a stock of free or underutilised real resources that is smaller than those required to effectively implement a GND – then the government has to increase that stock by depriving some of the current usages access.
One way to do that is through taxation – which reduces the capacity of the non-government sector to utilise real resources (by reducing spending capacity).
There are other ways including through regulation.
However, it is important to understand, that if taxes are raised to build a stock of free resources that can be then redirected into productive use via the GND, this has nothing to do with ‘funding’ the spending outlays that are operationalising the GND.
Once you fall into the ‘funding’ narrative you have left MMT thinking and gone back to neoliberalism.
The second issue then follows directly from this.
There has been another strand of argument saying that the GND can be ‘funded’ by government debt issuance because under current conditions (where the real interest rate is below the real GDP growth rate) the debt ratio will not rise inexorably and have to be reduced by higher future taxation.
That is pure neoliberalism (New Keynesian) thinking.
Public debt issuance doesn’t fund any government spending despite the accounting smoke and mirrors that might make it look as though it does.
The outstanding stock of public debt is just one non-government portfolio item that reflects past fiscal deficits. The government is, in effect, just ‘borrowing’ back some of the net financial assets it injected into the system through past deficits.
The accounting numbers that match the debt issuance do not ‘allow’ governments to spend. They just match deficits under current institutional arrangements where governments hang onto a convention that it will match deficits with debt issuance.
A totally unnecessary practice.
In the mainstream macroeconomics text, debt-issuance is held out to reduce the inflation risk of government spending.
That conclusion is also erroneous. The funds that are used by purchasers of government debt are typically held as part of their wealth portfolios. The debt purchases just change the mix of those portfolios.
The purchasers were unlikely to be making the choice: Will I buy a big boat or buy a government bond?
They were more likely making the choice: What is the best risk-reward for my current wealth portfolio which I am building up for the future.
And given the current banking system, the debt purchasers could still get their boat through access to credit.
So MMTers should never be on the ‘same page’ as the argument that talks about issuing debt to ‘fund’ the GND (because r < g) and holds out that it will reduce the inflation risk of the GND spending commitments.
Neither claim is true in a modern monetary economy.
And as for Paul Krugman! Where would one start?
On March 26, 2011, he wrote this Op Ed – A Further Note On Deficits and the Printing Press – which focused on MMT (one of his early attacks).
I considered that Op Ed in this blog post two days later – Letter to Paul Krugman (March 28, 2011).
It traced in some detail, Krugman’s evolving statements about fiscal deficits and public debt, including his disastrous misunderstanding of the Japanese situation in the 1990s, where he was throwing spurious advice around, right, left and centre.
Two days before the March 26, 2011 Op Ed, his article – The Austerity Delusion – probed the following issue, for example:
But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt.
That tells you a lot.
There is a litany of similar erroneous comments throughout several media articles by the same author.
In the March 26, 2011 Op Ed he warned everyone that:
… running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation. And no amount of talk about actual financial flows, about who buys what from whom, can make that point disappear: if you’re going to finance deficits by creating monetary base, someone has to be persuaded to hold the additional base.
With the massive expansion of central bank balance sheets since that time and the fact (see below) that central bankers are losing their fight to bring inflation rates up – in Europe, in Japan, etc – the lack of wisdom from Krugman is obvious.
He then wrote (again attacking MMT) that:
As I understand the MMT position, it is that the only thing we need to consider is whether the deficit creates excess demand to such an extent to be inflationary. The perceived future solvency of the government is not an issue.
Quite apart from the misrepresentation of the MMT position, he was claiming that governments could become insolvent if they issued to must debt and that was something that MMT failed to acknowledge.
Okay, MMT does establish that a currency issuing government cannot become insolvent – in the sense, that it can always fund any outstanding liabilities in its own currency – unless it chooses for political reasons to default.
It could never justify such a political choice using financial logic.
But that is not the point here.
Fast track to December 14, 2017, and an interview that Paul Krugman gave to Ezra Klein for Vox – “An orgy of serious policy discussion” with Paul Krugman.
Ezra Klein asked him about the likelihood of an impending public debt crisis, given the increase in public debt over the preceding years.
Krugman replied as follows:
It’s very hard to try and tell a coherent story about how this alleged debt crisis can even happen. I’ve been through this. I’ve given presentations at the IMF, where I say, “Look, I believe for a country that looks like the United States, a debt crisis is fundamentally not possible,” and people will say, “Well, I can’t quite fault your logic here, but I don’t believe it.” It really is more about a gut feeling than it is about any kind of theory.
“fundamentally not possible”.
Then fast track to his latest attack on MMT (February 12, 2019) – What’s Wrong With Functional Finance? (Wonkish) – where he is back to making stuff up.
Things like “MMTers …. tend to be unclear about what exactly their differences with conventional views are”.
He hasn’t read much.
He also castigates the frenzied lot in 2010s who, in the face of the rising American deficits, used the “‘Eek! We’re turning into Greece!’ panic” to attack the federal government.
And refer back to Krugman’s own use of the Greek scare (see above)!
But the real point he tries to make now is that MMTs association with Abba Lerner’s functional finance is problematic because Lerner didn’t see that:
… debt potentially more of a problem than he acknowledges.
And then he gets into the ridiculous New Keynesian claim (as above) that debt sustainability depends on whether:
… the interest rate is higher or lower than the economy’s sustainable growth rate … if r>g you do have the possibility of a debt snowball: the higher the ratio of debt to GDP the faster, other things equal, that ratio will grow …
So when attacking MMT debt matters.
Otherwise a debt crisis is “fundamentally not possible”.
Consistency is a good thing.
Shill.
Japan shows the way – again
I read a Reuters report earlier this week (February 18, 2019) – Architect of BOJ stimulus calls for big fiscal spending backed by central bank – that quoted the former Bank of Japan’s deputy government as saying that:
Japan must ramp up fiscal spending with debt bank-rolled by the central bank …
Why?
To stimulate growth.
The former Deputy Governor, Kikuo Iwata was the “architect of the BOJ’s massive bond-buying programme dubbed ‘quantitative and qualitative easing’ (QQE)” said that without stronger growth in household consumption spending, inflation will continue to “miss the central bank’s 2 percent target”.
