The transitory view of the current inflation episode is getting more support from the evidence.…
US Congress hypocrites lose the plot
The way in which Modern Monetary Theory (MMT) has become politicised and misrepresented is quite something. The critics have all fallen into the same pattern. They rehearse a few statements that they claim represents what MMT is about, and, which they know will shock people who read and/or listen to them, into concluding that the proponents of MMT understandings are crazy. A whole host of wannabees are now jumping on the bandwagon. And last week, 5 Republican Senators in the US Congress tabled a bill which claims it is “the duty of the Senate to condemn Modern Monetary Theory and recognizing that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation”. For a start, these goons haven’t even cottoned on to the fact that one cannot implement Modern Monetary Theory (MMT) – they are surrounded by it, every day of their lives. But then if they had got that far, they would have also realised that the rest of their arguments in the draft legislation is equally ridiculous. We are making progress though – and the more they come out of the woodwork the better. So far not a blow has stuck.
The US Congress condemnation bill
You can read the Republican Senators’ – MMT Resolution – if you want a good laugh.
They have pronounced our work:
… a clear danger to the economy of the United States
They quote as an authority, one Lawrence Summers – yes him.
I wrote about him and his gang in this blog post – Being shamed and disgraced is not enough (December 18, 2009).
He, who with Robert Rubin and Alan Greenspan in the late 1990s, among other things, intimidated Brooksley Born (then, Head of the Commodity Futures Trading Commission) because she wanted to regulate the out-of-control financial sector and bring the fraudsters to account.
And this is the quality guy who published the now famous – Summers Memo – when he was the chief economist at the World Bank, advocating that rich nations should dump their toxic waste in poor countries because the value of life in those countries was lower.
The Senators quote head of the Federal Reserve who admitted that he had not even read any of the MMT literature but still thought it was crazy stupid.
They get in a tangle by quoting some other characters. All along they claim fiscal policy expansion is dangerous but then quote some economists who claim that MMT proponents overestimate “the potency of fiscal policy”.
We have “very high debts” competing against “hyperinflation” occurring “when a government attempts to pay for massive spending by printing money”. Even in their confused world, if the latter was happening then the former wouldn’t be.
They quote another character from the far-Right Cato Institute who basically claims MMT is wrong because the US Treasury is “more constrained than an ordinary household or business” and “cannot write checks in amounts exceeding the balances in the general account of the Treasury”.
So how will the government go wild?
Anyway, the resolution says that the Congress:
(1) realizes that deficits are unsustainable, irresponsible, and dangerous; and
(A) that the implementation of Modern Monetary Theory would lead to higher deficits and higher inflation; and
(B) the duty of the Senate to condemn Modern Monetary Theory.
I thought of the Säuberung in 1933 where the Nazi student movement decided to take “Action against the Un-German Spirit” and started the – Nazi book burnings.
I thought of the hypocrisy of these so-called libertarians, who advocate free speech and all the rest of it.
And I recalled how the so-called leader of the ‘free world’ hasn’t a very good track record in individual liberty anyway.
In the late 1940s and early 1950s, thinkers, academics, people were subjected to repression as a result of the – McCarthyism -purges, which tried to accuse people of treason for having ideas that were contrary to the conservative, anti-Communist orthodoxy.
It was a thoroughly indecent period in US history among many indecent periods.
The State machinery turned from being responsible for advancing the well-being of all citizens to oppressing the rights and freedoms of individuals they considered to be desirous of altering “the form of Government of the United States by unconstitutional means”, although scant evidence was brought to bear to establish such subversion.
But I was cheered by the memory that on December 2, 1954, the United States Senate voted 65 to 22 to condemn McCarthy for “conduct that tends to bring the Senate into dishonor and disrepute”.
The Senators in question:
Mr. David Perdue (Georgia) – management consultant, business.
Outsourced thousands of jobs offshore.
Cut labour conditions.
Closure of Pillowtex – took $US2 million payout just before it went under.
Wants to eliminate the EPA.
Advocates strict enforcement of border control.
Opposes gun control.
Supports Israel against Palestinians.
Opposes same-sex marriage.
Opposes Common Core
Wants to repeal Affordable Care Act.
Mate of Trump.
National debt was “greatest threat to the security of the United States” but in 2017 voted tax cuts for top-end-of-town and corporations which increased national debt by one trillion dollars.
Voted for 2017 federal fiscal position which added $US1.5 trillion of deficits over ten years.
Supports balanced budget amendment.
Mr. Mike Braun Indiana – was a Democrat switched to Republican. Business background.
Wants to repeal Affordable Care Act.
Wants free market health care.
