On money printing and bond issuance – Part 1

There are continual Twitter type debates and Op Ed/Blog-type articles going on about whether MMT says this, or that, or something else. The critics are refining their attacks by hammering on about “printing money” and hyperinflation, and, more recently that MMT ignores ‘power’ (whatever that is). The latter leads them to conclude that MMT is thus a naive approach and is inapplicable to a political agenda aiming at changing things for the better. These debates (if you can call them that) are also a very American-centric sort of to and fro, which exemplifies the tendency of the US to think the world and all ideas stop at its borders. In this two-part series, I seek to clarify some of the points that are raised (not for the first time) (-:, which, in turn, demonstrates how poorly constructed these attacks. I know it is often said that attackers haven’t read the literature. But in these situations it is a fact. In part 2 tomorrow, I will also touch on why I think some MMTers are becoming defensive in the wake of these attacks. So, in Part 1 I consider the ‘money printing’ story. Specifically, is MMT just about ‘printing money’? The answer is obvious – profoundly no, but we need to understand where these types of allegations come from (which swamp!).

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The Weekend Quiz – August 24-25, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Inverted yield curves signalling a total failure of the dominant mainstream macroeconomics

At different times, the manias spread through the world’s financial and economic commentariat. We have had regular predictions that Japan was about to collapse, with a mix of hyperinflation, government insolvency, Bank of Japan negative capital and more. During the GFC, the mainstream economists were out in force predicting accelerating inflation (because of QE and rising fiscal deficits), rising bond yields and government insolvency issues (because of rising deficits and debt ratios) and more. And policy makers have often acted on these manias and reneged on taking responsible fiscal decisions – for example, they have terminated stimulus initiatives too early because the financial markets screamed blue murder (after they had been adequately bailed out that is). In the last week, we have had the ‘inverted yield curve’ mania spreading and predictions of impending recession. This has allowed all sorts of special interest groups (the anti-Brexit crowd, the anti-fiscal policy crowd, the gold bug crowd, anti-trade sanctions crowd) to jump up and down with various versions of ‘I told you so’. The problem is that the ‘inverted yield curve’ is not signalling a future recession but a total failure of the dominant mainstream macroeconomics. The policy world has shifted, slowly but surely, away from a dependence on monetary policy towards a new era of fiscal dominance. We are on the cusp of that shift and bond yields are reflecting, in part, the sentiment that is driving that shift.

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The Weekend Quiz – August 17-18, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – August 10-11, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Green New Deal must wipe out precarious work and underemployment

I was coming through the streets of inner Melbourne the other night after playing in my band. I couldn’t believe how many little scooters with those big boxes on the back were buzzing around, in and out of traffic, turning here and there, presumably, delivering food to people who preferred to stay in from the cold weather. I had sort of noticed these ad hoc cavalcades of cheap scooters before but never really assessed the extent of the proliferation. It represents an amazing and highly disturbing trend in our labour market. Okay, that sounds like something someone from another (older) generation might say. He who grew up when there was secure employment and wages and conditions were more tightly regulated. And I have seen Tweets from young people telling us ‘oldies’ to step aside. But what the scooter riders don’t realise is that they will get old themselves one day. And secure, well-paid work coupled with a broad spectrum of high quality public services is what makes that transformation liveable. In mapping out what I think are the essential aspects of a social transformation that we might call a Green New Deal, eliminating precarious work is one of the priorities – it is intrinsic to creating a more equitable society in harmony with nature. This aspect also calls in question the role of a Job Guarantee. Note the capitals – there is only one Job Guarantee but many jobs guarantees. I will explain today why the Job Guarantee will be an intrinsic part of the Green New Deal but by far a minor player in terms of the job opportunities that will be created by the socio-economic shift. Many commentators seem to think the Job Guarantee is sufficient for a Green New Deal. It is not and we need to understand its role in a monetary system to understand why.

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Apparently Brown could but Boris cannot – British progressive journalism at its worst

It is Wednesday and my blog post-lite day. A few topics – thugs in Britain. Mindless ‘progressive’ journalism trying to tell readers that while Gordon Brown could use fiscal policy tools (spending and taxation) to advantage to stimulate the British economy, Boris Johnson cannot. Piffle and the lies from the UK Guardian are getting more desperate by the week. And some notes on guns. Then a nice bit of guitar playing. Tomorrow, I will be extending my ideas on the Green New Deal.