I wonder whether ECB officials are taking heed!
Mr Iwata confirmed that monetary policy was no longer capable of any further stimulus in its own right.
Solution?
The nation “must lean on fiscal policy by ditching this year’s scheduled sales tax hike and committing to boost government spending permanently with money printed by the BOJ”.
He said that:
Fiscal and monetary policies need to work as one, so that more money is spent on fiscal measures and the total money going out to the economy increases as a result … That’s the only remaining policy option.
He rejected a strategy that would rely “on commercial banks to lend more to already cash-rich companies”.
They are not going to spend (invest) even with cheap credit if the goods market is not more viable, which means household consumption has to be stimulated.
How might fiscal policy do that?
Well the ‘printing money’ terminology is incorrect. Governments do not spend by printing money. They credit bank accounts.
In this case, Mr Iwata suggested policies such as cash payments (and tax cuts) to “younger-generation households”.
If you think about this for a moment, his strategy would not constitute anything that is not already being done in Japan.
At present the Bank of Japan is buying up large volumes of Japanese Government Bonds in order to maintain long-term interest rates around zero.
Mr Iwata is suggesting, effectively, they keep doing this but in larger volumes, with one difference.
The current Bank of Japan management claim they are not directly backing government deficits because they are “bonds from financial institutions, and not directly from the government.”
In other words, they are buying them in the secondary market one the Ministry of Finance has released them into the economy via the primary issue.
This is the same ruse that the ECB uses to avoid admitting (the obvious) that they are funding government deficits in the Eurozone and thereby acting illegally with respect to the Treaty prohibition of ‘bailouts’.
The fact is that it is a fine line.
The primary dealers know that once they purchase the government debt in the primary issue they can easily off load it in the secondary markets at a profit because demand their is high courtesy of the central bank quantitative easing programs.
In practice it doesn’t really matter then which market the central bank purchases the debt – either directly or indirectly – the same outcome is achieved from the government’s perspective.
Mr Iwata is sharp enough to see through the official statements from his former employer.
He told Reuters that:
The term debt monetisation has been taboo in Japan. But in a way, Japan is already resorting to debt monetisation …
Not ‘in a way’. Pretty obviously that is what is happening.
What this effectively means is that fiscal policy should be further ramped up in order to stimulate aggregate spending.
Showing the way.
Music for today …
Oh, yeh. Time to get funky.
Here is one of my favourite bands (I have quite a few) – The Bar-Kays – from 1967 pushing it out with their song Soul Finger, which was their first hit released on April 14, 1967.
These guys backed Otis Redding and were closely tied to Booker T & the MGs – great DNA.
Several of the original band dies along with Otis Redding in a plane crash in Wisconsin on December 9, 1967. Only one of the band on the plane, the trumpet player, survived. Their bass player had taken another flight.
This track was also on their first album – Soul Finger.
Top funk.
And that was to soften you up …
For those who hate greedy property developers
This is a report I have produced in opposition to a profit grab by a developer in the little inner-city street that I live in.
Our community group has been attempting to block a massive development and so far we have around 65 objections formally lodged with the Development Application process.
We will probably be defeated such is the hold the developers have on council (and evidence in the past of kickbacks etc).
But we will go down fighting.
I am publishing it here because, while the objections have to be formally published on the Council’s Development Portal, for all to see, the Council is redacting information in the objections to stop the public knowing some key information – such as who is going to benefit.
At least this way, my research on that question and others, is in the public domain for all to access.
It is a shocking tale of micro neoliberalism.
Here is my objection: Objection Document.
Call for financial assistance to make the MMT University project a reality
I am in the process of setting up a 501(c)(3) organisation under US law, which will serve as a funding vehicle for the MMT Education project – MMT University – that I hope to launch early-to-mid 2019.
For equity reasons, I plan to offer all the tuition and material (bar the texts) for free to ensure everyone can participate irrespective of personal financial circumstance.
Even if I was to charge some fees the project would need additional financial support to ensure it will be sustainable.
So to make it work I am currently seeking sponsors for this venture.
The 501(c)(3) funding structure means you can contribute to the not-for-profit organisation (which will be at arm’s length to the not-for-profit educational venture) in the knowledge that your support will not be publicly known.
Alternatively, if you wish to have your support for the venture publicly acknowledged there will information presented on the Home Page of the MMT University to acknowledge that funding.
To ensure the project has longevity I am hoping to obtain some long-term support proposals.
At present, I estimate I will need about AUD 150k per year.
Note that most of these funds will support an administrative support staff (1 person fractional), data charges, and video editing and design staff (as needed).
I will personally take no payment for the work I am putting into the project nor will other key Modern Monetary Theory (MMT) academics, who have agreed to help in the educational program.
So I cannot do this without sufficient support. My research group does not have the financial capacity to support this venture.
I also do not wish to place advertisements on my blog posts.
Please E-mail me if you can help.
I have some funding pledges already but I am not near the target yet.
It won’t happen without the financial support.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.
“Second-generation MMTers”
You made me listen to the handful of O’Jay’s tracks on my iPod. I never thought of the Philly sound as particularly funky, great though it is. Much more so for my money is “Give The People What They Want”. Mind you, both tracks are infinitely more funky than “Christmas Just Ain’t Christmas…”, which goes to show even the greatest bands can have aberrations.
I have to say that I can’t reconcile in my mind the idea of MMT being a description of the reality and, at the same time, the job guarantee being integral to it.
I’m grateful for the lens that MMT offer to understand was going on, but, obviously, there is no place where the job guarantee is being apply. How is the job guarantee not a prescription that goes beyond of the descriptive powers that MMT offers?
Thanks for the music, Bill. But you mentioning the O’Jays for some reason brought to mind a favorite song and artist of mine, At the Dark End of the Street sung by James Carr. While he had a sad life and suffered from bipolar disorder, the meeting of this singer with this song is hard to beat. The song is also about something society disapproved of, cheating, although the precise meaning seems to be a tad obscure.
Dear Bill,
Good to read your take(-down) on those who prefer to use debt (savings) to fund a GND. It’s depressing to see ecologically well-meaning people supporting, and thereby prolonging, the usual ‘revenue constrained government’ narrative.