Wants to ‘build the wall’
Supported Tax Cuts and Jobs Act of 2017 but wants fiscal deficit cut – US has a “spending problem”.
Opposes same-sex marriage.
Opposed legislation to prevent “discrimination based on sexual orientation and gender identity”.
Ms. Joni Ernst Iowa. Ex military.
Said Barack Obama was a “dictator”.
Opposes federal minimum wage.
Wants to eliminate the IRS.
Supports balanced budget amendment.
Wants major cuts to entitlement programs and discretionary public spending.
Wants Social Security to be partially privatised.
Wants to eliminate the Department of Education.
Wants minimal environment regulations.
Thinks Clean Water Act damages business.
Supports US withdrawal from Paris Climate Accord.
Still thinks there were WMD in Iraq and supported invasion.
Supports NRA and opposes any gun control. Receives large funding support from NRA.
Wants to repeal Affordable Care Act.
Opposes same-sex marriage.
Opposed legalisation of medical marijuana.
Mr Gerald Moran Kansas. Lawyer.
Wants to repeal Affordable Care Act.
Supports NRA and opposes any gun control. Receives large funding support from NRA.
Climate change denier.
Opposed legislation to control carbon emissions.
Opposes same-sex marriage.
Mr. Thom Tillis North Carolina – Business.
Wants to ‘build the wall’
Climate change denier and received massive funding from “oil, gas and coal interests”.
Supports NRA and opposes any gun control. Receives large funding support from NRA.
Why this is completely off the planet
The critics typically start with some statement like – “By way of summary, MMT tells us that a government can fund any project it desires because it can print as much money as is required”.
They then move on to talk about MMT representing “money-financed deficits” rather than “debt-financed deficits”, and then go onto to pull the main lever – that that choice would be a sure-fire recipe for inflation.
Critics ranging from Nobel-prize winning economists writing for the leading newspapers to crazy gold bugs in the blogosphere get to this point, more or less, in the same way.
The more detailed critiques get on to case studies – and of course, the litany includes a selection of hyperinflations – 1920s Germany, more recently, Zimbabwe and a stack of Latin American examples.
All are represented as examples of what happens when governments take up MMT.
And in that very conceptualisation of our work, it is clear that the critics has neither understood what MMT is about or have chosen to avoid the subtlety and nuance to maintain their own position in the public debate.
They consistently reinforce the claim that MMT is a regime that we can choose to ‘go to’ or ‘adopt’, and if we do, there will be catastrophic consequences.
Of course, those who have read and understood our work will know that by promoting MMT understandings we are not describing a ‘regime’ or a ‘state’ that we can move into or out of.
MMT is a lens (a perspective or framework) for achieving a better understanding of the way the fiat monetary systems operate and the capacities and options that a currency-issuing government has within that type of monetary system.
It exposes myths that are used to suppress those capacities and options.
I consider it renders the ‘veil of ideology’ transparent. Once we all understand the principles of MMT, a politician will no longer be able to hide behind claims that “there is not enough money”, or that “we have run out of money” to preclude policy action that might improve the well-being of the majority or protect our natural world.
To create a policy layer on top of that understanding we obviously exercise our value judgements and aspirations. So someone like me, who maintains collective, progressive Left values, will propose quite different policy interventions than a person who extols a world view based on neoliberal individualism.
Those value differences are out there. But by lifting the ‘veil of ideology’, MMT understandings make them more obvious.
A neoliberal politician in a world full of MMT understanding would have to explain why, for example, unemployment was necessary; whereas people with my persuasion would know it was highly damaging, wasteful and unnecessary.
The typical MMT critic that has come out of the wood work in recent months fails to make the distinction between the ‘lens’ and the ‘values’.
Even if they understand that distinction, it is not in their interests to explicate it to the wider public because then their own values will come into focus. It is better to keep people in the dark.
Some critics have been explicit about that in fact. There have been papers that have argued that there is utility in keeping the wider population uninformed and functioning under the false construction that their taxes pay for government spending and all that sort of lying, because it places a discipline on politicians, who because they are untrustworthy, would otherwise go wild in their spending.
These critics acknowledge the validity of core MMT principles but think they are to dangerous for people to broadly share in that knowledge.
Some conceptualisation of democracy!
Remember the famous quote from Paul Samuelson in the interview he did for the film – John Maynard Keynes: Life, Ideas, Legacy – where at the 52:50 mark into the film, he said:
I think there is an element of truth in the view that the … the superstition that the budget must be balanced at all times … aah … Once it is debunked … takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have … aah … anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by … aah … sometimes what might be regarded as myths into behaving in a way that long-run civilised life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year … in every short period of time. If Prime Minister Gladstone came back to life he would say ‘oh, oh what you have done’ and James Buchanan argues in those terms. I have to say that I see merit in that view.