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Australia’s broadband disaster has lessons for a Green New Deal strategy

I am working on a manifesto (‘White Paper’) linking Modern Monetary Theory (MMT) with a Green New Deal (GND) concept. I will announce an important strategic coalition I am forming to advance this agenda in the coming period and some great events to present the framework. As part of that process, I have been sketching some of the important guiding principles that I consider to be essential if a massive socio-economic transformation like the Green New Deal (or whatever we want to call the strategy) is to be successful. Lessons from history are a good starting point to understand why things go awry. In that respect, the largest national infrastructure project that Australia has embarked on for decades – the National Broadband Network (NBN) – is a object lesson in how not to conduct government policy when nation building. The Green New Deal is about nation building – creating a framework of infrastructure, education, skills development, employment, distributive mechanisms and more to take nations into the next century while reversing the environmental degradation that industrialisation and mass consumerism has wrought. The central role of the government as the currency issuer will be paramount. The whole transformation will not be successful while policy makers hang onto mainstream macroeconomic views about government financial capacities, which manifests into obsessions about achieving fiscal surpluses. This is why an understanding of MMT is central to any proposal to advance a GND. Without that understanding, we will always encounter the nonsensical issues that have plagued the NBN development and left it in a state of chaos and near-redundancy, when it should have underpinned our technological network for decades to come.

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The Weekend Quiz – August 3-4, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The British government can avoid a recession from a No-Deal Brexit

A shorter blog post today (Wednesday). On Monday (July 29, 2019), the British Social Metrics Commission published their – 2019 Report – which reveals (staggeringly) “that 4.5 million people are more than 50% below the poverty line, and 7 million people are living in persistent poverty” in Britain. So around 22 per cent of people in the UK are living in poverty. In this day and age, poverty is like polio – it is completely avoidable if governments adopt the right policy mix. Persistent poverty means that a people “are in poverty now and have also been in poverty for at least two of the previous three years.” In other words, the policy failure is persistent. As Britain approaches the October 31, 2019 deadline and, hopefully, finds itself free of the neoliberal, corporatist nightmare that is membership of the EU, it certainly needs to take action to insulate the economy from a possible downturn. The forecasts coming out of the Office of Budget Responsibility (OBR) are clearly negative but hardly catastrophic. They certainly do not match the hysteria that you read in the Guardian on a daily basis about the end of life as we know it in Britain. But the Government has the capacity to circumvent any downturn. The OBR assumes that facing a recession that the Government does nothing of a discretionary nature (stimulate via fiscal policy) to attenuate that event. What responsible government would not act? And why did the OBR not model some fiscal stimulus scenarios in the wake of the decline in non-government spending they estimate will follow a No-Deal? The reason, is, of course, that that would give the game away. They know that the Government can offset their predicted (though modest) downturn if it chooses. The Government could also go a long way to avoiding such a downturn, and, bring this horrendous (austerity-driven) poverty rate down rather quickly if it takes positive action. That is Boris Johnson’s challenge. And if he takes it up and succeeds then it is ‘goodnight’ Labour.

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The Weekend Quiz – July 27-28, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Voodoo economic revisionism abounds – and it is not MMT doing the voodoo

The epithets being used as put-downs for Modern Monetary Theory (MMT) are growing. But some of the good old terms – that one might actually apply to mainstream macroeconomics – are also in currency. An article in Project Syndicate (May 27, 2019) – Japan Then, China Now – declared MMT to be “the latest strain of voodoo economics” that is “alluring for the Trump administration”. The article by a Yale University lecturing staff member (and former investment banker) really just reminds us why students should avoid studying economics at that university. The voodoo, I am afraid is actually on the other foot! There are some fundamental errors in the logic in the article that highlight why MMT is a superior paradigm for understanding how the monetary system actually operates in comparison to the mainstream logic that the author uses against it.

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There are no financial risks involved in increased British government spending

On July 26, 2018, UK Guardian columnist Phillip Inman published an article – Household debt in UK ‘worse than at any time on record’ – which reported on the latest figures at the time from the Office of National Statistics (ONS). He noted that the data showed that “British households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s … The figures pose a challenge to the government … Britain’s consumer credit bubble of more than £200bn was unsustainable. A dramatic rise in debt-fuelled spending since 2016” and more. While keen to tell the readers that British households were “living beyond their means”, there was not a single mention of the fiscal austerity drive being pursued by the British government over the same period. Nor was there mention of the fact that the entire British fiscal strategy since the Tories took office was predicated, as I pointed out years ago in this blog post – I don’t wanna know one thing about evil (April 29, 2011), on this debt binge continuing. A year later (July 20, 2019), the same columnist published this article – Labour and Tories both plan to borrow and spend. Is that wise? – which like its predecessor fails to present a comprehensive, linked-up, analysis for his readers and makes basis macroeconomic errors along the way.

