An old central banker trying to come to terms with MMT – not quite getting there

Last week (July 14, 2020), a former deputy governor of the Reserve Bank of Australia (RBA), Stephen Grenville wrote an article – Modern Monetary Theory and mainstream economics converging. The title suggests a gathering of minds between two paradigms – the degenerative mainstream macroeconomics and the emerging Modern Monetary Theory (MMT). I wouldn’t represent what is happening in that way. Convergence implies a harmonious process. The reality is that some of the mainstream economists have realised that their approach is deeply flawed and events over many years have demonstrated those flaws, while ratifying the empirical content of central MMT propositions. Our position has been consistent over 25 years. Now, the mainstream is fracturing and economists are trying to save face and remain relevant by suggesting, in various ways, that they knew all of the MMT insights all along, or variants on that theme. They didn’t. They were deeply opposed and hostile to key MMT insights that are now becoming widely acknowledged as correct. In trying to maintain this image of convergence, Stephen Grenville’s article, while quite insightful in many ways, misleads his readership and mispresents key MMT elements.

Stephen Grenville considers many of the taboos about “the perils of budget deficits” or Central banks “abandoning time-honoured conventions and funding these budget deficits to a greater or lesser degree by buying government bonds” are evaporating within the economics profession as the practice and empirics of the last several decades demonstrate the major insights of MMT and expose the fictions that underpin the main body of mainstream economics.

There is no doubt about that.

The key propositions of mainstream macroeconomics are false. There are not nuances here. False is false.

Fiscal deficits do not drive up interest rates because there is a finite pool of savings that government competes with non-government borrowers over.

When central banks credit bank accounts and add reserves to the banking system, inflation does not follow.

Fiscal deficits do not undermine economic growth by causing an offsetting fall in non-government spending as people fear higher future tax burdens and therefore increase their saving.

Alleged thresholds for government debt, after which insolvency becomes inevitable, have never been realised. Fake news. There are no limits to public debt issued in the currency of issue.

Bond markets do not have the capacity to force elevated yields onto a government against its wishes. The government (central bank and treasury) can determine the conditions of any bond auctions including setting the yields.

No mainstream economist considered any of those previous statements to have veracity. They vilified MMT economists for years – as being cranks, charlatons, and whatever filthy insult they could legally get away with.

They were wrong.

Stephen Grenville acknowledges that. He also hints that mainstreamers have been caught out when he says:

Mainstream economists are adamant that they are not supporters of MMT, although just where they disagree is sometimes unclear.

There is nowhere to go when the body of work you have devoted your life to as an academic or practictioner is exposed as a fiction.

One of the interesting elements of this paradigm tension now is watching the ways the mainstream economists seek to defend their reputations while progressively trying to adopt MMT propositions but deny they are doing that.

As an MMT economist who was there at the beginning and has been part of the whole evolution I have a long memory of the sort of things these mainstreamers said and wrote when they thought we were not relevant or did not have any effective voice.

Now everyone wants to know about our work – the tide has turned and the discomfort among the mainstreamers is for all to behold.

Stephen Grenville doesn’t represent MMT correctly in a number of places, although I would say that I don’t think this is not out of the usual malice that accompanies such articles. I think he has genuinely tried to come to grips with our work.

He says, for example:

… the MMT core message – run deficits to maintain full employment and fund them by money-printing.

Once again trying to understand MMT by reframining it back into mainstream concepts.

Mainstream economists deploy the ‘government budget constraint’ (GBC) framework to analyse fiscal policy decisions. Accordingly, governments are alleged to face a financial constraint and have to fund spending via taxation, bond issuance, or ‘money printing’,the latter referring to some idea that the central bank ensures the currency injections on behalf of government are facilitated.

In the mainstream approach, all sources of ‘funds’ carry alleged ‘costs’ (taxes distort behaviour, bond issuance drives up interest rates, and money finance is inflation). As a result, fiscal deficits are largely eschewed.

MMT economists never construct government spending in this way. There is no ‘money printing’ involved.

Government spending is performed in the same way irrespective of the accompanying monetary operations. There is no spending ‘out’ of taxes, or spending out of bond sales, or spending out of central bank reserve creation.

Interestingly, Stephen Grenville implicitly acknowledges that the rejection of the use of deficits to maintain full employment, the approach which dominated the three decades following the Second World War, was really driven by the “Thatcher/Regan (sic) revolution” that:

… was preaching the ‘small government’ creed – that governments should do as little as possible.

Preaching = religion.