Thus, most of the critics are really expressing a dispute about values.
It just turns out that the core MMT developers are in one way or another progressive in outlook. There are some differences in outlook and emphasis but they are largely nuanced and immaterial.
I recall giving a talk with Warren Mosler to a group of very wealthy financial market players in Boston some years ago. It was sort of billed as the academic and the practitioner.
Someone in the audience asked (and my memory is a little vague as to the exact wording of the question) something along the lines that it was interesting that someone from business (Warren) could have the same shared ideas as someone from the academy (me) – with the implication that Warren represented the neoliberal view and I was the socialist. Along those lines.
It was very interesting. We went through a series of contentious views which would clearly divide Right from Left. And at the end of that exercise and interaction between Warren and me it became obvious that on the main issues there was no difference in our outlooks.
Different wording. Different phrases. Different accents!
The point is that that progressive bent comes out in all our writings and presentations.
So for those with the most superficial embrace of MMT who have not grasped the ‘lens’ versus ‘values’ complexity, it becomes a simple step to jump to the conclusion that MMT is a progressive Left program, and, of course, many of them hate that sort of program.
It would have been interesting if the MMT developers had have come out of the far Right. Conjecture abounds.
So there are two levels of critical motivation for the MMT critics:
1. They perceive MMT to promote values different to their own – which, as above, reflects the failure of the critics to distinguish ‘lens’ from ‘values’.
2. The MMT lens and related conceptual development has exposed the poverty of the mainstream macroeconomics approach. It has rendered it fake knowledge. That exposition is nothing really about the ‘value’ divide. It is about facts and realities.
MMT is ground in the real world.
Mainstream macroeconomics is constructed from a stylised set of assumptions about a fictional world and a priori statements about human behaviour that no psychologist or sociologist would recognise or ascribe to.
No-one in the professional world wants to be exposed as a charlatan. So the resistance to MMT understandings also reflects the fact that there are a lot of careers at stake here in fact. That reality, alone, will generate massive opposition using any tactics that are available.
There is nothing intellectual in this debate now.
MMT has finally been perceived as a threat to the cosy and fake macroeconomics that the mainstream of my profession has been hiding behind and profiting from – materially and by repute – for years.
That threat has become obvious as more and more people seek to understand our work and embrace it as viable knowledge.
As more people learn how to construct the correct questions that get to the heart of the flaws in the mainstream macroeconomics, and realise that, for decades, viable policy options have been politically suppressed by appeal to the ‘authority’ of that mainstream body of work, these MMT understandings become a threat to vested interests in the academy and beyond.
Those options were clearly inconvenient to the elites who have profited from such a suppression.
What has probably brought this to a head now is the challenge of climate change, which is a sort of existential threat that unites us all in one way or another.
You might have thought that mass unemployment would be such a threat.
But the mainstream economists were able to deflect that threat by reconstructing it, in various ways, as an optimising choice taken by individuals – not to seek work effectively, demanding excessive real wages, having their decisions distorted by government legislation spanning from job protections to minimum wages and income support payments, and all the rest of it.
As mass unemployment emerged in the 1970s as a consequence of the growing dominance of neoliberalism, the conservatives, aided and abetted by my profession, instigated an effective ‘divide-and-conquer’ strategy to segment the unemployed into a group that the rest of us would blame as agents of their own demise.
A nomenclature emerged to support this strategy – in various nations the terms were different – but they all were designed to vilify the unemployed and other income support recipients – ‘bludgers’, ‘drifters’, ‘lazy’, ‘scheming’, ‘living off the rest of us’, and more.
Them and us.
That sort of strategy meant that nations could endure significant recessions without the majority (who kept their jobs) questioning the basis of the recessions (a lack of overall spending) and the role that governments could play in eliminating them.
Some literature actually eulogised the recession experience as a sort of ‘cleansing’ episode where capitalism maintained efficiency – by shedding high cost technologies and less profitable entrepreneurial ventures.
But the climate change threat is different. We are all affected by it in one way or another and if we don’t identify that threat in a sort of spiritual way (like what are we doing to the Earth), then we identify it in a much more pragmatic way.
In that vein, we are starting to feel the impacts via our ‘back pockets’ – energy bills are rising, extreme weather events are on the rise causing massive damage to our infrastructure (even our homes) and creating inconveniences (flooding, fire, etc).
Sure enough there are climate change deniers – who tend to be heavily represented among those most vocal against MMT.
But they are looking increasingly ridiculous.