Even the UK’s (self-?) annointed ‘most prominent proponent of MMT’ supports this very idea on his blog in the last couple of days.
There’s no one left there (‘scuse the pun) to counter his argument because, by conspicuously, stroppily, and very publically banning any contributors who offer a contrary opinion more than once or twice, all that remains is a sycophantic echo chamber.
I’m not sure who in the UK could usurp this pretender – I was a big fan of Neil Wilson, but he seems to have completely dropped off the radar unfortunately.
So thank you for a textbook non-neoliberal analysis.
On which subject, I look forward to the London launch of Macroeconomics.
Will the book be ‘re-assuringly’ expensive? : (
Best, Mr S.
I have a sneaking suspicion that MMT would be more widely acknowledged (as an accurate insight into economic principles; independent of its polity implementation) if there wasn’t so much interpretative emphasis on the shortcomings of anything less than a Marxist ideological construction – it amounts to a daily denigration of Capitalism.
Economics has been justifiably labelled the miserable science, but under constant accusatory attacks of elite subjugation it represents a forlorn state of mind. Of course Capitalism is, in its negative format, the product of greed, exploitation and corrupt power, but socialism is not free of these influences.
I have no ideological desire to disparage Socialism, but as a counterweight let me point to the following article on Green issues to put things into some perspective. “Is China a model for a New Green Deal?”
https://louisproyect.org/2019/01/20/is-china-a-model-for-a-new-green-deal/
Roberto, I have been wondering about that for a while now. Is it that the inflation suppressing impacts of a job guarantee are integral to MMT theory? So whether a government implements one or not, its utility in stabilising prices is an unavoidable conclusion of MMT.
Bill, I wonder about the consequences of a decision by an investor to alter its wealth portfolio by purchasing government bonds. You say that it isn’t a choice of whether to buy a boat, ie. to stimulate demand, or to buy a bond. This may be so, but instead of buying a boat or bond, an investor may purchase equity in a company which uses the new capital to invest, or fund a property development, or purchase shares from an individual who uses the money to buys his or her own boat. Does this not suggest that there is a real difference in terms of inflationary pressures between fiscal injections backed by bonds and those which a not?
Roberto asks a good question, and until Bill should wade in, let me offer a tentative answer. MMT is a school of thought in the field of economics, which field, in its entirety, embraces the value of efficiency. Indeed, one might think of economics as the science of efficiency in human affairs. While one might prefer inefficiency for various reasons, one would then no longer be operating within the field of economics. Consequently, when MMT sees unused or under-utilized labor readily available in a currency-sovereign society, labor which could be harnessed to expand economic output without causing inflationary pressure, it proposes the JG as a means to do achieve this efficiency, while also being a means to set the most viable minimum wage, etc.
Should be “to achieve,” not “to do achieve” in the last sentence of my response to Roberto. Getting too old to proof-read like I used to.
The Labour Land Campaign is about taxation (of land). Most of the LVT movement is pretty rightwing/libertarian. We are a socialist group and care about the expenditure side too. I’m currently writing a submission to the Labour Planning Commission and could have shown neatly how LVT can fund infrastructure – it’s one of the topics to be addressed. I’ve been using for years the virtuous circle ‘meme’ I developed: investment => increased land value => increased LVT => increased investment. Now I feel it necessary to unpick that. Damn you, MMT, for making my life more difficult.
At the same time I have to say that I no longer have to strive to ‘balance the books’ to implement LVT, which is what I’d done in an earlier paper. John Mc is a long-term member of our campaign and wants to implement but it’s politically ‘infeasible’. I advise him to just keep it out of the manifesto, but no one agrees with me. It’s similar to MMT.
“The current Bank of Japan management claim they are not directly backing government deficits because they are “bonds from financial institutions, and not directly from the government.”
In other words, they are buying them in the secondary market one the Ministry of Finance has released them into the economy via the primary issue.
This is the same ruse that the ECB uses to avoid admitting (the obvious) that they are funding government deficits in the Eurozone and thereby acting illegally with respect to the Treaty prohibition of ‘bailouts’.”
The same point came up in a comment at New Economic Perspectives wrt the U.S.
It looks to me as though the FED Primary Credit Program allows any U.S. bank in good standing to borrow any amount of money overnight, no questions asked, for 25 basis points above the policy rate.
Then it seems that a U.S. bank that knew that the Fed Open Market Committee was buying at a high enough price could borrow money, buy Treasury Bonds, flip them to the FOMC, pay off the loan, and pocket the difference.
This despite peoples’ claims that it’s illegal for the FED to fund the Treasury – illegal unless they have help, it seems. Asking here in case someone has more insight into this mechanism than I’ve gained.
Thanks for putting those pieces by Krugman into perspective, Bill.
I wish there was a way to set discussions aside for the moment and do what’s necessary right now. Hopefully, the example set would inspire others and then reality (no resulting hyperinflation nor crowding out) would take care of the rest.
Cheers!
Carol, LVT is not similar to MMT if you think you need the tax to pay for infrastructure. Or are you in the process of changing your mind?
Bill:- “The fact is that the Job Guarantee is central to the ‘monetary’ aspects seems to be lost by those mounting this type of argument”.
Regretfully, I find myself forced to voice dissent from Bill’s repeated insistence – if I have understood him correctly – that the JG is an intrinsic part of MMT’s description of a modern economy.
Who am I to have the effrontery to take issue with one (or several?) of the founders of MMT? Self-evidently I’m not equipped to do so: but that’s not what I’m doing. On the contrary I’m simply pointing out (as others have done) a logical flaw in the argument for a JG made by its proponents – always assuming that I haven’t just misunderstood what they’re arguing.
For me a key insight which MMT has provided has been the understanding that a buffer-stock (consisting of a mixture of people transiting between jobs and of people who have involuntarily become un- (or under-) employed) is at all times present within any labour-market, the size of which in default of any intervention automatically fluctuates. Governments which adopt full employment as a policy-target thereby open themselves to the possibility of directly intervening in the labour market whenever and in whatever ways they believe to be necessary to achieve that target.