The rise in acceptance of Monetarism was not based on an empirical rejection of the Keynesian orthodoxy.

American economist Alan Blinder wrote in 1988 (p.278) that is:

… was instead a triumph of a priori theorising over empiricism, of intellectual aesthetics over observation and, in some measure, of conservative ideology over liberalism. It was not, in a word, a Kuhnian scientific revolution.

(Reference: Blinder, A. (1988) ‘The fall and rise of Keynesian economics’, Economic Record, 64(187), 278-294.)

There was a concerted campaign including the publication of the Powell Manifesto and the funding of a burgeoning number of right-wing think tanks by those who saw gain in undermining the commitment to full employment and various financial and labour market regulations to promote the idea of Monetarism irrespective of the facts.

Please read my blog – The right-wing counter attack – 1971 (March 24, 2016) – for more discussion on this point.

The perception created by the academics and think tanks was successful in making inflation appear to be a worse bogey person than unemployment.

Alan Blinder also saw through the ideological campaign, although he remained within the mainstream.

In his 1987 book – Hard heads soft hearts – he wrote (p.33):

The political revival of free-market ideology in the 1980s is, I presume, based on the market’s remarkable ability to root out inefficiency. But not all inefficiencies are created equal. In particular, high unemployment represents a waste of resources so colossal that no one truly interested in efficiency can be complacent about it. It is both ironic and tragic that, in searching out ways to improve economic efficiency, we seem to have ignored the biggest inefficiency of them all.

He also wrote (pp.45-50):

Promiscuity? Sloth? Perfidy? When will inflation be blamed for floods, famine, pestilence, and acne? … the myth that the inflationary demon, unless exorcised, will inevitably grow is exactly that – a myth. There is neither theoretical nor statistical support for the popular notion that inflation has a built-in tendency to accelerate. As rational individuals, we do not volunteer for a lobotomy to cure a head cold. Yet, as a collectivity, we routinely prescribe the economic equivalent of lobotomy (high unemployment) as a cure for the inflationary cold. Why?

So while Stephen Grenville is correct in writing “has revived the old Keynesian message: if the economy has spare capacity, governments should expand the budget to bring the economy back to full employment” it is also true that this ‘old message’ was not abandoned because it was proven to be incorrect or would lead to damaging policies.

It was abandoned because shifting the policy focus away from ‘full employment’ and fiscal activism towards ‘full employability’ repressed wages growth, allowed for deregulation to tilt the balance of power in the distributional system towards capital, and facilitated major shifts in national income distribution away from workers.

It was a power play not a knowledge revolution.

But Stephen Grenville still hangs onto old notions.

He writes:

The MMT proponents argue that if the government bond issue raises interest rates so as to crowd-out the deficit stimulus, the government should instead fund its deficit by using the money-creation capacity of the central bank.

I don’t know one (credible) MMT proponent who thinks that government bond issues push up yields and “crowd-out” public stimulus, if we are referring to a currency-issuing government.

The whole crowding out fiction is derived from the classical loanable funds ideas, categorically rejected in the 1930s but still in vogue post Monetarism.

Mainstream economists think that banks loan out deposits, and, as there is a finite pool of ‘savings’, any competition for those savings from government deficits will drive up interest rates and damage interest-sensitive non-government spending.

Go to any mainstream macroeconomics or monetary economics textbook and you will find this story.

MMT provides a point of departure, which is ground in the foundations of a fiat monetary system and the banking reality, rather than a fictional world constructed by mainstream economists that allows them to draw the convenient conclusions they require to give ‘authority’ to their policy positions.

But, in the real world, loans create deposits. Banks will extend credit to any credit worthy customers knowing they can always get the reserves to cover the payments system implications from the central bank if necessary. Banks do not loan out reserves. There is no finite pool of savings that is squeezed by government auctions in debt markets.

Stephen Grenville acknowledges these facts when he disabuses the reader of the notion that banks loan out reserves (using a US example, which applies everywhere):

Nor did the extra base money held by the banks cause them to increase their lending: bank credit actually fell in the major economies during the two years after the crisis. The banks had already made all the loans to bankable customers that they wanted to make, and they had nothing better to do with the excess base money other than to put it with the Fed in the form of banks’ reserves.

He accuses us of being “slippery, on the detail here, as this is the chief vulnerability of the MMT narrative.”

My understanding of the MMT literature (as a major contributor) is that there is no slipperiness at all on the consequences of a central bank crediting bank accounts to facilitate government spending, nor any monetary operations that might accompany such accounting choices.