The other aspect of the climate change debate is that it is bringing together different demographic cohorts that have previously not seen a common cause.
So at public rallies and meetings around the world we are seeing older people demanding climate change action because they fear for their children and grandchildren and are realising that they are somehow responsible for the toxic legacy they are leaving them.
But those children and grandchildren are also at the forefront of the climate action movements because they see their futures being compromised by big industry that only has a short-term profit focus driving them.
The surge in what we now call the Green New Deal movement is universal and powerful.
And naturally, people who seek action under the GND aegis, turn to the economics – how will we pay for it?
Most people construct that question in terms of ‘dollars’ (or whatever currency they use) because they have been conditioned to believe, erroneously, that governments are like them – financially constrained.
So if we want a bright new car or something we have to answer the question “how will we pay for it?”.
And this false conceptualisation is promoted by conservatives and elites who want to steer the GND in their favour. This is particularly the case for those who want to ‘financialise’ the GND by creating market products and all sorts of derivative market products (for example, carbon trading systems) and who tell us that these innovations are necessary for climate action.
This strategy gives them the best chance of controlling the flood of people action, which is now unstoppable and to make the most profit from it that they can.
They don’t want governments to use their clear legislative authority over capital to regulate pollutive industries out of existence. That would wipe out profits quickly. So we get all sorts of plans that, for example, involve global capital invading poorer communities in poorer nations with investments in ‘energy’ projects that then allow them to build up carbon credits. All that sort of chicanery.
But the main point here, is that when an MMT economist asks the question “how are we going to pay for it?”, the currency or financial aspects are not in our focus.
Rather, for a currency-issuing government the challenge is to muster the real productive resources necessary to successfully implement a GND, whatever that actually means in scope.
I have written before that the GND challenge is immense and will not easily be achieved.
Powerful vested interests in the carbon industries will have to be rendered powerless.
Habits will have to change quite dramatically.
And, importantly, our neoliberal constructions of the dangers of collective action and how we view each other will have to change diametrically – and that is a massive part of the challenge.
Shifting from the neoliberal construction that the economy is somehow beyond us and the environment is a servant of that economy and that we have to sacrifice if the economy ‘gets sick’ to a progressive construction where we control the economy through our governments and that it and us are embedded in the natural environment will take time.
After all, there has been decades of indoctrination from mainstream economists, carbon lobby groups etc promoting the neoliberal vision.
But it is clear the GND is the battleground and the attacks on MMT understandings are, in part, being motivated by this issue.
Of course, the correct MMT statement is that a currency-issuing government can, intrinsically, purchase anything that is for sale in that currency, including all idle labour.
There is no financial constraint facing such a government in this regard.
I keep reading that MMT is about “money-financed deficits” and that, “as any macroeconomics student knows is inflationary”.
Money-financed deficits is code for “printing money”.
And this focus by the critics is deliberate because they know that constructing government net spending as “printing money” is loaded and invokes extrapolations of crazed government and central bank officials in basements of government buildings jacking up the printing presses with money flying everywhere as the official’s eyes pop with demonic pleasure.
See, just what we warned – MMT will empower these crazy and untrustworthy politicians to run wild! That is the exercise being conducted. It is not an intellectual debate that is being conducted. Rather, it is a crude propaganda campaign that is being mounted.
Where in the core body of MMT literature is there a reference to “money-financed deficits”?
The use of this construction as a critical tool reflects two things:
1. The critics keep using their own frames to construct MMT, which are outside the frames being offered by MMT economists.
2. The critics haven’t read the core literature, and, if they have, they default to interpreting it using (1).
What I mean by that is that mainstream economists are so tied to their own construction of government spending and deficits that they cannot see outside that frame.
So, for them, the framework they invoke immediately in these matters is the ‘government budget constraint’ (GBC) literature, which emerged in the 1960s, when the mainstream was pushing the flawed analogy between the household and the sovereign government such that any excess in government spending over taxation receipts has to be “financed” in two ways: (a) by borrowing from the public; and/or (b) by “printing money”.
See this blog post – The Weekend Quiz – January 19-20, 2019 – answers and discussion (January 19, 2019) – for more discussion on the GBC.
The problem is that MMT understandings take us outside of the framework. The only ‘truth’ that the GBC provides is an an ex post (after the fact) accounting statement which links the monetary variables – government spending, taxation receipts, bond issues, bond interest payments, and changes in central bank reserves.
That is a trivial ‘truth’ that is a concern for the accountants (noting I don’t think the work of accountants is necessarily trivial).
For the mainstream macroeconomist, the GBC is an a priori (before the fact) financial constraint on government.