MMT, we are repeatedly (and rightly) reminded, only describes more exactly than any other theory just “what is”. One can’t include a JG as part of “what is” because, actually, it isn’t. An employment buffer-stock, on the other hand, *can* (and must) be included in any description of “what is”.
But that’s not the same as saying that a JG can or ought to be. The existence of a JG is not a precondition for analysing the operation of an economy in accordance with MMT principles; if it were we wouldn’t be able to analyse any actually-existing economies. A “right-wing” MMT-aware government might well choose not to adopt full-employment as one of its aims, preferring to allow involuntary un- (or under-) employment to find its own level or even – heaven forbid! – to deliberately create unemployment so as enable employers to keep the whip-hand (as Kalecki predicted). If it did, it would be doing so in full knowledge that the opposite choice – conceivably with a JG as part of it – would have been open to it but consciously rejecting that choice.
Bill himself has more than once made exactly that point.
But separately he enters a caveat, which (as far as I can understand it) seems to be that an understanding of MMT is incomplete without inclusion in it of a JG because without it both full employment and price stability cannot be achieved simultaneously.
But for that argument to enter into contention at all must presuppose that the *intrinsically political* decision to adopt a full employment target is to be taken as a given. With the introduction of that or any similar presupposition, the representation of MMT as being only a lens (therefore value-free) no longer holds.
Furthermore, It conflates acceptance of what MMT teaches with adoption of a “left-leaning” political stance – a proposition which Bill again (as he has before) explicitly rejects:-
“In that sense, MMT is neither right-wing nor left-wing – liberal or non-liberal – or whatever other description of value-systems that you care to deploy”.
No doubt I’ve lost my way somewhere along the road to reaching my conclusion, but I’m blessed if I can see where.
(And BTW none of the above has any direct bearing one way or the other as to the merits of the JG as such).
Thanks for the soul tracks Bill.
My favourite of the genre is “Feel The Need In Me” by the Detroit Emeralds here -> https://www.youtube.com/watch?v=Z3jU6vlCobo
Thanks for the blogs!
@Larry
The similarity is it’s political toxicity. The mere mention of LVT in the 2017 manifesto may have lost Labour the election. The tories went to town with ‘The Garden Tax’, which will treble your Council Tax and plunge house prices. The fact that we got the 6 rags to publish retractions could not address the damage done. I tried in vain to stop them making that mistake (one of those responsible for drawing up the manifesto is also a member). Labour’s Magic Money Tree would achieve a similar result. I hope that John will understand MMT before he’s Chancellor but no one must ever know it;o)
I understand, however, that John wants to lay out his plans to the letter. It’s never been done before and 5 years is a long time to continue with a policy which is leading you down that creek.
The property development problem sounds remarkably similar to the situation currently happening in my home town, just about as far from Bill as you could get. A clearly oversized development has been proposed which will do nothing to benefit the local shortage of housing for local residents with modest income.
We currently have as Mayor an economics professor who went on hiatus from his day job to assume the mayoralty. He has promised to tie municipal tax rates to growth within our city, such that “more growth equals lower taxes”?
We have been enduring 2.5% annual tax increases for years now, with little to show for it outside of fancy infrastructure additions, such as waterside parks, cobblestone, a longer airport runway to allow for larger vacation charters, and condominium development whilst roads etc disintegrate outside of the top end part of town.
The cost of supporting this type of development never appears to lead to a tax base increase large enough to result in easing taxation rates. So we are clearly subsidizing development for the benefit of wealthy retirees enticed to the come here from larger centers. The focus on this cohort in place of declining industrial activity, is also placing enormous strain on local health resources, and municipal staffing levels which never keep pace with the growing demand for public service delivery.
Council increasingly consists of people associated with the real estate sector, marketing and development and we have had numerous conflict of interest incidents, involving development over the years…
Sorry, I think you go up s**t creek.
Hey Bill,
Howdy!
Can you write a post clearly stating what tax rates you think is good?
I get the feeling you don’t want to raise taxes.
What is the use of MMT if Alexandria-Ocasio Cortez beat you to suggesting raising taxes on the rich?
“I have to say that I can’t reconcile in my mind the idea of MMT being a description of the reality and, at the same time, the job guarantee being integral to it.”
Roberto, I feel the same. I can’t reconcile too. In my mind, there is a clear distinction between the descriptive and prescriptive parts of MMT. No country has yet implement the Job Guarantee. I find it confusing. I mean, in Eurozone Dystopia, Bill says the following:
“While MMT provides an accurate description of how the capitalist monetary system operates and can support policy prescriptions consistent with either the individualistic or collective value systems, we prefer to situate this challenge within a collective vision of public purpose.”
Here he clearly makes a distinction between a descriptive and a prescriptive part. So I’m very confused…
Dear Natasha (at 2019/02/21 at 11:27 am)
Thanks for your comment.
I think you should brush up on history.
The core MMT group have been discussing taxing the rich for 25 years or so. How old is AOC exactly? (ps I know the answer)
The point we have made often is not that we are opposed to increasing taxes on the rich but that we don’t want that to be driven by false notions that the government needs the cash to fund public spending.
Once we break that neoliberal nexus, then we see that reducing the purchasing power of the high income groups (via tax hikes) may reduce their power and ability to influence (distort) public policy in their favour.
That has long been the position of the core MMT developers.
best wishes
bill
“The debate should be focused on what a GND means for real resource usage and what redistributions of access to real resources might be required to ensure that total spending (on the available real resources) can accomplish the GND goals without accelerating inflation.
Those redistributions of access is just another way of saying – if the current real resource usage is leaving a stock of free or underutilised real resources that is smaller than those required to effectively implement a GND – then the government has to increase that stock by depriving some of the current usages access.One way to do that is through taxation – which reduces the capacity of the non-government sector to utilise real resources (by reducing spending capacity). There are other ways including through regulation.”
From an economic point, this is the crux of whether a GND can be implemented or not.
The O’Jays ‘Ship Ahoy’ was the first album I ever bought in the early 1970’s, still remember those songs and their great sound.
Nice Bill.