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The Weekend Quiz – July 20-21, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Central bank research refutes core mainstream macroeconomic propositions

Australia’s economic performance is not exactly flash at present. GDP growth has slumped and is well below (less than half) the longer-term trend rate. Unemployment and underemployment remain at elevated levels. The federal government has been pursuing an austerity phase in the mistaken belief that achieving a fiscal surplus, no matter, what is a sound and responsible strategy. While the household sector maintained consumption expenditure growth the government’s folly did not manifest. However, that strategy was built on a plunge in the household saving ratio and an ever increasing household debt to income ratio. For years, the central bank (RBA) and the Treasury denied there was a problem – claiming that the rising debt levels were covered by rising wealth. There was never any recognition that the trends in household debt were intrinsically related to the fiscal position of the government. With the external deficit fairly stable at around 3.5 per cent of GDP, the fiscal drag imposed by the government surpluses was only possible because the household sector accumulated debt. Under current institutional arrangements (federal government unnecessarily matching its deficits with debt issuance) the declining public debt ratio was really just an approximate mirror of the rising private debt ratio. But times are changing. The RBA has now released research that refutes core aspects of mainstream macroeconomic theory and finally acknowledges what Modern Monetary Theory (MMT) economists have been pointing out for more than two decades – that the accumulation of household debt ultimately becomes a brake on spending growth.

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The Weekend Quiz – July 6-7, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Why the financial markets are seeking an MMT understanding – Part 2

This is Part 2 (and final) in my discussion about what the financial markets might learn from gaining a Modern Monetary Theory (MMT) understanding. I noted in Part 1 – that the motivation in writing this series was the increased interest being shown by some of the large financial sector entities (investment banks, sovereign funds, etc) in MMT, which is manifesting in the growing speaking invitations I am receiving. This development tells me that our work is gaining traction despite the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon) who are trying to save their reputations as their message becomes increasingly vapid. While accepting these invitations raises issues about motivation – they want to make money, I want to educate – these groups are influential in a number of ways. They help to set the pattern of investment (both in real and financial terms), they hire graduates and can thus influence the type of standards deemed acceptable, and they influence government policy. Through education one hopes that these influences help turn the tide away from narrow ‘Gordon Gekko’ type behaviour towards advancing a dialogue and policy structure that improves general well-being. I also hope that it will further create dissonance in the academic sphere to highlight the poverty (fake knowledge) of the mainstream macroeconomic orthodoxy.

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Why the financial markets are seeking an MMT understanding – Part 1

One of the shifts I have observed in the last year or so in the way that Modern Monetary Theory (MMT) is being discussed in the public domain and the type of speaking invitations I am receiving is a growing interest from large financial market entities, who have not bought into the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon). I spoke at a few workshops some years ago where economists from the large investment banks were the main audience and it was clear that they, in the main, appreciated what MMT was about. It is clear the characters that have to deal with putting funds at stake are keen to understand how the monetary system actually operates rather than how the mainstream macroeconomists pretend it operates – a pretense that advances particular ideological interests. What is also coming out more clearly is that the response from the mainstream is revealing a dissonance that they cannot seem to manage in any coherent way. We have seen statements from mainstream macroeconomists dismissing MMT as just ‘printing money’ and proposing Zimbabwe-like disasters. Others claim that they knew MMT all along and so there is nothing new. Others claim that all the insights that MMT holds out come down to whether one thinks monetary policy is less or more effective as a counter stabilisation told than fiscal policy. All statements attempt to simplify our work down to the level of irrelevance or downright crazy. Other interventions, such as the recent statements from the Bank of Japan Governor border on the surreal – ‘we are not doing MMT’ – well one doesn’t ‘do MMT’ anyway. But an MMT understanding provides a remarkably accurate depiction of what has been going down in Japan for nearly 3 decades – a depiction that the mainstream macroeconomists is incapable of providing. It seems that now, the financial markets are starting to get this point and seeking more engagement with MMT (if my invitations are anything to go by). This engagement is not without issues though. This is Part 1 in a two-part series discussing this topic. Part 2 will come tomorrow.

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The Weekend Quiz – June 29-30, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – June 22-23, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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