So they think in those terms. Acknowledging that the GBC is just an accounting statement allows MMT economists to think quite differently.
And grinding the analysis in reality takes us out of the stylised world of GBC architecture.
All government spending is accomplished in the same way – a number is adjusted in various accounts of the central and commercial banking systems.
There is no printing press.
A net financial asset is created in the non-government sector.
That is it.
What monetary operations might accompany that action do not alter the essence of the way governments spend the currency into existence.
I will return to this theme in a later blog post.
The next issue I want to traverse in this regard is to clearly distinguish between core MMT and opinions that MMT proponents might have about various policy options.
One issue I want to clarify in that context is the claim that MMT advocate bond issuance. The core body of work certainly doesn’t. What that body of work does is note that bond issuance is unnecessary and teases out the implications of not issuing debt.
Those implications are quite different to what the mainstream claim in the GBC framework.
And, to put a finer point on it, the core body of work suggests that a central bank running a zero interest rate policy is desirable, which means that any bond issuance that would allow central banks to conduct liquidity management operations (OMOs) to hit a positive interest rate would be unnecessary.
Of course, we also know that a central bank can still hit a positive rate with excess reserves by simply offering a competitive support rate.
Anyway, all that for another day.
Now I have to deal with very wet and bleak Edinburgh.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.
This Post Has 24 Comments
“All government spending is accomplished in the same way – a number is adjusted in various accounts of the central and commercial banking systems.” bill
Except commercial banks may also create* deposits and compete with sovereign spending – but not for the common welfare but for the private welfare of the banks themselves and for the rich, the most so-called credit worthy.
“There is no printing press.” bill
While even 100% private banks with 100% voluntary depositors could safely create some deposits/liabilities for fiat, it is government privilege that allows banks to create vastly more deposits than they might otherwise.
* “Bank loans create bank deposits”
Let me add a technical point to what you have said. The problem in neoclassical models with a government budget constraint is seen in the so-called transversality condition, which imposes “long run” balance as the time horizon approaches infinity. This is a New Classical device that is inconsistent with Keynesian or Knightian uncertainty. Keynes and Knight pointed out we do not come close to knowing the true probabilities of various kinds of macro events, say, 10 years from now. As you point out, the equation stating that imbalances between inflows and outflows are matched at any given time by changes in net financial assets and liabilities is an identity. The latter is also taken up by Tobin and Godley and present-day stock-flow-consistent economists–a good thing, in my opinion. I mentioned transversality conditions for households in orthodox macro in a working paper on social aspects of mortgage finance (in 2006 or so, I think), pointing out that neoclassicals weren’t allowing for default in standard models of any kind.
I have no training in economics and have little experience with the core literature about MMT but even I got that “MMT is a lens not a regime” point. Its totally possible for someone to accept many MMT claims yet still advocate for a neoliberal regime. All MMT does is point out how that decision is a political one and how justifications for that based on ideas like “the government is funded by taxes” are incorrect. There are still constrains to the government’s spending based on what is available/their real resources (Can’t hire engineers if there are no engineers in your poor country, etc) and the political environment.
Dubbing it as advocating for mere money printing is a good rhetorical trick though. Critics of MMT seeing it only as a program pushed by the left is funny to me because of of all those critics of it from left wing authors that they seem to be ignorant enough.
“Now I have to deal with very wet and bleak Edinburgh.” Some analyst of complex systems you’ve turned out to be!
Dear Andrew Anderson (2019/05/09 at 1:56 am)
Bank loans create bank deposits but they do not create net financial assets. You have missed that point which is essential to understand MMT.
Thanks very much (to you and the organisers) for the event in edinburgh.
If anyone else in the UK pipes up about non jobs, just point out that we have a terrible version of the jobs guarantee already in the form of ‘assistance’ to the unemployed which mimics the absolute worst of the private sector.
People, paid less than the minimum wage are given the job of making an arbitrary number of job applications for work that is as unsuitable as it is unlikely to exist. Their ’employer’ is both capricious and vindictive and can condemn them to destitution at any time.
You would be hard pressed to find a less productive use of available labour than both the implementors and victims of this policy.
PS There were more in the audience than when I saw Kraftwerk 30 odd years ago, and they headlined at Glastonbury recently.
Keep spreading the word.
Actually, sir, my point was that banked-created-deposits compete for real resources with sovereign-spending-created-deposits and thus use up politically acceptable price inflation space that might otherwise be used for the common welfare , not for the private welfare of the rich and the banks.
As for “net financial assets”, the liabilities of “the banks” toward the non-bank private sector are largely a sham* due to government privilege while bank assets are largely real due to government enforcement. So how can real assets MINUS sham liabilities net to zero?