I have a private Twitter account and although I don’t tweet, I do check accounts of MMT followers and they all seem to have a different impression about MMT and taxes. My concern isn’t out of vacuum, while I understand your position better now. Maybe you should let them know.
robertH, I think you have made an interesting philosophical point. If I may, let me try to answer it this way. To simplify a little, there are two types of theories, descriptive and normative. The theories of physics are descriptive, while, say, game theory is a normative theory. Game theory spells out what a player has to do to win. It does not describe how people actually play. It is a theory of games, as it says, not a theory of how people play such games. Physics, on the other hand, describes the entities that make up, and the processes that take place in, the universe we know.
Normative discourse can come into discussions of physical experiments, for example. Say an experiment does not go as predicted. The experimenters may say that what took place should not have happened, therefore, something must be wrong in the experimental set up, or god forbid, the theory is false. (Of course, it is possible to bring in the Duhem-Quine gambit to save the hypothesis, which can, however, only be done on a case by case basis.)
The point I am trying to make is that descriptive theories can possess normative adjuncts, which can be called upon in certain situations, leaving aside the issue of whether normative theories can have descriptive adjuncts. In this regard, I did notice the distinction you were making between a buffer-stock and the JG and the differing theoretical roles you were implicitly assigning to them. I think this can fit into my scenario.
larry,
I don’t know if I could follow you. Game theory positions itself as a descriptive theory that tries to describe behavior of economic agents when interacting strategically. Many mainstream economists do claim that it can describe real world phenomenon, although I doubt that it usually can. Whatever is the case, you could also use Game Theory to, for example, prescribe public policies. Of course, if it is a poor theory, it will probably lead to poor prescriptions.
MMT is similar in the sense that it describes how the real world works and it may also be used to prescribe public policies. (The difference, I believe, is that MMT indeed describes the real world). For me it is clear that JG is a prescription, and no country yet adopted it.
What may be the case (and I am speculating here) is that, if you believe that MMT indeed describes correctly the reality (as I do), then the concept of JG would be the optimal policy buffer to guarantee low unemployment and price stability. No matter whether the country has implemented the JG or not, it would still be the best option on the table. So that claim is integral to MMT, not the implemented JG itself. I don’t know, that is the only way I can make sense of this post…
@ Larry
@ André
Thanks both for those very thoughtful suggestions.
I’ve stored them away and will continue to mull them over… 🙂
(Rightly preoccupied as he is with more important matters I doubt if Bill will have the time to respond)
Cheers
The following gave me pause: “MMT is not a regime that you ‘apply’ or ‘switch to’ or ‘introduce’.”
I understand the larger point being made in the article. But that statement may be misleading by suggesting that there is nothing to be done to make MMT a working reality (in the USA, Australia, or wherever). E.g., for the USA to actually implement MMT principles, it will need to retool central banking, the treasury, its various welfare programs, etc. Such a “switch” will require careful planning and a stepwise rollout that accommodates the various causal and conceptual relationships among MMT’s various features (first things first, etc). E.g., USA’s current “unemployment” policies and programs and agencies cannot be morphed into a job-guarantee program overnight, but that would be an important part of implementing MMT in the USA. Halting the issuance of bonds to match deficit spending might be accomplished pretty quickly, but the details are not trivial.
I think making a Job guarantee an integral part of MMT is because the neoliberal system makes inflation its intergral part. Under utilising a resource is silly and that is what unemployment is. From what I understand a job guarantee is more than just a job because it can include retraining. Work is more than production of a product and a job guarantee only comes into play when the private market is not employing
Patricia,
From what I can see, inflation control is an important feature of the prescriptive part of MMT.
If inflation is not at a satisfactory level (i.e too high), MMT prescibes aggregate demand reducing policies such as increased taxation. This reduces private demand, inevitably putting people on the unemployment queue.
The JG has a two fold task – employing the willing and newly unemployed and using the JG wage to set the minimum wage through the economy.
Re the Job Guarantee: My understanding is that MMT is a lens that allows us to understand the functioning of the economy, in particular its monetary functioning.
MMT requires the following: functional finance, free floating currency, analysis of sectoral balances, the Job Guarantee. I may be forgetting something.
Control of inflation: A central part of MMT is the ability to control inflation. Mainstream economics uses interest rates and unemployment to control inflation. MMT rejects that approach because interest rates are largely ineffective and unemployment is socially very noxious. Instead MMT promotes two pronged inflation control: 1. the Job Guarantee which maintains loose full employment at a fixed, fairly low, wage rate; 2. targeted spending. With respect to targeted spending: inflation may develop when government spending targets areas where supply bottlenecks may occur – for example investment in infrastructure. Unemployment will drop due to the spending that benefits construction industries directly however many workers would still remain unemployed as they are not qualified or have personal issues with working in the sector and only get jobs when other sectors of the economy benefit indirectly (entertainment, coffee bars, restaurants, retail sales, etc.). This spending could also become inflationary. The problem is that inflation may occur due to bottlenecks that result in prices being bid up: wrong timing in a region that is already doing well, inadequate housing in a region, inadequate number of qualified workers, inadequate quantity of materials. Consequently the projects funded should be timed in such a way as to smooth out the economic cycle: heavy spending in downturns, lesser spending in upturns. Also the priority could be to focus on areas with high unemployment. An advantage of the Job Guarantee is that it is targeted directly to unemployed workers – anyone wanting a job will get one, there is no need to be a bricklayer, engineer, electrician, computer specialist, etc. This avoids the social toxicity of unemployment on workers, families and communities.
@ F. Thomas Burke
It seems that the conversation is mired in the “two truths,” i.e. the intrinsic potential of a sovereign currency issuer versus present conventional fiscal rules evoking the government-as-household fallacy.
The intrinsic potential already exists. It’s been elucidated by MMT practitioners in fine detail. Moreover, it has been drawn upon in times of war, Depression, the GFC of 08, and with the recent US tax cut for the wealthy, etc.
Yet conventional accounting and budgeting structures, outmoded concern about government debt/deficits, and the separation of Fed/Treasury all remain intact. The logic of conventional fiscal rules is often ignored, but it’s mostly unquestioned. It’s held out like a moral standard of probity (sound finance), honored in the breach.