We are very explicit as to what happens.

Our – Macroeconomics – textbook, for example, lays out all the accounting and the consequences of different choices – like bond-issuance, no bond-issuance, etc.

Other MMT books and articles do the same.

But apparently we miss or deliberately avoid the central flaw in our work.

Which according to Stephen Grenville can be explained in this way – fiscal deficits ultimately end up:

… increasing the banks’ reserves at the central bank.

It is these banks’ reserves that are, in effect, funding the budget deficit. They are NOT free of interest cost, as central banks pay the banks a market-related interest return. And they DO increase official-sector debt – these reserves are a liability of the central bank to the banking system, and so should properly be counted as part of official debt.

In short, the core MMT promise, sometimes implicit, is interest-free financing which doesn’t add to official debt. This is clearly wrong. Milton Friedman got this much right: ‘there is no free lunch’.

The reserves are indeed liabilities of the government. For example, the banks could swap them for vault cash and the central bank (the government) would have to give them the cash and write down the non-cash reserve accounts.

But we have to get the causality right.

Where did the reserves come from? Answer: the net government spending.

If the government was running a balance – spending equals taxation – there would be no build up of reserves coming from government fiscal policy. There would be no capacity in the non-government sector to accumulate net financial assets in the currency of issue.

Sure banks can create loans which create deposits, but nothing net is created.

The fiscal deficit is, in fact, financing the bank reserves in this case, not the other way around.

Further, whether they are “free of interest cost” is a policy choice of government.

The central bank could decline to pay a return on excess reserves and the short-term interest rate would drop to zero (or thereabouts) as the banks tried to rid themselves of their excess holdings in the interbank market by loaning them to other banks.

Ultimately, when there is a system-wide excess of reserves, such competitive behaviour is futile. The banks only can shuffle the excess around among themselves.

But while the reserves are a liability of government, they are qualitatively different to government bonds which are issued to the non-government sector via primary auctions and then traded for speculative purposes in the secondary markets.

Banks cannot loan out reserves (except within the interbank market). They cannot ‘spend’ these reserves to buy shares or other assets.

They cannot trade them for speculative profit with other non-bank counterparties.

And whether we call them ‘government debt’ or not alters nothing – the government can meet any of its liabilities with key stroke entries. No real resources are sacrificed in doing so.

The only sense that Milton Friedman’s ‘no free lunch’ can be applicable, is if it relates to real resource costs. The numbers that governments enter into ‘fiscal statements’ are not costs. The costs of a government program are the real resources it deploys (and, when there is already full employment, takes from other uses).

Stephen Grenville also thinks that “the heretical idea of ‘helicopter money’, essentially the same as MMT.”

But, the concept of helicopter money is not remotely the same as MMT.

You might like to read these blog posts among others:

1. Helicopter money is a fiscal operation and is not inherently inflationary (September 6, 2016).

2. Keep the helicopters on their pads and just spend (December 20, 2012).

3. The ‘rats’ are deserting the mainstream ship – and everyone wants in (September 25, 2019).

4. The consolidated government – treasury and central bank (August 20, 2010).

5. Overt Monetary Financing would flush out the ideological disdain for fiscal policy (July 28, 2016).

6. Overt Monetary Financing – again (November 18, 2015).

7. OMF – paranoia for many but a solution for all (November 28, 2013).

The conflation with ‘helicopter money’ and MMT reflects the tendency by mainstream economists to reframe everything back into their flawed framework.

The helicopter references comes from Milton Friedman’s suggestion in the introduction (page 4) to his collection of essays – ‘The Optimum Quantity of Money and other Essays”, Chicago: Aldine Publishing Company, 1969 – that a chronic episode of price deflation could be resolved by “dropping money out of a helicopter”.

Friedman’s proposals were part of what was known as the Chicago Plan (emanating out of the free market bastion at the University of Chicago), which proposed a broad regime change where private banks would be prevented from creating new money and public deficits would be the only source of new money.

Equally, the government would run a balanced fiscal position over the cycle and destroy the money created in the downturn when they ran offsetting surpluses in the upturn. This is a very different proposition to the current suggestion for Overt Monetary Financing that is developed by MMT proponents.

Governments spend by crediting bank accounts (and in some cases sending out cheques to recipients), which then are deposited in bank accounts.

But, from the perspective of MMT, a helicopter drop, as some alternative regime to ‘fund’ government spending, is an inapplicable construct.