*E.g: Bank liabilities are for fiat which the non-bank private sector may not use except for mere physical fiat, aka “cash.”
I for one am delighted to see these incompetent critics exposing themselves so carelessly, and I look forward to the bonfire of their straw men that will ensue.
In respect of the Senate vote to censure and the consequent disgrace of McCarthy, I think it is important to note that the Senate hearing took place primarily because the US army demanded such a hearing because McCarthy accused it of blackmail and harboring an unknown number of communists. It is possible to view a documentary entitled Point of Order, which came out in 1964 based on a filming of the hearings in 1954. For instance, on youtube — https://www.youtube.com/watch?v=wJHsur3HqcI. It is of more than passing interest that an attorney for McCarthy was none other than Roy Cohn, mentor to Trump and sometime lawyer. I leave it to others to draw any parallels they wish.
A number of issues were brought up in the hearings — whether the Army or Navy harbored homosexuals in addition to communists, whether a given individual, Private Schine, was being held hostage, &c.
Correction: Cohn was an aide to McCarthy at the time, and he testifed as to certain statements he had made, such as one where it was claimed that he had said that “we would wreck the Army” if Schine wasn’t accorded special privileges. It was a clear case of attempted corruption.
I am enjoying your relentless improvement of the MMT narrative. This piece is an excellent example. The more you write, the more you hone the narrative to a point where everyone can grasp its meaning! The truth is MMT is elegant and efficient. It strips away the fatal imperfections of the mainstream economics. And as an expose, MMT frightens those who have prospered under the current, interest rate and debt denominated culture. The political merging of the elderly and their children/grandchildren is a tectonic change, in my opinion.
This must be one of Bill’s best blogs yet. Sorry I can’t make any of the UK events this time, but I’ve flagged them to family and friends, some of whom hopefully can. I wonder if any followers of Bill’s blog belong to campaigning groups such as KONP (Keep Our NHS Public). Understanding by campaigning groups for better public services would be a powerful addition to the growing public understanding of MMT and thus would help to hold the government to account. Quoting Bill; “Those value differences are out there. But by lifting the ‘veil of ideology’, MMT understandings make them more obvious”.
Bill hits a home run with this one. It’s starting to look like the neolibs have moved from mockery to fear–a sign that “unacceptable” progress is being made in public opinion. We are watching (and hopefully assisting in) the unraveling of the neolib narrative, and progress is being made even in the face of incessant MSM propaganda. This aging boomer saw American society turn on a dime back in the late 60s. Believe me, nobody saw it coming or could really explain it after it happened. One day, we were in the predictable, pedestrian world of the 50s; the next day (or so it seemed) in the beautifully chaotic and exhilarating “Age of Aquarius.” Most people labor under the misapprehension that history slowly unfolds in linear fashion. Though many in generation seem to have forgotten, we not only learned–but lived–the historical lesson to expect the unexpected. When the music of the young again turns brash and bold and confident, again bursts with hope and celebration…watch out! Don’t think it can happen? Things are now too screwed up? Just peer through that MMT lens and consider the possibilities that await us.
Re Michael Gavin’s comment:
I have been very active in a Canada-wide coalition to protect and expand public health care for many years. It includes unions, healthcare professionals, retirees, etc. Currently there is a major campaign to add prescription drugs (”pharmacare’)’ to the public system which currently includes doctors, hospitals, and drugs prescribed in hospital, but not drugs prescribed outside of hospitals. Our provision of prescription drugs is by a very US-style system: the poor and elderly are covered and everyone else is either not covered or covered (poorly) by employer plans. We have met with many members of Parliament including cabinet ministers. No political party wishes to go anywhere near the idea of suggesting pharmacare be funded by a fiscal deficit.
Within our group, within ”progressive” circles, and by political parties, proposing deficit spending is seen as a political kiss of death. Many want to explicitly say pharmacare must be funded by a tax increase despite Canada having a fiscal deficit of less than 1% of GDP and inflation running at a modest 2%. Indeed, even using very mainstream assumptions Canada could fund it easily through deficit spending given what it would cost and how low interest rates are. Fortunately the group I am in has ruled out a tax increase to fund pharmacare.
88% of Canadians are in favour of the program but the insurance industry and big pharma oppose it (they would lose out big time), as do their Conservative and Liberal Party friends. Two parties fully support it – the New Democratic Party and the Greens – as do significant elements of the Liberal Party. The main argument used against is the supposed increased cost and associated tax increases. Both assertions are false but that doesn’t prevent ”We must be fiscally responsible” from being used repeatedly, along with the specter of increased taxes.