The prevailing mish-mash of sound-finance ideology and half-understood fiat currency reality could be called “tacit” or “unthinking” MMT. Fiat currency’s already-existing possibilities are intuited and exploited, but they aren’t transparent even among specialists, much less the populace. Neither risks nor opportunities are transparent.
So yes, as F. Thomas Burke says, “for the USA to actually implement MMT principles, it will need to retool central banking, the treasury, its various welfare programs, etc. Such a “switch” will require careful planning and a stepwise rollout that accommodates the various causal and conceptual relationships among MMT’s various features.”
The complexity and sheer implausibility of “retooling” on this scale, in this political landscape, may help to explain why many of us (me included) tend to jump to the messianic level of MMT, seeing the fiat currency regime as a magical, overlooked fountain of resources.
Keith Newman says:
Friday, February 22, 2019 at 20:32
Yes Keith, (and Patricia) I think I’ve already taken all that in.
Sadly though it doesn’t dispose of my doubts. I’m afraid we’re talking past each other. For some odd reason, the subject of the JG often leads to that happening.
I may be wrong but I suspect the fact that it does just bears out my central point, namely that the JG is in its very essence a *politically-inspired” choice aimed at mitigating a social problem and, as such, disqualifies itself from being *integrated* into what is repeatedly asserted to be a factual, values-free, description of how our modern monetary system works. To repeat, a JG is not a part of how that SYSTEM works. The system works regardless of whether there’s a JG in operation or not; MMT tells us exactly HOW – no more, no less.
As a consequence, MMT allows us to understand that a currency-issuing government which decides as a matter of policy to implement a JG is not constrained in so doing by funding considerations (unless any such are, perversely, self-imposed). MMT doesn’t *decide* anything – it provides the insight; deciding in the light of that knowledge to introduce a JG is a political act, and is only a corollary of having already made the choice to adopt full employment with stable prices as a political aim.
The JG can have any number of features which commend themselves to politicians of a certain political orientation – whilst possibly causing it to be anathema to those of an opposed orientation. But that’s an entirely separate debate, taking place in a separate realm from where knowledge (if any!) of economic theory is inculcated. Which is primarily in the academy and its multiplicity of offshoots in the media, the internet, libraries, etc etc. By EDUCATION in other words, in its broadest sense.
I’m probably not explaining myself very well, since I’ve clearly not got my point across to you, or Patricia, but I’m afraid that’s the best I can do.
To RobertH,
Recall Bill’s often repeated claim that “we have to understand that the Job Guarantee is not just a job creation program … [Rather it] provides macroeconomic stabilisation which is defined in terms of ‘loose’ full employment with price stability.” E.g., it is MMT’s answer to how to control inflation, NOT by manipulating interest rates and maintaining some optimal “natural” level of unemployment BUT by manipulating the minimum wage and maintaining “full” employment. The latter is a factual values-free consequence of MMT macroeconomics. If it also warms you heart to think that people would always be able to work if they want to, then so much the better for JG; but that is not what it is about. Amazing. A kind of macroeconomics that warms your heart without even trying.
Yes, RobertH, I can understand what you are saying. You write very clearly and you are probably right. MMT shows us how the system works and that is a wonderful tool. I can understand why JG is part of MMT but that is because of my particular beliefs. So I think we have to get Bill to explain WHY it is an integral part of MMT. As a thought, is inflation targeting through interest rates increases an integral part of monetarism? If it is then I can understand why MMTers regard JG as an integral part of MMT. What I don’t like about MMT is the ‘theory’ word. Words mean a lot and a better name would be MMS. Modern Monetary System. Once the word theory is used then it is up for any Tom, Dick or Harry to attack it.
#Patricia, yes, neo-liberalism includes using interest rates to fight inflation in its theory. And many nations do use interest rates to fight inflation.
MMT does include a JG as you know. The problem or difference is that no nation has a MMT-like JG program and never has there been one.
Several of us here have pointed this difference out to Bill, he replies, but it seems like he just reasserts that the fact that JG is not currently being used doesn’t change the *fact* that MMT simply explains in clear language how the money system currently works in every nation with its own fiat currency. IStM, that his lack of explanation doesn’t convince us, so we are still waiting for him to convince us and not just rely on his authority to make us accept it.
Steve American, either you havn’t read enough of Bill’s material, you don’t understand it, or your completely misinterpreting what has been said.
MMT describes how macroeconomics work for modern sovereign fiat issuing states, whether or not they have chosen to adopt the MMT based JG suggestion to ensure full employment and price stability (ie inflation control).
The fact that the JG is not being employed is put forth as the explanation for many failures of economic policy designed around mainstream New Keynesian Economics theory.
J Chistensen,
I’m not alone. And yes, I have not read a lot of Bills old posts.
And you’re right I don’t understand how Bill can claim that MMT is just descriptive of what all nations with a fiat currency DO NOW, when no nation uses the JG. No nation just spends currency without selling bonds either, and saying that they can or should is suggesting that they do something different also. But Bill says that just spending is prescriptive and yes I agree.
. . . I [and others] don’t see why the JG is different from just “printing” currency to spend, where one is part of “how nations do things now” and the other isn’t.
. . . Also, calling for the nation to aim for Full Real Employment is a change because under neo-liberalism Gov. are not supposed to aim for full employment, and so it is also prescriptive, right? [IIRC, the law that instructs the US Fed. has not been changed. The Fed. is still instructed to aim for full employment and low inflation. So, the Fed. just breaks it to some extent.]
. . . What I don’t get is why this point is so important. The point seems illogical, and being illogical it spoils the persuasiveness of the “MMT is just logical” claim.
A JG is a humanitarian solution to the fluctuations and upheavals of a modern industrial age; it serves also to highlight the shortcomings of Market-based solutions associated with the Capitalist structure of economies – historically providing ready excuse for firms that wish to change their workforce/production combinations to the detriment of wage-earners.
The alternative with the JG is that the government accept responsibility for full employment – something you may justifiably argue is its true responsibility anyway. That is a laudable aim but also carries with it a heavy responsibility for it to succeed.
In such circumstances, initial industrial upheaval will be better accepted by work-forces than say, a prolonged and monumental change. Nevertheless, an industry that is destroyed in its importance will ultimately breed unrest and political anathema if unresolved – there are several examples of this historically.