The reality is that an increase in the fiscal deficit introduces new financial assets and the net worth of the non-government sector increases.

Whether the government matches the deficit with bonds-issued to the central bank or bonds auctioned to the non-government sector is moot. This choice certaintly has implications for the way the central bank manages liquidity.

The point is that the central bank can add whatever numbers to the treasury’s bank account that the government requires without question.

There is not a shift to a ‘helicopter drop’ regime, if governments refrain from issuing debt to the non-government sector but account for the transactions solely within the government sector.

The fact is that it is the consolidated government that issues the currency and spends it into existence. The two arms of government have to work together on a daily basis for their individual policy ambitions to be effective.

So terminology such as “money-financed deficits” are also inapplicable.

All public spending is accounted for and facilitated by the central bank in the same way. There is no code book which is used to delineate ‘tax matched spending’, ‘debt matched spending’, etc.

Given Stephen Grenville’s professional background, he will have an intimate knowledge of this coordination between the arms of government.

Further, think about the act of issuing a bond to the non-government sector or not.

In the case of a bond being issued, the private purchaser just engages in an asset swap within his/her existing wealth portfolio.

If no bond is issued, the impact on the net financial asset position in the non-government sector is identical and comes from the government spending injection. In this case, there is no portfolio shuffle in the non-government sector.

And the spending boost is identical in both cases.

Some think that by selling a bond, the spending impact is lower. But the funds used to purchase the bond were not being spent anyway. And had they been, the need for the fiscal deficit would be reduced because non-government spending would be higher.

Stephen Grenville thinks that the issue here is that of ‘financial repression’.

This is because bank reserves would rise under the no-bond issuance case rather than be drained by open market operations. The banks would be forced to hold them.

But I will leave his argument here for another day. Time is up.


One of the more interesting articles about MMT from a critic who has worked within central banks at a senior level.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

This Post Has 31 Comments

  1. I was hoping you may have noticed this article. I was glad to read your take on it. Some of the discussion goes beyond my understanding, that is why we have experts to research and formulate theories such as yourself. I have been astounded the number of journalists with only a limited understanding of economics gained only from writing about it have derided years of research by many people like yourself.

    Apparently the cumulative total of world government debt is around $60T (I stand to be corrected). According to some reports the wealthiest 2000 people on the planet are worth $8T. Expanding this it occurs to me that the bulk of government debt is balanced by the hoarding by the few. No doubt these few win by maintaining the bond based financing system? Surely this is not a satisfactory way to manage the global financial system?

  2. “The central bank could decline to pay a return on excess reserves”

    Perhaps it s time to be explicit about this. Not could, but should. There is no economic justification for “welfare on reserves”. It serves no economic purpose worth worrying about and is a *market intervention* to give free money to banks. MMT is therefore more “free market” about banking than the mainstream. In particular we are particularly comfortable with banks going bust – since we advocate 100% deposit cover.

    We put a containment vessel around the nuclear power of bank money and manage the output of power to the real economy using the control rods of vertical money – largely automatically via the Job Guarantee.

    I’m also seeing a resurrgence of the “you can borrow from a bank to pay your taxes so MMT is obviously wrong” idea – which is a silly attempt at framing that falls squarely into the “first assume you have a can opener” category.

    Then there are comments like this:

    “The common critique of this logic also brings us to the second neoclassical fear of government debt: that interest rates and hence interest payments on treasures will increase– eating up too much of the government’s fiscal space. ”


    “It is worth stating that MMT does have serious limitations. For one, a country hoping to adopt MMT-inspired policies must be a monetary sovereign. There are only a handful of countries which meet this criteria. Further, there seems to be no response to the robust relationship (in the long-run) between money quantity and price inflation. If this relationship is not broken through rigorous analysis, MMT inspired policies could cause inflation well before the economy reaches full employment.

    There are also some simple clarifications the MMT crowd could make. For instance: What is the role of fractional reserve banking in the MMT framework? How do we determine when the economy is at true full employment and how do we levy taxes quickly enough to respond? How would MMT ensure that additional spending would not siphon resources from other economic projects? And perhaps most importantly: How do we calculate which spending will lead to the desired level of output to offset inflation?”

    I think we’ve all written a bazillion pieces on these points, which means they still aren’t getting past the wall of Cognitive Dissonance. The Emperor remains partially clothed.

  3. I never cease to be amazed by central bankers when they say things like “these reserves are a liability of the central bank to the banking system, and so should properly be counted as part of official debt”.