There are divisions between business interests however as some are distressed by the increasing cost of covering their workers for drugs, something pharmacare would control, and would and should, take entirely off their books. It looks like the issue will be decided in the upcoming federal election (October 2019).
For those interested, here are the urls of two documents relating to the issue:
Full document: http://www.healthcoalition.ca/wp-content/uploads/2019/04/Economic-case-for-pharmacare-4.pdf
A summary document: http://www.healthcoalition.ca/wp-content/uploads/2019/02/The-Economic-Benefits-of-Public-Universal-Pharmacare.pdf
“Actually, sir, my point was that banked-created-deposits compete for real resources with sovereign-spending-created-deposits and thus use up politically acceptable price inflation space that might otherwise be used for the common welfare”
No they don’t, its at the discretion of a currency issuer. If sovereign currency issuer wanted real resources in its currency zone it has 1. legal means, 2. has the ability to ‘set’ price 3. Can out-bid any private sector currency ‘user’ for those resources.
It will always ultimately be physical constraints or scope constraints that determine inflation.
Fairly common example in IT world: When Japan has an earthquake and it damages factories supplying SSD, HDD parts that constrains availability of those products. Japan govt can (has) monopoly over getting the existing parts if it wants to outbid the private sector. Ultimately its the physical constraints setting price for external + private sector trying to get those items.
“As for “net financial assets”, the liabilities of “the banks” toward the non-bank private sector are largely a sham* due to government privilege while bank assets are largely real due to government enforcement. So how can real assets MINUS sham liabilities net to zero?”
That’s asking a different question though. Asset backed commercial paper that creates a deposit/liability will net to zero but it does not stop the issuer and bearer agreeing to a non-net zero balance sheet position outcome.
This has shifted the goal posts to consider capital gains and capital losses and equity: net change in the market value of assets and liabilities. (eg: liquidity of asse, nominal value over time)
But once again if that’s in currency issuers monopoly zone they have tools to set price for other assets on the balance sheet of either party.
So how does the need for the government to outbid government-privileged banks and, by extension, their government-privileged borrowers, not use up politically acceptable price inflation space?
And then what? Tax poor consumers to quell price inflation caused by government privilege?
I think Andrew Anderson is right on this. But I don’t see that as conflicting with MMT or what Bill says in any way. Bank loans obviously allow additional expenditure, or effective demand for real resources, than would be the case without them. This can be thought of as competition for access to those resources and could drive up the price for those in short supply. Sure the government could outbid other demands but that is obviously raising the price right off the bat.
And I don’t think it is wrong to consider banks as primarily serving the interests of the wealthy rather than the ‘common welfare’. I mean poor people have poor credit- just as a consequence of limited and often precarious incomes. Few commercial banks are in the business of extending credit to people who need money because they are poor. Those that do usually charge exorbitant interest rates and this is often called ‘predatory lending’. Hardly consistent with the ‘common welfare’ as I see it.
And to the extent that banks can expect to be bailed out of their financial obligations by the government (or its tool- the central bank), then their financial obligations can be considered kind of ‘sham obligations’ that realistically may not net to zero (even if the accounting does). But again, I don’t see that as conflicting with MMT at all. MMT explicitly denies that the central bank sets the ‘money supply’ and instead holds that the central bank in reality will find that it needs to supply as many reserves as are needed to maintain the payments system. In other words- to allow bank obligations to almost always be met in some way by making the money available. Bill points this out yet again in his answer to question 1 in this weekend’s quiz.
“MMT explicitly denies that the central bank sets the ‘money supply’ and instead holds that the central bank in reality will find that it needs to supply as many reserves as are needed to maintain the payments system.” Jerry Brown
Which raises the question of why insist we must have only a single payment system (besides mere physical fiat, aka “cash”) when debit/checking accounts for all* at the Central Bank would constitute an inherently risk-free, always liquid payment system in addition to the one which must work through private banks.
Thanks for a fine comment which I totally agree with except for any suggestion that I am anti-MMT. Rather, it is a waste of the important insights of MMT not to use them to euthanize the privileges of banks in a just, responsible manner.
*At no charge for individual citizens up to reasonable limits on account size and transactions per month as a normal human right of citizenship.
Andrew Anderson wrote:-
“Which raises the question of why insist we must have only a single payment system (besides mere physical fiat, aka “cash”) when debit/checking accounts for all at the Central Bank would constitute an inherently risk-free, always liquid payment system in addition to the one which must work through private banks”.
I’ve long been of the same opinion. Furthermore I would question the justification for the continuance of free deposit insurance by govt. to the private banks’ depositors after the introduction of such an innovation. Why shouldn’t they be required to pay for it themselves if they want it? Or better still for the banks to defray it? – after all it’s the potential consequences of their own risk-taking which is being insured-against (as is already implicitly recognised by the govt-provided cover being capped).