A current threat (of several) on the horizon concerns the car industry – something that can already be described as a case of JG because of government lobbying and subsidies to reinforce foreign commitment.
You can almost guarantee that if such unrest arose there would be a general clamour for the return of freer markets to reinforce Britain’s role in the world economy.
@ F. Thomas Burke:
“The latter is a factual values-free consequence of MMT macroeconomics”.
I’m sorry to disagree – I really am – but it is nothing of the kind.
The (MMT-savvy) choice of ” manipulating the minimum wage and maintaining ‘full’ employment” is not values-free; neither is what you counter-pose to it, the (monetarist) choice of “manipulating interest rates and maintaining some optimal ‘natural’ level of unemployment”. BOTH EQUALLY are *political* choices; either is open to be made (or spurned, as the case may be) by a government as flowing out of its particular party-political platform on the basis of which it can claim to have been elected.
You can’t get much less “values-free” than that”!
But it seems I’m completely failing to get the logic of my argument across and life’s too short to go on repeating it ad nauseam. So I’ll rest my case and leave it at that.
I think you are all losing the plot. Start with the simple view that any sovereign country that issues its own country can never run out of that currency and that it can buy anything for sale in that currency. Got it. Then look at how money is created. Every sovereign country does it the same way BUT they have got into a mess with lots of different governments adding a bit here and there that confuses the issue. You can listen to Bill on YouTube and just do so again and again and again until you get it.
@ Patricia:-
“As a thought, is inflation targeting through interest rates increases an integral part of monetarism?…”
Not as I understand it (but I’m far from being an authority; perhaps someone else will chime in). I believe that, grounded in its way of analysing how an economy works, monetarist theory holds that flexing the money-supply is the principal if not the sole instrument whereby to control inflation and that interest-rate targeting is the tool whereby the money-supply is flexed. Monetarism’s theory claims – just like MMT’s does – to describe “how the system works”. (Its claim happens – in a world where private banks issue by far the greater part of the money-supply (aka purchasing power) when they make loans – to be almost completely invalid but that’s beside the point).
Monetarist theoreticians adduce policy-prescriptions out of the (presumably) values-free scholarly groundwork, just as MMT wonks do out of their scholarly work. If as a layperson one finds MMT’s primary, descriptive, analysis more persuasive than monetarism’s – and who in her/his right mind could possibly not? 😉 – then one will probably be predisposed to go along with most but not necessarily all of its protagonists’ favoured policy prescriptions (the JG being one such). Speaking for myself (in case it’s of the slightest interest to anybody, which I doubt), I don’t buy unconditionally into the JG while I do into most of the rest.
“… If it is then I can understand why MMTers regard JG as an integral part of MMT. What I don’t like about MMT is the ‘theory’ word. Words mean a lot and a better name would be MMS. Modern Monetary System. Once the word theory is used then it is up for any Tom, Dick or Harry to attack it.”
Regardless of the theoretical niceties the fact is that here you’re clearly homing-in on the presentational aspect. Fair enough, that’s very important in the political sphere I grant you. But, again, it’s a separate discussion – one which has been held more than once in Bill’s blog before. Bill has as usual made his own position on this terminology very clear, and it disagrees with yours. (I’m sorry I’m not able to point to the references (you might try doing a search, or you could scan through the list of all blog topics on Bill’s Site Map – although its sheer size is a bit daunting)).
Steve American,
I think you may be overthinking what MMT says about modern fiat money. A state using a sovereign fiat money that is not convertible and “floats” in price against other monies on the foreign exchange, is a definite thing, and the mechanisms associated with that thing are what MMT describes in detail. Some of those details are difficult to understand at first, but there is enough good material freely available to eventually satisfy a person that MMT gets it right.
While the thing exists without a doubt, that doesn’t mean states automatically know how to put it to best use, maximizing the benefits it could bring, if only they knew what they were doing, which they clearly don’t, unless there is ill intent. I would like to think they are like the kid newly into model airplanes, having to crash and burn a few before they get hang of things, rather than taking instruction from an expert, or at least reading the manual.
The JG is a suggestion for a novel fiscal tool arising from Bill’s deep knowledge of MMT and the desire to use that knowledge to maximize the possible common good deliverable by the economy. Why waste a huge amount of labor potential when there is no cost associated with that decision?
Bill makes the point that governments do not, in general, use their ability to implement fiscal policy to meet that goal. Instead they rely on the far weaker tool of monetary policy at the discretion of central banks and just hope markets will behave according to their wishes.
The political decision not to make to use of the suggestions described above, to achieve better economic results, in no way subtracts anything from the realities of the monetary system in effect already, which MMT describes beautifully.
I would like to respond to two comments above:
robertH sez: The (fiscalist) “choice of ‘manipulating the minimum wage and maintaining “full” employment’ is not values-free; neither is … the (monetarist) choice of ‘manipulating interest rates and maintaining some optimal ‘natural’ level of unemployment’. BOTH EQUALLY are *political* choices … by a government as flowing out of its particular party-political platform …”
Steve_American asks: How can MMT claim to be “just descriptive of what all nations with a fiat currency DO NOW, when no nation uses the JG”?
First: In regard to the USA: The fact that Congress has both the power of the purse (originating and targeting all government spending and taxation) and the curse of the purse (the obligation to critically monitor and give a public accounting of that spending and taxing) is/was “political” just because this power+duty was written into the very first version of the US Constitution and constrains the government no matter how elections turn out or which party holds various reins. The latter more or less control particular expenditures from year to year, but that they have the power and duty to do it remains a political choice only so far as we are willing to amend the Constitution and/or utilize similarly built-in checks and balances to maintain the equality but separateness of the three main powers of government. Those are just contingent facts guaranteed by the Constitution.
Second: The US Constitution is a humanly designed implementation of a socioeconomic political contraption that works sometimes well and sometimes not so well. It has indeed been amended (repaired and/or modified) many times, and many more ancillary statutes have become law. In particular, it is a no-brainer that legislators, judges, and executive administrators should understand the science of economics because what Congress and the treasury and/or central bank do to steer and stabilize the economy is constrained (whether they like it or not) by the “nature” of how money works (no matter how they might wish it to work). Economics is basically the science of how money in fact works. NASA engineers must understand the physical sciences. That can’t just make it up as they go. Similarly, legislators must understand economic science.