    For goodness sakes, notes and coins on issue also appear on the liability side of the Reserve Bank’s balance sheet but are they part of official debt? I’ve never heard them included as part of official debt. Not even Tony Abbott went there. Notes and coins are interchangeable with bank reserves.

    As Bill keeps telling us, the faux independence of the RBA from government leads to accounting delusions. If the government presented a consolidated balance sheet at budget time which included the financial corporations (the RBA comprises almost the total of these in balance sheet size), any transactions between the government and the RBA would be eliminated and the true debt/liability of the total government sector would be plain to see.

    Alas this isn’t done. Only the ABS attempts a consolidated set of financials but by the time they’re issued 11 months after year’s end. everyone has lost interest.

    I see RBA Governor Lowe singing from Dr Grenville’s hymn book today when, in his speech to the Anika Foundation he said “I want to make it very clear that monetary financing of fiscal policy is not an option under consideration in Australia”.

    Any IOU between the RBA and the government seems to trouble them. A consolidated set of accounts would put their minds at rest.

  4. Excellent article and comments.

    Yes, the whole debate always gets stuck on bank lending. There are many people out there who believe we have the monetary base wrong and also the profit theory is wrong. Because they think we have the profit theory wrong then the sectoral balances approach is misleading as it does not take profits into account. Thus they claim the budget deficit = Private sector profits.

    With bank lending the way it is now instead of the old “credit union” type lending and loanable funds model the velocity of money has been reduced. Which means the number of actual transactions of actual good output has been reduced when it comes to bank lending.

    The critique goes like this..

    ” The FED already perversely allocates credit. It created a preferential interest rate differential in favour of the banks (which causes nonbank disintermediation), it is called the payment of interest on reserves. This destroys the savings-investment process. It destroys money velocity.

    Banks are unique creatures. They are credit creators. They are not credit transmitters. Banks create credit endogenously (loans beget deposits), not exogenously (pooled deposits beget loans).
    Banks do not engage in credit, risk, and maturity transmission. It is a fact that every time a commercial bank buys securities from, or makes loans to, the non-bank public, it simultaneously creates new money, demand deposits, somewhere in the payment’s system. Thus, the DFIs do not loan out existing deposits, saved or otherwise. The banks pay for their earning assets with new money, not existing deposits.

    It is about stock vs. flow or Alfred Marshall’s “cash balances” (demand for money).

    The complete deregulation of interest rates for the commercial banks, indeed sponsored by the most dominant economic predator, the oligarch: the American Bankers Association, is vitiated on largely false premises on which deregulation is based.

    That deposits in commercial banks constitute the “savings’ of the depositors, that these are “lent” to the banks, and that the commercial banks are only a “medium” through which this end is affected.”
    Bank-held savings are frozen because they cannot be lent out. Banks pay for their earning assets with new money not existing deposits (loans = deposits). And they are not extinguished or withdrawn unless currency is hoarded or converted to other national currencies.

    Savings, from a macro-accounting perspective, can only be lent by their owners (directly or indirectly), if they are activated by transferring those funds through (not to), a non-bank conduit (which represents an increase in the supply of loan-funds, but no increase in the existing supply of money, a velocity relationship).

    Savings flowing through the non-banks never leaves the commercial banking system, where all savings originate (there is just a transfer of ownership in existing DFI deposit classifications).”

    When we say we recognise all of that and more importantly when you look at it through a MMT lens we have a good idea how to put these things right. They then say but we have no idea how to measure the “real ” monetary flows because nobody knows how to measure it anymore. Because we have the profit theory wrong the sectoral balances don’t really tell us much.

    And so it goes round and round and round and round in this circle of debate. Which hasn’t really moved on for the last 5 years even though MMT has gained more traction.

    They just can’t get passed the numbers part and onto what really matters which is the skills and real resources part the stuff we can run out of. They just can’t get there. I don’t know if anyone listened to the debate between Bob Murphy and Rohan Grey. It was a master class by Rohan it really was excellent and which parts did Bob get stuck at and couldn’t get his head around ?

    All of the above. Because he couldn’t get passed the numbers part he couldn’t get passed the inflation part.

    If you have not listened to the debate which is a MMT masterclass then I suggest you give it a go. It is over 2 hours in length but fantastic. Not only covers but highlights everything I have posted today regarding bank landing the FED and inflation and the flows. It covers so much more.

    Once we can get everyone passed the numbers part and onto the skills and real resources part of the debate. For example the debate Randy had with Dean Baker on the real news network that can be found online. Then we have won. I thought Randy struggled a bit in that debate to answer Dean’s concerns but at least the debate was where it should be.