And now we have Ian Verrender (at the ABC) telling us what MMT is (money printing you know) and why it has never worked in the past- Weimar, Zimbabwe etc.
Bill. You dont have to go to the USA to find out how those ignorant of MMT portray it in the media. A quote from the ABC [Australia] Federal election coverage May 13 2019 by the ABC’s business editor Ian Verrender.
“With central banks now all but out of ammo, there are growing calls for governments, particularly in developed nations, to abandon fiscal restraint; to borrow up big now rates are set to remain around zero permanently, and even print money.
Known as Modern Monetary Theory, it’s never worked in practice. Just ask Zimbabweans or anyone who survived Germany in the 1930s. And it throws aside all the logic that’s prevailed for the past 60 years”.
Re Keith Newman’s comment; I was very interested to read this and the linked report from the Canadian Health Coalition. Whilst I agree entirely with the objectives of ‘Universal Pharmacare’ as set out in this report, I wonder whether it goes far enough? Is it not true that the biological science behind the development of the amazing and exciting new therapeutic agents largely arises out of our universities across the world. Is it not possible that the options for maximising the potential for human health and wellbeing would best be undertaken outside of the ‘free market’ without the constraints of the profit motive as a dominant influence. In other words is there not a case for not only universal ‘pharmacare’, but also for an international ‘Public Pharmaceutical Service’. I realise this sounds utopian, but is this not precisely the kind of utopian idea that the insights from MMT make possible to realise? The only constraints are human resource and what can be bought in the sovereign currency or in this case sovereign currencies. My guess is we are presently barely scratching the surface of what is now possible. So thank you Keith Newman for bringing this issue to our attention.
Re Michael Galvin’s comment on May 13: Yes you are right. The development of pharmaceutical treatments should be done quite differently. A couple of links to a short article and, more interestingly, to a report by Mariana Mazzucato below speak to that. Sadly that is not the world we live in. In a world of governments largely captured by big corporate interests we need to pick our fights.
The right wing in the U.S. demonstrated years ago that the most effective way to get policy changes enacted is by focusing on one major demand at a time. Having a list of many worthwhile proposals, or even just a few, leads to no result. Our two opponents (big pharma and the insurance industry) have unlimited funding, will say anything at all to advance their interests, and will offer well-paid future jobs to sympathetic politicians and their staff for services rendered. That is what we need to overcome.
In the area of prescription drugs, even with a highly unsatisfying system for developing new treatments, it is possible to have full coverage for everyone, improve prescribing practices for new and existing medicines, have safer drugs, and reduce costs by 30 to 40 percent. Since about 20 percent of Canadians do not have access to the medicines they need our coalition and all its member organisations decided to focus on access, value for money, and better prescribing practices. In fact it’s a no-brainer. Every other country with a public health care system already provides prescription drugs for its people and there are dozens of such countries. Still it is a slow slog involving thousands of people across the country to (maybe) make it happen.
Marianna Mazzucato on alternate models for the development of pharmaceuticals:
Short article: https://www.washingtonpost.com/news/theworldpost/wp/2018/10/17/pharmaceutical/?noredirect=on&utm_term=.680b750ed21e
Full report: https://www.ucl.ac.uk/bartlett/public-purpose/sites/public-purpose/files/peoples_prescription_report_final_online.pdf
Re Keith Newman’s comment on May 14th;
Thanks for the links to Mariana Mazzucato’s short article and full report. I have read both and listened to her talk at the British Library; ‘Rethinking Public Value and Public Purpose in 21st Century Capitalism’; https://www.youtube.com/watch?v=ZUQgvhxMQOQ
Whilst taking the point ‘we need to pick our fights’ It still seems to me that Mazzucato’s message might lead to a wider approach within which the Canada-wide ‘Health Coalition’ report would be a major aspect and maybe more easily attainable within the ‘Mission-oriented’ approach referred to by Mazzucato.
Is there a way to get this blog to MM and draw her into this crucial issue within this blog which is after all perhaps the most widely read MMT blog. Just to emphasise the potential significance of this, MM was clearly very delighted to introduce Stephanie Kelton to give a talk in the same series; https://www.youtube.com/watch?v=6IBEoWSiTHc. This is significant underlining as it does MMs awareness of the importance of the insights from MMT in achieving ‘Public Purpose’. I’m insufficiently IT literate to know how to do that (I’m a 76 yr old retired NHS consultant haematologist…dismayed at the systematic unravelling of our NHS!)