Third: JG is an integral part of MMT because MMT claims to recognize and respect how money works, and the latter points to the JG fiscal mechanism as an effective “percolate up” counterbalance to “trickle down” monetary mechanisms. Both need to be used properly (respecting the nature of how money works), and neither is enough by itself. That there should be a JG program is just a fact. How exactly to design and manage it, on the other hand, is a difficult engineering problem — one that the US government is duty-bound to solve, given its current Constitution, and one that any sovereign government must solve to remain viable as such.
As an analogy: Every DC electrical circuit has some kind of “ground” — an essentially boundless pool of electrons (that need not be pushed back into the ground electron-for-electron as they are used). This might be the steel frame of a car, or the actual Earth, etc. Electrical circuits may be designed in lots of ways, but certain things (like the need for a ground) cannot be designed away given that that is just the way electrical circuits work.
So what about JG? If it nowhere actually exists today, then it is not one of those necessary features of money mechanisms. But wait, the same is true for something like “power steering” in cars and trucks. The first automobile designs did not feature power steering. None of them did. But the mechanical virtues of the latter were quickly recognized when designing heavy trucks. A lot of research occurred in this direction during WWII for military trucks and tanks. In the 1950s, in the USA anyway (along with the emergence of freeways and such, with *fast* traffic), power steering became an option for cars. It is now virtually a universal standard feature in all cars and trucks given that the latter are virtually all heavy, fast, or both. If you want to drive that kind of vehicle, power steering is a must just because that is how cars work! It is an integral feature of Modern [Vehicular Design] Theory (MVDT). JG is an integral feature of MMT in much the same way, namely, as a must-have part of large economic systems such as those of sovereign governments.
MMT describes the reality that in a monetary economy there are two options for what you use as a price anchor:
1. a buffer stock of unemployed people
2. a buffer stock of employed people who are paid a living wage that acts as the wage floor for the economy
That’s it. It is a binary choice.
Obviously a buffer stock of employed people is better: economically, socially, and morally.
That isn’t a prescription – just a description of an obvious fact.
The fact that no nation currently uses a JG doesn’t make a JG a prescriptive element of MMT. It is part of the description of how a monetary economy operates – specifically, what the options are for a price anchor that provides price stability.
Bill’s own words:-
“I mean by that, that while MMT provides a clear lens for viewing the system, to advance specific policy platforms, one has impose a value system (an ideology) onto that understanding.”
He couldn’t be any clearer.
Well, thanks RobertH. That what I had thought. And you too.
Thanks Robert. I have always thought that but I have tried and tried to work out in my mind how a JG is an integral part of MMT. It just didn’t work. It is certainly my ideology but not my brother’s. He is very right wing. As a lens MMT is perfect and that is where I see its worth. It makes everything so clear and so makes the purpose of any discussion so much more apparent.
it is not a fact that there are there are 2 choices of price anchor.
It is not a fact that any price anchors exist at all.
The Phillips curve is not a fact.
It is a fact that the MMT JG does not exist .
As a logical consequence MMT (with a MMT JG )is not a purely descriptive lens
but something you apply as well.
This is not difficult to understand and is not an argument for or against any
job guarentee or any policies aimed at limiting inflation.
Why does the Bank of Japan want to have positive inflation? Isn’t the price stability observed since the 1990s a good thing? To my knowledge, no other country in the world had almost zero average inflation during the same period.
@Bill,
Not sure if you are still monitoring comments on this article, but in your presentation on Friday (book launch), you mentioned Japan as a “laboratory” for MMT-style ideas, and your comments about Japan above seem to be in a similar vein.
Would you actually go as far as to say that Japan is operating along MMT lines, and could even be considered to be a poster-child for MMT? They actually have a long history of doing some pretty interesting things, economically.
Mike Ellwood,
“Would you actually go as far as to say that Japan is operating along MMT lines, and could even be considered to be a poster-child for MMT?”
I guess that the whole point of this post is exactly to claim that there is no such a thing as “operating along MMT lines”. If I could get it right, every single country is “operating along MMT lines”, including Japan, USA, Australia, etc. MMT is just a lens to see the world more clearly.
You are correct of course André. I was unsuccessfully using shorthand in order to ask whether Japan was a poster-child for a country whose leaders operate as though they were seeing the world through an MMT lens, and taking economic decisions which show that they understand and agree with MMT principles.
Is that better? 😉
Ooh I see, sorry.
Well, I don’t know what is Bill’s opinion, but if you look for some political and economic news, many Japanese politicians believe that the debt and deficit levels are too high, and all that usual nonsense. Japanese politics seems neoliberal to me…
No problem André. You gave me the opportunity to clarify my question.
You are probably right about current Japanese politics, although so-called “Abenomics” was supposed to be a breath of fresh air. I’m not clear what Bill’s view is of “Abenomics”.
I also have a question about Japan. They are already spending a debt at 250% of GDP, compared to the US at about 105%. At our peak during WWII, I think we were at about 150%. But despite all that spending and printing of money, inflation is still zero and economic growth creeps along at a less than sluggish pace.
Just how much money do you need to print in order to make this thing work? I mean, 250% of GDP seems like it ought to be enough to stimulate the economy and at least cause some inflation. The fact that it doesn’t, and it hasn’t (for almost 30 years now) leads me to believe that there are some holes in MMT and that it doesn’t quite explain everything quite as well as its proponents think it does.
Steve Siegel,
Probably there are other people here more capable of commenting on Japan, and Bill himself has already written some times about it.
What I understand is that, because Japan’s interest rate is zero or close to zero, even high amounts of public debt doesn’t generate much interest expenses for the government (or interest revenues for the bondholders). So the big debt is not an issue.
The fiscal policy in Japan was sometimes guided by an austerity bias, sometimes not, and I believe that this is much more relevant to explain unemployment and inflation than the public debt level.
I don’t see Japan being a contradiction to MMT. But it certainly is to the mainstream theory.