  5. “The central bank could decline to pay a return on excess reserves”

    The MMT policy of a Job Guarantee will effectively set inflation at 0%. Interest rates are also permanently set at 0%. Therefore Corporate Welfare, too, is 0%

    At present we have inflation targets in most developed countries of 2% and interest rates paid by central banks to be much less that 1%. So what is disparagingly referred to a “corporate welfare” is actually negative!

    Personally, I don’t have a problem with negative!

  6. Bill wrote: “American economist Alan Blinder wrote in 1988 (p.278) that is: [It should be ‘that it’, right?]

    “… was instead a triumph of a priori theorising over empiricism, …”

  7. Get a map.
    Highlight Japan with your fluro stabiloboss
    Mail to Philip Lowe at the RBA.

  8. I might be less irritated by “there is no free lunch” if there weren’t so damned many lunches left unmade by the pernicious failure of governments to fulfill their obligation as employer of last resort.

  9. Thanks again Bill.

    Is it demand on a stick?.
    To simply create money in the hands of the needy.
    Sorry, for those people who are at the point of need.

    If this is not done then there is a demand shock, which is economic madness.

    It is the democratic thing to do.

    The people would do it.

    Kindest Regards


  10. With genuine inflation problems, doesn’t there need to be “supply” supply we get inflation regardless of whether money is printed or bonds issued.

    Same thing can happen with food. Not enough food => inflation. As people cannot eat a bank balance.

    The same thing is also happening with face masks, ppe, etc – covid has brought in a “demand shock” – so we will likely see inflation in these sectors

  11. “Same thing can happen with food. Not enough food => inflation. As people cannot eat a bank balance.”
    That is exactly what happened in Germany 1919.

    Reparation (elite revenge) the wienners sliced 10% of GDP from Germany. No food. Then no money, panic. The cause. The effect: The authorities try to fix this by printing money. Hyperinflation.
    Money chasing dwindling supplies of food in an already tense situation.

    Regards Lee

  12. “With bank lending the way it is now instead of the old “credit union” type lending”

    There was never any such thing. That’s the myth.

    Building societies lent long and backfilled by selling Paid Up Shares Short. PUS were demand deposits and once you had computers to handle the dynamics you can run the asset side and the liability side separately with a very small liquidity buffer.

    The idea that my 1970s Halifax PUS a/c was somehow qualitatively different to my current Business Everyday Saver account at Santander is just nonsense. From a banking point of view they are exactly the same.

    It’s computerised accounts that transformed banking. Those people trying to shoehorn the monetary system back into some “It’s a Wonderful Life” myth are trying to close Pandora’s Box.

  13. I see our long lost friend from Munich – Egmont Kakarot Handke has been very busy and has just released a new book called “Sovereign Economics.”

    This is the guy that has hounded every MMT’r for the last 10 years saying in the last 200 years nobody has ever worked with the correct profit theory. That Keynes gave up in the end trying to work it out. Acting as if the whole economy was just one firm.

    I was going to buy it to see what he is “actually” saying, as he claims to have solved the problem and that it can be measured. As you’ve got to try and see where he is coming from and answer his critique.

    At £82 I will wait until i can get a dog eared one for a fiver.

  14. Totally stealing that Alan Blinder quote on inflation & unemployment for my everyday agitating.

  15. I certainly can appreciate how it must feel to see one’s lifework finally vindicated after years of abuse from those now claiming to have always agreed with it, in least in part. But there’s also that thing called grace, which Bill, to his credit, has shown the capacity to draw upon. Some of you have likely heard a version of the old story of Congressman John Randolf and Henry Clay, archenemies who reportedly met coming toward each other on a plank running through a puddle. Clay bulled straight ahead, saying “I never step aside for a cad.” Randolf stepped into the puddle, saying “Sir, I always do.”

  16. Psychologists have a term for the existence of two or more incompatible positions, without their running into continuous conflict: SPLITTING.

  17. “Some think that by selling a bond, the spending impact is lower. But the funds used to purchase the bond were not being spent anyway. And had they been, the need for the fiscal deficit would be reduced because non-government spending would be higher.”

    Is this for sure? If we’re spending by-the-numbers, I can see it. But I presume private-sector spending won’t help towards provisioning government programs. Provisioning would still have to happen, and the spending would have to happen too.

  18. I appologize if the following is inappropriate here.

    As a systems engineer I spent years doing analysis and optimization of multi-dimensional, i.e., complex, systems. Some would say I was enguaged in over engineering them. While there certainly is value in the KISS princial for much of day-to-day engineering, that doesn’t eliminate the need to pay attention to detail and manage complexity. But probably one of the most important skills was the ability to see byound what was to what could be. And I was amazed by how many people with PHDs did not have the ability to see byound a narrow minded expertise to what could and should be.

    I bring this up because I was and hope I still am capable of analyzing/understanding complex systems and issues. Understand all the nitty gritty details and subtleties of MMT has been and continues to be a chalange. But the truely disconserting problem is the number of “so called” experts/leaders that are wearing blinders, near sighted, or just clueless and certainly don’t deserve the reconition and/or positions they have. For example, there are a number of prominent people that believe we should go back on a gold standard. While that could maintain the value of the $, they appear to be clueless with respect to the implications it could have with respect to growing the economy, not to mention establishing/maintaining social stability. I suspect that was one of the reasons the last time the US was on a gold standard the marginal tax reate was as high as 90 %. I suspect that is NOT something they really want to go back to. And it is something MMT does not necessarly require.

    What MMT does need is non-political mechanisms to optimize/stabalize the economy and society. One possible step toward this could be VATs (Value Added Tax) and PAT (Profit Added Tax) on everything! The purpose of a VAT and PAT would be different. A VAT would reflect the value (cost) of the goods and services, less any profits, and as such need be nothing more than 1%. The PAT would reflect proffits, for example, possibly 1% on the first 10% of proffit and there after incremented 1% for each 1% increase in profit. The VAT and PAT would provide frequently lacking visability into the capitalist economic system and as a antithesis discuraage profiteering (inflation) and instability.

    Support for full (guaranteed) employment at a living wage in a safe and supportive environment is another mechanism to optimize/stabalize the economy and society. This could and probably should include providing private businesses, especially small and non-profit businesses, both the monetary and technical support they need to provide a safe and supportive environment. This should include support for meeting social welfare needs.

    Again, I appologize if this isn’t appropriate focused on Mitchell’s excellent critical analysis.

  19. We need to invent a tax that the rich can’t avoid or pass on to their customers. This is not because the Gov. needs their money but because I agree with Bill that the super rich have too much $.

    The wealthy are hard to tax because they hide their wealth, and corps. hide their profits in subsidiary corps.

    If we assume that competition between corps. will make it harder for them to pass on taxes to their customers then we need to end the monopolies that have been allowed to be formed in the neo-liberal era. This will ensure that there is competition.

    But, we still need some new kind of tax that is harder to avoid or pass on to the corps. customers.

    My MAIN idea in this post is —
    How about a progressive tax (i.e., increasing as the stock price increases) on the corps’ stock price on the NYSE.
    . . . The idea is to use computers to automatically keep track of every stock transaction and calculate the average price of every corps’ stock every day and then average the day’s prices over a month and and send a tax bill based on that average price to the corp..
    . . . The rate charged should be progressive with larger corps. paying a larger percentage.
    . . . The stock price is the *wealth* of the corp.. So this is a wealth tax, not an income tax. The corps. can’t move their wealth around as easily as they can move their income/profits around.

    Can anyone think of any way that the corps. could avoid this tax? A way for them to move their wealth reflected in their stock price elsewhere, etc.

  20. As a non-economist I have always had a disdain for neoliberal prescriptions limiting the capacity of governments to involve themselves in the economy to reduce or eliminate unemployment, and other social justice issues.

    I would love to see Professor Bill Mitchel go on the ‘7:30 Report’, ‘A Current Affair’ or be one of many people interviewed in a documentary about MMT, or have Bill presenting an alternative way of perceiving deficits in a ‘National Press Club Address’.

    As Australia will be cornered & cowered into thinking that the ‘hands’ of fiscal policy will be tied to debt recovery for at least the next decade, it would be liberating if journalists, the public and practitioners on both sides of politics, were given a real alternative to the national obsession with the deficit.

  21. “The wealthy are hard to tax because they hide their wealth, and corps. hide their profits in subsidiary corps.”

    There’s your target. What you do is tax employees and provide an Alternative Job mechanism. Once you can allow banks to go bust and the “but what about the jobs” argument to fall on stony ground simple competition sorts it out.

    You tax employees (actually any value transferred to an individual) because that is what public provision needs. Firms to release people that the public sector hires. And firms need people to do anything so they can’t avoid it. Firms will pay the tax because the tax is on the individual employee, but the firm is responsible for paying it.

    The obsession with taxing the wealthy needs to end. It’s just plain envy. They won the last round of the game. Let them count their coins. It doesn’t matter. What we need to do is make the next round of the game harder for them to win by concentrating on the income distribution.

  22. @Neil,
    It is not just envy. What they can and do, do with all that money is to distort democracy.
    Taxing their workers makes the corps. pay them more or makes them work for less.
    If the corps. have to pay them more then the corps. have more reason to replace human energy with electric energy from oil. Same as the soc. sec. payroll tax does in America.
    In America, corps. are now more like people with more rights.
    Taxing the wealth that the stock share price represents, is something the corps. can’t avoid as easily.
    So, IMHO. you are totally wrong on this point. But then, I’m no expert and you are.
    You’re also in the UK, and I’m in the US.

  23. “We need to invent a tax that the rich can’t avoid or pass on to their customers.”

    Their lawyers and accountants will always find routes to bypass new taxes. The only way to achieve all the necessary and desirable adjustments is to introduce a new global currency and reset the entire financial system. Can’t imagine that would be terribly popular with the 1% – but there is still time.

    It might have been better if a solar flare and EMP had wiped out everything electronic, instead of a pesky virus. That way we would be forced to do what is absolutely necessary now.

    Let’s start again – using only the best knowledge and intention we have.

  24. I’ve been writing a play for radio that has its basis in the present global situation. The principal character is a brilliant young scientist, who is directly responsible for the coronavirus outbreak.

    Dismayed with the destruction of the environment and species, the scientist decides to teach mankind a lesson – and releases the virus and events unfold. The play centres on events this coming Christmas – 2020.

    The world has endured a second wave and has gone quiet. The protests, riots and looting that spread during late summer have now subsided, now that the global death toll has exceeded 50 million. Restarting economies – fiscal stimulus – job guarantees, are all irrelevant for most in the “western” world; the only thing that matters is food and water. Basic survival.

    We hold our breath. Again. Even the internet is quiet.

    One morning, the scientist uploads a video with compelling evidence of his authority. He confirms what everyone by then understands – that there can be no return to our previous existence if there is any possibility of eradicating the disease. But there is more.

    There is another virus – even more deadly than coronavirus – that would create an extinction level event. The scientist is prepared to release it unless we can provide a blueprint for a world where we can co-exist on an equal basis – not only with fellow humans, but with all living species – and restore and preserve this planet until this miracle ends – not by our hands but by forces beyond any human influence.

    It is Christmas Day 2020. We have one week to submit a blueprint that everyone in the world will have to agree with – but particularly the young scientist.

    What’s yours?

  25. MMT is things they’ve known all along? The conventional view of money is that money, like gold, is a scarce commodity of intrinsic value, and when you exchange goods and services for a commodity of intrinsic value you are engaging in a barter transaction with attendant constraints and opportunities. (See Mankiw’s characterization of money as an “all purpose good” and his description of an economy based on corn as a medium of exchange.) MMT asserts that money is a promissory note created (like all promises) out of thin air, and that the constraints and opportunities of a monetary economy where goods and services are exchanged for promises are different than for a barter economy where goods and services are exchanged for other goods and services.

  26. “We knew it all along” is OK as long as people are content to get the answer to Question 1, and then sit feeling good about themselves without moving on the Question 2. If the answer to Question 1 is “We knew it all along”, then Question 2 is “Why didn’t you do anything about it?”

  27. @ Ralph McNall,
    I’m hardly the authority here but your comments are very welcome to me. As an engineer myself I am constantly amazed at the absence of any understanding of the scientific method among the economic mainstream, especialy those who hold the power to make a difference. Blinkers and a neo-religious adherence to unsubstantiated dogma seems to be the main qualifications for entry to their club.

    I am reminded of Putt’s Law which states that ‘Technology is dominated by two types of people, those who understand what they do not manage and those who manage what they do not understand.’


  28. @ Me,
    If you are talking about politicians and economists who advise politicians, then —

    my phrasing would be different, much stronger.

    To an economists who advised politicians I’d ask, “If you knew deficits don’t matter much, then why the hell did you lie to the politicians and tell them not to deficit spend?”
    To a politician I’d ask, “If you knew deficits don’t matter much, then why the hell didn’t you fight and vote to spend more?”
    But, then “I’m mad as hell, and I’m not going to take it any more.” ‘as the quote goes’

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